e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year
ended November 1, 2009
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to .
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Commission file
number 1-14315
NCI BUILDING SYSTEMS,
INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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76-0127701
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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10943 North Sam Houston Parkway West
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77064
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(Address of principal executive
offices)
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(zip
code)
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Registrants telephone number, including area code:
(281) 897-7788
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, $0.01 par value
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the
Act: None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. o Yes þ No
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. o Yes þ No
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 þ No o
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). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of the registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K o
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 definition of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act.
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Large
accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller
reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). o Yes þ No
The aggregate market value of the voting and non
voting common stock held by non-affiliates of the registrant on
May 3, 2009, was $83,933,963, which aggregate market value
was calculated using the closing sales price reported by the New
York Stock Exchange as of the last day of the registrants
most recently completed second fiscal quarter.
APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12,
13 or 15(d) of the Securities Exchange Act of 1934 subsequent to
the distribution of securities under a plan confirmed by a
court. o Yes o No
APPLICABLE
ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the
issuers classes of common stock, as of the latest
practicable date.
The number of shares of common stock of the registrant
outstanding on December 18, 2009 was 90,419,147.
DOCUMENTS
INCORPORATED BY REFERENCE
Certain information required by Part III of this Annual
Report is incorporated by reference from the registrants
definitive proxy statement for its annual meeting of
shareholders to be held on February 19, 2010.
FORWARD
LOOKING STATEMENTS
This Annual 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 managements 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. 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:
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industry cyclicality and seasonality and adverse weather
conditions;
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general economic conditions affecting the construction industry;
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the current financial crisis and U.S. recession;
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current challenges in the credit market;
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ability to service or refinance our debt and obtain future
financing;
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the Companys ability to comply with the financial tests
and covenants in its existing and future debt obligations;
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operational limitations in connection with our debt;
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the current economic and credit conditions are severely
affecting its operations;
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recognition of asset impairment charges;
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raw material pricing and supply;
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retention and replacement of key personnel;
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enforcement and obsolescence of intellectual property rights;
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fluctuations in customer demand and other patterns;
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environmental cleanups, investigations, claims and liabilities;
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competitive activity and pricing pressure;
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the volatility of the Companys stock price;
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the ability to make strategic acquisitions accretive to earnings;
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the substantial rights, seniority and potentially dilutive
effect on our common stockholders of the convertible preferred
stock issued to investment funds affiliated with Clayton,
Dubilier & Rice, LLC;
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increases in energy costs;
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breaches of our information security system security measures;
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hazards that may cause personal injury or property damage,
thereby subjecting us to liabilities and possible losses, which
may not be covered by insurance;
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ii
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changes in laws or regulations;
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costs and other effects of legal and administrative proceedings,
settlements, investigations, claims and other matters; and
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other risks detailed under the caption Risk Factors
in Item 1A of this report.
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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 Item 1A of this report. We will not update
these statements unless the securities laws require us to do so.
iii
PART I
General
NCI Building Systems, Inc. (together with its subsidiaries and
predecessors, unless the context requires otherwise, the
Company, we, us or
our) is a leading North American integrated
manufacturer and supplier of metal coil coating services, metal
building components and engineered metal buildings systems. Of
the $169 billion non-residential construction industry, we
primarily serve the low-rise non-residential construction market
(five stories or less) which, according to FW Dodge/McGraw-Hill
represents approximately 91% of the total non-residential
construction industry. Our broad range of products is used in
repair, retrofit and new construction activities, primarily in
North America.
We provide metal coil coating services for commercial and
construction applications, servicing both internal and external
customers. We design, engineer, manufacture and market what we
believe is one of the most comprehensive lines of metal
components and engineered building systems in the industry, with
a reputation for high quality and superior engineering and
design. We go to market with well-recognized brands, which allow
us to compete effectively within a broad range of end-user
markets including industrial, commercial, institutional and
agricultural. Our service versatility allows us to support the
varying needs of our diverse customer base, which includes
general contractors and sub-contractors, developers,
manufacturers, distributors and a network of over 5,700
authorized builders across North America.
We are comprised of a family of companies operating 32
manufacturing facilities across the United States and Mexico,
with additional sales and distribution offices throughout the
United States and Canada. Our broad geographic footprint along
with our
hub-and-spoke
distribution system allows us to efficiently supply a broad
range of customers with high quality customer service and
reliable deliveries.
The Company was founded in 1984 and reincorporated in Delaware
in 1991. In 1998, we acquired Metal Building Components, Inc.
(MBCI) and doubled our revenue base. With the
acquisition, we became the largest domestic manufacturer of
non-residential metal components. In 2006, we acquired
Robertson-Ceco II Corporation (RCC) which
operates the Ceco Building Systems, Star Building Systems and
Robertson Building Systems divisions and is a leader in the
metal buildings industry. The RCC acquisition created an
organization with greater product and geographic
diversification, a stronger customer base and a more extensive
distribution network than either company had separately.
The overall decline in economic conditions beginning in the
third quarter of 2008 has reduced demand for our products and
adversely affected our business. In addition, the tightening of
credit in financial markets over the same period has adversely
affected the ability of our customers to obtain financing for
construction projects. As a result, we have experienced
decreases in and cancellations of orders for our products, and
the ability of our customers to make payments has been adversely
affected. Similar factors could cause our suppliers to
experience financial distress or bankruptcy, resulting in
temporary raw material shortages. The lack of credit also
adversely affects non-residential construction, which is the
focus of our business.
Over the same period, there has been significant volatility in
the price of steel, the primary raw material in our production
process. In fiscal 2009, steel prices decreased at a precipitous
rate until July 2009 when steel prices began to increase.
According to the CRU North American Steel Price Index, steel
prices were 36% lower in October 2009 compared with October
2008. This unusual level of volatility has negatively impacted
our business. First, in the first two quarters of fiscal 2009,
we wrote down inventory to net realizable value given these
declines because our sales volume was significantly lower than
previously anticipated while raw material prices have declined
more rapidly than anticipated. Second, some customers have
delayed projects, waiting to see where steel prices would bottom
out.
The uncertainty surrounding future economic activity levels and
the tightening of credit availability has resulted in
significantly decreased activity levels for our business. During
fiscal 2009, our sales volumes were significantly below our
expectations, primarily in our engineered buildings and
components segments. See Liquidity and Capital
Resources Debt. When we began fiscal 2009,
McGraw-Hill was predicting a 12%
1
decline in non-residential construction in 2009 compared to
2008. Subsequently, McGraw-Hill revised its forecast further
downward and, as of October 2009, was predicting a 42%
square-footage decline in non-residential construction activity
in 2009 compared to 2008. McGraw-Hill has also reported a 42.2%
reduction in low-rise non-residential (less than 5 stories)
square-footage starts during fiscal 2009 compared with fiscal
2008.
As a result of the current market downturn, we began a phased
process to resize and realign our manufacturing operations. The
purpose of these closures is to rationalize our least efficient
facilities and to retool certain of these facilities to allow us
to better utilize our assets and expand into new markets or
better provide products to our customers, such as insulated
panel systems. As a result of the restructuring, we expect to
realize an annualized fixed cost savings in the amount of
approximately $120 million upon full implementation of this
three phase restructuring plan.
In November 2008, we approved the Phase I plan to close three of
our engineered building systems manufacturing plants. In
addition, as part of the restructuring, we implemented a general
employee reduction program. Specifically, one of our facilities,
which was closed during fiscal 2008, is being retooled for use
in connection with our insulated panel systems product line. We
have incurred facility closure costs of approximately
$3.4 million related to these Phase I facility closures.
Most of these expenses were recorded during the first and second
quarters of fiscal 2009. We expect only minor additional costs
as we wind down Phase I of our restructuring plan.
In February 2009, we approved the Phase II plan to close
one of our facilities within the engineered building systems
segment in a continuing effort to rationalize our least
efficient facilities. We have incurred facility closure costs of
$0.9 million related to this facility. Most of these
expenses were recorded during the second quarter of fiscal 2009.
We expect only minor additional costs as we wind down
Phase II of our restructuring plan.
In April 2009, we approved the Phase III plan to close or
idle three of our manufacturing facilities within the engineered
building systems segment and two facilities within the metal
components segment in a continuing effort to rationalize our
least efficient facilities. In addition, manufacturing at one of
our metal components facilities was temporarily suspended and
currently functions as a distribution and customer service site.
As part of the restructuring, we also added to the general
employee reduction program. We have incurred facility closure
costs of approximately $7.0 million related to these
Phase III facility closures and expect to incur additional
facility closure costs of $1.6 million in fiscal 2010.
As a result of the management actions taken in the
Recapitalization Plan and restructuring plan, we have right
sized our cost structure and solidified our liquidity position
which we believe will enable us to withstand a sustained
downturn in our industry.
On October 20, 2009, we completed a financial restructuring
that resulted in a change of control of the Company. As part of
the restructuring, Clayton, Dubilier & Rice Fund VIII, L.P.
and CD&R Friends & Family Fund VIII, L.P. (together,
the CD&R Funds), investment funds managed by
Clayton, Dubilier & Rice, LLC, purchased an aggregate
of 250,000 shares of a newly created class of our
convertible preferred stock, par value $1.00 per share,
designated the Series B Cumulative Convertible
Participating Preferred Stock (the Convertible Preferred
Stock, and shares thereof, the Preferred
Shares), representing approximately 68.4% of the voting
power and common stock of the Company on an as-converted basis
(the Equity Investment). In connection with the
closing of the Equity Investment, among other things:
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we consummated an exchange offer (the Exchange
Offer) to acquire all of our existing $180 million
aggregate principal amount 2.125% Convertible Senior
Subordinated Notes due 2024 in exchange for a combination of
$90.0 million in cash and 70.2 million shares of
common stock;
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we refinanced our existing term loan by repaying approximately
$143 million in principal amount of the existing
$293 million in principal amount of outstanding term loans
and amending the terms and extending the maturity of the
remaining $150 million balance (the Amended Credit
Agreement); and
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we entered into an asset-based revolving credit facility with a
maximum available amount of up to $125 million (the
ABL Facility). See Item 7.
Managements Discussion and Analysis of Financial Condition
and Results of Operations Liquidity and Capital
Resources.
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As of December 21, 2009, the Preferred Shares were
convertible into 196.1 million shares of common stock, at a
conversion price of $1.2748. However, as of that date, only
approximately 8.4 million shares of common stock were
authorized and unissued, and therefore the CD&R Funds could
not fully convert the Preferred Shares. To the extent that the
CD&R Funds opt to convert their Preferred Shares, as of
December 21, 2009, their conversion right is limited to
conversion of their Preferred Shares into the approximately
8.4 million shares of common stock that are currently
authorized and unissued. We intend to submit to a shareholder
vote, at our annual meeting of shareholders, a proposal to amend
the Companys certificate of incorporation to effect a
reverse stock split of the common stock of the Company. If the
shareholders vote in favor of the reverse stock split at the
annual meeting, we expect that, following the completion of the
reverse stock split, the CD&R Funds will be able to convert
100% of their Preferred Shares into shares of common stock.
Dividends on the Convertible Preferred Stock are payable, on a
cumulative daily basis, as, if and when declared by the our
board of directors, at a rate per annum of 12% of the
liquidation preference of $1,000 per Preferred Share, subject to
adjustment under certain circumstances, if paid in-kind or at a
rate per annum of 8% of the liquidation preference of $1,000 per
Preferred Share, subject to adjustment under certain
circumstances, if paid in cash. We have the right to choose
whether dividends are paid in cash or in-kind, subject to the
conditions of the Amended Credit Agreement and ABL Facility
including being contractually limited in our ability to pay cash
dividends until the first quarter of fiscal 2011 under the
Amended Credit Agreement and until October 20, 2010 under
the ABL Facility, except for certain specified purposes.
Our principal offices are located at 10943 North Sam Houston
Parkway West, Houston, Texas 77064, and our telephone number is
(281) 897-7788.
We file annual, quarterly and current reports and other
information with the Securities and Exchange Commission (the
SEC). Our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q
and current reports on
Form 8-K,
along with any amendments to those reports, are available free
of charge at our corporate website at
http://www.ncilp.com
as soon as practicable after such material is electronically
filed with, or furnished to, the SEC. In addition, our website
includes other items related to corporate governance matters,
including our corporate governance guidelines, charters of
various committees of our board of directors and the code of
business conduct and ethics applicable to our employees,
officers and directors. You may obtain copies of these
documents, free of charge, from our corporate website. However,
the information on our website is not incorporated by reference
into this
Form 10-K.
Business
Segments
We have aggregated our operations into three reportable business
segments based upon similarities in product lines, manufacturing
processes, marketing and management of our businesses: metal
coil coating; metal components; and engineered building systems.
Our business segments are vertically integrated, benefiting from
common raw material usage, like manufacturing processes and an
overlapping distribution network. Steel is the primary raw
material used by each of our business segments. Our metal coil
coating segment, which paints steel coils, provides
substantially all of our metal coil coating requirements for our
metal components and engineered building systems business
segments. Our metal components segment produces parts and
accessories that are sold separately or as part of a
comprehensive solution, the most common of which is a metal
building system custom-designed and manufactured in our
engineered building systems segment. Our engineered building
systems segment sources substantially all of its painted steel
coil and a large portion of its components requirements from our
other two business segments. 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.
3
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 business segments.
Our sales to customers, operating income and total assets
attributable to these business segments were as follows for the
fiscal years indicated (in thousands):
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2009
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%
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2008
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%
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2007
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%
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Sales:
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Metal coil coating
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$
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169,897
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18
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$
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305,657
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17
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$
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272,543
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16
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Metal components
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458,734
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47
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715,255
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41
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663,331
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41
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Engineered building systems
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541,609
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56
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1,110,534
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63
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1,021,544
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63
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Intersegment sales
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(202,317
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(21
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(367,287
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(21
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(332,350
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(20
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Total net sales
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$
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967,923
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100
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$
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1,764,159
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100
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$
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1,625,068
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100
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Operating income (loss):
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Metal coil coating
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$
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(99,631
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)
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$
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29,381
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$
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25,136
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Metal components
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(129,975
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)
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82,094
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49,609
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Engineered building systems
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(389,309
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)
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107,851
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113,265
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Corporate
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(64,583
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(64,616
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(56,276
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Total operating income (loss)
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$
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(683,498
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)
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$
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154,710
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$
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131,734
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Unallocated other expense
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(117,990
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)
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(24,330
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)
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(26,909
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Income (loss) before income taxes
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$
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(801,488
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$
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130,380
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$
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104,825
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Total assets as of fiscal year end 2009 and 2008:
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Metal coil coating
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$
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57,208
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9
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$
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196,615
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14
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Metal components
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159,690
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26
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371,464
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27
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Engineered building systems
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241,260
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39
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716,671
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52
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Corporate
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155,690
|
|
|
|
26
|
|
|
|
95,951
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
613,848
|
|
|
|
100
|
|
|
$
|
1,380,701
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
Metal
Coil Coating.
Products. Metal coil coating consists of
cleaning, treating and painting various flat-rolled metal coil
material, as well as slitting
and/or
embossing the coils, before the steel is fabricated for use by
various industrial users. Light gauge and heavy gauge steel
coils that are painted, either for decorative or corrosion
protection purposes, are used in the building industry by
manufacturers of metal components and engineered building
systems. In addition, these painted steel coils are used by
manufacturers of other steel products, such as water heaters,
lighting fixtures and ceiling grids. We clean, treat and coat
hot-rolled metal coils and light gauge metal for third parties
for a variety of applications, including construction products,
heating and air conditioning systems, water heaters, lighting
fixtures, ceiling grids, office furniture and other products. We
provide both toll coating services and package coating. We
perform toll coating services when the customer provides the
steel coil and we provide only the coating service. We perform
package coating when we provide both the steel coil and the
coating service.
We believe that our pre-painted metal coils are a better quality
product, environmentally cleaner and more cost-effective than
painted metal products prepared in other manufacturers
in-house painting operations. Painted metal coils also offer
manufacturers the opportunity to produce a broader and more
aesthetically pleasing range of products.
Manufacturing. We currently operate five metal
coil coating facilities in five states, two of which are used
for hot-rolled, heavy gauge steel coils and three of which are
used for painting light gauge steel coils.
4
Metal coil coating processes involve applying various types of
chemical treatments and paint systems to flat-rolled continuous
coils of metal, including steel and aluminum. These processes
give the coils a baked-on finish that both protects the metal
and makes it more attractive. In the initial step of the coating
process, various metals in coil form are cleaned and pretreated.
The metal is then coated, oven cured, recoiled and packaged for
shipment. Slitting and embossing services in accordance with
customer specifications can also be performed on the coated
metal before shipping.
Sales, Marketing and Customers. We clean,
treat and coat hot-roll and light gauge metal coils for a number
of national accounts and to supply substantially all of our
internal metal coil coating requirements.
Our customers include other manufacturers of engineered building
systems and metal components, as well as, light gauge steel
coils for steel mills and metal service centers that supply the
painted coils to various industrial users, including
manufacturers of engineered building systems, metal components,
lighting fixtures, ceiling grids, water heaters and other
products. Each of our metal coil coating facilities has its own
sales manager and sales staff.
We market our metal coil coating products under the brand names
Metal Coaters and Metal-Prep and sell
our products and services principally to manufacturers of
painted steel products and steel mills, as well as to our own
metal components and engineered building systems segments. In
2007, the
DOUBLECOTEtm
brand name was rebranded as Metal
Coaterstm.
During fiscal 2009, the largest customer of our metal coil
coating segment accounted for approximately 1% of our total
consolidated sales.
According to information collected by the National Coil Coating
Association and from other market sources, we believe that
approximately 3.0 - 3.5 million tons of light gauge, flat
rolled steel and approximately 0.7 1.0 million
tons of heavy gauge, hot-rolled steel are currently being coated
on an annual basis in the United States. We believe that we
account for approximately 10% of the light gauge, coated steel
market and approximately 40% of the heavy gauge, coated steel
market.
Metal
Components.
Products. Metal components include metal roof
and wall systems, metal partitions, metal trim, doors and other
related accessories. These products are used in new construction
and in repair and retrofit applications for industrial,
commercial, institutional, agricultural and rural uses. Metal
components are used in a wide variety of construction
applications, including purlins and girts, roofing, standing
seam roofing, walls, doors, trim and other parts of traditional
buildings, as well as in architectural applications and
engineered building systems. Purlins and girts are medium gauge,
roll-formed steel components, which builders use for secondary
structural framing. Although precise market data is limited, we
estimate the metal components market including roofing
applications to be a multi-billion dollar market. We believe
that metal products have gained and continue to gain a greater
share of new construction and repair and retrofit markets due to
increasing acceptance and recognition of the benefits of metal
products in building applications.
Our metal components consist of individual components, including
secondary structural framing, metal roof and wall systems and
associated metal trims. We sell directly to contractors or end
users for use in the building industry, including the
construction of metal buildings. We also stock and market metal
component parts for use in the maintenance and repair of
existing buildings. Specific component products we manufacture
include metal roof and wall systems, purlins, girts, partitions,
header panels and related trim and screws. We are also
developing and marketing new products such as our Insulated
Panel Systems (IPS), Eco-efficientTM panel systems,
Soundwalltm,
Nu-Rooftm
system and Energy Star cool roofing. We believe we offer the
widest selection of metal components in the building industry.
We custom produce purlins and girts for our customers and offer
one of the widest selections of sizes and profiles in the United
States. Metal roof and wall systems protect the rest of the
structure and the contents of the building from the weather.
They may also contribute to the structural integrity of the
building.
5
Metal roofing systems have several advantages over conventional
roofing systems, including the following:
Lower life cycle cost. The total cost over the
life of metal roofing systems is lower than that of conventional
roofing systems for both new construction and retrofit roofing.
For new construction, the cost of installing metal roofing is
greater than the cost of conventional roofing. Yet, the longer
life and lower maintenance costs of metal roofing make the cost
more attractive. For retrofit roofing, although installation
costs are higher for metal roofing due to the need for a sloping
support system, the lower ongoing costs more than offset the
initial cost.
Increased longevity. Metal roofing systems
generally last for a minimum of 20 years without requiring
major maintenance or replacement. This compares to five to ten
years for conventional roofs. The cost of leaks and roof
failures associated with conventional roofing can be very high,
including damage to building interiors and disruption of the
functional usefulness of the building. Metal roofing prolongs
the intervals between costly and time-consuming repair work.
Attractive aesthetics and design
flexibility. Metal roofing systems allow
architects and builders to integrate colors and geometric design
into the roofing of new and existing buildings, providing an
increasingly fashionable means of enhancing a buildings
aesthetics. Conventional roofing material is generally tar paper
or a gravel surface, and building designers tend to conceal
roofs made with these materials.
Our metal roofing products are attractive and durable. We use
standing seam roof technology to replace traditional
built-up and
single-ply roofs as well as to provide a distinctive look to new
construction.
Manufacturing. We currently operate 18
facilities in 10 states used for manufacturing of metal
components for the non-residential construction industry,
including three facilities for our door operations. In addition,
we have one facility which we are currently retooling to
manufacture insulated panel systems.
Metal component products are roll-formed or fabricated at each
plant using roll-formers and other metal working equipment. In
roll-forming, pre-finished coils of steel are unwound and passed
through a series of progressive forming rolls that form the
steel into various profiles of medium-gauge structural shapes
and light-gauge roof and wall panels.
Sales, Marketing and Customers. We are one of
the largest domestic suppliers of metal components to the
non-residential building industry. We design, manufacture, sell
and distribute one of the widest selections of components for a
variety of new construction applications as well as for repair
and retrofit uses.
We manufacture and design metal roofing systems for sales to
regional metal building manufacturers, general contractors and
subcontractors. We believe we have the broadest line of standing
seam roofing products in the building industry. In addition, we
have granted 20 non-exclusive licenses relating to our standing
seam roof technology.
We estimate that metal roofing currently accounts for less than
10% of total roofing material expenditures. However, metal
roofing accounts for a significant portion of the overall metal
components market. As a result, we believe that significant
opportunities exist for metal roofing, with its advantages over
conventional roofing materials, to increase its overall share of
this market.
In addition to metal roofing systems, we manufacture
roll-up
doors and sell interior and exterior walk doors for use in the
self storage industry and metal and other buildings. In
addition, one of our strategic objectives and a major part of
our green initiative is to expand our insulated
panel product lines which are increasingly desirable because of
their energy efficiency, noise reduction and aesthetic
qualities. We are retooling one facility as an insulated panel
manufacturing operation and this facility will reopen in early
2010 to meet the increasing demand for environmentally-friendly
products.
Our green initiative enables us to capitalize on
increasing consumer preferences for environmentally-friendly
construction. We believe this will allow us to further service
the needs of our existing customer base
6
and to gain new customers. For more information about our
green initiatives, please read
Business Strategy.
We sell metal components directly to regional manufacturers,
contractors, subcontractors, distributors, lumberyards,
cooperative buying groups and other customers under the brand
names MBCI, American Building Components
(ABC), IPS and NCI Metal
Depots.
Roll-up
doors, interior and exterior doors, interior partitions and
walls, header panels and trim are sold directly to contractors
and other customers under the brand Doors and Buildings
Components (DBCI). These components also are
produced for integration into self storage and engineered
building systems sold by us. In addition to a traditional
business-to-business channel, we sell components through NCI
Metal Depots which has six retail stores in Texas and New Mexico
and specifically targets end-use consumers and small general
contractors.
We market our components products within five product lines:
commercial, industrial, architectural, agricultural and
residential. Customers include small, medium and large
contractors, specialty roofers, regional fabricators, regional
engineered building fabricators and end users. Commercial and
industrial businesses, including self-storage, are heavy users
of metal components and metal buildings systems. Standing seam
roof and architectural customers are emerging as an important
part of our customer base. As metal buildings become a more
acceptable building alternative and aesthetics become an
increasingly important consideration for end users of metal
buildings, we believe that architects will participate more in
the design and purchase decisions and will use metal components
to a greater extent. Wood frame builders also purchase our metal
components through distributors, lumberyards, cooperative buying
groups and chain stores for various uses, including agricultural
buildings.
Our metal components sales operations are organized into four
geographic regions. Each region is headed by a general sales
manager supported by individual plant sales managers. Each local
sales office is located adjacent to a manufacturing plant and is
staffed by a direct sales force responsible for contacting
customers and architects and a sales coordinator who supervises
the sales process from the time the order is received until it
is shipped and invoiced. The regional and local focus of our
customers requires extensive knowledge of local business
conditions. During fiscal 2009, our largest customer for metal
components accounted for less than 1% of our total consolidated
sales.
Engineered
Building Systems.
Products. Engineered building systems consist
of engineered structural members and panels that are fabricated
and roll-formed in a factory. These systems are custom designed
and engineered to meet project requirements and then shipped to
a construction site complete and ready for assembly with no
additional field welding required. Engineered building systems
manufacturers design an integrated system that meets applicable
building code and designated end use requirements. These systems
consist of primary structural framing, secondary structural
members (purlins and girts) and metal roof and wall systems or
conventional wall materials manufactured by others, such as
masonry and concrete
tilt-up
panels.
Engineered building systems typically consist of three systems:
Primary structural framing. Primary structural
framing, fabricated from heavy-gauge plate steel, supports the
secondary structural framing, roof, walls and all externally
applied loads. Through the primary framing, the force of all
applied loads is structurally transferred to the foundation.
Secondary structural framing. Secondary
structural framing is designed to strengthen the primary
structural framing and efficiently transfer applied loads from
the roof and walls to the primary structural framing. Secondary
structural framing consists of medium-gauge, roll-formed steel
components called purlins and girts. Purlins are attached to the
primary frame to support the roof. Girts are attached to the
primary frame to support the walls.
Metal roof and wall systems. Metal roof and
wall systems not only lock out the weather but may also
contribute to the structural integrity of the overall building
system. Roof and wall panels are fabricated from light-gauge,
roll-formed steel in many architectural configurations.
7
Accessory components complete the engineered building system.
These components include doors, windows, specialty trims,
gutters and interior partitions.
Our patented Long
Bay®
System allows for construction of metal buildings with bay
spacings of up to 65 feet without internal supports. This
compares to bay spacings of up to 30 feet under other
engineered building systems. The Long
Bay®
System virtually eliminates all welding at the site,
significantly reducing construction time compared with
conventional steel construction. Our patented Long
Bay®
System is designed for larger buildings that typically require
less custom engineering and design than our other engineered
building systems, which allows us to meet our customers
needs more efficiently.
The following characteristics of engineered building systems
distinguish them from other methods of construction:
Shorter construction time. In many instances,
it takes less time to construct an engineered building than
other building types. In addition, because most of the work is
done in the factory, the likelihood of weather interruptions is
reduced.
More efficient material utilization. The
larger engineered building systems manufacturers use
computer-aided analysis and design to fabricate structural
members with high strength-to-weight ratios, minimizing raw
materials costs.
Lower construction costs. The in-plant
manufacture of engineered building systems, coupled with
automation, allows the substitution of less expensive factory
labor for much of the skilled
on-site
construction labor otherwise required for traditional building
methods.
Greater ease of expansion. Engineered building
systems can be modified quickly and economically before, during
or after the building is completed to accommodate all types of
expansion. Typically, an engineered building system can be
expanded by removing the end or side walls, erecting new
framework and adding matching wall and roof panels.
Lower maintenance costs. Unlike wood, metal is
not susceptible to deterioration from cracking, rotting or
insect damage. Furthermore, factory-applied roof and siding
panel coatings resist cracking, peeling, chipping, chalking and
fading.
Environmentally friendly. Our buildings
utilize recycled steel materials and our roofing and siding
utilize painted surfaces with high reflectance and emissivity,
which help conserve energy and operating costs.
Manufacturing. We currently operate 9
facilities for manufacturing and distributing engineered
building systems throughout the United States and Monterrey,
Mexico.
After we receive an order, our engineers design the engineered
building system to meet the customers requirements and to
satisfy applicable building codes and zoning requirements. To
expedite this process, we use computer-aided design and
engineering systems to generate engineering and erection
drawings and a bill of materials for the manufacture of the
engineered building system. From time-to-time, depending on our
volume, we outsource to third-parties portions of our drafting
requirements.
Once the specifications and designs of the customers
project have been finalized, the manufacturing of frames and
other building systems begins at one of our frame manufacturing
facilities. Fabrication of the primary structural framing
consists of a process in which steel plates are punched and
sheared and then routed through an automatic welding machine and
sent through further fitting and welding processes. The
secondary structural framing and the covering system are
roll-formed steel products that are manufactured at our full
manufacturing facilities as well as our components plants.
Upon completion of the manufacturing process, structural framing
members and metal roof and wall systems are shipped to the job
site for assembly. Since
on-site
construction is performed by an unaffiliated, independent
general contractor, usually one of our authorized builders, we
generally are not responsible for claims by end users or owners
attributable to faulty
on-site
construction. The time elapsed between our receipt of an order
and shipment of a completed building system has typically ranged
from four to eight weeks,
8
although delivery can extend somewhat longer if engineering and
drafting requirements are extensive or, where applicable, if the
permitting process is protracted.
Sales, Marketing and Customers. We are one of
the largest domestic suppliers of engineered building systems.
We design, engineer, manufacture and market engineered building
systems and self-storage building systems for all
non-residential markets including commercial, industrial,
agricultural, governmental and community.
Over the last 25 years, engineered building systems have
significantly increased penetration of the market for
non-residential low-rise structures and are being used in a
broad variety of other applications. According to the Metal
Building Manufacturers Association (MBMA), domestic
and export sales of engineered building systems by its members,
which represent a limited number of actual buildings
manufactured, for 2008 and 2007, totaled approximately
$3.3 billion and $3.1 billion, respectively. Although
final 2009 sales information is not yet available from the MBMA,
we estimate that sales of engineered building systems decreased
in 2009 compared with 2008. McGraw-Hill Construction reported
that the low-rise non-residential market, measured in square
footage, actually declined by 42.2% during our fiscal year.
McGraw-Hill Constructions forecast for calendar 2009
indicates a total non-residential construction reduction of 42%
in square footage and 30% in dollar value. The forecast for
calendar 2010 indicates a total non-residential construction
reduction of 4% in square footage and 2% in dollar value prior
to increasing in 2011.
We believe the cost of an engineered building system generally
represents approximately 20% to 30% of the total cost of
constructing a building, which includes the cost of the land,
labor, plumbing, electricity, heating and air conditioning
systems, installation and interior finish. Technological
advances in products and materials, as well as significant
improvements in engineering and design techniques, have led to
the development of structural systems that are compatible with
more traditional construction materials. Architects and
designers now often combine an engineered building system with
masonry, concrete, glass and wood exterior facades to meet the
aesthetic requirements of end users while preserving the
inherent characteristics of engineered building systems. As a
result, the uses for engineered building systems now include
office buildings, showrooms, retail shopping centers, banks,
schools, places of worship, warehouses, factories, distribution
centers, government buildings and community centers for which
aesthetics and architectural features are important
considerations of the end users. In addition, advances in our
products such as insulated steel panel systems for roof and wall
applications give buildings the perfect balance of strength,
thermal efficiency and attractiveness.
We sell engineered building systems to builders, general
contractors, developers and end users nationwide under the brand
names Metallic, Mid-West Steel,
A & S, All American,
Steel Systems, Mesco, Star,
Ceco, Robertson, Garco,
Heritage and SteelBuilding.com. We
market engineered building systems through an in-house sales
force to authorized builder networks of over 5,700 builders. We
also sell engineered building systems to various private labels.
In addition to a traditional business-to-business channel, we
sell small custom-engineered metal buildings through two other
marketing channels targeting end-use consumers and small general
contractors. We sell through Heritage Building Systems
(Heritage) which is a direct-response, phone-based
sales organization and Steelbuilding.com which allows customers
to design, price and buy small metal buildings online. During
fiscal 2009, our largest customer for engineered building
systems accounted for approximately 1% of our total consolidated
sales.
Our authorized builder networks consist of independent general
contractors that market our products and services to end users.
Most of our sales of engineered building systems are made
through our authorized builder networks. We enter into an
agreement with an authorized builder, which generally grants the
builder the non-exclusive right to market our products in a
specified territory. Generally, the agreement is cancelable by
either party on 60 days notice. The agreement does
not prohibit the builder from marketing engineered building
systems of other manufacturers. We establish an annual sales
goal for each builder and provide the builder with sales and
pricing information, drawings and assistance, application
programs for estimating and quoting jobs and advertising and
promotional literature. We also defray a portion of the
builders advertising costs and provide volume purchasing
and other pricing incentives to encourage it to deal exclusively
or principally with us. The builder is required to maintain a
place of business in its designated territory, provide a
9
sales organization, conduct periodic advertising programs and
perform construction, warranty and other services for customers
and potential customers. An authorized builder usually is hired
by an end-user to erect an engineered building system on the
customers site and provide general contracting and other
services related to the completion of the project. We sell our
products to the builder, which generally includes the price of
the building as a part of its overall construction contract with
its customer. We rely upon maintaining a satisfactory business
relationship for continuing job orders from our authorized
builders and do not consider the builder agreements to be
material to our business.
Our patented Long
Bay®
System provides us with an entry to builders that focus on
larger buildings. This also provides us with new opportunities
to cross-sell our other products to these new builders and to
compete with the conventional construction industry.
Business
Strategy
We intend to expand our business, enhance our market position
and increase our sales and profitability by focusing on the
implementation of a number of key initiatives that we believe
will help us grow and reduce costs. Our current strategy focuses
primarily on organic initiatives, but also considers the use of
opportunistic acquisitions to achieve our growth objectives:
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Corporate-Wide Initiatives
|
Through introduction of new products and services, we expect to
capture an increasing share of the growing market for
green building products. We will continue our focus
on leveraging technology and automation to be the lowest cost
producers, and enhance plant utilization through expanded use of
our hub & spoke distribution model. We will also
implement a common MRP platform, financial shared services
model, and supply chain automation and efficiencies to allow for
more cost reductions across all businesses. Finally, we will
continue to identify and assess opportunistic acquisition
candidates.
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Metal Coil Coating Segment
|
Through diversification of our external customer base, we plan
to substantially increase toll and package sales and make the
segment somewhat less dependent on the construction industry. We
will continue to leverage efficiency improvements to be the
lowest cost producer.
We intend to maintain our leading positions in these markets and
seek opportunities to profitably expand our customer base. We
plan to expand our insulated panel product offering utilizing
our new state-of-the-art manufacturing facility in Jackson,
Mississippi. In addition, we plan to accelerate and expand
Nu-RoofTM,
our retrofit roofing product.
We intend to maintain our leading positions in these markets and
seek opportunities to profitably expand our customer base. We
will continue to enhance and share engineering and drafting
technologies across all Buildings brands, while at the same time
continuing to increase product standardization. We will expand
material sales by offering furnish & erect services
and the ability to supply higher complexity structures for the
Industrial market. In addition, we are deploying web-based
pricing software to enhance small building sales across our
brands. Finally, as construction markets improve, we will expand
our low-cost frame production as additional capacity is required.
Raw
Materials
The principal raw material used in manufacturing of our metal
components and engineered building systems is steel. Our various
products are fabricated from steel produced by mills including
bars, plates, structural shapes, sheets, hot-rolled coils and
galvanized or
Galvalume®-coated
coils. During fiscal 2009 and 2008, we purchased approximately
30% and 24% of our steel requirements, respectively, from one
vendor. No other vendor accounted for over 10% of our steel
requirements during fiscal 2009 or 2008. Although we
10
believe concentration of our steel purchases among a small group
of suppliers that have mills and warehouse facilities close to
our facilities enables us, as a large customer of those
suppliers, to obtain better pricing, service and delivery, the
loss of one or all of these suppliers could have a material
adverse affect on our ability to obtain the raw materials
required to meet delivery schedules to our customers. These
suppliers generally maintain an inventory of the types of
materials we require.
Our raw materials on hand decreased to $48.1 million at
November 1, 2009 from $142.6 million at
November 2, 2008, primarily due to the decrease in the
quantity on hand and a decrease in steel costs. During fiscal
2009, we recorded a charge of $40.0 million to reduce the
carrying amount on certain raw material inventory to the lower
of cost or market.
Our business is heavily dependent on the price and supply of
steel. 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. We believe the CRU North American Steel
Price Index, published by the CRU Group since 1994,
appropriately depicts the volatility in steel prices. See
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk Steel Prices. During fiscal
2009, steel prices fluctuated significantly due to market
conditions ranging from a high point on the CRU Index of 187 to
a low point of 112. Steel prices decreased rapidly during the
first eight months of fiscal 2009 but increased between July
2009 and October 2009. Rapidly declining demand for steel due to
the effects of the credit crisis and global economic slowdown on
the construction, automotive and industrial markets has resulted
in many steel manufacturers around the world announcing plans to
cut production by closing plants and furloughing workers. Steel
suppliers such as US Steel and Arcelor Mittal are among those
manufacturers who have cut production. Given reduced steel
production, higher input costs and low inventories in the
industry, we believe steel prices will increase in fiscal 2010
as compared with the prices we experienced during the second
half of fiscal 2009.
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 to meet 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. We do not have any
long-term contracts for the purchase of steel and 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
consignment inventory that remains in consignment after an
agreed term. Therefore, our inventory may increase if demand for
our products declines. For additional information about the
risks of our raw material supply and pricing, see
Item 1A. Risk Factors.
Backlog
At November 1, 2009, the total backlog of orders for our
products we believe to be firm was $253.7 million. This
compares with a total backlog for our products of
$332.4 million at November 2, 2008. Backlog at
November 1, 2009 and November 2, 2008 primarily
consisted of engineered building systems orders in the amount of
$252.6 million and $330.0 million, respectively. Job
orders are generally cancelable by customers at any time for any
reason. Current economic conditions could result in higher
levels of cancellations than we historically have experienced.
See Item 1A. Risk Factors Our industry is
cyclical and highly sensitive to macroeconomic conditions; as a
result, our industry is currently experiencing a downturn which,
if sustained, will materially and adversely affect our business,
liquidity and results of operations. Occasionally, orders
in the backlog are not completed and shipped for reasons that
include changes in the requirements of the customers and the
inability of customers to obtain necessary financing or zoning
variances. We do not anticipate that any significant portion of
this backlog will extend beyond one year.
11
Competition
We and other manufacturers of metal components and engineered
building systems compete in the building industry with all other
alternative methods of building construction such as tilt-wall,
concrete and wood, single-ply and built up, all of which may be
perceived as more traditional, more aesthetically pleasing or
having other advantages over our products. We compete with all
manufacturers of building products, from small local firms to
large national firms.
In addition, competition in the metal components and engineered
building systems market of the building industry is intense. It
is based primarily on:
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quality;
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service;
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on-time delivery;
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ability to provide added value in the design and engineering of
buildings;
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price; and
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speed of construction.
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We compete with a number of other manufacturers of metal
components and engineered building systems for the building
industry, ranging from small local firms to large national
firms. Most of these competitors operate on a regional basis,
although we believe that at least two other manufacturers of
engineered building systems and three manufacturers of metal
components have nationwide coverage.
We are comprised of a family of companies operating 32
manufacturing facilities across the United States and Mexico,
with additional sales and distribution offices throughout the
United States and Canada. These facilities are used for the
manufacturing of metal components and engineered building
systems for the building industry, including three for our door
operations. We believe this broad geographic distribution gives
us an advantage over our components and building competitors
because major elements of a customers decision are the
speed and cost of delivery from the manufacturing facility to
the products ultimate destination. We operate a fleet of
trucks to deliver our products to our customers in a more timely
manner than most of our competitors.
We compete with a number of other providers of metal coil
coating services to manufacturers of metal components and
engineered building systems for the building industry, ranging
from small local firms to large national firms. Most of these
competitors operate on a regional basis, although we believe
there are at least three other providers of light gauge metal
coil coating services that have a nationwide market presence.
Also, there are two other providers of heavy gauge metal coil
coating services who have substantially the same geographic
reach as our heavy gauge coil coating facilities. Competition in
the metal coil coating industry is intense and is based
primarily on quality, service, delivery and price.
Consolidation
Over the last several years, there has been a consolidation of
competitors within the industries of the metal coil coating,
metal components and engineered building systems segments, which
include many small local and regional firms. We believe that
these industries will continue to consolidate, driven by the
needs of manufacturers to increase anticipated long-term
manufacturing capacity, achieve greater process integration and
add geographic diversity to meet customers product and
delivery needs, improve production efficiency and manage costs.
When beneficial to our long-term goals and strategy, we have
sought to consolidate our business operations with other
companies. The resulting synergies from these consolidation
efforts have allowed us to reduce costs while continuing to
serve our customers needs. In January 2007, we completed
the purchase of substantially all of the assets of Garco
Building Systems, Inc. which designs, manufactures and
distributes steel building systems primarily for markets in the
northwestern United States and western Canada. In April 2006, we
acquired 100% of the issued and outstanding shares of RCC. RCC
operates the Ceco
12
Building Systems, Star Building Systems and Robertson Building
Systems divisions and is a leader in the metal buildings
segment. For more information, see
Acquisitions.
In addition to the consolidation of competitors within the
industries of the metal coil coating, metal components and
engineered building systems segments, in recent years there has
been consolidation between those industries and steel producers.
Several of our competitors have been acquired by steel
producers, and further similar acquisitions are possible. For a
discussion of the possible effects on us of such consolidations,
see Item 1A. Risk Factors.
Acquisitions
We have a history of making acquisitions within our industry,
and we regularly evaluate growth opportunities both through
acquisitions and internal investment. We believe that there
remain opportunities for growth through consolidation in the
metal buildings and components segments, and our goal is to
continue to grow through opportunistic strategic acquisitions,
as well as organically.
In furtherance of this strategy, on January 31, 2007, we
completed the purchase of substantially all the assets of Garco.
Garco is headquartered in Spokane, Washington, where it operates
a manufacturing facility for metal building systems for
industrial, commercial, institutional and agricultural
applications. The addition of Garco has strengthened our
presence in growth markets in the northwestern United States and
western Canada. In addition to an established distribution and
builder network, Garco has built a well-respected brand name.
Garco also provides us with an advanced manufacturing facility,
which is our first in the Northwest, a highly experienced
operating team and a
33-acre site
suitable for future expansion.
Consistent with our growth strategy, we frequently engage in
discussions with potential sellers regarding the possible
purchase by us of businesses, assets and operations that are
strategic and complementary to our existing operations. Such
assets and operations include engineered building systems and
metal components, but may also include assets that are closely
related to, or intertwined with, these business lines, and
enable us to leverage our asset base, knowledge base and skill
sets. Such acquisition efforts may involve participation by us
in processes that have been made public, involve a number of
potential buyers and are commonly referred to as
auction processes, as well as situations in which we
believe we are the only party or one of the very limited number
of potential buyers in negotiations with the potential seller.
These acquisition efforts often involve assets that, if
acquired, would have a material effect on our financial
condition and results of operations.
We also evaluate from time to time possible dispositions of
assets or businesses when such assets or businesses are no
longer core to our operations and do not fit into our long-term
strategy.
The Amended Credit Agreement contains a number of covenants
that, among other things, limit or restrict the ability of the
Company and its subsidiaries to dispose of assets, make
acquisitions and engage in mergers.
Environmental
Matters
The operation of our business is subject to stringent and
complex laws and regulations pertaining to health, safety and
the environment. As an owner or operator of manufacturing
facilities, we must comply with these laws and regulations at
the federal, state and local levels. These laws and regulations
can restrict or impact our business activities in many ways,
such as:
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restricting the way we can handle or dispose of our waste;
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requiring investigative or remedial action to mitigate or
address certain environmental conditions that may have been
caused by our operations or attributable to former
operators; and
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enjoining the operations of facilities deemed in non-compliance
with environmental laws and regulations or permits issued
pursuant to such laws or regulations.
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Failure to comply with these laws and regulations may trigger a
variety of administrative, civil and criminal enforcement
measures, including the assessment of monetary penalties, the
imposition of investigative
13
or remedial requirements, and the issuance of orders enjoining
future operations. Certain environmental statutes impose strict,
joint and several liability for costs required to clean up and
restore sites where hazardous substances have been disposed of
or otherwise released. Moreover, it is not uncommon for
neighboring landowners and other third parties to file claims
for personal injury and property damage allegedly caused by the
release of substances or other waste products into the
environment.
The trend in environmental regulation is to place more
restrictions and limitations on activities that may affect human
health or the environment. As a result, there can be no
assurance as to the amount or timing of future expenditures for
environmental compliance or remediation, and actual future
expenditures may be different from the amounts we currently
anticipate. We try to anticipate future regulatory requirements
that might be imposed and plan accordingly to remain in
compliance with changing environmental laws and regulations and
to minimize the costs of such compliance.
We do not believe that compliance with federal, state or local
environmental laws and regulations will have a material adverse
effect on our business, financial position or results of
operations. In addition, we believe that the various
environmental activities in which we are presently engaged are
not expected to materially interrupt or diminish our operational
ability to manufacture our products. We cannot assure you,
however, that future events, such as changes in existing laws,
the promulgation of new laws, or the development or discovery of
new facts or conditions will not cause us to incur significant
costs. The following is a discussion of certain environmental
and safety concerns that relate to our business.
Air Emissions. Our operations are subject to
the federal Clean Air Act and comparable state laws and
regulations. These laws and regulations govern emissions of air
pollutants from various industrial sources, including our
manufacturing facilities, and also impose various monitoring and
reporting requirements. Such laws and regulations may require
that we obtain pre-approval for the construction or modification
of certain projects or facilities expected to produce air
emissions or result in the increase of existing air emissions,
obtain and strictly comply with air permits containing various
emissions and operational limitations, or utilize specific
emission control technologies to limit emissions. Our failure to
comply with these requirements could subject us to monetary
penalties, injunctions, conditions or restrictions on
operations, and, potentially, criminal enforcement actions. We
will be required to incur certain capital and other expenditures
in the future for air pollution control equipment in connection
with obtaining and maintaining operating permits and approvals
for air emissions. We believe, however, that our operations will
not be materially adversely affected by such requirements.
Hazardous and Solid Waste. Our operations
generate wastes, including some hazardous wastes that are
subject to the federal Resource Conservation and Recovery Act,
or RCRA, and comparable state laws, which impose detailed
requirements for the handling, storage, treatment and disposal
of hazardous and solid waste. For example, ordinary industrial
waste such as paint waste, waste solvents, and waste oils may be
regulated as hazardous waste. RCRA currently exempts many of our
manufacturing wastes from classification as hazardous waste.
However, these non-hazardous or exempted wastes are still
regulated under state law or the less stringent solid waste
requirements of RCRA.
Site Remediation. The Comprehensive
Environmental Response, Compensation and Liability Act of 1980,
as amended, or CERCLA and comparable state laws impose
liability, without regard to fault or the legality of the
original conduct, on certain classes of persons responsible for
the release of hazardous substances into the environment. Such
classes of persons include the current and past owners or
operators of sites where a hazardous substance was released, and
companies that disposed or arranged for disposal of hazardous
substances at off-site locations such as landfills. In the
course of our ordinary operations we generate wastes that may
fall within the definition of a hazardous substance.
CERCLA authorizes the EPA and, in some cases, third parties to
take actions in response to threats to the public health or the
environment and to seek to recover from the responsible classes
of persons the costs they incur. Under CERCLA, we could be
subject to joint and several liability for the costs of cleaning
up and restoring sites where hazardous substances have been
released, for damages to natural resources, and for the costs of
certain health studies.
We currently own or lease, and have in the past owned or leased,
numerous properties that for many years have been used for
manufacturing operations. Hazardous substances or wastes may
have been disposed
14
of or released on or under the properties owned or leased by us,
or on or under other locations where such wastes have been taken
for disposal. In addition, some of these properties have been
operated by third parties or by previous owners whose treatment
and disposal or release of hazardous substances or wastes was
not under our control. These properties and the substances
disposed or released on them may be subject to CERCLA, RCRA and
analogous state laws. Under such laws, we could be required to
remove previously disposed wastes (including waste disposed by
prior owners or operators), investigate or remediate
contaminated property (including soil and groundwater
contamination, whether from prior owners or operators or other
historic activities or spills), or perform remedial plugging or
pit closure operations to prevent future contamination. See
Item 3. Legal Proceedings for further
discussion of specific environmental remediation activities.
Waste Water Discharges. Our operations are
subject to the federal Water Pollution Control Act of 1972, as
amended, also known as the Clean Water Act, and analogous state
laws and regulations. These laws and regulations impose detailed
requirements and strict controls regarding the discharge of
pollutants into waters of the United States. The unpermitted
discharge of pollutants, including discharges resulting from a
spill or leak incident, is prohibited. Any unpermitted release
of pollutants from our facilities could result in fines or
penalties as well as significant remedial obligations.
Employee Health and Safety. We are subject to
the requirements of the Occupational Safety and Health Act, or
OSHA, and comparable state laws that regulate the protection of
the health and safety of workers. In addition, the OSHA hazard
communication standard requires that information be maintained
about hazardous materials used or produced in our operations and
that this information be provided to employees, state and local
government authorities and citizens. We believe that we are in
substantial compliance with these requirements.
Zoning
and Building Code Requirements
The engineered building systems and components we manufacture
must meet zoning, building code and uplift requirements adopted
by local governmental agencies. We believe that our products are
in substantial compliance with applicable zoning, code and
uplift requirements. Compliance does not have a material adverse
affect on our business.
Patents,
Licenses and Proprietary Rights
We have a number of United States patents, pending patent
applications and other proprietary rights, including those
relating to metal roofing systems, metal overhead doors, our
pier and header system, our Long
Bay®
System and our building estimating and design system. We also
have several registered trademarks and pending registrations in
the United States.
Research
and Development Costs
Total expenditures for research and development were
$1.0 million, $1.8 million and $1.9 million for
fiscal 2009, 2008 and 2007, respectively. We incur research and
development costs to develop new products, improve existing
products and improve safety factors of our products in the metal
components segment. These products include building and roofing
systems, panels, clips, purlins, and fasteners.
Employees
As of November 1, 2009, we had approximately
3,673 employees, of whom 2,071 were manufacturing and
engineering personnel. We regard our employee relations as
satisfactory. Approximately 10.0% of our workforce, including
the employees at our subsidiary in Mexico, are represented by a
collective bargaining agreement or union. As part of our cost
reduction program, during fiscal 2009 we reduced our overall
employee headcount by approximately 40%.
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Our
industry is cyclical and highly sensitive to macroeconomic
conditions; as a result, our industry is currently experiencing
a downturn which, if sustained, will materially and adversely
affect our business, liquidity and results of
operations.
The non-residential construction industry is highly sensitive to
national and regional macroeconomic conditions. The United
States economy is currently undergoing a period of slowdown and
unprecedented volatility, which is having an adverse effect on
our business. When we began fiscal 2009, McGraw-Hill was
predicting a 12% decline in non-residential construction in 2009
compared to 2008. Subsequently, McGraw-Hill revised its forecast
further downward and, as of October 2009, was predicting a 42%
square-footage decline in non-residential construction activity
in 2009 compared to 2008. This industry decline contributed to a
37.9% decline in our total tons shipped, though we experienced
the greatest impact in our engineered building systems segment.
Continued uncertainty about current economic conditions has had
a negative effect on our business, and will continue to pose a
risk to our business as our customers may postpone spending in
response to tighter credit, negative financial news
and/or
declines in income or asset values, which could have a material
negative effect on the demand for our products. Other factors
that could influence demand include fuel and other energy costs,
conditions in the non-residential real estate markets, labor and
healthcare costs, access to credit and other macroeconomic
factors. From time to time, our industry has also been adversely
affected in various parts of the country by declines in
non-residential construction starts, including but not limited
to, high vacancy rates, changes in tax laws affecting the real
estate industry, high interest rates and the unavailability of
financing. Sales of our products may be adversely affected by
continued weakness in demand for our products within particular
customer groups, or a continued decline in the general
construction industry or particular geographic regions. These
and other economic factors could have a material adverse effect
on demand for our products and on our financial condition and
operating results.
We cannot predict the ultimate severity or length of the current
economic crisis, or the timing or severity of future economic or
industry downturns. A prolonged economic downturn, particularly
in states where many of our sales are made, would have a
material adverse effect on our results of operations and
financial condition, including potential asset impairments.
Current
challenges in the credit markets may adversely affect our
business and financial condition.
The current financial turmoil affecting the banking system and
financial markets and the possibility that financial
institutions may consolidate or go out of business have resulted
in a tightening in the credit markets, a low level of liquidity
in many financial markets, and extreme volatility in fixed
income, credit, currency and equity markets. The current
challenges in the credit markets have had, and will continue to
have, a negative impact on our business and our financial
condition. We may face significant challenges if conditions in
the financial markets do not improve, including raw material
shortages resulting from the insolvency of key suppliers and the
inability of customers to obtain credit to finance purchases of
our products. In addition, declining customer spending will
result in higher levels of order cancellations and a lower level
of demand for our products than we have historically
experienced, and will drive us to sell our products at lower
prices, which would have an adverse effect on our margins and
profitability. The lack of credit also adversely affects
non-residential construction, which is the focus of our business.
We may
not be able to service our debt, obtain future financing or may
be limited operationally.
The debt that we carry may have important consequences to us,
including the following:
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Our ability to obtain additional financing, if necessary, for
working capital, capital expenditures, acquisitions or other
purposes may be impaired or additional financing may not be
available on favorable terms;
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We must use a portion of our cash flow to pay the principal and
interest on our debt. These payments reduce the funds that would
otherwise be available for our operations and future business
opportunities;
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A substantial decrease in our net operating cash flows could
make it difficult for us to meet our debt service requirements
and force us to modify our operations; and
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We may be more vulnerable to a downturn in our business or the
economy generally.
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If we cannot service our debt, we will be forced to take actions
such as reducing or delaying acquisitions
and/or
capital expenditures, selling assets, restructuring or
refinancing our debt or seeking additional equity capital. We
can give you no assurance that we can do any of these things on
satisfactory terms or at all.
We may incur additional debt from time to time to finance
acquisitions, capital expenditures or for other purposes if we
comply with the restrictions in our Amended Credit Agreement and
ABL Facility.
Restrictive
covenants in the Amended Credit Agreement and the ABL Facility
may adversely affect us.
We must comply with operating and financing restrictions in the
Amended Credit Agreement and the ABL Facility. We may also have
similar restrictions with any future debt. These restrictions
affect, and in many respects limit or prevent us from:
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incurring additional indebtedness;
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making restricted payments, including dividends or other
distributions;
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incurring liens;
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making investments, including joint venture investments;
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selling assets;
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repurchasing our debt and our capital stock; and
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merging or consolidating with or into other companies or sell
substantially all our assets.
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We are required to make mandatory payments under the Amended
Credit Agreement 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
our Amended Credit Agreement. The Amended Credit Agreement also
requires us, beginning with the fourth quarter of fiscal 2011,
to satisfy set financial tests relating to our leverage ratio,
provided that these financial tests will not apply to any fiscal
quarter in which certain amortization targets are met.
Under the 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 Companys concentration account to the
repayment of the loans outstanding under the ABL Facility,
subject to an intercreditor agreement between the lenders under
the Amended Credit Agreement and the ABL Facility. In addition,
during a Dominion Event, we are required to make mandatory
payments on the 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 ABL Facility. If excess availability under the ABL
Facility falls below certain levels, our asset-based loan
facility also requires us to satisfy set financial tests
relating to our fixed charge coverage ratio.
These restrictions could limit our ability to plan for or react
to market conditions or meet extraordinary capital needs or
otherwise could restrict our activities. In addition, under
certain circumstances and subject to the limitations set forth
in the Amended Credit Agreement, the Amended Credit Agreement
requires us to pay down our term loan to the extent we generate
positive cash flow each fiscal year. These restrictions could
also adversely affect our ability to finance our future
operations or capital needs or to engage in other business
activities that would be in our interest.
We may
recognize additional goodwill or other intangible asset
impairment charges.
Based on lower than projected sales volumes in our first quarter
of fiscal 2009 and based on a revised lower outlook for
non-residential construction activity in 2009, management
reduced the Companys cash flow
17
projections. We concluded this reduction was an impairment
indicator requiring us to perform an interim goodwill impairment
test for each of our six reporting units as of February 1,
2009. As a result of this impairment indicator, we updated the
first step of our goodwill impairment test in the first quarter
of fiscal 2009. As of February 1, 2009, we estimated the
market implied fair value of our goodwill was less than its
carrying value by approximately $508.9 million, which was
recorded as a goodwill impairment charge in the first quarter of
fiscal 2009. This charge was an estimate based on the result of
the preliminary allocation of fair value in the second step of
the goodwill impairment test. However, due to the timing and
complexity of the valuation calculations required under the
second step of the test, we finalized our allocation of the fair
value during the second quarter of fiscal 2009.
Based on the Phase III restructuring, management determined
we were required to perform another interim goodwill impairment
test for each of our reporting units that had goodwill remaining
as of May 3, 2009. As a result, we updated the first step
of our goodwill impairment test in the second quarter of fiscal
2009 and determined that the carrying value of the goodwill
exceeded its fair value at most of the applicable reporting
units and as a result, we initiated the second step of the
goodwill impairment test. As of May 3, 2009, we determined
the market implied fair value of our goodwill was less than its
carrying value by approximately $102.5 million, and we
recorded a goodwill impairment charge for such amounts in the
second quarter of fiscal 2009.
However, future triggering events, such as declines in our cash
flow projections, may cause additional impairments of our
goodwill or intangible assets based on factors such as our stock
price, projected cash flows, assumptions used, control premiums
or other variables.
We completed our annual assessment of the recoverability of
goodwill and indefinite lived intangibles in the fourth quarter
of fiscal 2009 and determined that no further impairments of our
goodwill or long-lived intangibles were required.
Our
businesses are seasonal, and our results of operations during
our first two fiscal quarters may be adversely affected by
seasonality.
The metal coil coating, metal components and engineered building
systems businesses, and the construction industry in general,
are seasonal in nature. Sales normally are lower in the first
calendar quarter of each year compared to the other three
quarters because of unfavorable weather conditions for
construction and typical business planning cycles affecting
construction. This seasonality adversely affects our results of
operations for the first two fiscal quarters. Prolonged severe
weather conditions can delay construction projects and otherwise
adversely affect our business.
Price
volatility and supply constraints in the steel market could
prevent us from meeting delivery schedules to our customers or
reduce our profit margins.
Our business is heavily dependent on the price and supply of
steel. 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. Rapidly declining demand for steel due to
the effects of the credit crisis and global economic slowdown on
the construction, automotive and industrial markets has resulted
in many steel manufacturers around the world announcing plans to
cut production by closing plants and furloughing workers. Steel
suppliers such as US Steel and Arcelor Mittal are among those
manufacturers who have cut production. With such production
cuts, a sudden increase in demand could affect our ability to
purchase steel and result in rapidly increasing steel prices.
We do not have any long-term contracts for the purchase of steel
and 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 consignment inventory that remains in consignment after an
agreed term. Therefore, our inventory may increase if demand for
our products declines. We can give you no assurance that steel
will remain available or
18
that prices will not continue to be volatile. While most of our
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, we may, for competitive or other reasons, 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 our customers, 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 more information about steel pricing
trends in recent years, see Item 1.
Business Raw Materials and Item 7A.
Quantitative and Qualitative Disclosures about market
Risk Steel Prices.
We
rely on a few major suppliers for our supply of steel, which
makes us more vulnerable to supply constraints and pricing
pressure, as well as the financial condition of those
suppliers.
We rely on a few major suppliers for our supply of steel and may
be adversely affected by the bankruptcy, financial condition or
other factors affecting those suppliers. During fiscal 2009, we
purchased approximately 30% of our steel requirements from one
vendor in the United States. No other vendor accounted for over
10% of our steel requirements during fiscal 2009. Due to
unfavorable market conditions and our inventory supply
requirements during fiscal 2009, we purchased insignificant
amounts of steel from foreign suppliers. Limiting purchases to
domestic suppliers further reduces our available steel supply
base. Therefore, production cutbacks in the first half of fiscal
2009 or a prolonged labor strike against one or more of our
principal domestic suppliers could have a material adverse
effect on our operations. Furthermore, if one or more of our
current suppliers is unable for financial or any other reason to
continue in business or to produce steel sufficient to meet our
requirements, essential supply of our primary raw materials
could be temporarily interrupted, and our business could be
adversely affected.
Failure
to retain or replace key personnel could hurt our
operations.
Our success depends to a significant degree upon the efforts,
contributions and abilities of our senior management, plant
managers and other highly skilled personnel, including our sales
executives. These executives and managers have many accumulated
years of experience in our industry and have developed personal
relationships with our customers that are important to our
business. If we do not retain the services of our key personnel
or if we fail to adequately plan for the succession of such
individuals, our customer relationships, results of operations
and financial condition may be adversely affected.
If we
are unable to enforce our intellectual property rights or if our
intellectual property rights become obsolete, our competitive
position could be adversely affected.
We utilize a variety of intellectual property rights in our
services. We have a number of United States patents, pending
patent applications and other proprietary rights, including
those relating to metal roofing systems, metal overhead doors,
our pier and header system, our Long
Bay®
System and our building estimating and design system. We also
have several registered trademarks and pending registrations in
the United States. We view our portfolio of process and design
technologies as one of our competitive strengths. We may not be
able to successfully preserve these intellectual property rights
in the future and these rights could be invalidated,
circumvented, or challenged. If we are unable to protect and
maintain our intellectual property rights, or if there are any
successful intellectual property challenges or infringement
proceedings against us, our business and revenue could be
materially and adversely affected.
We
incur costs to comply with environmental laws and have
liabilities for environmental investigations, cleanups and
claims.
Because we emit and discharge pollutants into the environment,
own and operate real property that has historically been used
for industrial purposes, and generate and handle hazardous
substances and waste, we incur costs and liabilities to comply
with environmental laws and regulations. We may incur
significant additional costs as those laws and regulations or
their enforcement change in the future, if there is a release of
hazardous substances into the environment or if a historical
release of hazardous substances or other
19
contamination is identified. The operations of our manufacturing
facilities are subject to stringent and complex federal, state
and local environmental laws and regulations. These include, for
example, (i) the federal Clean Air Act and comparable state
laws and regulations that impose obligations related to air
emissions, (ii) the federal RCRA and comparable state laws
that impose requirements for the storage, treatment, handling
and disposal of waste from our facilities and (iii) the
CERCLA and comparable state laws that regulate the investigation
and cleanup of hazardous substances that may have been released
at properties currently or previously owned or operated by us or
locations to which we have sent waste for disposal. Failure to
comply with these laws and regulations may trigger a variety of
administrative, civil and criminal enforcement measures,
including the assessment of monetary penalties, the imposition
of investigative or remedial requirements, personal injury,
property or natural resource damages claims and the issuance of
orders enjoining future operations. For more information about
costs we have incurred for environmental matters in recent
years, see Item 3. Legal Proceedings and
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations.
The
industries in which we operate are highly
competitive.
We compete with all other alternative methods of building
construction, which may be viewed as more traditional, more
aesthetically pleasing or having other advantages over our
products. In addition, competition in the metal components and
metal buildings markets of the building industry and in the
metal coil coating segment is intense. It is based primarily on:
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quality;
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service;
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on-time delivery;
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ability to provide added value in the design and engineering of
buildings;
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price;
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speed of construction in buildings and components; and
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personal relationships with customers.
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We compete with a number of other manufacturers of metal
components and engineered building systems and providers of coil
coating services ranging from small local firms to large
national firms. In addition, we and other manufacturers of metal
components and engineered building systems compete with
alternative methods of building construction. If these
alternative building methods compete successfully against us,
such competition could adversely affect us.
In addition, several of our competitors have recently been
acquired by steel producers. Competitors owned by steel
producers may have a competitive advantage on raw materials that
we do not enjoy. Steel producers may prioritize deliveries of
raw materials to such competitors or provide them with more
favorable pricing, both of which could enable them to offer
products to customers at lower prices or accelerated delivery
schedules.
Our
stock price has been and may continue to be
volatile.
The trading price of our common stock has fluctuated in the past
and is subject to significant fluctuations in response to the
following factors, some of which are beyond our control:
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variations in quarterly operating results;
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deviations in our earnings from publicly disclosed
forward-looking guidance;
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declines in our revenues;
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changes in earnings estimates by analysts;
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our announcements of significant contracts, acquisitions,
strategic partnerships or joint ventures;
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general conditions in the metal components and engineered
building systems industries;
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uncertainty about current global economic conditions;
|
|
|
|
fluctuations in stock market price and volume; and
|
|
|
|
other general economic conditions.
|
During fiscal 2009, our closing stock price on the New York
Stock Exchange ranged from a high of approximately $19.35 per
share to a low of approximately $1.60 per share. In recent
years, the stock market in general has experienced extreme price
and volume fluctuations that have affected the market price for
many companies in industries similar to ours. Some of these
fluctuations have been unrelated to the operating performance of
the affected companies. These market fluctuations may decrease
the market price of our common stock in the future.
Acquisitions
may be unsuccessful if we incorrectly predict operating results
or are unable to identify and complete future acquisitions and
integrate acquired assets or businesses.
We have a history of expansion through acquisitions, and we
believe that if our industry continues to consolidate, our
future success may depend, in part, on our ability to
successfully complete acquisitions. Growing through acquisitions
and managing that growth will require us to continue to invest
in operational, financial and management information systems and
to attract, retain, motivate and effectively manage our
employees. Pursuing and integrating acquisitions, including our
acquisition of RCC, involves a number of risks, including:
|
|
|
|
|
the risk of incorrect assumptions or estimates regarding the
future results of the acquired business or expected cost
reductions or other synergies expected to be realized as a
result of acquiring the business;
|
|
|
|
diversion of managements attention from existing
operations;
|
|
|
|
unexpected losses of key employees, customers and suppliers of
the acquired business;
|
|
|
|
integrating the financial, technological and management
standards, processes, procedures and controls of the acquired
business with those of our existing operations; and
|
|
|
|
increasing the scope, geographic diversity and complexity of our
operations.
|
Although the majority of our growth strategy is organic in
nature, if we do pursue opportunistic acquisitions, we can
provide no assurance that we will be successful in identifying
or completing any acquisitions or that any businesses or assets
that we are able to acquire will be successfully integrated into
our existing business. We cannot predict the effect, if any,
that any announcement or consummation of an acquisition would
have on the trading prices of our securities.
Acquisitions
subjects us to numerous risks that could adversely affect our
results of operations.
If we pursue further acquisitions, depending on conditions in
the acquisition market, it may be difficult or impossible for us
to identify businesses or operations for acquisition, or we may
not be able to make acquisitions on terms that we consider
economically acceptable. Even if we are able to identify
suitable acquisition opportunities, our acquisition strategy
depends upon, among other things, our ability to obtain
financing and, in some cases, regulatory approvals, including
under the
Hart-Scott-Rodino
Act.
Our incurrence of additional debt, contingent liabilities and
expenses in connection with our acquisition of RCC, or in
connection with any future acquisitions, could have a material
adverse effect on our financial condition and results of
operations. Furthermore, our financial position and results of
operations may fluctuate significantly from period to period
based on whether significant acquisitions are completed in
particular periods. Competition for acquisitions is intense and
may increase the cost of, or cause us to refrain from,
completing acquisitions.
21
The
Convertible Preferred Stock will be dilutive to our
stockholders. The Convertible Preferred Stock accrues dividends,
which may be paid in cash or in-kind. If dividends on the
Convertible Preferred Stock are paid in-kind, they will dilute
the ownership interest of our stockholders. In addition, the
dividend rate of the Convertible Preferred Stock will increase
upon the occurrence of certain events which constitute defaults
under the terms of the Convertible Preferred Stock, which may
cause further dilution. Furthermore, the Convertible Preferred
Stock also provides for anti-dilution rights, which may dilute
the ownership interest of stockholders in the
future.
The Convertible Preferred Stock accrues dividends at a rate per
annum of 12.00% if paid in-kind or at a rate per annum of 8.00%
if paid in cash, unless and until such dividends are reduced to
0.00%, which will occur if the trading price per share of common
stock equals or exceeds two times a specified target price
(which is equal to $1.2748 as of November 1, 2009, but is
subject to adjustments thereafter) for each trading day during
any period of 20 consecutive trading days occurring after the
30-month
anniversary of October 20, 2009.
If dividends on the Convertible Preferred Stock are paid
in-kind, it will dilute the ownership interest of stockholders.
Furthermore, upon the occurrence of a default, the applicable
dividend rate is subject to increase by:
|
|
|
|
|
6.00% per annum, if the default is the result of a failure by us
after June 30, 2011 to reserve and keep available for
issuance a number of shares of common stock equal to 110% of the
number of shares of common stock issuable upon conversion of all
outstanding shares of Convertible Preferred Stock; or
|
|
|
|
3.00% per annum for any other specified default.
|
We do not have sufficient authorized and unissued shares of
common stock to permit the conversion of all 250,000 shares
of Convertible Preferred Stock owned by the CD&R Funds. The
Company intends to submit to a shareholder vote at the annual
meeting of stockholders of the Company, a proposal to amend the
certificate of incorporation of the Company to effect a reverse
stock split at a conversion ratio of
1-for-5,
1-for-7 or
1-for-9. If
the shareholders vote in favor of the reverse stock split at the
annual meeting, we expect that, following the completion of the
reverse stock split, the CD&R Funds will be able to convert
100% of their Preferred Shares into shares of common stock of
the Company. In the event that we do not increase the number of
authorized and unissued shares of common stock prior to
June 30, 2010, beginning on that date and continuing until
we receive stockholder approval for an increase in the number of
shares available for conversion of the Preferred Shares, the
CD&R Funds will receive a higher dividend rate per share of
Convertible Preferred Stock owned by them than the rate that is
currently payable on the Convertible Preferred Stock.
The conversion price of the Convertible Preferred Stock is
subject to adjustment, including if the Company issues common
stock or other securities below the then-current market price
or, during the first three years after October 20, 2009,
below the then-current conversion price. Adjustments to the
conversion price will dilute the ownership interest of
stockholders.
In connection with the Equity Investment, we entered into a
stockholders agreement with the CD&R Funds pursuant to
which the CD&R Funds have substantial governance and other
rights and setting forth certain terms and conditions regarding
the Equity Investment and the ownership of the CD&R
Funds shares of Convertible Preferred Stock. Pursuant to
the stockholders agreement with the CD&R Funds, subject to
certain ownership and other requirements and conditions, the
CD&R Funds have the right to appoint a majority of
directors to our board of directors, including the Lead
Director or Chairman of the Executive Committee of our
board of directors, and have consent rights over a variety of
significant corporate and financing matters, including, subject
to certain customary exceptions and specified baskets, sales and
acquisitions of assets, issuances and redemptions of equity,
incurrence of debt, the declaration or payment of extraordinary
distributions or dividends and changes to the Companys
line of business. In addition, the CD&R Funds are granted
subscription rights under the terms and conditions of the
stockholders agreement.
Further, effective as of the closing of the Equity Investment,
the Company has taken all corporate action and filed all
election notices or other documentation with the New York Stock
Exchange (NYSE) necessary
22
to elect to take advantage of the exemptions to the requirements
of sections 303A.01, 303A.04 and 303A.05 of the NYSE Listed
Company Manual and, for so long as we qualify as a
controlled company within the meaning set forth in
the NYSE Listed Company Manual or any similar provision in the
rules of a stock exchange on which the securities of the Company
are quoted or listed for trading, we have agreed to use our
reasonable best efforts to take advantage of the exemptions
therein. Such exemptions exempt us from compliance with the
NYSEs requirements for companies listed on the NYSE to
have (1) a majority of independent directors, (2) a
nominating/corporate governance committee and a compensation
committee, in each case, composed entirely of independent
directors, and (3) charters for the nominating/corporate
governance committee and the compensation committee, in each
case, addressing certain specified matters.
The
Convertible Preferred Stock issued in connection with the Equity
Investment has substantial rights and ranks senior to the common
stock.
Shares of our common stock rank junior as to dividend rights,
redemption payments and rights (including as to distribution of
assets) in any liquidation, dissolution, or
winding-up
of the affairs of the Company and otherwise to the shares of
Convertible Preferred Stock issued to the CD&R Funds in
connection with the Equity Investment. The terms of the
Convertible Preferred Stock entitle the holders thereof to vote
on an as-converted basis (without taking into account any
limitations on convertibility that may then be applicable) with
the holders of common stock. The CD&R Funds have a majority
voting position and holders of common stock are in the minority.
In addition, certain actions by the Company, including, upon the
occurrence of certain specified defaults, the adoption of an
annual budget, the hiring and firing, or the changing of the
compensation, of executive officers and the commitment,
resolution or agreement to effect any business combination,
among others, require the prior affirmative vote or written
consent of the holders representing at least a majority of the
then-outstanding shares of Convertible Preferred Stock, voting
together as a separate class. This level of control, together
with the CD&R Funds rights under the stockholders
agreement, could discourage others from initiating any potential
merger, takeover or other change of control transaction that may
otherwise be beneficial to our business or our stockholders.
Furthermore, the terms of the Convertible Preferred Stock
provide for anti-dilution rights, which may dilute the ownership
interest of stockholders in the future, and change of control
redemption rights, which may entitle the holders of Convertible
Preferred Stock to receive higher value for their shares of
Convertible Preferred Stock than the shares of common stock
would receive in the event of a change of control. In addition,
the terms of the Convertible Preferred Stock also provide that
the CD&R Funds participate in common stock dividends,
receive preferred dividends and have preferential rights in
liquidation, including make-whole rights.
Increases
in energy prices will increase our operating costs, and we may
be unable to pass all these increases on to our customers in the
form of higher prices for our products.
Increases in energy prices will increase our operating costs and
may reduce our profitability and cash flows if we are unable to
pass all the increases on to our customers. We use energy in the
manufacture and transport of our products. In particular, our
manufacturing plants use considerable electricity and natural
gas. Consequently, our operating costs typically increase if
energy costs rise. During periods of higher energy costs, we may
not be able to recover our operating cost increases through
price increases without reducing demand for our products. To the
extent we are not able to recover these cost increases through
price increases or otherwise, our profitability and cash flow
will be adversely impacted. We partially hedge our exposure to
higher prices via fixed forward positions.
Breaches
of our information system security measures could disrupt our
internal operations.
We are dependent upon information technology for the
distribution of information internally and also to our customers
and suppliers. This information technology is subject to theft,
damage or interruption from a variety of sources, including but
not limited to malicious computer viruses, security breaches and
defects in design. Various measures have been implemented to
manage our risks related to information system and network
disruptions, but a system failure or breach of these measures
could negatively impact our operations and financial results.
23
Our
operations are subject to hazards that may cause personal injury
or property damage, thereby subjecting us to liabilities and
possible losses, which may not be covered by
insurance.
Our workers are subject to the usual hazards associated with
work in manufacturing environments. Operating hazards can cause
personal injury and loss of life, as well as damage to or
destruction of business personal property, and possible
environmental impairment. We are subject to either deductible or
self-insured retention (SIR) amounts, per claim or occurrence,
under our Property/Casualty insurance programs, as well as an
individual stop-loss limit per claim under our group medical
insurance plan. We maintain insurance coverage to transfer risk,
with aggregate and per-occurrence limits and deductible or
retention levels that we believe are consistent with industry
practice. The transfer of risk through insurance cannot
guarantee that coverage will be available for every loss or
liability that we may incur in our operations.
Exposures that could create insured (or uninsured) liabilities
are difficult to assess and quantify due to unknown factors,
including but not limited to injury frequency and severity,
natural disasters, terrorism threats, third-party liability, and
claims that are incurred but not reported (IBNR). Although we
engage third-party actuarial professionals to assist us in
determining our probable future loss exposure, it is possible
that claims or costs could exceed our estimates or our insurance
limits, or could be uninsurable. In such instances we might be
required to use working capital to satisfy these losses rather
than to maintain or expand our operations, which could
materially and adversely affect our operating results and our
financial condition.
|
|
Item 1B.
|
Unresolved
Staff Comments.
|
There are no unresolved staff comments outstanding with the
Securities and Exchange Commission at this time.
As of November 1, 2009, we conduct manufacturing operations
at the following facilities.
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Square
|
|
|
Owned or
|
|
Facility
|
|
Products
|
|
Feet
|
|
|
Leased
|
|
Domestic:
|
|
|
|
|
|
|
|
|
|
|
Chandler, Arizona
|
|
Doors and related metal components
|
|
|
37,975
|
|
|
|
Leased
|
|
Tolleson, Arizona
|
|
Metal components(1)
|
|
|
70,956
|
|
|
|
Owned
|
|
Atwater, California
|
|
Engineered building systems(2)
|
|
|
219,870
|
|
|
|
Owned
|
|
Rancho Cucamonga, California
|
|
Metal coil coating
|
|
|
111,611
|
|
|
|
Owned
|
|
Adel, Georgia
|
|
Metal components(1)
|
|
|
78,809
|
|
|
|
Owned
|
|
Lithia Springs, Georgia
|
|
Metal components(3)
|
|
|
125,081
|
|
|
|
Owned
|
|
Douglasville, Georgia
|
|
Doors and related metal components
|
|
|
83,775
|
|
|
|
Owned
|
|
Marietta, Georgia
|
|
Metal coil coating
|
|
|
194,836
|
|
|
|
Leased
|
|
Shelbyville, Indiana
|
|
Metal components(1)
|
|
|
71,734
|
|
|
|
Owned
|
|
Monticello, Iowa
|
|
Engineered building systems(4)
|
|
|
232,368
|
|
|
|
Owned
|
|
Oskaloosa, Iowa
|
|
Metal components(5)
|
|
|
74,771
|
|
|
|
Owned
|
|
Nicholasville, Kentucky
|
|
Metal components(5)
|
|
|
26,943
|
|
|
|
Owned
|
|
Jackson, Mississippi
|
|
Metal components(9)
|
|
|
171,790
|
|
|
|
Owned
|
|
Jackson, Mississippi
|
|
Metal coil coating
|
|
|
354,350
|
|
|
|
Owned
|
|
Hernando, Mississippi
|
|
Metal components(1)
|
|
|
132,752
|
|
|
|
Owned
|
|
Omaha, Nebraska
|
|
Metal components(5)
|
|
|
55,460
|
|
|
|
Owned
|
|
Rome, New York
|
|
Metal components(5)
|
|
|
83,500
|
|
|
|
Owned
|
|
Caryville, Tennessee
|
|
Engineered building systems(4)
|
|
|
218,430
|
|
|
|
Owned
|
|
Elizabethton, Tennessee
|
|
Engineered building systems(4)
|
|
|
228,113
|
|
|
|
Leased
|
|
Lexington, Tennessee
|
|
Engineered building systems(6)
|
|
|
140,504
|
|
|
|
Owned
|
|
Memphis, Tennessee
|
|
Metal coil coating
|
|
|
65,895
|
|
|
|
Owned
|
|
Ennis, Texas
|
|
Metal components(1)
|
|
|
68,627
|
|
|
|
Owned
|
|
Houston, Texas
|
|
Metal components(3)
|
|
|
335,756
|
|
|
|
Owned
|
|
Houston, Texas
|
|
Metal coil coating
|
|
|
36,509
|
|
|
|
Owned
|
|
Houston, Texas
|
|
Engineered building systems(4)
|
|
|
497,856
|
|
|
|
Owned
|
|
Houston, Texas
|
|
Engineered building systems(7)
|
|
|
117,208
|
|
|
|
Owned
|
|
Houston, Texas
|
|
Doors and related metal components
|
|
|
42,500
|
|
|
|
Owned
|
|
Lubbock, Texas
|
|
Metal components(1)
|
|
|
95,361
|
|
|
|
Owned
|
|
San Antonio, Texas
|
|
Metal components(5)
|
|
|
42,400
|
|
|
|
Owned
|
|
Stafford, Texas
|
|
Metal components(8)
|
|
|
72,504
|
|
|
|
Leased
|
|
Salt Lake City, Utah
|
|
Metal components(3)
|
|
|
93,508
|
|
|
|
Owned
|
|
Spokane, Washington
|
|
Engineered building systems(4)
|
|
|
157,000
|
|
|
|
Owned
|
|
Foreign:
|
|
|
|
|
|
|
|
|
|
|
Monterrey, Mexico
|
|
Engineered building systems(6)
|
|
|
246,075
|
|
|
|
Owned
|
|
|
|
|
(1) |
|
Secondary structures and metal roof and wall systems. |
|
(2) |
|
End walls, secondary structures and metal roof and wall systems
for components and engineered building systems. |
|
(3) |
|
Full components product range. |
|
(4) |
|
Primary structures, secondary structures and metal roof and wall
systems for engineered building systems. |
|
(5) |
|
Metal roof and wall systems. |
|
(6) |
|
Primary structures for engineered building systems. |
|
(7) |
|
Structural steel. |
|
(8) |
|
Insulated panel systems. |
|
(9) |
|
Closed during fiscal 2008 and 2009 to be retooled to manufacture
insulated panel systems. |
We also operate six NCI Metal Depots facilities that sell our
products directly to the public. In addition, we lease three
facilities that serve as distribution centers for our sectional
doors. We also maintain several drafting office facilities in
various states. We have short-term leases for these additional
facilities. We believe that our present facilities are adequate
for our current and projected operations.
Additionally, we own approximately 7 acres of land in
Houston, Texas and have a 60,000 square foot facility that
is used as our principal executive and administrative offices.
We also own approximately 5 acres of land at another
location in Houston adjacent to one of our manufacturing
facilities. We own approximately 15 acres of undeveloped
land adjacent to our Garco facility in Spokane, Washington.
25
As a result of the current market downturn, we began a phased
process to resize and realign our manufacturing operations. The
purpose of these closures is to rationalize our least efficient
facilities and to retool certain of these facilities to allow us
to better utilize our assets and expand into new markets or
better provide products to our customers, such as insulated
panel systems. As a result of the restructuring, we expect to
realize an annualized fixed cost savings in the amount of
approximately $120 million upon the full implementation of
this three phase restructuring plan.
In November 2008, we approved the Phase I plan to close three of
our engineered building systems manufacturing plants. In
addition, as part of the restructuring, we implemented a general
employee reduction program. Specifically, one of our facilities,
which was closed during fiscal 2008, is being retooled for use
in connection with our insulated panel systems product line. We
have incurred facility closure costs of approximately
$3.4 million related to these Phase I facility closures.
Most of these expenses were recorded during the first and second
quarters of fiscal 2009. We expect only minor additional costs
as we wind down Phase I of our restructuring plan.
In February 2009, we approved the Phase II plan to close
one of our facilities within the engineered building systems
segment in a continuing effort to rationalize our least
efficient facilities. We have incurred facility closure costs of
$0.9 million related to this facility. Most of these
expenses were recorded during the second quarter of fiscal 2009.
We expect only minor additional costs as we wind down
Phase II of our restructuring plan.
In April 2009, we approved the Phase III plan to close or
idle three of our manufacturing facilities within the engineered
building systems segment and two facilities within the metal
components segment in a continuing effort to rationalize our
least efficient facilities. In addition, manufacturing at one of
our metal components facilities was temporarily suspended and
currently functions as a distribution and customer service site.
As part of the restructuring, we also added to the general
employee reduction program. We have incurred facility closure
costs of approximately $7.0 million related to these
Phase III facility closures and expect to incur additional
facility closure costs of $1.6 million in fiscal 2010.
During fiscal 2008, we closed our residential door facility in
Houston, Texas, and we sold the facility in April 2008. During
fiscal 2007, we closed our manufacturing facility located in
Hamilton, Ontario, and we sold the facility in August 2007. We
also sold our Colonial Heights, Virginia facility in August 2007
and built a new, larger facility which was completed in July
2007. This facility is also located in Colonial Heights,
Virginia. During fiscal 2003, we closed our manufacturing
facility located in Southlake, Texas, which is currently under
contract to be sold. We have a new 31,500 square foot
office building in Irving, Texas that replaced our office in
Southlake, Texas. During fiscal 2002, we closed our
manufacturing facility located in Chester, South Carolina, and
we sold this facility in January 2007.
|
|
Item 3.
|
Legal
Proceedings.
|
From time to time, we are involved in various legal proceedings
and contingencies considered to be in the ordinary course of
business. While we are not able to predict whether we will incur
any liability in excess of insurance coverages or to accurately
estimate the damages, or the range of damages, if any, we might
incur in connection with these legal proceedings, we believe
these legal proceedings and claims will not have a material
adverse effect on our business, consolidated financial position
or results of operations.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders.
|
Not applicable.
26
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities.
|
PRICE
RANGE OF COMMON STOCK
Our common stock is listed on the NYSE under the symbol
NCS. As of December 18, 2009, there were 79
holders of record and an estimated 10,000 beneficial owners
of our common stock. The following table sets forth the
quarterly high and low sale prices of our common stock, as
reported by the NYSE, for the prior two fiscal years. We have
never paid dividends on our common stock and the terms of our
Amended Credit Agreement and ABL Facility restrict our ability
to do so.
|
|
|
|
|
|
|
|
|
Fiscal Year 2009
|
|
|
|
|
Quarter Ended
|
|
High
|
|
Low
|
|
February 1
|
|
$
|
19.35
|
|
|
$
|
11.56
|
|
May 3
|
|
$
|
13.26
|
|
|
$
|
1.76
|
|
August 2
|
|
$
|
7.50
|
|
|
$
|
1.81
|
|
November 1
|
|
$
|
5.12
|
|
|
$
|
1.60
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2008
|
|
|
|
|
Quarter Ended
|
|
High
|
|
Low
|
|
January 27
|
|
$
|
39.90
|
|
|
$
|
23.06
|
|
April 27
|
|
$
|
34.13
|
|
|
$
|
19.99
|
|
July 27
|
|
$
|
39.81
|
|
|
$
|
23.20
|
|
November 2
|
|
$
|
40.95
|
|
|
$
|
14.25
|
|
The following table shows our purchases of our common stock
during the fourth quarter of fiscal 2009:
ISSUER
PURCHASES OF EQUITY SECURITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(d) Maximum
|
|
|
|
|
|
|
|
|
Number (or
|
|
|
|
|
|
|
(c) Total Number
|
|
Approximate
|
|
|
|
|
|
|
of Shares
|
|
Dollar Value) of
|
|
|
|
|
|
|
Purchased as Part
|
|
Shares that May
|
|
|
(a) Total Number
|
|
(b) Average Price
|
|
of Publicly
|
|
Yet be Purchased
|
|
|
of Shares
|
|
Paid per Share
|
|
Announced Plans
|
|
Under the Plans or
|
Period
|
|
Purchased(1)
|
|
(or Unit)
|
|
or Programs
|
|
Programs(1)
|
|
August 3, 2009 to August 30, 2009
|
|
|
82
|
|
|
|
3.72
|
|
|
|
|
|
|
|
646,092
|
|
August 31, 2009 to September 27, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
646,092
|
|
September 28, 2009 to November 1, 2009
|
|
|
145,530
|
|
|
|
2.51
|
|
|
|
|
|
|
|
646,092
|
|
Total
|
|
|
145,612
|
|
|
|
2.51
|
|
|
|
|
|
|
|
646,092
|
|
|
|
|
(1) |
|
Our board of directors has authorized a stock repurchase
program. Subject to applicable federal securities law, such
purchases occur at times and in amounts that we deem
appropriate. Shares repurchased are used primarily for later
re-issuance in connection with our equity incentive and 401(k)
profit sharing plans. On February 28, 2007, we publicly
announced that our board of directors authorized the repurchase
of an additional 1.0 million shares of our common stock.
There is no time limit on the duration of the program. Although
we did not repurchase any shares of our common stock during
fiscal 2009, we did withhold shares of restricted stock to
satisfy tax withholding obligations arising in connection with
the vesting of awards of restricted stock. At November 1,
2009, there were 0.6 million shares remaining authorized
for repurchase under the program. |
27
STOCK
PERFORMANCE CHART
The following chart compares the yearly percentage change in the
cumulative stockholder return on our common stock from
November 1, 2004 to the end of the fiscal year ended
November 1, 2009 with the cumulative total return on the
New York Stock Exchange Index and the Hemscott Industry Group
634 General Building Materials, a peer group. The
comparison assumes $100 was invested on November 1, 2004 in
our common stock and in each of the foregoing indices and
assumes reinvestment of dividends.
COMPARISON
OF 5-YEAR CUMULATIVE TOTAL RETURN
AMONG NCI BUILDING SYSTEMS, INC.,
NYSE MARKET INDEX AND HEMSCOTT GROUP INDEX
ASSUMES $100
INVESTED ON NOV. 1, 2004
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING NOV. 1, 2009
In accordance with the rules and regulations of the SEC, the
above stock performance chart shall not be deemed to be
soliciting material or to be filed with
the SEC or subject to Regulations 14A or 14C of the Securities
Exchange Act of 1934 (the Exchange Act) or to the
liabilities of Section 18 of the Exchange Act and shall not
be deemed to be incorporated by reference into any filing under
the Securities Act of 1933 or the Exchange Act, notwithstanding
any general incorporation by reference of this proxy statement
into any other filed document.
28
|
|
Item 6.
|
Selected
Financial Data.
|
The selected financial data for each of the three fiscal years
ended November 1, 2009 and as of November 1, 2009 and
November 2, 2008 has been derived from the audited
Consolidated Financial Statements included elsewhere herein. The
selected financial data for each of the two fiscal years ended
October 29, 2006 and as of October 28, 2007,
October 29, 2006 and October 29, 2005 have been
derived from audited Consolidated Financial Statements not
included herein. The following data should be read in
conjunction with Item 7. Managements Discussion
and Analysis of Financial Condition and Results of
Operations and the audited Consolidated Financial
Statements and the notes thereto included under
Item 8. Financial Statements and Supplementary
Data.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008(2)
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
In thousands, except per share data
|
|
|
|
Sales
|
|
$
|
967,923
|
|
|
$
|
1,764,159
|
|
|
$
|
1,625,068
|
|
|
$
|
1,571,183
|
|
|
$
|
1,130,066
|
|
Net income (loss)
|
|
|
(746,964
|
)(1)
|
|
|
78,881
|
(3)
|
|
|
63,729
|
|
|
|
73,796
|
|
|
|
55,951
|
|
Net income (loss) applicable to common shares
|
|
|
(758,677
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
(34.06
|
)
|
|
|
4.08
|
|
|
|
3.25
|
|
|
|
3.70
|
|
|
|
2.73
|
|
Diluted
|
|
|
(34.06
|
)(1)
|
|
|
4.05
|
(3)
|
|
|
3.06
|
|
|
|
3.45
|
|
|
|
2.68
|
|
Cash flow from operating activities
|
|
|
95,370
|
|
|
|
40,194
|
|
|
|
137,625
|
|
|
|
121,514
|
|
|
|
118,267
|
|
Total assets
|
|
|
613,848
|
|
|
|
1,380,701
|
|
|
|
1,343,058
|
|
|
|
1,299,701
|
|
|
|
990,219
|
|
Total debt
|
|
|
150,249
|
|
|
|
474,400
|
|
|
|
497,037
|
|
|
|
497,984
|
|
|
|
373,000
|
|
Convertible Preferred Stock
|
|
|
222,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
$
|
49,665
|
|
|
$
|
623,829
|
|
|
$
|
539,696
|
|
|
$
|
498,409
|
|
|
$
|
444,144
|
|
Diluted average common shares
|
|
|
22,013
|
(4)
|
|
|
19,486
|
|
|
|
20,793
|
|
|
|
21,395
|
|
|
|
20,857
|
|
|
|
|
(1) |
|
Includes goodwill and other intangible asset impairment of
$622.6 million ($600.0 million after tax), debt
extinguishment and refinancing costs of $100.3 million
($94.1 million after tax), lower of cost or market charge
of $40.0 million ($25.8 million after tax), change in
control charges of $11.2 million ($6.9 million after
tax), restructuring charges of $9.1 million
($5.6 million after tax), asset impairments of
$6.3 million ($3.9 million after tax), interest rate
swap of $3.1 million ($1.9 million after tax) and
environmental and other contingencies of $1.1 million
($0.7 million after tax) in fiscal 2009. |
|
(2) |
|
Fiscal 2008 includes 53 weeks of operating activity. |
|
(3) |
|
Includes executive retirement costs of $2.9 million
($1.8 million after tax), lower of cost or market charge of
$2.7 million ($1.6 million after tax), restructuring
charges of $1.1 million ($0.7 million after tax) and
asset impairments of $0.2 million ($0.12 million after
tax) in fiscal 2008. |
|
(4) |
|
In October 2009, we consummated an exchange offer to acquire all
our 2.125% Convertible Senior Subordinated Notes due 2024
in an exchange for cash and 70.2 million shares of our
common stock. |
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
|
OVERVIEW
We are one of North Americas largest integrated
manufacturers and marketers of metal products for the
non-residential construction industry. We provide metal coil
coating services and design, engineer, manufacture and market
metal components and engineered building systems primarily for
non-residential construction use. We manufacture and distribute
extensive lines of metal products for the non-residential
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 offers builders, designers, architects and
end-users several advantages, including lower long-term costs,
longer life, attractive aesthetics and design flexibility.
Similarly, engineered building systems
29
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. As a result, our fourth
quarter of fiscal 2008 included an additional week of operating
activity.
We assess performance across our business segments by analyzing
and evaluating (i) gross profit, operating income, and
(ii) non-financial efficiency indicators such as revenue
per employee, man hours per ton of steel produced and shipped
tons per employee. In assessing our overall financial
performance, we regard return on adjusted operating assets, as
well as growth in earnings per share, as key indicators of
shareholder value.
Recapitalization
Plan and Refinancing Transaction
On October 20, 2009, we issued and sold to the CD&R
Funds 250,000 shares of Convertible Preferred Stock for an
aggregate purchase price of $250.0 million. The Preferred
Shares are convertible into shares of our common stock, and
represent 68.4% of our voting power and common stock on an
as-converted basis.
As of December 21, 2009, the Preferred Shares are
convertible into 196.1 million shares of common stock, at a
conversion price of $1.2748. However, as of that date, only
approximately 8.4 million shares of common stock were
authorized and unissued, and therefore the CD&R Funds could
not fully convert the Preferred Shares. To the extent that the
CD&R Funds opt to convert their Preferred Shares, as of
December 21, 2009, their conversion right is limited to
conversion of their Preferred Shares into the approximately
8.4 million shares of common stock that are currently
authorized and unissued. We intend to submit to a shareholder
vote, at our annual meeting of shareholders, a proposal to amend
the Companys certificate of incorporation to effect a
reverse stock split of the common stock of the Company. We
expect the shareholders to vote in favor of the reverse stock
split at the annual meeting and we expect that, following the
completion of the reverse stock split, the CD&R Funds will
be able to convert 100% of their Preferred Shares into shares of
common stock. During fiscal 2009, we recorded an initial
beneficial conversion feature of $10.5 million and the
remaining $230.9 million of the beneficial conversion
feature will be recognized when the contingency related to the
availability of authorized shares is resolved.
Dividends on the Convertible Preferred Stock are payable, on a
cumulative daily basis, as, if and when declared by our board of
directors, at a rate per annum of 12% of the liquidation
preference of $1,000 per Preferred Share, subject to adjustment
under certain circumstances, if paid in-kind or at a rate per
annum of 8% of the liquidation preference of $1,000 per
Preferred Share, subject to adjustment under certain
circumstances, if paid in cash. We have the right to choose
whether dividends are paid in cash or in-kind, subject to the
conditions of the Amended Credit Agreement and ABL Facility
including being contractually limited in our ability to pay cash
dividends until the first quarter of fiscal 2011 under the
Amended Credit Agreement and October 20, 2010 under the ABL
Facility, except for certain specified purposes.
Simultaneously with the closing of the Equity Investment, we
took the following actions (together with the Equity Investment,
the Recapitalization Plan):
|
|
|
|
|
we refinance our existing credit agreement as in effect prior to
such date (the Credit Agreement), which was due to
mature on June 18, 2010, by repaying approximately
$143 million in principal amount of the approximately
$293 million in principal amount then outstanding and
amending the terms and extending the maturity of the remaining
$150 million balance of the term loans. The Amended Credit
Agreement requires quarterly principal payments of 0.25% of the
principal amount of the term loan then outstanding as of the
last day of each quarter and a final payment of approximately
$131.1 million in principal at maturity on April 20,
2014.
|
|
|
|
we entered into the ABL Facility, an asset-based revolving
credit facility agreement with a maximum available amount of up
to $125 million which has an additional $50 million
incremental credit facility. The ABL Facility replaces the
revolving credit facility, and letters of credit, subfacility
under our Credit Agreement, which expired on June 18, 2009.
The ABL Facility has a maturity of April 20, 2014 and
|
30
|
|
|
|
|
includes borrowing capacity of up to $25 million for
letters of credit and up to $10 million for swingline
borrowings.
|
The refinancing of our term loan and our entry into the
revolving credit facility are further described in
Debt Amended Credit Agreement and
Debt ABL Facility below.
In connection with the closing of the Equity Investment, we also
completed an exchange offer (the Exchange Offer) to
acquire the $180 million of our then-outstanding
2.125% Convertible Senior Subordinated Notes due 2024 (the
Convertible Notes) for an aggregate combination of
$90.0 million in cash and 70.2 million shares of
common stock. The Exchange Offer is further described in
Debt Convertible Notes below.
Fiscal
2009 Overview
In fiscal 2009, we survived the deepest decline in
non-residential construction in the 44 years since
McGraw-Hill has been compiling data, and we have emerged with a
strengthened financial position with the completion of our
refinancing. We now have the resources to withstand the
continued weakness projected for our markets and to re-start our
growth strategy. We are committed to significantly re-building
the value of our Company over the next several years.
Business conditions in our fourth quarter of fiscal 2009
continued to be difficult, across all our markets. According to
McGraw-Hill statistics, non-residential construction activity
measured in square feet was down 47% in calendar year to date
through October 2009, compared to the same period in calendar
2008. Our traditionally strong commercial and industrial markets
were even weaker, down 60% in calendar year to date through
October 2009, compared to the same period in calendar 2008. At
the same time, steel prices in fiscal 2009 declined 34% compared
to fiscal 2008.
The AIAs Architectural Billing Index published for October
indicated that inquiry levels have somewhat stabilized and
remain positive, but billings are still negative. McGraw-Hill is
now forecasting that non-residential construction activity
measured in square feet will be 42% lower in calendar 2009
compared to calendar 2008. Steel prices have increased from the
June of 2009 levels, but were 34% lower in fiscal 2009 than the
comparable period of 2008 according to the CRU North American
Steel price index.
Industry
Conditions
Our sales and earnings are influenced by general economic
conditions, interest rates, the price of steel relative to other
building materials, the level of non-residential construction
activity, roof repair and retrofit demand and the availability
and cost of financing for construction projects.
The overall decline in economic conditions beginning in the
third quarter of 2008 has reduced demand for our products and
adversely affected our business. In addition, the tightening of
credit in financial markets over the same period has adversely
affected the ability of our customers to obtain financing for
construction projects. As a result, we have experienced
decreases in and cancellations of orders for our products, and
the ability of our customers to make payments has been adversely
affected. Similar factors could cause our suppliers to
experience financial distress or bankruptcy, resulting in
temporary raw material shortages. The lack of credit also
adversely affects non-residential construction, which is the
focus of our business.
Over the same period, there has been significant volatility in
the price of steel, the primary raw material in our production
process. In fiscal 2009, steel prices decreased at a precipitous
rate until July 2009 when steel prices began to increase.
According to the CRU North American Steel Price Index, steel
prices were 36% lower in October 2009 compared with October
2008. This unusual level of volatility has negatively impacted
our business. First, in the first two quarters of fiscal 2009,
we wrote down inventory to net realizable value given these
declines because our sales volume was significantly lower than
previously anticipated while raw material prices have declined
more rapidly than anticipated. Second, some customers have
delayed projects, waiting to see where steel prices would bottom
out.
31
The uncertainty surrounding future economic activity levels and
the tightening of credit availability have resulted in
significantly decreased activity levels for our business. During
fiscal 2009, our sales volumes were significantly below our
expectations, primarily in our engineered buildings and
components segments. See Liquidity and Capital
Resources Debt. When we began fiscal 2009,
McGraw-Hill was predicting a 12% decline in non-residential
construction in 2009 compared to 2008. Subsequently, McGraw-Hill
revised its forecast further downward and, as of October 2009,
was predicting a 42% square-footage decline in non-residential
construction activity in 2009 compared to 2008. McGraw-Hill has
also reported a 42.2% reduction in low-rise non-residential
(less than 5 stories) square-footage starts during fiscal 2009
compared with fiscal 2008.
As a result of the current market downturn, we began a phased
process to resize and realign our manufacturing operations. The
purpose of these closures is to rationalize our least efficient
facilities and to retool certain of these facilities to allow us
to better utilize our assets and expand into new markets or
better provide products to our customers, such as insulated
panel systems. As a result of the restructuring, we expect to
realize an annualized fixed cost savings in the amount of
approximately $120 million upon full implementation of this
three phase restructuring plan.
In November 2008, we approved the Phase I plan to close three of
our engineered building systems manufacturing plants. In
addition, as part of the restructuring, we implemented a general
employee reduction program. Specifically, one of our facilities,
which was closed during fiscal 2008, is being retooled for use
in connection with our insulated panel systems product line. We
have incurred facility closure costs of approximately
$3.4 million related to these Phase I facility closures.
Most of these expenses were recorded during the first and second
quarters of fiscal 2009. We expect only minor additional costs
as we wind down Phase I of our restructuring plan.
In February 2009, we approved the Phase II plan to close
one of our facilities within the engineered building systems
segment in a continuing effort to rationalize our least
efficient facilities. We have incurred facility closure costs of
$0.9 million related to this facility. Most of these
expenses were recorded during the second quarter of fiscal 2009.
We expect only minor additional costs as we wind down
Phase II of our restructuring plan.
In April 2009, we approved the Phase III plan to close or
idle three of our manufacturing facilities within the engineered
building systems segment and two facilities within the metal
components segment in a continuing effort to rationalize our
least efficient facilities. In addition, manufacturing at one of
our metal components facilities was temporarily suspended and
currently functions as a distribution and customer service site.
As part of the restructuring, we also added to the general
employee reduction program. We have incurred facility closure
costs of approximately $7.0 million related to these
Phase III facility closures and expect to incur additional
facility closure costs of $1.6 million in fiscal 2010.
As a result of the management actions taken in the
Recapitalization Plan and restructuring plan, we have right
sized our cost structure and solidified our liquidity position
which we believe will enable us to withstand a sustained
downturn in our industry.
One of the primary challenges we face both short and long term
is the volatility in the price of steel. Our business is heavily
dependent on the price and supply of steel. For the fiscal year
ended November 1, 2009, steel represented approximately 71%
of our costs 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. Steel prices
are influenced by numerous factors beyond our control, including
general economic conditions domestically and internationally,
competition, labor costs, production costs, import duties and
other trade restrictions. For additional discussion of steel
prices, see Item 7A. Quantitative and Qualitative
Disclosures About Market Risk.
During the fiscal year ended November 1, 2009, we
experienced a significant decrease in the value of our total
inventory, primarily due to the decrease in volume and decreases
in the price of steel. During the fiscal year ended
November 2, 2008, we experienced significant increases in
the value of our total inventory,
32
primarily due to the substantial increases in the price of
steel, as well as significant increases in our fuel and
transportation costs.
We do not have any long-term contracts for the purchase of steel
and 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 remain
available or that prices will not continue to be volatile. While
most of our 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, we may, for competitive or other reasons,
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 1. Business
Raw Materials, Item 1A. Risk
Factors We rely on a few major suppliers for our
supply of steel, which makes us more vulnerable to supply
constraints and pricing pressure, as well as the financial
condition of those suppliers, Liquidity
and Capital Resources Steel Prices and
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk Steel Prices.
In assessing the state of the metal construction market, we rely
upon 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,
which we look to for reports of actual and forecasted growth in
various construction related industries, including the overall
non-residential construction market. McGraw-Hill
Constructions forecast for calendar 2010 indicates a total
non-residential construction reduction of 4% in square footage
and a reduction of 2% in dollar value prior to increasing in
2011. Additionally, we review the American Institute of
Architects survey for inquiry and billing activity for the
industrial, commercial and institutional sectors.
33
RESULTS
OF OPERATIONS
The following table presents, as a percentage of sales, certain
selected consolidated financial data for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended
|
|
|
November 1,
|
|
November 2,
|
|
October 28,
|
|
|
2009
|
|
2008
|
|
2007
|
|
Sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
77.8
|
|
|
|
74.9
|
|
|
|
75.2
|
|
Lower of cost or market adjustment
|
|
|
4.1
|
|
|
|
0.2
|
|
|
|
|
|
Asset impairments
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
17.4
|
|
|
|
24.9
|
|
|
|
24.8
|
|
Selling, general and administrative expenses
|
|
|
21.6
|
|
|
|
16.1
|
|
|
|
16.7
|
|
Goodwill and other intangible asset impairments
|
|
|
64.3
|
|
|
|
|
|
|
|
|
|
Restructuring charge
|
|
|
0.9
|
|
|
|
0.1
|
|
|
|
|
|
Change in control charges
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(70.6
|
)
|
|
|
8.8
|
|
|
|
8.1
|
|
Interest income
|
|
|
0.0
|
|
|
|
0.1
|
|
|
|
0.0
|
|
Interest expense
|
|
|
(2.1
|
)
|
|
|
(1.3
|
)
|
|
|
(1.8
|
)
|
Debt extinguishment and refinancing costs
|
|
|
(10.3
|
)
|
|
|
|
|
|
|
|
|
Other (expense) income, net
|
|
|
0.2
|
|
|
|
(0.1
|
)
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(82.8
|
)
|
|
|
7.4
|
|
|
|
6.4
|
|
Provision (benefit) for income taxes
|
|
|
(5.6
|
)
|
|
|
2.9
|
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(77.2
|
)%
|
|
|
4.5
|
%
|
|
|
3.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY
BUSINESS SEGMENT INFORMATION
We have aggregated our operations into three reportable segments
based upon similarities in product lines, manufacturing
processes, marketing and management of our businesses: metal
coil coating; metal components; and engineered building systems.
All business segments operate primarily in the non-residential
construction market. Sales and earnings are influenced by
general economic conditions, the level of non-residential
construction activity, metal roof repair and retrofit demand and
the availability and terms of financing available for
construction.
Products of all our business 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 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 reporting segments follow the same
accounting policies used for our Consolidated Financial
Statements.
We evaluate a segments 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.
34
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 business segments. Segment information is
included in Note 25 of our Consolidated Financial
Statements.
The following table represents sales, operating income and total
assets attributable to these business segments for the periods
indicated (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
%
|
|
|
2008
|
|
|
%
|
|
|
2007
|
|
|
%
|
|
|
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metal coil coating
|
|
$
|
169,897
|
|
|
|
18
|
|
|
$
|
305,657
|
|
|
|
17
|
|
|
$
|
272,543
|
|
|
|
16
|
|
Metal components
|
|
|
458,734
|
|
|
|
47
|
|
|
|
715,255
|
|
|
|
41
|
|
|
|
663,331
|
|
|
|
41
|
|
Engineered building systems
|
|
|
541,609
|
|
|
|
56
|
|
|
|
1,110,534
|
|
|
|
63
|
|
|
|
1,021,544
|
|
|
|
63
|
|
Intersegment sales
|
|
|
(202,317
|
)
|
|
|
(21
|
)
|
|
|
(367,287
|
)
|
|
|
(21
|
)
|
|
|
(332,350
|
)
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
967,923
|
|
|
|
100
|
|
|
$
|
1,764,159
|
|
|
|
100
|
|
|
$
|
1,625,068
|
|
|
|
100
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metal coil coating
|
|
$
|
(99,631
|
)
|
|
|
|
|
|
$
|
29,381
|
|
|
|
|
|
|
$
|
25,136
|
|
|
|
|
|
Metal components
|
|
|
(129,975
|
)
|
|
|
|
|
|
|
82,094
|
|
|
|
|
|
|
|
49,609
|
|
|
|
|
|
Engineered building systems
|
|
|
(389,309
|
)
|
|
|
|
|
|
|
107,851
|
|
|
|
|
|
|
|
113,265
|
|
|
|
|
|
Corporate
|
|
|
(64,583
|
)
|
|
|
|
|
|
|
(64,616
|
)
|
|
|
|
|
|
|
(56,276
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income (loss) (% of sales)
|
|
$
|
(683,498
|
)
|
|
|
|
|
|
$
|
154,710
|
|
|
|
|
|
|
$
|
131,734
|
|
|
|
|
|
Unallocated other expense
|
|
|
(117,990
|
)
|
|
|
|
|
|
|
(24,330
|
)
|
|
|
|
|
|
|
(26,909
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
$
|
(801,488
|
)
|
|
|
|
|
|
$
|
130,380
|
|
|
|
|
|
|
$
|
104,825
|
|
|
|
|
|
Total assets as of fiscal year end 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metal coil coating
|
|
$
|
57,208
|
|
|
|
9
|
|
|
$
|
196,615
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
Metal components
|
|
|
159,690
|
|
|
|
26
|
|
|
|
371,464
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
Engineered building systems
|
|
|
241,260
|
|
|
|
39
|
|
|
|
716,671
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
155,690
|
|
|
|
26
|
|
|
|
95,951
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
613,848
|
|
|
|
100
|
|
|
$
|
1,380,701
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
RESULTS
OF OPERATIONS FOR FISCAL 2009 COMPARED TO FISCAL 2008
Consolidated sales for fiscal 2009 decreased 45.1%, or
$796.2 million, from fiscal 2008. This decrease resulted
from a 37.9% decrease in external tonnage volumes, partially
offset by higher relative sales prices as a result of higher
steel costs in the engineered building systems and metal
components segments. Lower tonnage volumes in all three of our
segments in fiscal 2009 compared with fiscal 2008 were driven by
reduced demand for such products which is affirmed by the 42.2%
reduction in low-rise non-residential (less than 5 stories)
square-footage starts as reported by McGraw Hill during fiscal
2009 compared with fiscal 2008.
Consolidated cost of sales decreased by 43.1% for fiscal
2009 compared to fiscal 2008. Gross margins were 17.4% for
fiscal 2009 compared to 24.9% for the prior fiscal year. During
fiscal 2009, we recorded a $40.0 million inventory
adjustment, which accounted for 4.1% of the reduction in the
gross margin percentage, to adjust the carrying amount on
certain raw material inventory to the lower of cost or market
because this inventory exceeded our current estimates of net
realizable value less normal profit margins. Although we have
taken steps to reduce our variable and fixed costs throughout
the year, margins decreased across all three segments due to
increased price competition and allocation of fixed costs over
substantially reduced sales. In addition, we recorded a
$6.3 million asset impairment charge, which accounted for
0.6% of the reduction in
35
gross margin percentage, for certain assets primarily within the
engineered building systems segment and at our corporate
operations.
Metal coil coating sales decreased 44.4%, or
$135.8 million to $169.9 million in fiscal 2009,
compared to $305.7 million in the prior fiscal year. Sales
to third parties for fiscal 2009 decreased 45.1% to
$53.2 million from $97.0 million in the prior fiscal
year as a result of a 16.1% decrease in external tonnage
volumes, a 19.9% decrease in sales prices, and a shift in
product mix from package sales of coated steel products to toll
processing revenue for coating services. These results are
primarily driven by reduced demand and increased competition in
the market resulting from the general weakness of
non-residential construction activity in fiscal 2009. In
addition, there was a $92.0 million decrease in
intersegment sales during fiscal 2009 compared with fiscal 2008,
which represents a 44.1% reduction in intersegment volume. Metal
coil coating third-party sales accounted for 5.5% of total
consolidated third-party sales in both fiscal 2009 and 2008.
Operating income (loss) of the metal coil coating segment
decreased in fiscal 2009 to a loss of $(99.6) million,
compared to income of $29.4 million in the prior fiscal
year primarily due to goodwill and other intangible asset
impairments of $99.0 million, an incremental
$5.4 million charge to adjust inventory to lower of cost or
market, and a remaining $26.3 million decrease in gross
profit due to the declines in volumes and relative sales prices
discussed above. The gross margins were lower primarily due to
lower relative sales prices than in the prior year, a 16.1%
decrease in tonnage volumes on sales to third parties compared
to the prior year, and a 38.5% decrease in intersegment tonnage
sold compared to the prior year. In addition, operating income
in fiscal 2008 included an out of period pretax charge of
$0.9 million to correct
work-in-process
standard costs.
Metal components sales decreased 35.9%, or
$256.5 million to $458.7 million in fiscal 2009,
compared to $715.3 million in the prior fiscal year. Sales
were down primarily due to a 30.5% decrease in external tons
shipped compared to the prior year. Sales to third parties for
fiscal 2009 decreased $210.9 million to $389.1 million
from $600.0 million in the prior fiscal year. The remaining
$45.6 million represents a similar decrease in intersegment
sales. These results are primarily driven by reduced demand and
increased competition in the market resulting from the general
weakness of non-residential construction activity in 2009. Metal
components third-party sales accounted for 40.2% of total
consolidated third-party sales in fiscal 2009 compared to 34.0%
in fiscal 2008.
Operating income (loss) of the metal components segment
decreased in fiscal 2009 to a loss of $(130.0) million,
compared to income of $82.1 million in the prior fiscal
year. This $212.1 million decrease resulted from charges
related to goodwill and other intangible asset impairments of
$147.2 million, a $17.2 million inventory lower of
cost or market adjustment, a $0.3 million increase in
restructuring charges, and a remaining $60.3 million
decrease in gross profit due to the declines in volumes and
relative sales prices noted above, all partially offset by a
$13.7 million decrease in selling and administrative
expenses. We have recorded restructuring charges of
$1.3 million in fiscal 2009 related to the closure of one
of our manufacturing plants compared to restructuring charges of
$1.0 million in fiscal 2008 to exit our residential
overhead door product line. The $13.4 million decrease in
selling and administrative expenses was primarily due to a
$10.2 million decrease in wage and benefit costs due to
lower headcount and incentive compensation and across the board
decreases in other various expenses in response to the lower
levels of business activity.
Engineered building systems sales decreased 51.2%, or
$568.9 million to $541.6 million in fiscal 2009,
compared to $1.11 billion in the prior fiscal year. This
decrease resulted from a 52.1% decrease in external tons
shipped, partially offset by slightly higher average sales
prices. Sales to third parties for fiscal 2009 decreased
$541.6 million to $525.6 million from
$1.07 billion in the prior fiscal year. Intersegment sales
decreased by $27.3 million compared to fiscal 2008. These
results are primarily driven by reduced demand, increased
competition in the market, and the impact of the significant
rise in steel prices in the second half of fiscal 2008 that
declined throughout fiscal 2009. Engineered building systems
third-party sales accounted for 54.3% of total consolidated
third-party sales in fiscal 2009 compared to 60.5% in fiscal
2008.
Operating income (loss) of the engineered building systems
segment decreased in fiscal 2009 to a loss of
$(389.3) million, compared to income of $107.9 million
in the prior fiscal year. This $497.2 million decrease
resulted from charges related to goodwill and other intangible
asset impairments of $376.4 million,
36
restructuring charges of $7.4 million in fiscal 2009, a
$14.7 million inventory lower of cost or market adjustment,
a $4.2 million asset impairment charge and a remaining
$141.0 million decrease in gross profit due to the declines
in volumes and relative sales prices noted above, partially
offset by a $46.5 million decrease in selling and
administrative expenses. The $46.5 million decrease in
selling and administrative expenses was primarily due to a
$40.9 million decrease in wage and benefit costs and
temporary labor costs due to lower headcount and lower incentive
compensation and across the board decreases in other various
expenses in response to the lower levels of business activity.
Consolidated selling, general and administrative expenses,
consisting of engineering, drafting, selling and
administrative costs, decreased to $209.6 million in fiscal
2009 compared to $283.6 million in the prior fiscal year.
The decrease in selling and administrative expenses was
primarily due to a $59.3 million decrease in wage and
benefit costs and temporary labor costs due to lower headcount
and lower incentive compensation. We also had a
$2.9 million decrease in executive retirement costs due
primarily to accelerated vesting of certain restricted stock
grants of former executives upon retirement in fiscal 2008. The
remaining decrease was the result of a $2.5 million
decrease in pre-tax share-based compensation costs, a
$2.2 million decrease in bad debt expense, a
$1.7 million decrease in travel and entertainment costs, a
$1.6 million decrease in advertising costs and decreases in
other various expenses due to managed lower levels of activity.
As a percentage of sales, selling, general and administrative
expenses were 21.7% for fiscal 2009 compared to 16.1% for fiscal
2008.
Consolidated goodwill and other intangible asset impairment
was $622.6 million in fiscal 2009 compared with no
amount recorded in the prior fiscal year. This increase impacted
all three of our reporting segments and was the result of the
reduction of our future cash flow projections in the first
quarter of fiscal 2009, our lowering projected cash flows and
implementing Phase III of our restructuring plan in the
second quarter of fiscal 2009.
Consolidated restructuring charge increased to
$9.1 million in fiscal 2009 compared with $1.1 million
in the prior years period. This increase was primarily
related to our plan to close six of our engineered building
systems manufacturing plants. The purpose of these closures was
to rationalize our least efficient facilities and to retool
certain of these facilities to allow us to better utilize our
assets and expand into new markets or better provide products to
our customers. The $0.9 million charge in the prior year
was related to the plan to exit our residential overhead door
product line, included in our metal components segment.
Consolidated change in control charges for fiscal 2009 in
the amount of $11.2 million related primarily to
$9.1 million in share-based compensation expense upon the
accelerated vesting of our stock incentive plans upon the change
in control of our Company. We also incurred a $1.5 million
charge related to a new director and officer insurance policy
upon the majority change of our board of directors.
Consolidated interest income for fiscal 2009 decreased by
63.8% to $0.4 million, compared to $1.1 million for
the prior fiscal year. This decrease was primarily due to lower
interest rates on our cash balances during fiscal 2009 compared
to the prior fiscal year.
Consolidated interest expense for fiscal 2009 decreased
by 13.3% to $20.4 million, compared to $23.5 million
for the prior fiscal year. Lower market interest rates reduced
the interest expense associated with the variable portion of our
outstanding debt, partially offset by a $3.1 million charge
related to our interest rate swap contract. In connection with
our 2009 refinancing, we concluded the interest rate swap
agreement was no longer an effective hedge, based on the
modified terms of the Amended Credit Agreement which includes a
2% LIBOR floor. As a result, we have reclassified to interest
expense the remaining deferred losses previously recorded to
accumulated other comprehensive income (loss).
Consolidated provision for income taxes for fiscal 2009
decreased to a benefit of $(54.5) million, compared to a
provision of $51.5 million for the prior fiscal year. The
decrease was primarily due to a $931.8 million decrease in
pre-tax earnings (loss). The effective tax rate for fiscal 2009
was 6.8% compared to 39.5% for the prior fiscal year. This
decrease was primarily due to non-deductible goodwill impairment
costs and the non-deductible premium on the retirement of our
Convertible Notes.
37
Consolidated debt extinguishment and refinancing costs
for fiscal 2009 were $100.3 million and related to our
refinancing which was completed on October 20, 2009. These
costs primarily consisted of $84.5 million related to debt
extinguishment of our Convertible Notes, $6.4 million
related to payments to non-creditors on the modification of our
Credit Agreement, $4.8 million of costs related to our
abandoned plan for pre-packaged bankruptcy and $3.5 million
related to the write-off of the remaining deferred financing
costs on our Convertible Notes.
Consolidated convertible preferred stock dividends and
accretion for fiscal 2009 was $1.2 million and related
primarily to $1.1 million of accrued dividends on the
Convertible Preferred Stock which accrues and accumulates on a
daily basis and was accrued for the last thirteen days of fiscal
2009 at the 12% paid in-kind rate.
Consolidated convertible preferred stock beneficial
conversion feature for fiscal 2009 was $10.5 million
and related to the beneficial conversion feature on the
Convertible Preferred Stock because it was issued with a
conversion price of $1.2748 per common share equivalent and the
closing stock price per common share just prior to the execution
of the Equity Investment was $2.51. Because only
8.2 million of the potentially 196.1 million common
shares, if converted, are authorized and unissued at
November 1, 2009, only $10.5 million of the beneficial
conversion feature is recognized in fiscal 2009.
Diluted earnings per share for fiscal 2009 decreased to a
loss of $(34.06) per diluted share, compared to earnings of
$4.05 per diluted share for the prior fiscal year. The decrease
was primarily due to an $837.5 million decrease in net
income (loss) applicable to common shares resulting from the
factors described above. In addition, the weighted average
number of common shares outstanding increased by
2.5 million due to the completion of our Convertible Notes
exchange offer in the last month of our fiscal year. In
connection with the exchange offer, we issued 70.2 million
common shares. In addition to the Convertible Notes exchange
offer, our 2009 refinancing transaction included the issuance of
$250 million of Series B Convertible Preferred Stock
which required the use of the two-class method in
determining diluted earnings per share, but did not increase the
weighted average number of common shares outstanding. The
Convertible Preferred Stock will be convertible into
196.1 million common shares and will only be included in
the weighted average common shares outstanding under the
if-converted method which is required when it
results in a lower earnings per share than determined under the
two-class method.
RESULTS
OF OPERATIONS FOR FISCAL 2008 COMPARED TO FISCAL 2007
Consolidated sales for fiscal 2008 increased 8.6%, or
$139.1 million, over fiscal 2007. Of this increase,
$180.3 million related to increased pricing on increased
steel costs and $18.6 million was attributable to the Garco
acquisition. These increases were partially offset by a 5.6%
decrease in tonnage volumes in all three of our segments in
fiscal 2008 compared with fiscal 2007, which were driven by
reduced demand for such products resulting from the 17.5%
reduction in low-rise non-residential square footage starts as
reported by McGraw Hill.
Consolidated cost of sales increased by 8.5% for fiscal
2008 compared to fiscal 2007. Gross margins were 24.9% for
fiscal 2008 compared to 24.8% for the prior fiscal year. The
gross margin percentage was higher as a result of increased
margins at the metal components and metal coil coating segments,
partially offset by decreased margins at the engineered building
systems segments.
Metal coil coating sales increased $33.1 million to
$305.7 million in fiscal 2008, compared to
$272.5 million in the prior fiscal year. Sales to third
parties for fiscal 2008 increased 16.0% to $97.0 million
from $83.6 million in the prior fiscal year as a result of
a shift in product mix from toll processing sales for coating
services to package sales of coated steel products and increased
pricing on higher raw material costs, partially offset by an
11.4% decrease in external tonnage volumes. Package sales of
coated steel products contribute lower margin dollars per ton
compared to toll processing sales, as a percentage of revenue.
The dominant component of the price in package sales is steel
which only allows for a minimal
mark-up. The
remaining $19.7 million represents an increase in
intersegment sales. Metal coil coating third-party sales
accounted for 5.5% of total consolidated third-party sales in
fiscal 2008 compared with 5.1% in fiscal 2007.
38
Operating income of the metal coil coating segment increased by
16.8% to $29.4 million, compared to $25.1 million in
the prior fiscal year primarily due to increased gross profit.
The margins increased primarily due to higher sales prices,
partially offset by higher costs. During fiscal 2008, we
recorded a charge to cost of sales to reduce the carrying amount
on certain raw material inventory to the lower of cost or market
in the amount of $2.7 million. In addition, operating
income included an out of period pretax charge of
$0.9 million to correct
work-in-process
standard costs in our metal coil coating segment. As a
percentage of total segment sales, operating income in fiscal
2008 was 9.6% compared to 9.2% in fiscal 2007.
Metal components sales increased $51.9 million to
$715.3 million in fiscal 2008, compared to
$663.3 million in the prior fiscal year. Sales were up
primarily due to increased pricing on account of increased raw
material costs, partially offset by a 6.5% decrease in external
tons shipped. Sales to third parties for fiscal 2008 increased
$38.4 million to $600.0 million from
$561.6 million in the prior fiscal year. The remaining
$13.5 million represents an increase in intersegment sales.
Metal components third-party sales accounted for 34.0% of total
consolidated third-party sales in fiscal 2008 compared to 34.6%
in fiscal 2007.
Operating income of the metal components segment increased by
65.5% in fiscal 2008 to $82.1 million, compared to
$49.6 million in the prior fiscal year. This
$32.5 million increase resulted from a $32.3 million
increase in gross profit and a $0.2 million decrease in
selling and administrative expenses. The gross margins were
higher due to increased pricing compared to the prior fiscal
year, which had been depressed due to an over abundance of steel
inventory in the market at that time, and due to our ability to
effectively manage our raw material and manufacturing costs. In
addition, we incurred charges of $1.7 million in cost of
sales related to the exit of our residential overhead door
product line, which were partially offset by a $1.0 million
gain on the disposition of related property and equipment. Cost
of sales also included an offset of a pretax $1.0 million
out-of-period reversal of amounts previously recorded in
accounts payable related to inventory received but not invoiced.
Engineered building systems sales increased
$89.0 million to $1.11 billion in fiscal 2008,
compared to $1.02 billion in the prior fiscal year. This
increase resulted from increased pricing as a result of
increased steel costs and by sales of $18.6 million
attributable to the Garco acquisition. Sales to third parties
for fiscal 2008 increased $87.3 million to
$1.07 billion from $0.98 billion in the prior fiscal
year. Intersegment sales increased by $1.7 million compared
to fiscal 2007. Engineered building systems third-party sales
accounted for 60.5% of total consolidated third-party sales in
fiscal 2008 compared to 60.3% in fiscal 2007.
Operating income of the engineered building systems segment
decreased 4.8% in fiscal 2008 to $107.9 million, compared
to $113.3 million in the prior fiscal year. This
$5.4 million decrease resulted from a $1.5 million
decrease in gross profit and a $3.9 million increase in
selling and administrative expenses. Although gross profit was
relatively flat, gross margins were lower due to increased raw
material costs, primarily related to steel price increases as
well as a 3.9% decrease in external organic tons shipped. In
addition, the Garco acquisition partially offset the decrease in
gross margins and accounted for $5.7 million in gross
profit. The increase in selling and administrative expenses was
primarily due to a $3.1 million increase as a result of the
Garco acquisition, a $2.2 million increase in bonus expense
on higher consolidated profit activity and a $1.9 million
increase in 401(k) matching costs. This increase was partially
offset by a $1.6 million decrease in depreciation and
amortization costs due to intangible assets being fully
amortized and a $1.0 million decrease in advertising costs.
Consolidated selling, general and administrative expenses,
consisting of engineering, drafting, selling and
administrative costs, increased to $283.8 million in fiscal
2008 compared to $271.9 million in the prior fiscal year.
Of this $11.9 million increase, $5.2 million related
to bonus expense on higher profit activity and $3.1 million
related to the Garco acquisition. In addition, $2.9 million
related to the accelerated vesting of certain benefits and
restricted stock grants of former executives upon retirement.
The remaining increase related to a $2.5 million increase
in partially self-insured health insurance costs,
$2.3 million increase in bad debt expense and
$2.0 million increase in wages and increases in other
various expenses. These increases were partially offset by
reductions of $2.1 million in workers compensation and
general liability insurance costs, $1.4 million in
advertising costs, $1.3 million in stock compensation
costs, $1.2 million in compensation costs related to the
deferred compensation plan and $1.2 million in amortization
and depreciation due to certain
39
intangible costs being fully amortized. As a percentage of
sales, selling, general and administrative expenses were 16.1%
for fiscal 2008 compared to 16.7% for fiscal 2007.
Consolidated interest income for fiscal 2008 increased by
49.7% to $1.1 million, compared to $0.7 million for
the prior fiscal year. This increase was primarily due to higher
invested cash balances during fiscal 2008 compared to the prior
fiscal year.
Consolidated interest expense for fiscal 2008 decreased
by 18.4% to $23.5 million, compared to $28.8 million
for the prior fiscal year. We repaid $21.7 million of the
loans under our Credit Agreement in January 2008. In addition,
lower market interest rates reduced the interest expense
associated with the variable portion of our outstanding debt.
During June 2006, we entered into an interest rate swap
agreement relating to $160 million of the $400 million
principal term loans under our Credit Agreement to manage our
risk associated with changing interest rates.
Consolidated provision for income taxes for fiscal 2008
increased by 25.3% to $51.5 million, compared to
$41.1 million for the prior fiscal year. The increase was
primarily due to a $25.6 million increase in pre-tax
earnings and the increase in the effective tax rate. The
effective tax rate for fiscal 2008 was 39.5% compared to 39.2%
for the prior fiscal year. This increase was due to an increase
of the deferred tax asset and corresponding valuation allowance
related to our Canadian operations partially offset by a
statutory increase in the rate for the production activities
deduction.
Diluted earnings per share for fiscal 2008 increased by
32.4% to $4.05 per diluted share, compared to $3.06 per diluted
share for the prior fiscal year. The increase was primarily due
to a $15.2 million increase in net income resulting from
the factors described above and a decrease in the number of
weighted average shares assumed to be outstanding in the diluted
earnings per share calculation. There was no dilution effect of
the Convertible Notes in fiscal 2008 compared to a $0.15 per
share dilution effect in fiscal 2007.
LIQUIDITY
AND CAPITAL RESOURCES
General
On November 1, 2009, we had working capital of
$140.5 million compared to $230.7 million at the end
of fiscal 2008, a $90.2 million decrease. The decrease in
working capital was primarily due to reduced needs for working
capital requirements on lower business activity levels and
reduced transactional prices for inventory leading up to the end
of the fiscal period. This reduction in working capital was
offset by the development of an income tax receivable generated
during the period, resulting from the taxable losses incurred.
During the fiscal year, our cash and cash equivalents increased
$22.2 million to $90.4 million at the end of fiscal
2009 from $68.2 million at the end of fiscal 2008. The
increase in cash resulted from $95.4 million of cash
provided by operating activities, partially offset by
$19.1 million of cash used in investing activities and
$54.0 million of cash used in financing activities. The
cash provided by operating activities was impacted by a
$52.5 million reduction in current working capital and
non-current assets and $42.9 million cash generated from
operating activities. The cash used in investing activities was
primarily related to $21.7 million used for capital
expenditures predominantly related to new IPS facilities and
computer software. The cash used in financing activities was
primarily impacted by the Recapitalization Plan where the
proceeds from the issuance of the Convertible Preferred Stock of
$250.0 million were utilized to repay $90.0 million of
the Convertible Notes and $143.3 million in connection with
the Amended Credit Agreement. In addition, we paid
$54.7 million in transaction costs to complete the
Recapitalization Plan.
We invest our excess cash in various overnight investments.
Debt
Capital Structure. On October 20, 2009
(the Closing Date), we closed the $250 million
Equity Investment. As a result of the Equity Investment, the
CD&R Funds own 250,000 shares of Convertible Preferred
Stock, representing approximately 68.4% of the voting power and
common stock of the Company on an as-converted basis.
Simultaneously with the closing of the Equity Investment,
40
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we refinanced our existing credit agreement as in effect prior
to such date (the Credit Agreement), which was due
to mature on June 18, 2010, by repaying approximately
$143 million in principal amount of the approximately
$293 million in principal amount then outstanding and
amending the terms and extending the maturity of the remaining
$150 million balance of the term loans. The Amended Credit
Agreement, our amended term loan, requires quarterly principal
payments of 0.25% of the principal amount of the term loan then
outstanding as of the last day of each quarter and a final
payment of approximately $131.1 million in principal at
maturity on April 20, 2014.
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we entered into the ABL Facility, an asset-based revolving
credit facility agreement, with a maximum available amount of up
to $125 million which has an additional $50 million
incremental credit facility. The ABL Facility replaces the
revolving credit facility and letters of credit subfacility
under our Credit Agreement, which expired on June 18, 2009.
The ABL Facility has a maturity of April 20, 2014 and
includes borrowing capacity of up to $25 million for
letters of credit and up to $10 million for swingline
borrowings.
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we completed the Exchange Offer to acquire the $180 million
of our then-outstanding Convertible Notes for an aggregate
combination of $90.0 million in cash and 70.2 million
shares of common stock.
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Amended Credit Agreement. The term loans under
the Amended Credit Agreement will mature on April 20, 2014,
four years and six months from the Closing Date and, prior to
that date, will amortize in nominal quarterly installments equal
to 0.25% of the principal amount of the term loan then
outstanding as of the last day of each quarter.
The Companys obligations under the Amended Credit
Agreement and any interest rate protection agreements or other
permitted hedging agreement entered into with any lender under
the Amended Credit Agreement are irrevocably and unconditionally
guaranteed on a joint and several basis by 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). Our obligations under
the Amended Credit Agreement and the permitted hedging
agreements and the guarantees thereof are secured pursuant to a
guarantee and collateral agreement, dated as of October 20,
2009, made by the Company and other grantors (as defined
therein), in favor of the term loan administrative agent and
term loan collateral 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 of 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 Amended Credit Agreement contains a number of covenants
that, among other things, limit or restrict the ability of the
Company and its subsidiaries to dispose of assets, incur
additional indebtedness, incur guarantee obligations, prepay
other indebtedness, make dividends and other restricted
payments, create liens, make investments, make acquisitions,
engage in mergers, change the nature of their business and
engage in certain transactions with affiliates.
The Amended Credit Agreement has no financial covenant test
until the conclusion of the fourth quarter of fiscal 2011 at
which time the maximum ratio of total debt to Consolidated
EBITDA is 5 to 1. This ratio steps down by 0.25 each quarter
until October 28, 2012 at which time the maximum ratio is 4
to 1. The ratio continues to step down by 0.125 each quarter
until November 3, 2013, to a ratio of 3.5 to 1, which
remains the maximum ratio for each fiscal quarter thereafter. We
will, however, not be subject to this financial covenant with
respect to a specified period if certain prepayments or
repurchases of the term loans under the Amended Credit Agreement
are made in the specified period.
Borrowings under the Amended Credit Agreement may be repaid at
any time, without premium or penalty but subject to customary
LIBOR breakage costs. We also have the ability to repurchase a
portion of the term loans under the Amended Credit Agreement,
subject to certain terms and conditions set forth in the
41
Amended Credit Agreement. In addition, subject to certain
exceptions, the term loans under the Amended Credit Agreement
are subject to mandatory prepayment and reduction in an amount
equal to:
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the net cash proceeds of (1) certain asset sales,
(2) certain debt offerings and (3) certain insurance
recovery and condemnation events;
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50% of annual excess cash flow (as defined in the Amended Credit
Agreement) for any fiscal year ending on or after
October 31, 2010, unless a specified leverage ratio target
is met; and
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the greater of $10.0 million and 50% of certain 2009 tax
refunds (as defined in the Amended Credit Agreement) received by
the Company.
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We expect to make a mandatory prepayment on the Amended Credit
Agreement in May 2010 in connection with our 2009 tax refund.
Therefore, an additional $12.9 million of principal under
the Amended Credit Agreement has been classified as current
portion of long-term debt in our Consolidated Balance Sheet at
November 1, 2009.
Term loans under the Amended Credit Agreement bear interest, at
our option, as follows:
(1) Base Rate loans at the Base Rate plus a margin, which
for term loans is 5% until October 30, 2011. After that
date, the margin fluctuates based on our leverage ratio and
shall be either 5% or 3.5%. For revolving loans, the Base Rate
fluctuates based on our leverage ratio and ranges from 0.25% to
1.25%. As of the first fiscal quarter commencing
January 30, 2012, the margin in each case increases by
0.25% per annum on the first day of each fiscal quarter unless
the aggregate principal amount of loans outstanding under the
Amended Credit Agreement in the immediately preceding fiscal
quarter of the Company has been reduced by $3,750,000 (excluding
scheduled principal amortization payments), less any prior
reductions not previously applied to prevent an increase in the
applicable margin, and
(2) LIBOR loans at LIBOR (having a minimum rate of 2%) plus
a margin, which for term loans is 6% until October 30,
2011. After that date, the LIBOR-linked margin fluctuates based
on our leverage ratio and shall be either 6% or 4.5%. As of the
first fiscal quarter commencing January 30, 2012, the
margin in each case increases by 0.25% per annum on the first
day of each fiscal quarter unless the aggregate principal amount
of term loans outstanding under the Amended Credit Agreement in
the immediately preceding fiscal quarter of the Company has been
reduced by $3,750,000 (excluding scheduled principal
amortization payments), less any prior reductions not previously
applied to prevent an increase in the applicable margin.
Overdue amounts will bear interest at a rate that is 2% higher
than the rate otherwise applicable. Base rate is
defined as the highest of the Wachovia Bank, National
Association prime rate, the overnight Federal Funds rate plus
0.5% and 3.0% and LIBOR is defined as the applicable
London interbank offered rate adjusted for reserves.
ABL Facility. The ABL Facility provides for an
asset-based revolving credit facility which allows aggregate
maximum borrowings by the Company of up to $125.0 million.
Borrowing availability on the 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
November 1, 2009, our excess availability under the ABL
Facility was $70.4 million.
An unused commitment fee is paid monthly on the ABL Facility at
an annual rate of 1% through May 1, 2010 and thereafter at
1% or, if the average daily balance of the loans and letters of
credit obligations for a given month is higher than 50% of the
maximum credit then available, 0.75%. The calculation is
determined 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 ABL Facility also apply.
The obligations under the ABL Facility, and the guarantees
therefore, are secured by a first priority lien on our accounts
receivable, inventory, certain deposit accounts, and our
associated intangibles, subject to
42
certain exceptions, and a second priority lien on the assets
securing the term loans under the Amended Credit Agreement on a
first-lien basis.
Our obligations under the 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 not a borrower under the 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 Foothill,
LLC, as administrative agent.
In addition, the obligations under the ABL Facility and the
guarantees thereof are secured pursuant to a pledge agreement,
dated as of October 20, 2009, made by the Company and other
pledgors (as defined therein), in favor of Wells Fargo Foothill,
LLC, as administrative agent, by (i) all of the capital
stock of all direct domestic subsidiaries owned by the Company
and the pledgors and (ii) up to 65% of the capital stock of
certain direct foreign subsidiaries owned by the Company or any
pledgor (it being understood that a foreign subsidiary holding
company or a domestic subsidiary of a foreign subsidiary will be
deemed a foreign subsidiary).
The 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 their business and engage in certain transactions with
affiliates.
Under the 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 Companys concentration account to the
repayment of the loans outstanding under the ABL Facility,
subject to the Intercreditor Agreement. In addition, during such
Dominion Event, we are required to make mandatory payments on
our 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 ABL Facility. If excess availability under the ABL Facility
falls below certain levels, our ABL Facility also requires us to
satisfy set financial tests relating to our fixed charge
coverage ratio.
The ABL Facility includes a minimum fixed charge coverage ratio
of one to one, which will apply if we fail to maintain a
specified minimum level of borrowing capacity.
Loans under the ABL Facility bear interest, at our option, as
follows:
(1) Base Rate loans at the Base Rate plus a margin, which
shall be 3.50% through April 30, 2010 and shall thereafter
range from 3.25% to 3.75% depending on the quarterly average
excess availability under such facility, and
(2) LIBOR loans at LIBOR plus a margin, which shall be
4.50% through April 30, 2010 and shall thereafter range
from 4.25% to 4.75% depending on the quarterly average excess
availability under such facility.
During an event of default, loans under the ABL Facility will
bear interest at a rate that is 2% higher than the rate
otherwise applicable. Base rate is defined as the
highest of the Wells Fargo Bank, N.A. prime rate or the
overnight Federal Funds rate plus 0.5% and LIBOR is
defined as the applicable London interbank offered rate adjusted
for reserves.
Intercreditor Agreement. The liens securing
the obligations under the Amended Credit Agreement, the
permitted hedging agreements and the guarantees thereof are
first in priority (as between the Amended Credit Agreement and
the ABL Facility) with respect to stock, material real property
and assets other than accounts receivable, inventory, certain
deposit accounts, associated intangibles and certain other
property of the
43
Company and the guarantors, subject to certain exceptions. Such
liens are second in priority (as between the Amended Credit
Agreement and the ABL Facility) with respect to accounts
receivable, inventory, certain deposit accounts, associated
intangibles and certain other property of the Company and the
guarantors, subject to certain exceptions. The details of the
respective collateral rights between lenders under the Amended
Credit Agreement and lenders under the ABL Facility are governed
by an intercreditor agreement, dated as of the Closing Date,
among the borrowers, the term loan administrative agent, the ABL
Facility administrative agent and the other parties thereto.
Convertible Notes. In connection with the
Equity Investment, we completed the Exchange Offer to acquire
$180 million of aggregate principal amount of Convertible
Notes. Approximately 99.9% of the outstanding Convertible Notes
were tendered in the Exchange Offer, and holders of Convertible
Notes received $500 in cash and 390 shares of common stock
of the Company for each $1,000 principal amount of Convertible
Notes tendered. The proceeds of the Equity Investment were used
to pay the cash portion of the Exchange Offer, in an amount of
$90.0 million. At November 1, 2009, we had retired all
but approximately $0.06 million of the Convertible Notes.
On December 9, 2009, we gave to holders of Convertible
Notes irrevocable notice of our intent to redeem the
$0.06 million of remaining Convertible Notes on
December 29, 2009. As of December 9, 2009 until
December 28, 2009, at the option of any holder of
Convertible Notes, we are required to convert the principal
amount of such holders Convertible Notes, or any portion
of such principal amount that is a multiple of $1,000, into cash
and fully paid shares of common stock of the Company, in
accordance with the terms, procedures and conditions outlined in
the indenture pursuant to which the Convertible Notes were
issued. As of November 1, 2009, the conversion rate for the
Convertible Notes was 24.9121 shares of common stock per
$1,000 in principal amount of the Convertible Notes. The terms
of our Amended Credit Agreement and our ABL Facility require us
to redeem the Convertible Notes by January 15, 2010. We
expect to redeem the Convertible Notes by January 15, 2010,
but if for any reason, we do not redeem the Convertible Notes by
January 15, 2010, this would constitute an event of default
under both our Amended Credit Agreement and our ABL Facility.
Interest on the Convertible Notes is not deductible for income
tax purposes, which creates a permanent tax difference that is
reflected in our effective tax rate. For more information, see
Note 17 to our Consolidated Financial Statements under
Item 8. Financial Statements and Supplementary
Data. The Convertible Notes are general unsecured
obligations and are subordinated to our present and future
senior indebtedness.
Interest
Rate Swap
On June 15, 2006, we entered into a forward interest rate
swap transaction (the Swap Agreement) hedging a
portion of the $400 million variable rate term loan under
our Credit Agreement with a notional amount of $160 million
beginning October 11, 2006. The notional amount decreased
to $145 million on October 11, 2007, decreased to
$105 million on October 14, 2008 and decreased again
to $65 million on October 13, 2009. The term of the
Swap Agreement is four years, ending in June 2010. Under the
Swap Agreement, we will pay a fixed rate of 5.55% on a quarterly
basis in exchange for receiving floating rate payments based on
the three-month LIBOR rate. We are exposed to interest rate risk
associated with fluctuations in the interest rates on our
variable interest rate debt.
The fair value of the Swap Agreement as of November 1, 2009
and November 2, 2008, was a liability of approximately
$2.2 million and $3.9 million, respectively, and is
included in other accrued expenses in the Consolidated Balance
Sheet. The fair value of the Swap Agreement excludes accrued
interest and takes into consideration current interest rates and
current creditworthiness of us or the counterparty, as
applicable. Fair value estimates presented for the Swap
Agreement were determined based on the present value of all
future cash flows, the fixed rate in the contract and
assumptions regarding forward interest rates from a yield curve.
The interest rate swap agreement resulted in additional interest
expense during fiscal 2009 and fiscal 2008 of approximately
$6.1 million and $2.6 million, respectively.
During the fourth quarter of fiscal 2009, in connection with our
refinancing, we concluded the Swap Agreement was no longer an
effective hedge, based on the terms of the Amended Credit
Agreement which
44
includes a 2% LIBOR floor. We do not believe the LIBOR rates
over the remaining term of the Swap Agreement will exceed the
LIBOR floor stated in the Amended Credit Agreement which in
effect results in fixed rate debt. Therefore, during fiscal
2009, we reclassified to interest expense the remaining
$3.1 million of deferred losses recorded to accumulated
other comprehensive income (loss). For fiscal 2009, we have
reduced interest expense by $2.5 million as a result of the
changes in fair value of the hedge and we reclassified
$4.8 million into earnings as a result of the
discontinuance of the hedge designation of the Swap Agreement.
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.
However, we have recently, as well as in the past, sought to
raise additional capital.
We expect that, for the next fiscal year, cash generated from
operations 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 $10 million and $12 million for fiscal 2010
and expansion when needed.
We have used available funds to repurchase shares of our common
stock under our stock repurchase program. Although we did not
purchase any shares of common stock during fiscal 2009 under the
stock repurchase program, we did withhold shares of restricted
stock to satisfy tax withholding obligations arising in
connection with the vesting of awards of restricted stock
related to our 2003 long-term stock incentive plan, which are
included in treasury stock purchases in the Consolidated
Statements of Stockholders Equity. We also used the
proceeds of our Equity Investment to purchase the Convertible
Notes in the Exchange Offer.
Our corporate strategy points to the synergistic value of
potential acquisitions 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 cash payments
and/or
issuance of additional debt.
Steel
Prices
Our business is heavily dependent on the price and supply of
steel. Our various products are fabricated from steel produced
by mills including bars, plates, structural shapes, sheets, hot
rolled coils and galvanized or
Galvalume®-coated
coils. 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. We believe the CRU North American Steel
Price Index, published by the CRU Group since 1994 appropriately
depicts the volatility in steel prices. See Item 7A.
Quantitative and Qualitative Disclosures About Market
Risk Steel Prices. During fiscal 2009, steel
prices fluctuated significantly due to market conditions ranging
from a high point on the CRU Index of 187 to a low point of 112.
Steel prices decreased rapidly during the first eight months of
fiscal 2009 but increased slightly between July 2009 and October
2009. Rapidly declining demand for steel due to the effects of
the credit crisis and global economic slowdown on the
construction, automotive and industrial markets has resulted in
many steel manufacturers around the world announcing plans to
cut production by closing plants and furloughing workers. Steel
suppliers such as US Steel and Arcelor Mittal are among these
manufacturers who have cut production. Given reduced steel
production, higher input costs and low inventories in the
industry, we believe steel prices will increase in fiscal 2010
as compared with prices we experienced during the second half of
fiscal 2009.
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.
45
Because the metal coil coating and metal components segments
have shorter lead times, they have the ability to react to steel
price increases closer to the time they occur without revising
contract prices for existing orders.
We do not have any long-term contracts for the purchase of steel
and 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 remain
available or that prices will not continue to be volatile. While
most of our 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, we may, for competitive or other reasons,
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, or 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 position.
We rely on a few major suppliers for our supply of steel and may
be adversely affected by the bankruptcy, change in control,
financial condition or other factors affecting those suppliers.
During fiscal 2009, we purchased approximately 30% of our steel
requirements from one vendor in the United States. No other
vendor accounted for over 10% of our steel requirements during
fiscal 2009. Due to unfavorable market conditions and our
inventory supply requirements, during fiscal 2009, we purchased
insignificant amounts of steel from foreign suppliers. Limiting
purchases to domestic suppliers further reduces our available
steel supply base. Therefore, recently announced cutbacks, a
prolonged labor strike against one or more of our principal
domestic suppliers, or financial or other difficulties of a
principal supplier that affects its ability to produce steel,
could have a material adverse effect on our operations.
Furthermore, if one or more of our current suppliers is unable
for financial or any other reason to continue in business or to
produce steel sufficient to meet our requirements, essential
supply of our primary raw materials could be temporarily
interrupted and our business could be adversely affected.
However, alternative sources, including foreign steel, are
currently believed to be sufficient to maintain required
deliveries. For additional information about the risks of our
raw material supply and pricing, see Item 1A. Risk
Factors.
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 November 1,
2009, we were not involved in any unconsolidated SPE
transactions.
CONTRACTUAL
OBLIGATIONS
The following table shows our contractual obligations as of
November 1, 2009 (in thousands):
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Payments due by period
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Less than
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4-5
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More than
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Contractual Obligation
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Total
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1 year
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1-3 years
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years
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5 years
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Total debt(1)
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$
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150,249
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$
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14,164
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$
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2,698
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$
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133,387
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$
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Interest payments on debt(2)
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69,661
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17,424
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29,919
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22,318
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Convertible Preferred Stock dividend(3)
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202,590
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45,020
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45,020
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112,550
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Operating leases
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16,423
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7,162
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6,745
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1,042
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1,474
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Other purchase obligations(4)
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14,464
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7,703
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6,761
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|
|
Projected pension obligations(5)
|
|
|
10,730
|
|
|
|
|
|
|
|
2,860
|
|
|
|
3,170
|
|
|
|
4,700
|
|
Other long-term obligations(6)
|
|
|
4,864
|
|
|
|
4,107
|
|
|
|
300
|
|
|
|
300
|
|
|
|
157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
468,981
|
|
|
$
|
50,560
|
|
|
$
|
94,303
|
|
|
$
|
205,237
|
|
|
$
|
118,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
|
|
|
(1) |
|
As of November 1, 2009, the aggregate principal amount and
accrued and unpaid interest thereon of the outstanding
Convertible Notes was approximately $59,000. As of
December 9, 2009 until December 28, 2009, the
Convertible Notes may be converted at the option of the holder.
We are required to convert the principal amount of a
holders Convertible Notes, or any portion of such
principal amount that is a multiple of $1,000, into cash and
fully paid shares of common stock of the Company in accordance
with the terms, procedures and conditions outlined in the
indenture pursuant to which the Convertible Notes were issued.
As of November 1, 2009, the conversion rate is
24.9121 shares of common stock per $1,000 in principal
amount of the Convertible Notes. On December 29, 2009, we
have an obligation to redeem all outstanding Convertible Notes. |
|
(2) |
|
Interest payments were calculated based on the stated interest
rate for fixed rate obligations and rates in effect at
November 1, 2009 for variable rate obligations and the
interest rate swap payments. |
|
(3) |
|
We have assumed that the dividends required by our Convertible
Preferred Stock will be paid in-kind during fiscal 2010 because
we are limited in our ability to pay cash dividends until
October 2010 under the Amended Credit Agreement and the ABL
Facility, except for certain specified purposes. For simplicity,
we have assumed cash dividends of 8% will be paid subsequent to
fiscal 2010 until the Convertible Preferred Stock can be either
called by us or put to us by the CD&R funds on the tenth
anniversary of the Closing Date. However, if at any time after
the 30 month anniversary of the Closing Date, the trading
price of the common stock of the Company exceeds 200% of the
initial conversion price (as defined in the Certificate of
Designation) for each of 20 consecutive trading days, the
dividend rate (excluding any applicable adjustments as a result
of a default) will become 0.00%. |
|
(4) |
|
Includes various agreements for steel delivery obligations, gas
contracts, transportation services and telephone service
obligations. In general, purchase orders issued in the normal
course of business can be terminated in whole or part for any
reason without liability until the product is received. Steel
consignment inventory from our suppliers does not constitute a
purchase commitment and are not included in our table of
contractual obligations. However, it is our current practice to
purchase all consignment inventory that remains in consignment
after an agreed term. Consignment inventory at November 1,
2009 is estimated to be approximately $22 million. |
|
(5) |
|
Amounts represent our estimate of the minimum funding
requirements as determined by government regulations. Amounts
are subject to change based on numerous assumptions, including
the performance of the assets in the plan and bond rates. |
|
(6) |
|
Includes contractual payments and projected supplemental
retirement benefits to or on behalf of former executives. |
CONTINGENT
LIABILITIES AND COMMITMENTS
Our insurance carriers require us to secure standby letters of
credit as a collateral requirement for our projected exposure to
future period claims growth and loss development which includes
incurred but not reported, or IBNR, claims. For all insurance
carriers, the total standby letters of credit are approximately
$12.1 million and $13.1 million at November 1,
2009 and November 2, 2008, respectively.
CRITICAL
ACCOUNTING POLICIES
Our Consolidated Financial Statements are prepared in accordance
with accounting principles generally accepted in the United
States, which require us to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
related disclosure of contingent assets and liabilities. On an
ongoing basis, we evaluate our estimates, including those
estimates that may have a significant effect on our financial
condition and results of operations. Our significant accounting
policies are disclosed in Note 2 to our Consolidated
Financial Statements. The following discussion of critical
accounting policies addresses those policies that are both
important to the portrayal of our financial condition and
results of operations and require significant judgment and
estimates. We base our estimates and judgment on historical
experience and on various other factors that are believed to be
reasonable under the circumstances. Actual results may differ
from these estimates under different assumptions or conditions.
47
Revenue recognition. We recognize revenues
when all of the following conditions are met: persuasive
evidence of an arrangement exists, delivery has occurred or
services have been rendered, the price is fixed or determinable,
and collectibility is reasonably assured. Generally, these
criteria are met at the time product is shipped or services are
complete. Provisions are made upon the sale for estimated
product returns. Costs associated with shipping and handling our
products are included in cost of sales.
Insurance accruals. We are self insured for a
substantial portion of the cost of employee group health
insurance and for the cost of workers compensation
benefits and general liability and automobile claims. We
purchase third party insurance that provides individual and
aggregate stop loss protection for these costs. Each reporting
period, we record the costs of our health insurance plan,
including paid claims, an estimate of the change in incurred but
not reported (IBNR) claims, taxes and administrative
fees (collectively the Plan Costs) as general and
administrative expenses and cost of sales in our Consolidated
Statements of Operations. The estimated IBNR claims are based
upon (i) a recent average level of paid claims under the
plan, (ii) an estimated lag factor and (iii) an
estimated growth factor to provide for those claims that have
been incurred but not yet paid. For workers compensation
costs, we monitor the number of accidents and the severity of
such accidents to develop appropriate estimates for expected
costs to provide both medical care and benefits during the
period an employee is unable to work. These accruals are
developed using third-party estimates of the expected cost and
length of time an employee will be unable to work based on
industry statistics for the cost of similar disabilities. For
general liability and automobile claims, accruals are developed
based on third-party estimates of the expected cost to resolve
each claim based on industry statistics and the nature and
severity of the claim and include estimates for IBNR claims,
taxes and administrative fees. This statistical information is
trended to provide estimates of future expected costs based on
factors developed from our experience of actual claims cost
compared to original estimates.
We believe that the assumptions and information used to develop
these accruals provide the best basis for these estimates each
quarter because, as a general matter, the accruals have
historically proven to be reasonable and accurate. However,
significant changes in expected medical and health care costs,
negative changes in the severity of previously reported claims
or changes in laws that govern the administration of these plans
could have an impact on the determination of the amount of these
accruals in future periods. Our methodology for determining the
amount of health insurance accrual considers claims growth and
claims lag, which is the length of time between the incurred
date and processing date. For the health insurance accrual, a
change of 10% in the lag assumption would result in a financial
impact of $0.3 million.
Share-Based Compensation. Under ASC Topic 718,
Compensation - Stock Compensation, the fair value
and compensation expense of each option award is estimated as of
the date of grant using a Black-Scholes-Merton option pricing
formula. Expected volatility is based on historical volatility
of our stock over a preceding period commensurate with the
expected term of the option. The expected volatility considers
factors such as the volatility of our share price, implied
volatility of our share price, length of time our shares have
been publicly traded, appropriate and regular intervals for
price observations and our corporate and capital structure. The
forfeiture rate in our calculation of share-based compensation
expense is based on historical experience and is estimated at
10% for our non-officers and 0% to 10% for our officers. The
risk-free rate for the expected term of the option is based on
the U.S. Treasury yield curve in effect at the time of
grant. Expected dividend yield was not considered in the option
pricing formula since we historically have not paid dividends
and have no current plans to do so in the future. There were no
options granted during the fiscal years ended November 1,
2009 and November 2, 2008.
The compensation cost related to these share-based awards is
recognized over the requisite service period. The requisite
service period is generally the period during which an employee
is required to provide service in exchange for the award.
Our option awards and restricted stock awards are subject to
graded vesting over a service period, which is typically four
years. We recognize compensation cost for these awards on a
straight-line basis over the requisite service period for the
entire award. In addition, certain of our awards provide for
accelerated vesting upon qualified retirement. We recognize
compensation cost for such awards over the period from grant
date to the date the employee first becomes eligible for
retirement.
48
Income taxes. The determination of our
provision for income taxes requires significant judgment, the
use of estimates and the interpretation and application of
complex tax laws. Our provision for income taxes reflects a
combination of income earned and taxed in the various
U.S. federal and state, Canadian federal and provincial as
well as Mexican federal jurisdictions. Jurisdictional tax law
changes, increases or decreases in permanent differences between
book and tax items, accruals or adjustments of accruals for tax
contingencies or valuation allowances, and the change in the mix
of earnings from these taxing jurisdictions all affect the
overall effective tax rate.
In assessing the realizability of deferred tax assets, we must
consider whether it is more likely than not that some portion or
all of the deferred tax assets will not be realized. We consider
all available evidence in determining whether a valuation
allowance is required. Such evidence includes the scheduled
reversal of deferred tax liabilities, projected future taxable
income and tax planning strategies in making this assessment,
and judgment is required in considering the relative weight of
negative and positive evidence. The entire U.S. federal net
operating loss will be fully utilized through carryback against
taxable income generated in fiscal 2008 and 2007. At both
November 1, 2009 and November 2, 2008, we had a full
valuation allowance in the amount of $5.0 million on the
deferred tax assets of Robertson Building Systems Ltd., our
Canadian subsidiary.
Accounting for acquisitions, intangible assets and
goodwill. Accounting for the acquisition of a
business requires the allocation of the purchase price to the
various assets and liabilities of the acquired business. For
most assets and liabilities, purchase price allocation is
accomplished by recording the asset or liability at its
estimated fair value. The most difficult estimations of
individual fair values are those involving property, plant and
equipment and identifiable intangible assets. We use all
available information to make these fair value determinations
and, for major business acquisitions such as RCC, typically
engage an outside appraisal firm to assist in the fair value
determination of the acquired long-lived assets.
In connection with the acquisition of Garco, we recorded
intangible assets for trade names, backlog, customer
relationships and non-competition agreements in the amount of
$0.8 million, $0.7 million, $2.5 million and
$1.8 million, respectively. All Garco intangible assets are
amortized on a straight-line basis over their expected useful
lives. Garcos trade names are being amortized over
15 years based on our expectation of our use of the trade
names. Garcos backlog was amortized over one year because
items in Garcos backlog were expected to be delivered
within one year. Garcos customer lists and relationships
are being amortized over fifteen years based on a review of the
historical length of Garcos customer retention experience.
Garcos non-competition agreements are being amortized over
their agreement terms of five years.
At November 1, 2009, we have total goodwill of
$5.2 million which is all included in our engineered
building systems segment. At November 2, 2008, we had total
goodwill of $616.6 million, of which $99.0 million,
$147.2 million and $370.4 million is included in the
metal coil coating, metal components and engineered building
systems segments.
In connection with the acquisition of RCC, we recorded
intangible assets for trade names, backlog and customer
relationships in the amount of $24.7 million,
$2.3 million and $6.3 million, respectively. Trade
names were determined to have indefinite useful lives and so are
not amortized. Trade names were determined to have indefinite
lives due to the length of time the trade names have been in
place, with some having been in place for decades. Our past
practice with other acquisitions and our current intentions are
to maintain the trade names indefinitely. This judgmental
assessment of an indefinite useful life must be continuously
evaluated in the future. If, due to changes in facts and
circumstances, management determines that these intangible
assets then have definite useful lives, amortization will
commence at that time on a prospective basis. As long as these
intangible assets are judged to have indefinite lives, they will
be subject to periodic impairment tests that require
managements judgment of the estimated fair value of these
intangible assets. We assess impairment of our
non-amortizing
intangibles at least annually in accordance with ASC Topic 350,
Intangibles Goodwill and Other (ASC
350). All other intangible assets are amortized on a
straight-line basis over their expected useful lives. RCCs
backlog was amortized over one year because items in RCCs
backlog were expected to be delivered within one year.
RCCs customer lists and relationships are being
49
amortized over fifteen years based on a review of the historical
length of RCCs customer retention experience. See
Note 5 Acquisitions in the Notes to
Consolidated Financial Statements, for additional information.
We had recorded approximately $277.3 million of goodwill as
a result of the RCC acquisition. Goodwill of $17.0 million,
$17.8 million and $242.5 million had been recorded in
our metal coil coating, metal components and engineered building
systems segments, respectively. We perform a test for impairment
of all our goodwill annually as prescribed by ASC 350. The fair
value of our reporting units is based on a blend of estimated
discounted cash flows, publicly traded company multiples and
acquisition multiples. The results from each of these models are
then weighted and combined into a single estimate of fair value
for our one remaining reporting unit. Estimated discounted cash
flows are based on projected sales and related cost of sales.
Publicly traded company multiples and acquisition multiples are
derived from information on traded shares and analysis of recent
acquisitions in the marketplace, respectively, for companies
with operations similar to ours. The primary assumptions used in
these various models include earnings multiples of acquisitions
in a comparable industry, future cash flow estimates of each of
our reporting units, weighted average cost of capital, working
capital and capital expenditure requirements. During fiscal
2008, we adopted an approach to the computation of the terminal
value in the discounted cash flow method, using the Gordon
growth model instead of a market based EBITDA multiple approach.
We have not made any material changes in our impairment
assessment methodology during each fiscal year of 2009 and 2007.
We do not believe the estimates used in the analysis are
reasonably likely to change materially in the future but we will
continue to assess the estimates in the future based on the
expectations of the reporting units. Changes in assumptions used
in the fair value calculation could result in an estimated
reporting unit fair value that is below the carrying value,
which may give rise to an impairment of goodwill.
We perform an annual assessment of the recoverability of
goodwill and indefinite lived intangibles. Additionally, we
assess goodwill and indefinite lived intangibles for impairment
whenever events or changes in circumstances indicate that such
carrying values may not be recoverable. Unforeseen events,
changes in circumstances and market conditions and material
differences in the value of intangible assets due to changes in
estimates of future cash flows could negatively affect the fair
value of our assets and result in a non-cash impairment charge.
Some factors considered important that could trigger an
impairment review include the following: significant
underperformance relative to expected historical or projected
future operating results, significant changes in the manner of
our use of the acquired assets or the strategy for our overall
business and significant sustained negative industry or economic
trends.
Subsequent to our fiscal 2008 annual assessment of the
recoverability of goodwill and indefinite lived intangibles, and
beginning largely in late September, our stock price and market
capitalization decreased from $36.51 and $720.3 million,
respectively, at July 27, 2008 to $18.61 and
$367.3 million, respectively, at November 2, 2008. We
evaluated whether the recent decline in our stock price and
market capitalization represented a significant decline in the
underlying fair value of the Company. Based upon our analysis,
we concluded that the decline in our stock price and the
resulting decline in our market capitalization did not require
us to perform an additional goodwill and indefinite lived
intangibles impairment test because we did not believe the
decline was caused by significant underperformance of the
Company relative to historical or projected future operating
results, a significant change in the manner of our use of the
acquired assets or the strategy for our overall business, or a
significant negative industry or economic trend.
Based on lower than projected sales volumes in our first quarter
of fiscal 2009 and based on a revised lower outlook for
non-residential construction activity in 2009, management
reduced the Companys cash flow projections. We concluded
that this reduction was an impairment indicator requiring us to
perform an interim goodwill impairment test for each of our six
reporting units as of February 1, 2009. As a result of this
impairment indicator, we updated the first step of our goodwill
impairment test in the first quarter of fiscal 2009. The first
step of our goodwill impairment test determines fair value of
the reporting unit based on a blend of estimated discounted cash
flows, publicly traded company multiples and acquisition
multiples reconciled to our recent publicly traded stock price,
including a reasonable control premium. The result from this
model was then weighted and combined into a single estimate of
fair value. We determined that our carrying value exceeded our
fair value at most of our reporting units in each of our
operating segments, indicating that goodwill was potentially
impaired. As a result, we initiated the second step of the
goodwill
50
impairment test which involves calculating the implied fair
value of our goodwill by allocating the fair value of the
reporting unit to all assets and liabilities other than goodwill
and comparing it to the carrying amount of goodwill. The fair
value of each of the reporting units assets and
liabilities were determined based on a combination of prices of
comparable businesses and present value techniques.
As of February 1, 2009, we estimated the market implied
fair value of our goodwill was less than its carrying value by
approximately $508.9 million, which was recorded as a
goodwill impairment charge in the first quarter of fiscal 2009.
This charge was an estimate based on the result of the
preliminary allocation of fair value in the second step of the
goodwill impairment test. However, due to the timing and
complexity of the valuation calculations required under the
second step of the test, we were not able to finalize our
allocation of the fair value until the second quarter of fiscal
2009 with regard to property, plant and equipment and intangible
assets in which their respective values are dependent on
property, plant and equipment. The finalization was included in
our goodwill impairment charge in the second quarter of fiscal
2009.
Further declines in cash flow projections and the corresponding
implementation of the Phase III restructuring plan caused
management to determine that there was an indicator requiring us
to perform another interim goodwill impairment test for each of
our reporting units with goodwill remaining as of May 3,
2009. As a result of this impairment indicator, we again
performed the first step of our goodwill impairment test in the
second quarter of fiscal 2009, the results of which indicated
that our carrying value exceeded our fair value at most of our
reporting units with goodwill remaining, indicating that
goodwill was potentially impaired. As a result, we initiated the
second step of the goodwill impairment test. As of May 3,
2009, we determined the market implied fair value of our
goodwill was less than the carrying value for certain reporting
units by approximately $102.5 million, which has been
recorded as a goodwill impairment charge in the second quarter
of fiscal 2009.
As a result of the aforementioned goodwill impairment indicators
and in accordance with ASC 350, we performed an impairment
analysis on our indefinite lived intangible asset related to
RCCs trade names in our engineered building systems
segment to determine the fair value. Based on changes to our
projected cash flows in the first quarter of fiscal 2009 and
based on the lower projected cash flows and related
Phase III restructuring plan in the second quarter of
fiscal 2009, we determined the carrying cost exceeded the future
fair value attributable to the intangible asset, and recorded
impairment charges of $8.7 million in the first quarter of
fiscal 2009 and $2.4 million in the second quarter of
fiscal 2009 related to the intangible asset.
The results of our fiscal year 2009 annual assessment of the
recoverability of goodwill and indefinite lived intangibles
indicated that the fair value of the Companys one
remaining reporting unit was in excess of the carrying value of
that reporting unit, including goodwill, and thus no impairment
existed in the fourth quarter of fiscal 2009. In fiscal 2009,
our one remaining reporting units fair value would have
had to have been lower by more than 50% compared to the fair
value estimated in our impairment analysis before its carrying
value would exceed the fair value of the reporting unit,
indicating that goodwill was potentially impaired.
Allowance for doubtful accounts. Our allowance
for doubtful accounts reflects reserves for customer receivables
to reduce receivables to amounts expected to be collected.
Management uses significant judgment in estimating uncollectible
amounts. In estimating uncollectible accounts, management
considers factors such as current overall economic conditions,
industry-specific economic conditions, historical customer
performance and anticipated customer performance. While we
believe these processes effectively address our exposure for
doubtful accounts and credit losses have historically been
within expectations, changes in the economy, industry, or
specific customer conditions may require adjustments to the
allowance for doubtful accounts. During fiscal years 2009, 2008
and 2007, we established new reserves for doubtful accounts of
$1.2 million, $3.5 million and $0.3 million,
respectively. Additionally, in each of the three fiscal years
ended November 1, 2009, we wrote off uncollectible accounts
of $2.5 million, $2.1 million and $6.6 million,
respectively, all of which had been previously reserved.
Inventory valuation. In determining the
valuation of inventory and record an allowance for obsolete
inventory using the specific identification method for steel
coils and other raw materials. Management also reviews the
carrying value of inventory for lower of cost or market. Our
primary raw material is steel coils
51
which have historically shown significant price volatility. We
generally manufacture to customers orders, and thus
maintain raw materials with a variety of ultimate end uses. We
record a lower of cost or market charge to cost of sales when
the net realizable value (selling price less estimated cost of
disposal), based on our intended end usage, is below our
estimated product cost at completion. Estimated net realizable
value is based upon assumptions of targeted inventory turn
rates, future demand, anticipated finished goods sales prices,
management strategy and market conditions for steel. If
projected end usage or projected sales prices change
significantly from managements current estimates or actual
market conditions are less favorable than those projected by
management, additional inventory write-downs may be required and
in the case of a major downturn in market conditions, such
write-downs could be significant.
We adjusted our raw material inventory to the lower of cost or
market because this inventory exceeded our current estimates of
net realizable value less normal profit margins. At
November 1, 2009, all inventory with a lower of cost or
market adjustment was fully utilized. The balance of the lower
of cost or market adjustment was $2.7 million at
November 2, 2008.
Property, plant and equipment valuation. We
assess the recoverability of the carrying amount of property,
plant and equipment if certain events or changes in
circumstances indicate that the carrying value of such assets
may not be recoverable, such as a significant decrease in market
value of the assets or a significant change in our business
conditions. If we determine that the carrying value of an asset
is not recoverable based on expected undiscounted future cash
flows, excluding interest charges, we record an impairment loss
equal to the excess of the carrying amount of the asset over its
fair value. The fair value of assets is determined based on
prices of similar assets adjusted for their remaining useful
life.
During fiscal 2009, we adjusted our property, plant and
equipment because we determined that the carrying value of
certain assets were not recoverable based on expected
undiscounted future cash flows. We recorded asset impairments of
$6.3 million in fiscal 2009.
Contingencies. We establish reserves for
estimated loss contingencies when we believe a loss is probable
and the amount of the loss can be reasonably estimated. Our
contingent liability reserves are related primarily to
litigation and environmental matters. Revisions to contingent
liability reserves are reflected in income in the period in
which there are changes in facts and circumstances that affect
our previous assumptions with respect to the likelihood or
amount of loss. Reserves for contingent liabilities are based
upon our assumptions and estimates regarding the probable
outcome of the matter. We estimate the probable cost by
evaluating historical precedent as well as the specific facts
relating to each particular contingency (including the opinion
of outside advisors, professionals and experts). Should the
outcome differ from our assumptions and estimates or other
events result in a material adjustment to the accrued estimated
reserves, revisions to the estimated reserves for contingent
liabilities would be required and would be recognized in the
period the new information becomes known.
RECENT
ACCOUNTING PRONOUNCEMENTS
In December 2008, the FASB issued guidance that has been
codified under ASC Topic
715-20,
Defined Benefit Plans - General (ASC
715-20).
ASC 715-20
provides guidance on an employers disclosures about plan
assets of a defined benefit pension or other postretirement
plan. The disclosures about plan assets required by ASC
715-20 are
effective for our fiscal year ended 2010 and are not required
for earlier periods presented for comparative purposes. We will
adopt the disclosure provisions required by ASC
715-20 in
fiscal 2010.
In June 2008, the FASB issued guidance that has been codified
under ASC Topic
260-10,
Earnings Per Share (ASC
260-10).
This pronouncement provides that unvested share-based payment
awards that contain non-forfeitable rights to dividends or
dividend equivalents are participating securities
and, therefore, should be included in computing earnings per
share using the two class method. We will implement this
statement in our fiscal year that begins November 2, 2009
and apply it as applicable. All prior period earnings per share
data would be adjusted retrospectively to conform with the
provisions of this pronouncement. We are currently evaluating
the impact of this pronouncement.
52
In May 2008, the FASB issued guidance that has been codified
under ASC Topic
470-20,
Debt with Conversion and Other Options (ASC
470-20).
ASC 470-20
will change the accounting for certain convertible debt
instruments, including our Convertible Notes. Under the new
rules, for convertible debt instruments that may be settled
entirely or partially in cash upon conversion, an entity shall
separately account for the liability and equity components of
the instrument in a manner that reflects the issuers
economic interest cost. The effect of ASC
470-20 for
our Convertible Notes is that the equity component will be
included in the
paid-in-capital
section of stockholders equity on our consolidated balance
sheet and the value of the equity component will be treated as
an original issue discount for purposes of accounting for the
debt component of the Convertible Notes. Higher interest expense
will result by recognizing the accretion of the discounted
carrying value of the Convertible Notes to their face amount as
interest expense over the term of the Convertible Notes using an
effective interest rate method. ASC
470-20 is
effective for our fiscal year ended 2010, does not permit early
application, and will be applied retrospectively to all periods
presented. While this accounting pronouncement does not change
the economic substance or cash flow requirements for the
Convertible Notes, the amount reported as interest expense in
our consolidated statement of operations will increase due to
the accretion of the discounted carrying value of the
Convertible Notes to their face amount. The Convertible Notes
will also reflect higher than previously reported interest
expense due to retrospective application. We are currently
evaluating the impact of adopting ASC
470-20 but
anticipate the reported interest expense on our Convertible
Notes will increase from 2.125% to 7.5%. The retroactive
application of this pronouncement to fiscal years 2005 to 2009
will result in an increase to annual interest expense of
approximately $7.5 million in fiscal 2005, gradually
increasing to approximately $9.9 million in fiscal 2009. In
October 2009, we completed the Exchange Offer to acquire
$180 million aggregate principal amount of the Convertible
Notes. Therefore, we will not have additional prospective
interest expense upon adoption.
In February 2008, the FASB issued additional guidance codified
under ASC
820-10,
Fair Value Measurements and Disclosures (ASC
820-10).
This Statement defines fair value, establishes a framework for
measuring fair value and expands disclosures about fair value
measurements. ASC
820-10
partially delays the effective date for nonfinancial assets and
nonfinancial liabilities, except for items that are recognized
or disclosed at fair value in the financial statements on a
recurring basis (at least annually). We will adopt ASC
820-10 in
our fiscal year that begins November 2, 2009 for
nonrecurring, non-financial assets and liabilities that are
recognized or disclosed at fair value. However, we do not
believe the adoption of this accounting pronouncement for
nonrecurring, non-financial assets and liabilities will have a
material impact on our consolidated financial statements.
In December 2007, the FASB issued guidance that has been
codified under ASC Topic 810, Consolidations (ASC
810). This Statement amends previous guidance to establish
accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a noncontrolling interest in a
subsidiary is an ownership interest in the consolidated entity
that should be reported as equity in the consolidated financial
statements. It requires consolidated net income to be reported
at amounts that include the amounts attributable to both the
parent and the noncontrolling interest. It also requires
disclosure, on the face of the consolidated statement of income,
of the amounts of consolidated net income attributable to the
parent and to the noncontrolling interest. ASC 810 established a
single method of accounting for changes in a parents
ownership interest in a subsidiary that do not result in
deconsolidation and requires that a parent recognize a gain or
loss in net income when a subsidiary is deconsolidated. In
addition, ASC 810 requires expanded disclosures in the
consolidated financial statements that clearly identify and
distinguish between the interests of the parents owners
and the interests of the noncontrolling owners of a subsidiary.
We will implement this statement in our fiscal year that begins
November 2, 2009 and apply it as applicable. We currently
do not have any ownership interest which would be impacted by
ASC 810.
In December 2007, the FASB issued guidance that has been
codified under ASC Topic 805, Business Consolidations
(ASC 805). This statement replaces previous
guidance but retains the fundamental requirements of the
previous guidance. ASC 805 establishes principles and
requirements for how the acquirer recognizes and measures in its
financial statements the identifiable assets acquired, the
liabilities assumed, and any noncontrolling interest in the
acquiree. In addition, ASC 805 recognizes and measures the
goodwill acquired in the business combination or a gain from a
bargain purchase and determines disclosures to enable
53
users of the financial statement to evaluate the nature and
financial effects of the business combination. We will implement
this statement for all future acquisitions following the date of
adoption in our fiscal year that begins November 2, 2009.
The impact of adoption of ASC 805 on our financial position or
results of operations is dependent upon the nature and terms of
business combinations, if any, that we may consummate in fiscal
2010 and thereafter.
|
|
Item 7A.
|
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 year ended November 1,
2009, steel constituted approximately 71% 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
coils. 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. Rapidly declining demand for steel due to
the effects of the credit crisis and global economic slowdown on
the construction, automotive and industrial markets has resulted
in many steel manufacturers around the world announcing plans to
cut production by closing plants and furloughing workers. Steel
suppliers such as US Steel and Arcelor Mittal are among these
manufacturers who have cut production. Given reduced steel
production, higher input costs and low inventories in the
industry, we believe steel prices will increase in fiscal 2010
as compared with the prices we experienced during the second
half of fiscal 2009.
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 of 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. For example, the October index would
likely approximate our fiscal November or December steel
purchase deliveries based on current lead-times. The volatility
in this steel price index is comparable to the volatility we
experienced in our average cost of steel. Further, due to the
market conditions described above, the most recent CRU prices
have been based on a lower than normal trading volume.
54
Source:
www.crugroup.com
We do not have any long-term contracts for the purchase of steel
and 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 remain
available or that prices will not continue to be volatile. While
most of our 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, we may, for competitive or other reasons,
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 position.
We rely on a few major suppliers for our supply of steel and may
be adversely affected by the bankruptcy, change in control,
financial condition or other factors affecting those suppliers.
During fiscal 2009, we purchased approximately 30% of our steel
requirements from one vendor in the United States. No other
vendor accounted for over 10% of our steel requirements during
fiscal 2009. Due to unfavorable market conditions and our
inventory supply requirements, during fiscal 2009, we purchased
insignificant amounts of steel from foreign suppliers. Limiting
purchases to domestic suppliers further reduces our available
steel supply base. Therefore, recently announced cutbacks, a
prolonged labor strike against one or more of our principal
domestic suppliers, or financial or other difficulties of a
principal supplier that affects its ability to produce steel,
could have a material adverse effect on our operations.
Furthermore, if one or more of our current suppliers is unable
for financial or any other reason to continue in business or to
produce steel sufficient to meet our requirements, essential
supply of our primary raw materials could be temporarily
interrupted and our business could be adversely affected.
However, alternative sources, including foreign steel, are
currently believed to be sufficient to maintain required
deliveries.
With steel accounting for approximately 71% of our cost of sales
for fiscal 2009, a one percent change in the cost of steel would
have resulted in a pre-tax impact on cost of sales of
approximately $5.7 million for our fiscal year ended
November 1, 2009, 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.
55
Interest
Rates
We are subject to market risk exposure related to changes in
interest rates on our Amended Credit Agreement and ABL Facility.
These instruments bear interest at an agreed upon percentage
point spread from either the prime interest rate or LIBOR. Under
our Amended 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 November 1, 2009,
we had $150.0 million outstanding under our Amended Credit
Agreement. Based on this balance and considering the Swap
Agreement discussed below, an immediate change of one percent in
the interest rate would cause a change in interest expense of
approximately $1.1 million on an annual basis. The fair
value of our Convertible Notes at November 1, 2009 was
approximately $0.1 million compared to the face value of
$0.1 million. The fair value of our Convertible Notes at
November 2, 2008 was approximately $149.5 million
compared to the face value of $180.0 million. The fair
value of our Amended Credit Agreement at November 1, 2009
was approximately $138.0 million compared to the face value
of $150.0 million. The fair value of our Credit Agreement
at November 2, 2008 was approximately $252.0 million
compared to the face value of $293.2 million.
We may from time to time utilize interest rate swaps to manage
overall borrowing costs and reduce exposure to adverse
fluctuations in interest rates. We do not purchase or hold any
derivative financial instruments for trading purposes. As
disclosed in Note 12 to the Consolidated Financial
Statements, we initially converted $160 million of our
$293 million term loan outstanding on our $400 million
term loan under the Credit Agreement to fixed rate debt by
entering into an interest rate swap agreement (Swap
Agreement). At November 1, 2009 and November 2,
2008, the notional amount of the Swap Agreement was
$65 million and $105 million, respectively. However,
in connection with our refinancing, we concluded the Swap
Agreement was no longer an effective hedge, based on the
modified terms of the Amended Credit Agreement which includes a
2% LIBOR floor. We do not believe the LIBOR rates over the
remaining term of the Swap Agreement will exceed the LIBOR floor
stated in the Amended Credit Agreement which in effect results
in fixed rate debt.
See Note 11 to the Consolidated Financial Statements for
more information on the material terms of our long-term debt.
The table below presents scheduled debt maturities and related
weighted-average interest rates for each of the fiscal years
relating to debt obligations as of November 1, 2009.
Weighted-average variable rates are based on LIBOR rates at
November 1, 2009, plus applicable margins.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
|
|
|
Scheduled Maturity Date(a)
|
|
Value
|
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
Thereafter
|
|
Total
|
|
11/1/09
|
|
|
(In millions, except interest rate percentages)
|
|
|
|
Total Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate(b)
|
|
$
|
0.2
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.2
|
|
|
$
|
0.2
|
|
Interest Rate
|
|
|
2.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.1
|
%
|
|
|
|
|
Variable Rate
|
|
$
|
13.9
|
|
|
|
1.4
|
|
|
|
1.3
|
|
|
|
1.3
|
|
|
|
132.1
|
|
|
|
|
|
|
$
|
150.0
|
|
|
$
|
138.0
|
(c)
|
Average interest rate
|
|
|
8.0
|
%
|
|
|
8.0
|
%
|
|
|
8.0
|
%
|
|
|
8.0
|
%
|
|
|
8.0
|
%
|
|
|
|
|
|
|
8.0
|
%
|
|
|
|
|
|
|
|
(a) |
|
Expected maturity date amounts are based on the face value of
debt and do not reflect fair market value of the debt. |
|
(b) |
|
Fixed rate debt excludes the Swap Agreement. |
|
(c) |
|
Based on recent trading activities of comparable market
instruments. |
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
56
included in net income in the current period. Net foreign
currency re-measurement losses for the fiscal year ended
November 1, 2009 was immaterial and for the fiscal years
ended November 2, 2008 and October 28, 2007 was
$(1.1) million and $(0.3) 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. Net foreign currency translation adjustment, net of tax,
and included in other comprehensive income for the fiscal years
ended November 1, 2009 and November 2, 2008 was
$(0.2) million and $0.3 million, respectively.
|
|
Item 8.
|
Financial
Statements and Supplementary Data.
|
INDEX TO
FINANCIAL STATEMENTS AND SCHEDULES
|
|
|
|
|
|
|
|
58
|
|
|
|
|
59
|
|
|
|
|
60
|
|
Financial Statements:
|
|
|
|
|
|
|
|
61
|
|
|
|
|
62
|
|
|
|
|
63
|
|
|
|
|
64
|
|
|
|
|
65
|
|
|
|
|
66
|
|
57
MANAGEMENTS
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of NCI Building Systems, Inc. (the
Company or our) is responsible for
establishing and maintaining adequate internal control over
financial reporting for the Company as defined in
Rules 13a-15(f)
and
15d-15(f)
under the Securities Exchange Act of 1934. The Companys
internal control system was designed to provide reasonable
assurance to the Companys management and board of
directors regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in
accordance with U.S. generally accepted accounting
principles.
Internal control over financial reporting includes the controls
themselves, monitoring (including internal auditing practices),
and actions taken to correct deficiencies as identified.
Internal control over financial reporting has inherent
limitations and may not prevent or detect misstatements. The
design of an internal control system is also based in part upon
assumptions and judgments made by management about the
likelihood of future events, and there can be no assurance that
an internal control will be effective under all potential future
conditions. Therefore, even those systems determined to be
effective can provide only reasonable, not absolute, assurance
with respect to the financial statement preparation and
presentation. Further, because of changes in conditions, the
effectiveness of internal control over financial reporting may
vary over time.
Management assessed the effectiveness of the Companys
internal control over financial reporting as of November 1,
2009. In making this assessment, management used the criteria
for internal control over financial reporting described in
Internal Control Integrated Framework by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Managements assessment included an
evaluation of the design of the Companys internal control
over financial reporting and testing of the operating
effectiveness of its internal control over financial reporting.
Management reviewed the results of its assessment with the Audit
Committee of the Companys Board of Directors. Based on
this assessment, management has concluded that, as of
November 1, 2009, the Companys internal control over
financial reporting was effective.
Ernst & Young LLP, the independent registered public
accounting firm that has audited the Companys consolidated
financial statements, has audited the effectiveness of the
Companys internal control over financial reporting as of
November 1, 2009. Their report included elsewhere herein
expresses an unqualified opinion on the effectiveness of our
internal control over financial reporting as of November 1,
2009.
58
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board
of Directors and Shareholders of NCI Building Systems,
Inc.
We have audited NCI Building Systems, Inc.s (the
Company) internal control over financial reporting
as of November 1, 2009, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (the COSO
criteria). The Companys management is responsible for
maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control
over financial reporting included in the accompanying
Managements Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the
companys internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, NCI Building Systems, Inc. maintained, in all
material respects, effective internal control over financial
reporting as of November 1, 2009, based on the COSO
criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of the Company as of
November 1, 2009 and November 2, 2008 and the related
consolidated statements of operations, stockholders
equity, cash flows and comprehensive income (loss) for each of
the three years in the period ended November 1, 2009 of the
Company and our report dated December 22, 2009 expressed an
unqualified opinion thereon.
/s/ Ernst & Young LLP
Houston, Texas
December 22, 2009
59
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board
of Directors and Shareholders of NCI Building Systems,
Inc.
We have audited the accompanying consolidated balance sheets of
NCI Building Systems, Inc. (the Company) as of
November 1, 2009 and November 2, 2008, and the related
consolidated statements of operations, stockholders
equity, cash flows and comprehensive income (loss) for each of
the three years in the period ended November 1, 2009. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of the Company at November 1, 2009 and
November 2, 2008, and the consolidated results of their
operations, their cash flows and their comprehensive income
(loss) for each of the three years in the period ended
November 1, 2009, in conformity with U.S. generally
accepted accounting principles.
As discussed in Notes 3 and 23 to the consolidated
financial statements, effective October 28, 2007, the
Company adopted the guidance originally issued in Staff
Accounting Bulletin No. 108, Considering the
effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements and the
guidance originally issued in Statement of Financial Accounting
Standard (SFAS) No. 158, Employers Accounting
for Defined Benefit Pension and Other Postretirement
Plans an amendment of FASB Statements No. 87,
88, 106, and 132(R) (codified in FASB ASC Topic 715,
Compensation-Retirement Benefits). Also, discussed
in Note 3 to the consolidated financial statements,
effective October 29, 2007, the Company adopted the
guidance originally issued in FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an
Interpretation of FASB Statement No. 109 (codified in
FASB ASC Topic 740, Income Taxes).
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
November 1, 2009, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our
report dated December 22, 2009 expressed an unqualified
opinion thereon.
/s/ Ernst & Young LLP
Houston, Texas
December 22, 2009
60
CONSOLIDATED
STATEMENTS OF OPERATIONS
NCI
BUILDING SYSTEMS, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
November 1,
|
|
|
November 2,
|
|
|
October 28,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except per share data)
|
|
|
Sales
|
|
$
|
967,923
|
|
|
$
|
1,764,159
|
|
|
$
|
1,625,068
|
|
Cost of sales
|
|
|
752,793
|
|
|
|
1,321,917
|
|
|
|
1,221,463
|
|
Lower of cost or market adjustment
|
|
|
39,986
|
|
|
|
2,739
|
|
|
|
|
|
Asset impairments
|
|
|
6,291
|
|
|
|
157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
168,853
|
|
|
|
439,346
|
|
|
|
403,605
|
|
Selling, general and administrative expenses
|
|
|
209,567
|
|
|
|
283,577
|
|
|
|
271,871
|
|
Goodwill and other intangible asset impairments
|
|
|
622,564
|
|
|
|
|
|
|
|
|
|
Restructuring charge
|
|
|
9,052
|
|
|
|
1,059
|
|
|
|
|
|
Change of control charges
|
|
|
11,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(683,498
|
)
|
|
|
154,710
|
|
|
|
131,734
|
|
Interest income
|
|
|
393
|
|
|
|
1,085
|
|
|
|
725
|
|
Interest expense
|
|
|
(20,410
|
)
|
|
|
(23,535
|
)
|
|
|
(28,829
|
)
|
Debt extinguishment and refinancing costs
|
|
|
(100,260
|
)
|
|
|
|
|
|
|
|
|
Other (expense) income, net
|
|
|
2,287
|
|
|
|
(1,880
|
)
|
|
|
1,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(801,488
|
)
|
|
|
130,380
|
|
|
|
104,825
|
|
Provision (benefit) for income taxes
|
|
|
(54,524
|
)
|
|
|
51,499
|
|
|
|
41,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(746,964
|
)
|
|
$
|
78,881
|
|
|
$
|
63,729
|
|
Convertible preferred stock dividends and accretion
|
|
|
1,187
|
|
|
|
|
|
|
|
|
|
Convertible preferred stock beneficial conversion feature
|
|
|
10,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common shares
|
|
$
|
(758,677
|
)
|
|
$
|
78,881
|
|
|
$
|
63,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(34.06
|
)
|
|
$
|
4.08
|
|
|
$
|
3.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(34.06
|
)
|
|
$
|
4.05
|
|
|
$
|
3.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
22,013
|
|
|
|
19,332
|
|
|
|
19,582
|
|
Diluted
|
|
|
22,013
|
|
|
|
19,486
|
|
|
|
20,793
|
|
See accompanying notes to the consolidated financial statements.
61
CONSOLIDATED
BALANCE SHEETS
NCI
BUILDING SYSTEMS, INC.
|
|
|
|
|
|
|
|
|
|
|
November 1,
|
|
|
November 2,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands,
|
|
|
|
except share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
90,419
|
|
|
$
|
68,201
|
|
Restricted cash, current
|
|
|
5,154
|
|
|
|
|
|
Accounts receivable, net
|
|
|
82,889
|
|
|
|
163,005
|
|
Inventories, net
|
|
|
71,537
|
|
|
|
192,011
|
|
Deferred income taxes
|
|
|
18,787
|
|
|
|
24,259
|
|
Income tax receivable
|
|
|
27,622
|
|
|
|
|
|
Investments in debt and equity securities, at market
|
|
|
3,359
|
|
|
|
2,639
|
|
Prepaid expenses and other
|
|
|
14,494
|
|
|
|
15,735
|
|
Assets held for sale
|
|
|
4,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
319,224
|
|
|
|
465,850
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
231,840
|
|
|
|
251,163
|
|
Goodwill
|
|
|
5,200
|
|
|
|
616,626
|
|
Intangible assets, net
|
|
|
28,370
|
|
|
|
41,678
|
|
Restricted cash, net of current portion
|
|
|
7,825
|
|
|
|
|
|
Other assets, net
|
|
|
21,389
|
|
|
|
5,384
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
613,848
|
|
|
$
|
1,380,701
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
14,164
|
|
|
$
|
920
|
|
Note payable
|
|
|
481
|
|
|
|
|
|
Accounts payable
|
|
|
73,594
|
|
|
|
104,348
|
|
Accrued compensation and benefits
|
|
|
37,215
|
|
|
|
67,429
|
|
Accrued interest
|
|
|
776
|
|
|
|
2,422
|
|
Other accrued expenses
|
|
|
52,455
|
|
|
|
60,013
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
178,685
|
|
|
|
235,132
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
136,085
|
|
|
|
473,480
|
|
Deferred income taxes
|
|
|
18,591
|
|
|
|
44,332
|
|
Other long-term liabilities
|
|
|
8,007
|
|
|
|
3,928
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
162,683
|
|
|
|
521,740
|
|
|
|
|
|
|
|
|
|
|
Series B cumulative convertible participating preferred
stock
|
|
|
222,815
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value, 100,000,000 shares
authorized; 90,410,147 and 22,403,711 shares issued in 2009
and 2008, respectively; and 90,410,147 and
19,734,025 shares outstanding in 2009 and 2008, respectively
|
|
|
904
|
|
|
|
224
|
|
Additional paid-in capital
|
|
|
263,620
|
|
|
|
200,680
|
|
Retained earnings (deficit)
|
|
|
(206,000
|
)
|
|
|
540,964
|
|
Accumulated other comprehensive loss
|
|
|
(8,859
|
)
|
|
|
(1,440
|
)
|
Treasury stock, at cost, (2,669,686 shares in 2008)
|
|
|
|
|
|
|
(116,599
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
49,665
|
|
|
|
623,829
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
613,848
|
|
|
$
|
1,380,701
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
62
CONSOLIDATED
STATEMENTS OF CASH FLOWS
NCI
BUILDING SYSTEMS, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
November 1,
|
|
|
November 2,
|
|
|
October 28,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(746,964
|
)
|
|
$
|
78,881
|
|
|
$
|
63,729
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
32,776
|
|
|
|
35,588
|
|
|
|
35,535
|
|
Share-based compensation expense
|
|
|
4,835
|
|
|
|
9,504
|
|
|
|
8,610
|
|
Accelerated vesting of share-based compensation
|
|
|
9,066
|
|
|
|
|
|
|
|
|
|
Debt extinguishment and refinancing costs
|
|
|
95,418
|
|
|
|
|
|
|
|
|
|
Gain on sale of property, plant and equipment
|
|
|
(928
|
)
|
|
|
(1,264
|
)
|
|
|
(814
|
)
|
Provision for inventory obsolescence
|
|
|
|
|
|
|
|
|
|
|
696
|
|
Lower of cost or market reserve
|
|
|
39,986
|
|
|
|
2,739
|
|
|
|
|
|
Provision for doubtful accounts
|
|
|
1,221
|
|
|
|
3,468
|
|
|
|
330
|
|
Interest rate swap ineffectiveness
|
|
|
3,072
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for deferred income taxes
|
|
|
(24,452
|
)
|
|
|
266
|
|
|
|
(7,090
|
)
|
Asset impairments
|
|
|
6,291
|
|
|
|
|
|
|
|
|
|
Impairment of goodwill and intangible assets
|
|
|
622,564
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities, net of effect of
acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
78,895
|
|
|
|
(5,008
|
)
|
|
|
9,753
|
|
Inventories
|
|
|
79,362
|
|
|
|
(57,025
|
)
|
|
|
28,020
|
|
Income tax receivable
|
|
|
(32,332
|
)
|
|
|
|
|
|
|
|
|
Prepaid expenses and other
|
|
|
(1,423
|
)
|
|
|
(9,724
|
)
|
|
|
(957
|
)
|
Accounts payable
|
|
|
(30,754
|
)
|
|
|
(23,738
|
)
|
|
|
12,978
|
|
Accrued expenses
|
|
|
(41,599
|
)
|
|
|
7,445
|
|
|
|
(10,815
|
)
|
Other, net
|
|
|
336
|
|
|
|
(938
|
)
|
|
|
(2,350
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities:
|
|
|
95,370
|
|
|
|
40,194
|
|
|
|
137,625
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions, net of cash acquired
|
|
|
|
|
|
|
|
|
|
|
(20,086
|
)
|
Capital expenditures
|
|
|
(21,657
|
)
|
|
|
(24,803
|
)
|
|
|
(42,041
|
)
|
Proceeds from sale of property, plant and equipment
|
|
|
2,589
|
|
|
|
4,238
|
|
|
|
6,696
|
|
Cash surrender value life insurance
|
|
|
|
|
|
|
2,101
|
|
|
|
|
|
Other, net
|
|
|
(34
|
)
|
|
|
(226
|
)
|
|
|
(932
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities:
|
|
|
(19,102
|
)
|
|
|
(18,690
|
)
|
|
|
(56,363
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from stock options exercised
|
|
|
12
|
|
|
|
698
|
|
|
|
3,923
|
|
Deposits of restricted cash
|
|
|
(12,979
|
)
|
|
|
|
|
|
|
|
|
Excess tax benefits from share-based compensation arrangements
|
|
|
|
|
|
|
215
|
|
|
|
1,596
|
|
Borrowings on revolving lines of credit
|
|
|
|
|
|
|
|
|
|
|
90,500
|
|
Payments on revolving lines of credit
|
|
|
|
|
|
|
|
|
|
|
(90,500
|
)
|
Payments on long-term debt
|
|
|
(920
|
)
|
|
|
(22,637
|
)
|
|
|
(947
|
)
|
Payments on note payable
|
|
|
(1,693
|
)
|
|
|
(3,892
|
)
|
|
|
|
|
Issuance of convertible preferred stock
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
Payment of convertible notes
|
|
|
(89,971
|
)
|
|
|
|
|
|
|
|
|
Payment of on term loan
|
|
|
(143,290
|
)
|
|
|
|
|
|
|
|
|
Payment of refinancing costs
|
|
|
(54,659
|
)
|
|
|
(914
|
)
|
|
|
(75
|
)
|
Purchase of treasury stock
|
|
|
(451
|
)
|
|
|
(2,226
|
)
|
|
|
(36,122
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities:
|
|
|
(53,951
|
)
|
|
|
(28,756
|
)
|
|
|
(31,625
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(99
|
)
|
|
|
399
|
|
|
|
379
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
22,218
|
|
|
|
(6,853
|
)
|
|
|
50,016
|
|
Cash and cash equivalents at beginning of period
|
|
|
68,201
|
|
|
|
75,054
|
|
|
|
25,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
90,419
|
|
|
$
|
68,201
|
|
|
$
|
75,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
63
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY
NCI
BUILDING SYSTEMS, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Retained
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Earnings
|
|
|
Comprehensive
|
|
|
Treasury Stock
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
(Deficit)
|
|
|
(Loss) Income
|
|
|
Shares
|
|
|
Amount
|
|
|
Equity
|
|
|
|
(In thousands, except share data)
|
|
|
Balance, October 29, 2006
|
|
|
21,793,914
|
|
|
$
|
218
|
|
|
$
|
175,121
|
|
|
$
|
403,125
|
|
|
$
|
(1,804
|
)
|
|
|
(1,816,516
|
)
|
|
$
|
(78,251
|
)
|
|
$
|
498,409
|
|
Cumulative effect of adopting SAB 108, net of taxes
(Note 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,410
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,410
|
)
|
Treasury stock purchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(773,888
|
)
|
|
|
(36,122
|
)
|
|
|
(36,122
|
)
|
Common stock issued for stock option exercises
|
|
|
109,233
|
|
|
|
1
|
|
|
|
3,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,923
|
|
Tax benefit from employee stock incentive plan
|
|
|
|
|
|
|
|
|
|
|
1,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,596
|
|
Issuance of restricted stock
|
|
|
190,641
|
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
142
|
|
|
|
|
|
|
|
|
|
|
|
142
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
8,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,610
|
|
Shares issued for acquisition
|
|
|
35,448
|
|
|
|
|
|
|
|
1,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,800
|
|
Adoption of ASC
715-20, net
of taxes (Note 23)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,019
|
|
|
|
|
|
|
|
|
|
|
|
2,019
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, October 28, 2007
|
|
|
22,129,236
|
|
|
$
|
221
|
|
|
$
|
191,047
|
|
|
$
|
462,444
|
|
|
$
|
357
|
|
|
|
(2,590,404
|
)
|
|
$
|
(114,373
|
)
|
|
$
|
539,696
|
|
Treasury stock purchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(79,282
|
)
|
|
|
(2,226
|
)
|
|
|
(2,226
|
)
|
Common stock issued for stock option exercises
|
|
|
34,343
|
|
|
|
|
|
|
|
698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
698
|
|
Tax benefit from employee stock incentive plan
|
|
|
|
|
|
|
|
|
|
|
(566
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(566
|
)
|
Issuance of restricted stock
|
|
|
240,132
|
|
|
|
3
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,797
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,797
|
)
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
9,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,504
|
|
Adoption of ASC
740-10
(Note 17)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(361
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(361
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, November 2, 2008
|
|
|
22,403,711
|
|
|
$
|
224
|
|
|
$
|
200,680
|
|
|
$
|
540,964
|
|
|
$
|
(1,440
|
)
|
|
|
(2,669,686
|
)
|
|
$
|
(116,599
|
)
|
|
$
|
623,829
|
|
Treasury stock purchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(176,918
|
)
|
|
|
(451
|
)
|
|
|
(451
|
)
|
Retirement of treasury shares
|
|
|
(2,846,604
|
)
|
|
|
(29
|
)
|
|
|
(117,021
|
)
|
|
|
|
|
|
|
|
|
|
|
2,846,604
|
|
|
|
117,050
|
|
|
|
|
|
Common stock issued for stock option exercises
|
|
|
825
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
Tax benefit from employee stock incentive plan
|
|
|
|
|
|
|
|
|
|
|
(5,073
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,073
|
)
|
Convertible Notes exchange
|
|
|
70,177,085
|
|
|
|
702
|
|
|
|
169,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
170,427
|
|
Convertible Preferred Stock dividends payable
|
|
|
|
|
|
|
|
|
|
|
(1,186
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,186
|
)
|
Tax benefit from Convertible Preferred Stock issuance costs
|
|
|
|
|
|
|
|
|
|
|
2,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,585
|
|
Issuance of restricted stock
|
|
|
675,130
|
|
|
|
7
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,419
|
)
|
|
|
|
|
|
|
|
|
|
|
(7,419
|
)
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
13,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,901
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(746,964
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(746,964
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, November 1, 2009
|
|
|
90,410,147
|
|
|
$
|
904
|
|
|
$
|
263,620
|
|
|
$
|
(206,000
|
)
|
|
$
|
(8,859
|
)
|
|
|
|
|
|
$
|
|
|
|
$
|
49,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
64
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
NCI
BUILDING SYSTEMS, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
November 1,
|
|
|
November 2,
|
|
|
October 28,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common shares
|
|
$
|
(758,677
|
)
|
|
$
|
78,881
|
|
|
$
|
63,729
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange translation gain (loss) (net of income tax of
$107 in 2009, $140 in 2008 and $135 in 2007)
|
|
|
(198
|
)
|
|
|
259
|
|
|
|
244
|
|
Unrecognized actuarial gain (loss) on pension obligation (net of
income tax of $6,010 in 2009, $1,046 in 2008 and $(290) in 2007)
|
|
|
(9,641
|
)
|
|
|
(1,628
|
)
|
|
|
454
|
|
Loss in fair value of interest rate swap (net of income tax of
$345 in 2009, $272 in 2008 and $357 in 2007)
|
|
|
(554
|
)
|
|
|
(428
|
)
|
|
|
(556
|
)
|
Reclassification adjustment for losses on derivative instruments
(net of income tax of $1,854 in 2009)
|
|
|
2,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
(7,419
|
)
|
|
|
(1,797
|
)
|
|
|
142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
(766,096
|
)
|
|
$
|
77,084
|
|
|
$
|
63,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
65
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NCI
BUILDING SYSTEMS, INC.
|
|
1.
|
NATURE OF
BUSINESS AND PRINCIPLES OF CONSOLIDATION
|
NCI Building Systems, Inc. (together with its subsidiaries,
unless otherwise indicated, the Company,
we, us or our) is North
Americas largest integrated manufacturer and marketer of
metal products for the non-residential construction industry. We
provide metal coil coating services and design, engineer,
manufacture and market metal components and engineered building
systems primarily for non-residential construction use. We
manufacture and distribute extensive lines of metal products for
the non-residential 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.
On October 20, 2009 the Company issued and sold to Clayton,
Dubilier & Rice Fund VIII, L.P. and CD&R
Friends & Family Fund VIII, L.P. (together, the
CD&R Funds), an aggregate of
250,000 shares of a newly created class of convertible
preferred stock, par value $1.00 per share, of the Company,
designated the Series B Cumulative Convertible
Participating Preferred Stock (the Convertible Preferred
Stock, and shares thereof, the Preferred
Shares), representing approximately 68.4% of the voting
power and common stock of the Company on an as-converted basis
(such purchase and sale, the Equity Investment).
In connection with the closing of the Equity Investment, the
Company, among other things took the following actions (together
with the Equity Investment, the Recapitalization
Plan):
|
|
|
|
|
consummated its exchange offer (the Exchange Offer)
to acquire all of the Companys existing 2.125% convertible
notes due 2024 in exchange for a combination of $90 million
in cash and 70.2 million shares of our common stock;
|
|
|
|
refinanced the Companys existing credit agreement, which
included the partial prepayment of approximately
$143 million in principal amount of the existing
$293 million in principal amount of outstanding term loans
thereunder and a modification of the terms and an amendment and
extension of the maturity of the remaining $150 million
outstanding balance of the term loans (the Amended Credit
Agreement); and
|
|
|
|
entered into an asset-based revolving credit facility with a
maximum available amount of up to $125 million (the
ABL Facility). Borrowing availability on the
asset-based revolving credit 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 November 1, 2009,
our excess availability under the asset-based revolving credit
facility was $70.4 million.
|
As of November 1, 2009, the Preferred Shares were
convertible into 196.1 million shares of common stock, at a
conversion price of $1.2748. However, as of that date, only
approximately 8.2 million shares of common stock were
authorized and unissued, and therefore the CD&R Funds could
not fully convert the Preferred Shares. To the extent that the
CD&R Funds opt to convert their Preferred Shares, as of
November 1, 2009, their conversion right was limited to
conversion of their Preferred Shares into the approximately
8.2 million shares of common stock that were authorized and
unissued.
Dividends on the Convertible Preferred Stock are payable, on a
cumulative daily basis, as, if and when declared by our board of
directors, at a rate per annum of 12% of the liquidation
preference of $1,000 per Preferred Share, subject to certain
adjustments, if paid in-kind or at a rate per annum of 8% of the
liquidation preference of $1,000 per Preferred Share, subject to
certain adjustments, if paid in cash. We have the right to
choose whether dividends are paid in cash or in-kind, subject to
the conditions of the Amended Credit Agreement and ABL Facility
including being contractually limited in our ability to pay cash
dividends until the first quarter of fiscal 2011 under the
Amended Credit Agreement and until October 20, 2010 under
the ABL Facility, except for certain specified purposes.
66
We use a 52/53 week year with our fiscal year end on the
Sunday closest to October 31. The year end for fiscal 2009
is November 1, 2009. Our fourth quarter of fiscal 2008
includes an additional week of operating activity.
We have evaluated our subsequent events through
December 22, 2009.
We aggregate our operations into three reportable business
segments: metal coil coating, metal components and engineered
building systems. We base this aggregation on similarities in
product lines, manufacturing processes, marketing and how we
manage our business. We market the products in each of our
business segments nationwide through a direct sales force and,
in the case of our engineered building systems segment, through
authorized builder networks.
Our Consolidated Financial Statements include the accounts of
the Company and all majority-owned subsidiaries. All
intercompany accounts, transactions and profits arising from
consolidated entities have been eliminated in consolidation.
|
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
(a) Use of Estimates. The preparation of
financial statements in conformity with accounting principles
generally accepted in the U.S. requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting
period. Examples include provisions for bad debts and inventory
reserves and accruals for employee benefits, general liability
insurance, warranties and certain contingencies. Actual results
could differ from those estimates.
(b) Cash and Cash Equivalents. Cash
equivalents are stated at cost plus accrued interest, which
approximates fair value. Cash equivalents are highly liquid debt
instruments with an original maturity of three months or less
and may consist of time deposits with a number of commercial
banks with high credit ratings, Eurodollar time deposits, money
market instruments, certificates of deposit and commercial
paper. Our policy allows us to also invest excess funds in
no-load, open-end, management investment trusts (mutual
funds). The mutual funds invest exclusively in high
quality money market instruments. As of November 1, 2009,
our cash equivalents were all invested in money market
instruments.
(c) Accounts Receivable and Related
Allowance. We report accounts receivable net of
the allowance for doubtful accounts. Trade accounts receivable
are the result of sales of building systems, components and
coating services to customers throughout the United States and
affiliated territories, including international builders who
resell to end users. Substantially all sales are denominated in
U.S. dollars with the exception of sales at our Canadian
operations which are denominated in Canadian dollars. Credit
sales do not normally require a pledge of collateral; however,
various types of liens may be filed to enhance the collection
process.
We establish reserves for doubtful accounts on a customer by
customer basis when we believe the required payment of specific
amounts owed is unlikely to occur. In establishing these
reserves, we consider changes in the financial position of a
customer, availability of security, lien rights and bond rights
as well as disputes, if any, with our customers. Our allowance
for doubtful accounts reflects reserves for customer receivables
to reduce receivables to amounts expected to be collected. We
determine past due status as of the contractual payment date.
Interest on delinquent accounts receivable is included in the
trade accounts receivable balance and recognized as interest
income when chargeable and collectibility is reasonably assured.
Uncollectible accounts are written off when a settlement is
reached for an amount that is less than the outstanding
historical balance or we have exhausted all collection efforts.
The following table represents the
67
rollforward of our uncollectible accounts activity for the
fiscal years ended November 1, 2009, November 2, 2008
and October 28, 2007 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 1,
|
|
|
November 2,
|
|
|
October 28,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Beginning balance
|
|
$
|
10,330
|
|
|
$
|
8,975
|
|
|
$
|
15,225
|
|
Provision for bad debts
|
|
|
1,221
|
|
|
|
3,468
|
|
|
|
330
|
|
Amounts charged against allowance for bad debts, net of
recoveries
|
|
|
(2,512
|
)
|
|
|
(2,113
|
)
|
|
|
(6,580
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
9,039
|
|
|
$
|
10,330
|
|
|
$
|
8,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(d) Inventories. Inventories are stated
at the lower of cost or market value less allowance for
inventory obsolescence, using specific identification or the
weighted-average method for steel coils and other raw materials.
During fiscal 2009, we incurred lower of cost or market
adjustments of $8.1 million in the metal coil coating
segment, $17.2 million in the metal components segment and
$14.7 million in the engineered building systems segment
for a total of $40.0 million. During fiscal 2008, we
incurred lower of cost or market adjustment $2.7 million in
the metal coil coating segment. Lower of cost or market
adjustments were recorded because this inventory exceeded our
current estimates of net realizable value less normal profit
margins. At November 1, 2009, all inventory with a lower of
cost or market adjustment was fully utilized. The balance of the
lower of cost or market adjustment was $2.7 million at
November 2, 2008.
The components of inventory are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
November 1,
|
|
|
November 2,
|
|
|
|
2009
|
|
|
2008
|
|
|
Raw materials
|
|
$
|
48,081
|
|
|
$
|
142,614
|
|
Work in process and finished goods
|
|
|
23,456
|
|
|
|
49,397
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
71,537
|
|
|
$
|
192,011
|
|
|
|
|
|
|
|
|
|
|
The following table represents the rollforward of reserve for
obsolete materials and supplies activity for the fiscal years
ended November 1, 2009, November 2, 2008 and
October 28, 2007 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 1,
|
|
|
November 2,
|
|
|
October 28,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
1,807
|
|
|
$
|
4,433
|
|
|
$
|
3,737
|
|
Provisions
|
|
|
1,409
|
|
|
|
252
|
|
|
|
1,710
|
|
Dispositions
|
|
|
(1,624
|
)
|
|
|
(2,878
|
)
|
|
|
(1,014
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
1,592
|
|
|
$
|
1,807
|
|
|
$
|
4,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During fiscal 2009, we purchased approximately 30% of our steel
requirements from one vendor. No other vendor accounted for over
10% of our steel requirements during fiscal 2009.
(e) Property, Plant and
Equipment. Property, plant and equipment are
stated at cost and depreciated using the straight-line method
over their estimated useful lives. Leasehold improvements are
capitalized and amortized using the straight-line method over
the shorter of their estimated useful lives or the term of the
underlying lease. Computer software developed or purchased for
internal use is depreciated using the straight-line method over
its estimated useful life.
Depreciation expense for fiscal 2009, 2008 and 2007 was
$29.9 million, $32.5 million and $29.3 million,
respectively. Of this depreciation expense, $7.1 million,
$4.5 million and $4.3 million was related to software
depreciation for fiscal 2009, 2008 and 2007, respectively.
68
Property, plant and equipment consists of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
November 1,
|
|
|
November 2,
|
|
|
|
2009
|
|
|
2008
|
|
|
Land
|
|
$
|
22,141
|
|
|
$
|
24,281
|
|
Buildings and improvements
|
|
|
165,846
|
|
|
|
165,495
|
|
Machinery, equipment and furniture
|
|
|
225,367
|
|
|
|
229,591
|
|
Transportation equipment
|
|
|
3,326
|
|
|
|
3,470
|
|
Computer software and equipment
|
|
|
77,407
|
|
|
|
69,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
494,087
|
|
|
|
492,429
|
|
Less accumulated depreciation
|
|
|
(262,247
|
)
|
|
|
(241,266
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
231,840
|
|
|
$
|
251,163
|
|
|
|
|
|
|
|
|
|
|
Estimated useful lives for depreciation are:
|
|
|
|
|
|
|
|
|
Buildings and improvements
|
|
|
|
|
|
|
10 39 years
|
|
Machinery, equipment and furniture
|
|
|
|
|
|
|
3 10 years
|
|
Transportation equipment
|
|
|
|
|
|
|
5 10 years
|
|
Computer software and equipment
|
|
|
|
|
|
|
3 7 years
|
|
We capitalize interest on capital invested in projects in
accordance with Financial Accounting Standards Board
(FASB) guidance codified under ASC Topic 835,
Interest. For fiscal 2009, 2008 and 2007, the total
amount of interest capitalized was $0.4 million,
$0.9 million and $0.7 million, respectively. Upon
commencement of operations, capitalized interest, as a component
of the total cost of the asset, is amortized over the estimated
useful life of the asset.
(f) Goodwill and Other Intangible
Assets. We review the carrying values of goodwill
and identifiable intangibles whenever events or changes in
circumstances indicate that such carrying values may not be
recoverable and annually for goodwill and indefinite lived
intangible assets as required by guidance codified under ASC
Topic 350, Intangibles Goodwill and Other.
Unforeseen events, changes in circumstances, market conditions
and material differences in the value of intangible assets due
to changes in estimates of future cash flows could negatively
affect the fair value of our assets and result in a non-cash
impairment charge. Some factors considered important that could
trigger an impairment review include the following: significant
underperformance relative to expected historical or projected
future operating results, significant changes in the manner of
our use of acquired assets or the strategy for our overall
business and significant negative industry or economic trends.
In fiscal 2009, our one remaining reporting units fair
value would have had to have been lower by more than 50%
compared to the fair value estimated in our impairment analysis
before its carrying value would exceed the fair value of the
reporting unit, indicating that goodwill was potentially
impaired. See Note 16.
(g) Revenue Recognition. We recognize
revenues when the following conditions are met: persuasive
evidence of an arrangement exists, delivery has occurred or
services have been rendered, the price is fixed or determinable,
and collectability is reasonably assured. Generally, these
criteria are met at the time product is shipped or services are
complete. Provisions are made upon sale for estimated product
returns.
(h) Equity Raising and Deferred Financing
Costs. Equity raising costs are recorded as a
reduction to additional paid in capital upon the execution of an
equity transaction. In connection with the Exchange Offer on the
Convertible Notes, we incurred $5.7 million in equity
raising costs. Deferred financing costs are capitalized as
incurred and amortized using the effective interest method over
the expected life of the debt. In a modification of debt, costs
paid to the creditor are capitalized and costs paid to
non-creditors are expensed as incurred.
(i) Cost of sales. Cost of sales includes
the cost of inventory sold during the period, including costs
for manufacturing, inbound freight, receiving, inspection,
warehousing, and internal transfers less vendor rebates.
69
Costs associated with shipping and handling our products are
included in cost of sales. Purchasing costs and engineering and
drafting costs are included in selling, general and
administrative expense. Purchasing costs were $3.2 million,
$3.7 million and $3.7 million and engineering and
drafting costs were $38.2 million, $53.9 million and
$50.0 million in each of fiscal 2009, 2008, and 2007,
respectively. Approximately $2.2 million and
$3.9 million of these selling, general and administrative
costs were capitalized and remained in inventory at the end of
fiscal 2009 and 2008, respectively.
(j) 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
Sourcetm,
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
Sourcetm
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 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. Additionally, we assumed a warranty obligation
relating to our acquisition of Robertson-Ceco II
Corporation (RCC) of $7.6 million which
represents the fair value of the future warranty obligations at
the time of purchase. RCCs accrued warranty programs have
similar terms and characteristics to our other warranty
programs. See Note 8.
(k) Insurance. Group medical insurance is
purchased through Blue Cross Blue Shield (BCBS). The
plans include a Preferred Provider Organization, or PPO, plan
and an Exclusive Provider Organization, or EPO, plan. These
plans are managed-care plans utilizing networks to achieve
discounts through negotiated rates with the providers within
these networks. The claims incurred under these plans are
self-funded for the first $250,000 of each claim. We purchase
specific stop loss reinsurance to limit our claims liability to
$250,000 per claim. BCBS administers all claims, including
claims processing, utilization review and network access charges.
Insurance is purchased for workers compensation and employer
liability, general liability, property and auto liability/auto
physical damage. We utilize either deductibles or self-insurance
retentions (SIR) to limit the exposure to
catastrophic loss. The workers compensation insurance has a
$500,000 per occurrence deductible. The property and auto
liability insurances have per-occurrence deductibles of
$250,000. The general liability insurance has a $250,000 SIR.
Umbrella insurance coverage is purchased to protect us against
claims that exceed our per-occurrence or aggregate limits set
forth in our respective policies. All claims are adjusted
utilizing a third-party claims administrator.
Each reporting period, we record the costs of our health
insurance plan, including paid claims, an estimate of the change
in incurred but not reported (IBNR) claims, taxes
and administrative fees (collectively the Plan
Costs) as general and administrative expenses in our
Consolidated Statements of Operations. The estimated IBNR claims
are based upon (i) a recent average level of paid claims
under the plan, (ii) an estimated lag factor and
(iii) an estimated growth factor to provide for those
claims that have been incurred but not yet paid. We use an
independent actuary to determine the claims lag and estimated
liability for IBNR claims.
For workers compensation costs, we monitor the number of
accidents and the severity of such accidents to develop
appropriate estimates for expected costs to provide both medical
care and benefits during the period of time an employee is
unable to work. These accruals are developed using independent
actuarial estimates of the expected cost and length of time an
employee will be unable to work based on industry statistics for
the cost of similar disabilities. For general liability and
automobile claims, accruals are developed based on independent
actuarial estimates of the expected cost to resolve each claim
based on industry statistics and the nature and severity of the
claim. This statistical information is trended to provide
estimates of future expected costs based on factors developed
from our own experience of actual claims cost compared to
original
70
estimates. Each reporting period, we record the costs of our
workers compensation, general liability and automobile
claims, including paid claims, an estimate of the change in
incurred but not reported (IBNR) claims, taxes and
administrative fees as general and administrative expenses in
our Consolidated Statements of Operations.
(l) Advertising Costs. Advertising costs
are expensed as incurred. Advertising expense was
$5.4 million, $6.9 million and $7.4 million in
fiscal 2009, 2008 and 2007, respectively.
(m) Impairment of Long-Lived Assets. We
assess impairment of property, plant, and equipment in
accordance with the provisions of SFAS 144, Accounting
for the Impairment or Disposal of Long-Lived Assets. We
assess the recoverability of the carrying amount of property,
plant and equipment if certain events or changes in
circumstances indicate that the carrying value of such assets
may not be recoverable, such as a significant decrease in market
value of the assets or a significant change in our business
conditions. If we determine that the carrying value of an asset
is not recoverable based on expected undiscounted future cash
flows, excluding interest charges, we record an impairment loss
equal to the excess of the carrying amount of the asset over its
fair value. The fair value of assets is determined based on
prices of similar assets adjusted for their remaining useful
life. During fiscal 2009, we adjusted our property, plant and
equipment because we determined that the carrying value of
certain assets were not recoverable based on expected
undiscounted future cash flows. We recorded asset impairments of
$6.3 million in fiscal 2009. See Note 4 for asset
impairments in fiscal 2009. We had no impairments in fiscal 2008
or 2007.
(n) Share-Based
Compensation. Compensation expense recorded for
restricted stock awards under the intrinsic value method is
consistent with the expense that is recorded under the fair
value-based method. We recorded the recurring pretax
compensation expense relating to restricted stock awards of
$4.3 million, $7.8 million and $5.9 million for
fiscal 2009, 2008 and 2007, respectively. The acceleration of
the unamortized compensation expense upon the change in control
was $9.0 million and was included in change of control
charges on the Consolidated Statement of Operations.
(o) Reclassifications. Certain
reclassifications have been made to prior period amounts to
conform to the current presentation.
(p) Foreign Currency Re-measurement and
Translation. In accordance with guidance codified
under ASC Topic 830, Foreign Currency Matters, 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 in the current period. Net foreign currency
re-measurement losses are reflected in income for the period.
For the fiscal year ended November 1, 2009, foreign
currency re-measurement losses were immaterial and for the
fiscal years ended November 2, 2008 and October 28,
2007 were $(1.1) million and $(0.3) million,
respectively.
The functional currency for our Canada operations is the
Canadian dollar. Translation gains (losses) resulting from
translating the functional currency financial statements into
U.S. dollar equivalents are reported separately in
accumulated other comprehensive income in stockholders
equity. Net foreign currency translation gain (loss), net of
tax, and included in other comprehensive income for the fiscal
years ended November 1, 2009 and November 2, 2008 was
$(0.2) million and $0.3 million, respectively.
(q) Recent Accounting Pronouncements. In
December 2008, the FASB issued guidance that has been codified
under ASC Topic
715-20,
Defined Benefit Plans General (ASC
715-20).
ASC 715-20
provides guidance on an employers disclosures about plan
assets of a defined benefit pension or other postretirement
plan. The disclosures about plan assets required by ASC
715-20 are
effective for our fiscal year ended 2010 and are not required
for earlier periods presented for comparative purposes. We will
adopt the disclosure provisions required by ASC
715-20 in
fiscal 2010.
In June 2008, the FASB issued guidance that has been codified
under ASC Topic
260-10,
Earnings Per Share (ASC
260-10).
This pronouncement provides that unvested share-based payment
awards that contain non-forfeitable rights to dividends or
dividend equivalents are participating securities
and, therefore, should be included in computing earnings per
share using the two class method. We will implement this
statement in
71
our fiscal year that begins November 2, 2009 and apply it
as applicable. All prior period earnings per share data would be
adjusted retrospectively to conform with the provisions of this
pronouncement. We are currently evaluating the impact of this
pronouncement.
In May 2008, the FASB issued guidance that has been codified
under ASC Topic
470-20, Debt
with Conversion and Other Options (ASC
470-20).
ASC 470-20
will change the accounting for certain convertible debt
instruments, including our Convertible Notes. Under the new
rules, for convertible debt instruments that may be settled
entirely or partially in cash upon conversion, an entity shall
separately account for the liability and equity components of
the instrument in a manner that reflects the issuers
economic interest cost. The effect of ASC
470-20 for
our Convertible Notes is that the equity component will be
included in the
paid-in-capital
section of stockholders equity on our consolidated balance
sheet and the value of the equity component will be treated as
an original issue discount for purposes of accounting for the
debt component of the Convertible Notes. Higher interest expense
will result by recognizing the accretion of the discounted
carrying value of the Convertible Notes to their face amount as
interest expense over the term of the Convertible Notes using an
effective interest rate method. ASC
470-20 is
effective for our fiscal year ended 2010, does not permit early
application, and will be applied retrospectively to all periods
presented. While this accounting pronouncement does not change
the economic substance or cash flow requirements for the
Convertible Notes, the amount reported as interest expense in
our consolidated statement of operations will increase due to
the accretion of the discounted carrying value of the
Convertible Notes to their face amount. The Convertible Notes
will also reflect higher than previously reported interest
expense due to retrospective application. We are currently
evaluating the impact of adopting ASC
470-20 but
anticipate the reported interest expense on our Convertible
Notes will increase from 2.125% to 7.5%. The retroactive
application of this pronouncement to fiscal years 2005 to 2009
will result in an increase to annual interest expense of
approximately $7.5 million in fiscal 2005, gradually
increasing to approximately $9.9 million in fiscal 2009. In
October 2009, we completed the Exchange Offer to acquire
$180 million aggregate principal amount of the Convertible
Notes. Therefore, we will not have additional prospective
interest expense upon adoption.
In February 2008, the FASB issued additional guidance codified
under ASC
820-10,
Fair Value Measurements and Disclosures (ASC
820-10).
This Statement defines fair value, establishes a framework for
measuring fair value and expands disclosures about fair value
measurements. ASC
820-10
partially delays the effective date for nonfinancial assets and
nonfinancial liabilities, except for items that are recognized
or disclosed at fair value in the financial statements on a
recurring basis (at least annually). We will adopt ASC
820-10 in
our fiscal year that begins November 2, 2009 for
nonrecurring, non-financial assets and liabilities that are
recognized or disclosed at fair value. However, we do not
believe the adoption of this accounting pronouncement for
nonrecurring, non-financial assets and liabilities will have a
material impact on our consolidated financial statements.
In December 2007, the FASB issued guidance that has been
codified under ASC Topic 810, Consolidations (ASC
810). This Statement amends previous guidance to establish
accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a noncontrolling interest in a
subsidiary is an ownership interest in the consolidated entity
that should be reported as equity in the consolidated financial
statements. It requires consolidated net income to be reported
at amounts that include the amounts attributable to both the
parent and the noncontrolling interest. It also requires
disclosure, on the face of the consolidated statement of income,
of the amounts of consolidated net income attributable to the
parent and to the noncontrolling interest. ASC 810 established a
single method of accounting for changes in a parents
ownership interest in a subsidiary that do not result in
deconsolidation and requires that a parent recognize a gain or
loss in net income when a subsidiary is deconsolidated. In
addition, ASC 810 requires expanded disclosures in the
consolidated financial statements that clearly identify and
distinguish between the interests of the parents owners
and the interests of the noncontrolling owners of a subsidiary.
We will implement this statement in our fiscal year that begins
November 2, 2009 and apply it as applicable. We currently
do not have any ownership interest which would be impacted by
ASC 810.
In December 2007, the FASB issued guidance that has been
codified under ASC Topic 805, Business Combinations
(ASC 805). This pronouncement replaces previous
guidance but retains the fundamental requirements of the
previous guidance. ASC 805 establishes principles and
requirements for how the acquirer
72
recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree. In addition, ASC 805
recognizes and measures the goodwill acquired in the business
combination or a gain from a bargain purchase and determines
disclosures to enable users of the financial statement to
evaluate the nature and financial effects of the business
combination. We will implement this statement for all future
acquisitions following the date of adoption in our fiscal year
that begins November 2, 2009. The impact of adoption of ASC
805 on our financial position or results of operations is
dependent upon the nature and terms of business combinations, if
any, that we may consummate in fiscal 2010 and thereafter.
FASB
Codification Adoption
In June 2009, the FASB issued guidance that has been codified
under ASC Topic 105, Generally Accepted Accounting Principles
(ASC 105). This Statement establishes the
FASB Accounting Standards Codification
(Codification), which officially launched
July 1, 2009, to become the source of authoritative
U.S. generally accepted accounting principles
(GAAP) recognized by the FASB to be applied by
nongovernmental entities. Rules and interpretive releases of the
Securities and Exchange Commission (SEC) under
authority of federal securities laws are also sources of
authoritative U.S. GAAP for SEC registrants. The subsequent
issuances of new standards will be in the form of Accounting
Standards Updates that will be included in the Codification.
Generally, the Codification is not expected to change
U.S. GAAP. All other accounting literature excluded from
the Codification will be considered nonauthoritative. This
pronouncement is effective for financial statements issued for
interim and annual periods ending after September 15, 2009.
We adopted this pronouncement in the fourth quarter of our
fiscal year ending November 1, 2009 and have revised all
references to authoritative accounting literature in accordance
with the Codification.
ASC
825-10
Adoption
In April 2009, the FASB issued guidance that has been codified
under ASC Topic
825-10,
Financial Instruments (ASC
825-10).
ASC 825-10
amends previous guidance to increase the frequency of fair value
disclosures to a quarterly basis instead of an annual basis. The
guidance relates to fair value disclosures for any financial
instruments that are not currently reflected on the balance
sheet at fair value. This guidance also amends previous guidance
to require those disclosures in all interim financial
statements. We adopted ASC
825-10 on
May 4, 2009. See Note 11 Fair Value of
Financial Instruments.
ASC
815-10
Adoption
In March 2008, the FASB issued guidance that has been codified
under ASC Topic
815-10,
Derivatives and Hedging (ASC
815-10).
This Statement requires enhanced disclosures about an
entitys derivative and hedging activities and thereby
improves the transparency of financial reporting. Disclosing the
fair values of derivative instruments and their gains and losses
in a tabular format provides a more complete picture of the
location in an entitys financial statements of both the
derivative positions existing at period end and the effect of
using derivatives during the reporting period. Entities are
required to provide enhanced disclosures about (a) how and
why an entity uses derivative instruments; (b) how
derivative instruments and related hedged items are accounted
for under Statement 133 and its related interpretations; and
(c) how derivative instruments and related hedged items
affect an entitys financial position, financial
performance and cash flows. We adopted ASC
815-10 on
February 2, 2009. See Note 12 Derivative
Instruments and Hedging Strategy.
ASC
820-10
Adoption
In September 2006, the FASB issued guidance that has been
codified under ASC Topic
820-10,
Fair Value Measurements and Disclosures (ASC
820-10).
This Statement defines fair value, establishes a framework for
measuring fair value and expands disclosures about fair value
measurements. We adopted ASC
820-10 on
November 3, 2008 for financial assets and financial
liabilities carried at fair value and non-financial assets and
liabilities that are recognized or disclosed at fair value on a
recurring basis. The adoption of ASC
73
820-10 did
not have a material impact on our consolidated financial
statements. See Note 13 Fair Value Measurements.
ASC
740-10
Adoption
In June 2006, the FASB issued guidance that has been codified
under ASC Topic
740-10,
Income Taxes (ASC
740-10)
which clarifies the accounting for uncertainty in income taxes.
ASC 740-10
prescribes a recognition and measurement of a tax position taken
or expected to be taken in a tax return. ASC
740-10
requires that we recognize in the financial statements the
impact of a tax position only if that position is more likely
than not of being sustained upon examination, based on the
technical merits of the position. ASC
740-10 also
provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure and
transition. We adopted ASC
740-10 on
October 29, 2007. See discussion of the impact of adoption
in Note 17 Income Taxes.
SAB 108
Adoption
In September 2006, the SEC released SAB No. 108,
Considering the Effects of Prior Years Misstatements When
Quantifying Misstatements in Current Year
(SAB No. 108). SAB 108 requires that
public companies utilize a dual approach method to
assess the quantitative effects of financial misstatements. This
dual approach includes both an income statement focused
assessment, known as the rollover method, and a
balance sheet focused assessment, known as the iron
curtain method. The guidance in SAB 108 was initially
required to be applied for NCI for the year ending
October 28, 2007. The transition provisions of SAB 108
permitted companies to record errors identified during the year
of adoption, if deemed to be immaterial using a companys
previous method of evaluating errors, as a cumulative effect
adjustment to retained earnings. The transition provisions also
required prior quarterly financial statements within the fiscal
year of adoption to be adjusted, although the transition
provisions did not require those quarterly reports, previously
filed with the SEC, to be amended.
We adopted the provisions of SAB 108 as of October 28,
2007. In accordance with the transition provisions of
SAB 108, we recorded a $4.4 million cumulative
decrease, net of tax of $2.8 million, to retained earnings
as of October 30, 2006. The cumulative adjustment to
decrease opening retained earnings related to an error
identified in fiscal 2007 in our accrual for employee paid time
off liabilities which had historically been accrued one year in
arrears from when the actual obligation was earned by employees.
The impact on fiscal 2007 of $0.5 million, net of tax of
$0.3 million, was recorded as an increase in compensation
expense in the fourth quarter of fiscal 2007.
We believe the impact of this adjustment is immaterial to prior
years Consolidated Financial Statements under our previous
method of assessing materiality, and therefore elected, as
permitted under the transition provisions of SAB 108, to
reflect the effect of this adjustment in the opening balance of
the accrual for compensation and benefits as of October 30,
2006, with the offsetting adjustment reflected as a cumulative
effect adjustment to opening retained earnings as of
October 30, 2006.
ASC
715-20
Adoption
In September 2006, the FASB issued guidance that has been
codified under ASC Topic
715-20,
Compensation Retirement Benefits
Defined Benefit Plans (ASC
715-20).
ASC 715-20
has two major provisions. The recognition and disclosure
provision requires an employer to recognize a plans funded
status in its statement of financial position and recognize the
changes in a defined benefit postretirement plans funded
status in comprehensive income in the year in which the changes
occur. The measurement date provision requires an employer to
measure a plans assets and obligations as of the end of
the employers fiscal year. We adopted this
pronouncements recognition and disclosure requirements as
of October 28, 2007. We currently meet the ASC
715-20
requirement that the measurement date for plan assets and
liabilities must coincide with the sponsors year end. See
discussion of the impact of adoption in Note 23
Employee Benefit Plans.
74
|
|
4.
|
PLANT
RESTRUCTURING AND ASSET IMPAIRMENTS
|
Fiscal
2008 and 2009 Plans
As a result of the current market downturn, we began a phased
process to resize and realign our manufacturing operations. The
purpose of these closures is to rationalize our least efficient
facilities and to retool certain of these facilities to allow us
to better utilize our assets and expand into new markets or
better provide products to our customers, such as insulated
panel systems.
In November 2008, we approved the Phase I plan to close three of
our engineered building systems manufacturing plants. In
addition, as part of the restructuring, we implemented a general
employee reduction program. In a continuing effort to
rationalize our least efficient facilities, in February 2009, we
approved the Phase II plan to close one of our facilities
within the engineered building systems segment, and in April
2009, we approved the Phase III plan to close or idle three
of our manufacturing facilities within the engineered building
systems segment and two facilities within the metal components
segment. In addition, manufacturing at one of our metal
components facilities was temporarily suspended and currently
functions as a distribution and customer service site. As part
of the restructuring, we also added to the general employee
reduction program. As a result of actions taken in Phase III,
certain facilities are being actively marketed for sale and have
been classified as held for sale in the Consolidated Balance
Sheet. We plan to sell these facilities by the end of fiscal
2010.
75
The following table summarizes our restructuring plan costs and
charges related to the General, Phase I, Phase II and
Phase III restructuring plans during each of the fiscal
years presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
Remaining
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Incurred
|
|
|
Anticipated
|
|
|
Anticipated
|
|
|
|
Fiscal 2009
|
|
|
Fiscal 2008
|
|
|
to Date
|
|
|
Cost
|
|
|
Cost
|
|
|
General
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
$
|
2,987
|
|
|
$
|
87
|
|
|
$
|
3,074
|
|
|
$
|
|
|
|
$
|
3,074
|
|
Asset Relocation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Cash Costs
|
|
|
57
|
|
|
|
|
|
|
|
57
|
|
|
|
|
|
|
|
57
|
|
Asset Impairment
|
|
|
1,234
|
|
|
|
|
|
|
|
1,234
|
|
|
|
|
|
|
|
1,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total General Program
|
|
|
4,278
|
|
|
|
87
|
|
|
|
4,365
|
|
|
|
|
|
|
|
4,365
|
|
Repurposing and Phase I
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
$
|
1,016
|
|
|
$
|
106
|
|
|
$
|
1,122
|
|
|
$
|
|
|
|
$
|
1,122
|
|
Asset Relocation
|
|
|
303
|
|
|
|
|
|
|
|
303
|
|
|
|
181
|
|
|
|
484
|
|
Other Cash Costs
|
|
|
199
|
|
|
|
|
|
|
|
199
|
|
|
|
|
|
|
|
199
|
|
Asset Impairment
|
|
|
1,634
|
|
|
|
157
|
|
|
|
1,791
|
|
|
|
|
|
|
|
1,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Plant Closing Phase I
|
|
|
3,152
|
|
|
|
263
|
|
|
|
3,415
|
|
|
|
181
|
|
|
|
3,596
|
|
Plant Closing Phase II
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
$
|
399
|
|
|
$
|
|
|
|
$
|
399
|
|
|
$
|
|
|
|
$
|
399
|
|
Asset Relocation
|
|
|
22
|
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
22
|
|
Other Cash Costs
|
|
|
442
|
|
|
|
|
|
|
|
442
|
|
|
|
92
|
|
|
|
534
|
|
Asset Impairment
|
|
|
30
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Plant Closing Phase II
|
|
|
893
|
|
|
|
|
|
|
|
893
|
|
|
|
92
|
|
|
|
985
|
|
Plant Closing Phase III
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
$
|
2,349
|
|
|
$
|
|
|
|
$
|
2,349
|
|
|
$
|
|
|
|
$
|
2,349
|
|
Asset Relocation
|
|
|
219
|
|
|
|
|
|
|
|
219
|
|
|
|
339
|
|
|
|
558
|
|
Other Cash Costs
|
|
|
1,060
|
|
|
|
|
|
|
|
1,060
|
|
|
|
1,283
|
|
|
|
2,343
|
|
Asset Impairment
|
|
|
3,393
|
|
|
|
|
|
|
|
3,393
|
|
|
|
|
|
|
|
3,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Plant Closing Phase III
|
|
|
7,021
|
|
|
|
|
|
|
|
7,021
|
|
|
|
1,622
|
|
|
|
8,643
|
|
Total All Programs
|
|
$
|
15,344
|
|
|
$
|
350
|
|
|
$
|
15,694
|
|
|
$
|
1,895
|
|
|
$
|
17,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring by Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings
|
|
|
7,522
|
|
|
|
61
|
|
|
|
7,583
|
|
|
|
1,645
|
|
|
|
9,228
|
|
Components
|
|
|
1,216
|
|
|
|
106
|
|
|
|
1,322
|
|
|
|
250
|
|
|
|
1,572
|
|
Coaters
|
|
|
103
|
|
|
|
|
|
|
|
103
|
|
|
|
|
|
|
|
103
|
|
Corporate
|
|
|
211
|
|
|
|
27
|
|
|
|
238
|
|
|
|
|
|
|
|
238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,052
|
|
|
$
|
194
|
|
|
$
|
9,246
|
|
|
$
|
1,895
|
|
|
$
|
11,141
|
|
Asset Impairments by Segment(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings
|
|
|
4,316
|
|
|
|
157
|
|
|
|
4,473
|
|
|
|
|
|
|
|
4,473
|
|
Components
|
|
|
766
|
|
|
|
|
|
|
|
766
|
|
|
|
|
|
|
|
766
|
|
Coaters
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
1,209
|
|
|
|
|
|
|
|
1,209
|
|
|
|
|
|
|
|
1,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,291
|
|
|
$
|
157
|
|
|
$
|
6,448
|
|
|
$
|
|
|
|
$
|
6,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The fair value of assets was determined based on prices of
similar assets adjusted for their remaining useful life. |
76
The following table summarizes our restructuring liability
related to the Phase I, Phase II and Phase III
restructuring plans (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee or
|
|
|
|
|
|
|
|
|
|
Severance
|
|
|
|
|
|
|
|
|
|
Costs
|
|
|
Other Costs
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at November 2, 2008
|
|
$
|
193
|
|
|
$
|
|
|
|
$
|
193
|
|
Costs incurred
|
|
|
6,751
|
|
|
|
2,303
|
|
|
|
9,054
|
|
Cash payments
|
|
|
(5,622
|
)
|
|
|
(2,303
|
)
|
|
|
(7,925
|
)
|
Other adjustments(1)
|
|
|
65
|
|
|
|
|
|
|
|
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at November 1, 2009
|
|
$
|
1,387
|
|
|
$
|
|
|
|
$
|
1,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Relates to the foreign currency translation. |
Fiscal
2007 Plan
During the fourth quarter of fiscal 2007, we committed to a plan
to exit our residential overhead door product line, included in
our metal components segment. During the fiscal year ended
November 2, 2008, we incurred expenses of $0.9 million
related to this exit plan. In fiscal 2007, the residential door
business produced revenue of $12.4 million and pretax loss
of $0.5 million. This line of business is not considered
material and is, therefore, not presented as discontinued
operations in the consolidated financial statements.
On January 31, 2007, we completed the purchase of
substantially all of the assets of Garco Building Systems, Inc.
(Garco), which designs, manufactures and distributes
steel building systems primarily for markets in the northwestern
United States and western Canada. Garco is now a division of our
Company and the results of Garcos operations beginning
January 31, 2007 are included in our Consolidated Financial
Statements. Garco is headquartered in Spokane, Washington, where
it operates a manufacturing facility for steel building systems
for industrial, commercial, institutional and agricultural
applications. The aggregate purchase price for this acquisition
was $17.2 million, comprised of $15.4 million in cash
and $1.8 million in restricted common stock
(35,448 shares). At the date of purchase, there was no
excess of cost over fair value of the acquired assets. We
obtained third-party valuations of certain tangible and
intangible assets. As a result of the valuation work, we
recorded $5.7 million in intangible assets which includes
$2.5 million in customer relationships. The
$1.8 million in restricted NCI common stock relates to a
5-year
non-compete agreements with certain of the sellers of Garco. We
will expense the fair value of the restricted stock ratably over
the terms of the agreements. In addition, we recorded
$6.5 million in property, plant and equipment and
$5.0 million in working capital. Garcos results of
operations are included in the engineered building systems
segment. This acquisition was not material to the financial
statements as a whole, and accordingly, pro forma information
has not been provided.
On May 21, 2009, we entered into a cash collateral
agreement with our agent bank to obtain letters of credit
secured by cash collateral which, in the aggregate, may not
exceed $13.5 million. The restricted cash is invested in a
secured cash bank account. As of November 1, 2009, we had
restricted cash in the amount of $13.0 million as
collateral related to our $12.1 million of letters of
credit. Restricted cash is classified as current and non-current
as the underlying letters of credit expire by December 2010.
77
|
|
7.
|
OTHER
ACCRUED EXPENSES
|
Other accrued expenses are comprised of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
November 1,
|
|
|
November 2,
|
|
|
|
2009
|
|
|
2008
|
|
|
Accrued income tax
|
|
$
|
|
|
|
$
|
4,873
|
|
Customer deposits
|
|
|
3,651
|
|
|
|
10,116
|
|
Accrued warranty obligation and deferred warranty revenue
|
|
|
16,116
|
|
|
|
16,484
|
|
Accrued workers compensation and general liability insurance
|
|
|
9,604
|
|
|
|
8,751
|
|
Sales and use tax payable
|
|
|
2,121
|
|
|
|
6,648
|
|
Other accrued expenses
|
|
|
20,963
|
|
|
|
13,141
|
|
|
|
|
|
|
|
|
|
|
Total other accrued expenses
|
|
$
|
52,455
|
|
|
$
|
60,013
|
|
|
|
|
|
|
|
|
|
|
The following table represents the rollforward of our accrued
warranty obligation and deferred warranty revenue activity for
the fiscal years ended November 1, 2009 and
November 2, 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
November 1,
|
|
|
November 2,
|
|
|
|
2009
|
|
|
2008
|
|
|
Beginning balance
|
|
$
|
16,484
|
|
|
$
|
14,843
|
|
Warranties sold
|
|
|
2,628
|
|
|
|
3,405
|
|
Revenue recognized
|
|
|
(1,273
|
)
|
|
|
(1,323
|
)
|
Costs incurred
|
|
|
(259
|
)
|
|
|
(217
|
)
|
Adjustment(1)
|
|
|
(1,313
|
)
|
|
|
|
|
Other
|
|
|
(151
|
)
|
|
|
(224
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
16,116
|
|
|
$
|
16,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
This adjustment relates to certain of the RCC warranty claims
liabilities that were updated based on a change in our claims
processing procedures and revised analysis. This change was
recorded in cost of sales in our Consolidated Statement of
Operations during the first quarter of fiscal 2009. |
|
|
9.
|
SUPPLEMENTARY
CASH FLOW INFORMATION
|
The following table sets forth interest and taxes paid in each
of the three fiscal years presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
November 1,
|
|
November 2,
|
|
October 28,
|
|
|
2009
|
|
2008
|
|
2007
|
|
Interest paid, net of amounts capitalized
|
|
$
|
18,445
|
|
|
$
|
26,872
|
|
|
$
|
26,166
|
|
Taxes paid
|
|
|
5,645
|
|
|
|
57,837
|
|
|
|
42,739
|
|
In October 2009, we completed an exchange offer to acquire our
existing $180 million aggregate principal amount 2.125%
convertible senior subordinated notes due 2024 (the
Convertible Notes) in exchange for a combination of
$500 in cash and 390 shares of NCI common stock for each
$1,000 of Convertible Notes tendered and not withdrawn, with
approximately 99.9% of the outstanding Convertible Notes
tendered and not withdrawn as of the expiration of the offer and
by which we subsequently accepted. This resulted in a non-cash
reclassification from long-term debt to stockholders
equity as we issued approximately 70.2 million shares. See
further discussion of these Convertible Notes in
Note 10 Long-term Debt and Note Payable.
78
The dividends on the Convertible Preferred Stock accrue and
accumulate on a daily basis and are included in the liquidation
preference. Accrued dividends are recorded into Convertible
Preferred Stock on the accompanying Consolidated Balance Sheet.
Dividends are accrued at the 12% paid in-kind rate and increased
the Convertible Preferred Stock by $1.1 million during
fiscal 2009.
|
|
10.
|
LONG-TERM
DEBT AND NOTE PAYABLE
|
Debt is comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
November 1,
|
|
|
November 2,
|
|
|
|
2009
|
|
|
2008
|
|
|
Amended and Restated Term Loan Credit Agreement (due April 2014,
interest at 8.0% and 4.7% 6.3%, respectively)
|
|
$
|
150,000
|
|
|
$
|
293,290
|
|
2.125% Convertible Senior Subordinated Notes
|
|
|
59
|
|
|
|
180,000
|
|
Industrial Revenue Bond
|
|
|
190
|
|
|
|
1,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,249
|
|
|
|
474,400
|
|
Current portion of long-term debt
|
|
|
(14,164
|
)
|
|
|
(920
|
)
|
|
|
|
|
|
|
|
|
|
Total long-term debt, less current portion
|
|
$
|
136,085
|
|
|
$
|
473,480
|
|
|
|
|
|
|
|
|
|
|
The scheduled maturity of our debt is as follows (in thousands):
|
|
|
|
|
2010
|
|
$
|
14,164
|
|
2011
|
|
|
1,356
|
|
2012
|
|
|
1,342
|
|
2013
|
|
|
1,329
|
|
2014 and thereafter
|
|
|
132,058
|
|
|
|
|
|
|
|
|
$
|
150,249
|
|
|
|
|
|
|
Amended
Credit Agreement
Concurrently with the closing of the Equity Investment, on the
Closing Date, we entered into the Amended Credit Agreement, an
amendment to our Credit Agreement as in effect prior to such
date with Wachovia Bank, National Associations, as
administrative agent, pursuant to which we repaid approximately
$143.3 million of the $293.3 million in principal
amount of term loans outstanding under such credit agreement and
modified the terms and maturity of the remaining
$150.0 million balance. The modified terms of the term loan
require quarterly principal payments 0.25% of the principal
amount of the term loan then outstanding as of the last day of
each quarter and a final payment of approximately
$131.1 million at maturity on April 20, 2014.
The obligations under the Amended Credit Agreement are secured
by a first priority lien on property, plant and equipment and
related assets such as our software, chattel paper, instruments
and contract rights (excluding foreign operations) and 100% of
the capital stock and other equity interests in each of our
direct and indirect operating domestic subsidiaries and 65% of
the capital stock in each of our foreign subsidiaries and a
second lien on our accounts receivable and inventory.
The Amended Credit Agreement contains a number of covenants
that, among other things, limit or restrict the ability of the
Company and its subsidiaries to dispose of assets, incur
additional indebtedness, incur guarantee obligations, prepay
other indebtedness, make dividends and other restricted
payments, create liens, make investments, make acquisitions,
engage in mergers, change the nature of their business and
engage in certain transactions with affiliates.
The Amended Credit Agreement has no financial covenant test
until October 30, 2011 which is the conclusion of our
fourth quarter of fiscal 2011, at which time the maximum ratio
of total debt to Consolidated EBITDA is 5 to 1. This ratio steps
down by 0.25 each quarter until October 28, 2012 at which
time the
79
maximum ratio is 4 to 1. The ratio continues to step down by
0.125 each quarter until November 3, 2013 to a ratio of 3.5
to 1, which remains the maximum ratio for each fiscal quarter
thereafter. We will, however, not be subject to this financial
covenant with respect to a specified period if certain
prepayments or repurchases of the term loans under the Amended
Credit Agreement are made in the specified period. At
November 1, 2009, we had no financial compliance covenants
in our Amended Credit Agreement.
Borrowings under the Amended Credit Agreement may be repaid at
any time, without premium or penalty but subject to customary
LIBOR breakage costs. We also have the ability to repurchase a
portion of the term loans under the Amended Credit Agreement,
subject to certain terms and conditions set forth in the Amended
Credit Agreement. In addition, subject to certain exceptions,
the Amended Credit Agreement requires mandatory prepayment and
reduction 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;
|
|
|
|
50% of annual excess cash flow (as defined in the Amended Credit
Agreement) for any fiscal year ending on or after
October 31, 2010, unless a specified leverage ratio target
is met; and
|
|
|
|
the greater of $10.0 million and 50% of certain 2009 tax
refunds (as defined in the Amended Credit Agreement) received by
the Company.
|
We expect to make a mandatory prepayment on the Amended Credit
Agreement in May 2010 in connection with our 2009 tax refund.
Therefore, an additional $12.9 million of principal under
the Amended Credit Agreement has been classified as current
portion of long-term debt in our Consolidated Balance Sheet at
November 1, 2009.
The Amended Credit Agreement limits our ability to pay cash
dividends, except in certain specified circumstances, on or
prior to October 31, 2010 after which time we may pay any
dividend in an amount not to exceed the available amount which
is defined as the sum of 50% of the consolidated net income from
August 2, 2009 to the end of the most recent fiscal
quarter, less 100% of any negative consolidated net income
amount, plus net proceeds of property or assets received as
capital contributions, less the sum of all dividends, payments
or other distributions of such available amounts.
Term loans under the Amended Credit Agreement bear interest, at
our option, as follows:
(1) Base Rate loans at the Base Rate plus a margin, which
for term loans is 5%, until October 30, 2011. After that
date, the margin fluctuates based on our leverage ratio and
shall be either 5% or 3.5%. As of the first fiscal quarter
commencing January 30, 2012, the margin in each case
increases by 0.25% per annum on the first day of each fiscal
quarter unless the aggregate principal amount of loans
outstanding under the Amended Credit Agreement in the
immediately preceding fiscal quarter of the Company has been
reduced by $3,750,000 (excluding scheduled principal
amortization payments), less any prior reductions not previously
applied to prevent an increase in the applicable margin, and
(2) LIBOR loans at LIBOR (having a minimum rate of 2%) plus
a margin, which for term loans is 6% until October 30,
2011. After that date, the LIBOR-linked margin fluctuates based
on our leverage ratio and shall be either 6% or 4.5%. As of the
first fiscal quarter commencing January 30, 2012, the
margin in each case increases by 0.25% per annum on the first
day of each fiscal quarter unless the aggregate principal amount
of term loans outstanding under the Amended Credit Agreement in
the immediately preceding fiscal quarter of the Company has been
reduced by $3,750,000 (excluding scheduled principal
amortization payments), less any prior reductions not previously
applied to prevent an increase in the applicable margin.
Overdue amounts will bear interest at a rate that is 2% higher
than the rate otherwise applicable. Base rate is
defined as the highest of the Wachovia Bank, National
Association prime rate or the overnight Federal Funds rate plus
0.5% and 3.0% and LIBOR is defined as the applicable
London interbank offered rate adjusted for reserves. The
applicable margin until October 30, 2011 will be 5.00% on
base rate loans and 6.00% on LIBOR loans under the Amended
Credit Agreement.
80
In accordance with guidance that has been codified under ASC
Topic
470-50,
Debt Modifications and Extinguishments, we
accounted for the amendment to our Amended Credit Agreement as a
modification, and we have expensed $6.4 million of legal
and other professional fees paid to third-parties in connection
with amending the facility in fiscal 2009.
During June 2006, we entered into an interest rate swap
agreement relating to $160 million of the term credit
agreement then in effect, prior to its amendment and restatement
as the Amended Credit Agreement due June 2010. At
November 1, 2009 and November 2, 2008, the notional
amount of the interest rate swap agreement was $65 million
and $105 million, respectively. See Note 12 for
further information.
ABL
Facility
Concurrently with the closing of the Equity Investment, on
October 20, 2009, the subsidiaries of the Company, NCI
Group, Inc. and Robertson-Ceco II Corporation and the
Company entered into the ABL Facility, a loan and security
agreement for a $125.0 million asset-based loan facility.
The ABL Facility allows us an aggregate maximum borrowing of up
to $125.0 million. Borrowing availability on the 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 November 1, 2009, our excess availability
under the ABL Facility was $70.4 million. The ABL Facility
has a maturity of April 20, 2014 and includes borrowing
capacity of up to $25 million for letters of credit and up
to $10 million for swingline borrowings.
An unused commitment fee is paid monthly on the ABL Facility at
an annual rate of 1% through May 1, 2010 and thereafter at
1% or, if the average daily balance of the loans and letters of
credit obligations for a given month is higher than 50% of the
maximum credit then available, 0.75%. The calculation is
determined 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 ABL Facility also apply.
The ABL Facility limits our ability to pay cash dividends,
except in certain specified circumstances, prior to
October 20, 2010, after which time we may pay dividends in
the aggregate amount not to exceed the available amount which is
defined as the sum of 50% of the adjusted consolidated net
income from August 3, 2009 to the end of the most recent
fiscal quarter and subject to there being no event default and
the satisfaction of either certain excess availability
conditions or a fixed charge coverage ratio.
The obligations under the ABL Facility are secured by a first
priority lien on 100% of our accounts receivable, inventory,
certain deposit accounts and our associated intangibles, subject
to certain exceptions, and a second priority lien on the assets
securing the term loans under the Amended Credit Agreement on a
first-lien basis.
The 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 their business and engage in certain transactions with
affiliates.
Under the 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 Companys concentration account to the
repayment of the loans outstanding under the ABL Facility,
subject to the Intercreditor Agreement (described below). In
addition, during such Dominion Event, we are required to make
mandatory payments on our 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 ABL Facility. If excess availability under the
ABL Facility falls below certain levels, our ABL Facility also
requires us to satisfy set financial tests relating to our fixed
charge coverage ratio.
81
The ABL Facility includes a minimum fixed charge coverage ratio
of one to one, which will apply if we fail to maintain a
specified minimum level of borrowing capacity. The minimum level
of borrowing capacity as of November 1, 2009 was
$15.0 million.
Loans under the ABL Facility bear interest, at our option, as
follows:
(1) Base Rate loans at the Base Rate plus a margin, which
shall be 3.50% through April 30, 2010 and shall thereafter
range from 3.25% to 3.75% depending on the quarterly average
excess availability under such facility, and
(2) LIBOR loans at LIBOR plus a margin, which shall be
4.50% through April 30, 2010 and shall thereafter range
from 4.25% to 4.75% depending on the quarterly average excess
availability under such facility.
During an event of default, loans under the ABL Facility will
bear interest at a rate that is 2% higher than the rate
otherwise applicable. Base rate is defined as the
highest of the Wells Fargo Bank, N.A. prime rate or the
overnight Federal Funds rate plus 0.5% and LIBOR is
defined as the applicable London interbank offered rate adjusted
for reserves.
Intercreditor
Agreement
The liens securing the obligations under the Amended Credit
Agreement, the permitted hedging agreements and the guarantees
thereof are first in priority (as between the Amended Credit
Agreement and the ABL Facility) with respect to stock, material
real property and assets other than accounts receivable,
inventory, certain deposit accounts, associated intangibles and
certain other property of the Company and the guarantors,
subject to certain exceptions. Such liens are second in priority
(as between the Amended Credit Agreement and the ABL Facility)
with respect to accounts receivable, inventory, certain deposit
accounts, associated intangibles and certain other property of
the Company and the guarantors, subject to certain exceptions.
The details of the respective collateral rights between lenders
under the Amended Credit Agreement and lenders under the ABL
Facility are governed by an intercreditor agreement, dated as of
the Closing Date, among the borrowers, the term loan
administrative agent, the ABL Facility administrative agent and
the other parties thereto.
Convertible
Notes
In October 2009, we completed the Exchange Offer to acquire
$180 million aggregate principal amount of the Convertible
Notes. Approximately 99.9% of the outstanding Convertible Notes
were tendered in the Exchange Offer, and holders of Convertible
Notes received $500 in cash and 390 shares of our common
stock for each $1,000 of Convertible Notes tendered. The
proceeds of the Equity Investment were used to pay the cash
portion of the Exchange Offer, in an amount of approximately
$90.0 million. At November 1, 2009, we had retired all
but $0.06 million of the Convertible Notes.
On December 9, 2009, we provided to holders of Convertible
Notes irrevocable notice of our intent to redeem the
$0.06 million of remaining Convertible Notes on
December 29, 2009. As of December 9, 2009 until
December 28, 2009, at the option of any holder of
Convertible Notes, we are required to convert the principal
amount of such holders Convertible Notes, or any portion
of such principal amount that is a multiple of $1,000, into cash
and fully paid shares of common stock of the Company, in
accordance with the terms, procedures and conditions outlined in
the indenture pursuant to which the Convertible Notes were
issued. As of November 1, 2009, the conversion rate for the
Convertible Notes was 24.9121 shares of common stock per
$1,000 in principal amount of the Convertible Notes. The terms
of our Amended Credit Agreement and our ABL Facility require us
to redeem the Convertible Notes by January 15, 2010. We
expect to redeem the Convertible Notes by January 15, 2010, but
if for any reason, we do not redeem the Convertible Notes by
January 15, 2010, this would constitute an event of default
under both our Amended Credit Agreement and our ABL Facility.
82
Interest on the Convertible Notes is not deductible for income
tax purposes, which creates a permanent tax difference that is
reflected in our effective tax rate (as discussed further in
Note 17). The Convertible Notes are general unsecured
obligations and are subordinated to our present and future
senior indebtedness.
In accordance with guidance that has been codified under ASC
Topic
470-50,
Debt Modifications and Extinguishments, we
have expensed $3.5 million of unamortized deferred
financing costs related to the Convertible Notes. In addition,
we have recorded $84.5 million of debt extinguishment costs
and $5.7 million of capitalized equity raising costs.
The debt extinguishment costs are determined based on the net of
the inducement loss and the settlement gain. In accordance with
guidance that has been codified under ASC Topic
470-20,
Debt Debt with Conversion and Other
Options (ASC
470-20),
we are required to recognize an expense equal to the fair
value of all securities issuable pursuant to the original
conversion terms. In accordance with the original conversion
terms of the Convertible Notes, the expected fair value of
common stock issuable upon conversion is approximately
$266.1 million (based on a $2.51 closing stock price for
common stock as of October 19, 2009) as compared to
the expected fair value of common stock issuable pursuant to the
exchange offer of approximately $11.3 million. This
resulted in an induced conversion charge of $254.8 million.
ASC 470-20
requires us to account for the settlement of the Convertible
Notes as a debt extinguishment. When extinguishment debt is
required, the reacquisition price of the debt would include the
cash payment for the accreted value of the debt and the fair
value of the equity instruments issued to settle the conversion
spread. The original conversion rate is 24.9121 shares per
$1,000 of principal and the exchange of the Convertible Notes
results in 390 shares per $1,000 of principal. The change
in conversion rate based on a $2.51 closing stock price for
common stock as of October 19, 2009 resulted in a gain on
settlement of $170.3 million.
Potential
Pre-packaged bankruptcy costs
Costs related to potential pre-packaged bankruptcy are expensed
as incurred. During fiscal 2009, we expensed $4.8 million
of pre-packaged bankruptcy costs which are included in debt
extinguishment and refinancing costs in our Consolidated
Statement of Operations. All potential pre-packaged bankruptcy
costs were incurred in connection with the Recapitalization Plan
and were expensed in fiscal 2009.
Deferred
Financing Costs
At November 1, 2009 and November 2, 2008, the
unamortized balance in deferred financing costs was
$20.6 million and $4.6 million, respectively. During
fiscal 2008, we deferred financing costs of $0.9 million
related to the Recapitalization Plan which was included in
prepaid expenses and other assets in the Consolidated Balance
Sheet.
Insurance
Note Payable
The note payable is related to financed insurance premiums and,
as of November 1, 2009 we had outstanding a note payable in
the amount of $0.5 million. Insurance premium financings
are generally secured by the unearned premiums under such
policies.
|
|
11.
|
FAIR
VALUE OF FINANCIAL INSTRUMENTS
|
The carrying amounts of cash and cash equivalents, trade
accounts receivable and accounts payable approximate fair value
as of November 1, 2009 and November 2, 2008 because of
the relatively short maturity
83
of these instruments. The fair values of the remaining financial
instruments recognized on our Consolidated Balance Sheets at the
respective fiscal year ends were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 1, 2009
|
|
November 2, 2008
|
|
|
Carrying
|
|
|
|
Carrying
|
|
|
|
|
Amount
|
|
Fair Value
|
|
Amount
|
|
Fair Value
|
|
|
(In thousands)
|
|
(In thousands)
|
|
2.125% Convertible Senior Subordinated Notes
|
|
$
|
59
|
|
|
$
|
97
|
|
|
$
|
180,000
|
|
|
$
|
149,456
|
|
$150 Million Amended Credit Agreement
|
|
$
|
150,000
|
|
|
$
|
138,000
|
|
|
|
|
|
|
|
|
|
$400 Million Credit Agreement
|
|
|
|
|
|
|
|
|
|
$
|
293,200
|
|
|
$
|
251,980
|
|
The fair value of the Convertible Notes was determined from the
market rates as of the last trading day prior to our fiscal year
end. The fair value of each of the Amended Credit Agreement and
the Credit Agreement was based on recent trading activities of
comparable market instruments.
|
|
12.
|
DERIVATIVE
INSTRUMENT AND HEDGING STRATEGY
|
Interest
Rate Risk
We are exposed to interest rate risk associated with
fluctuations in the interest rates on our variable interest rate
debt. In order to manage this risk, on June 15, 2006, we
entered into a forward interest rate swap agreement (Swap
Agreement) hedging a portion of our $400 million
Credit Agreement with a notional amount of $160 million
beginning October 11, 2006. The notional amount decreased
to $145 million on October 11, 2007, decreased to
$105 million on October 14, 2008 and decreased again
to $65 million on October 13, 2009. The term of the
Swap Agreement expires on June 17, 2010. Under the Swap
Agreement, we will pay a fixed rate of 5.55% on a quarterly
basis in exchange for receiving floating rate payments based on
the three-month LIBOR rate. We designated the Swap Agreement as
a cash flow hedge. The fair value of the Swap Agreement as of
November 1, 2009 and November 2, 2008, was a liability
of approximately $2.2 million and $3.9 million,
respectively, and is included in other accrued expenses in the
Consolidated Balance Sheet. The fair value of the Swap Agreement
excludes accrued interest and takes into consideration current
interest rates and current creditworthiness of us or the
counterparty, as applicable.
During the fourth quarter of fiscal 2009, in connection with our
refinancing and Amended Credit Agreement, we modified the terms
of the Credit Agreement to include a 2% LIBOR minimum market
interest rate. Based on the current expected LIBOR rates over
the remaining term of the Swap Agreement, the forecasted market
rate interest payments have been effectively converted to fixed
rate interest payments making the Swap Agreement both
ineffective and the underlying hedged cash flow no longer
probable. Therefore, during fiscal 2009, we reclassified to
interest expense the remaining $3.1 million of deferred
losses recorded to accumulated other comprehensive income
(loss). For fiscal 2009, we have reduced interest expense by
$2.5 million as a result of the changes in fair value of
the hedge and we reclassified $4.8 million into earnings as
a result of the discontinuance of the hedge designation of the
Swap Agreement.
Embedded
Derivative Bifurcated From Convertible Preferred Stock (See
Note 14)
The terms of the Convertible Preferred Stock include a default
dividend rate of 3% per annum if, with certain exceptions, we
fail to (1) pay holders of Convertible Preferred Stock, on
an as-converted basis, in cash, dividends paid on shares of our
common stock; (2) following the date that there are no
Convertible Notes outstanding, pay, in cash or kind, any
dividend (other than dividends payable pursuant to the preceding
clause (1)) payable to holders of Preferred Shares pursuant to
the Certificate of Designations, Preferences and Rights of the
Series B Cumulative Convertible Participating Preferred
Stock (the Certificate of Designations) on the
applicable quarterly dividend payment date; (3) after
June 30, 2010, reserve and keep available for issuance the
number of shares of our common stock equal to 110% of the number
of shares of common stock issuable upon conversion of all
outstanding shares of Convertible Preferred Stock;
(4) maintain the listing of our common stock on the New
York Stock Exchange or another U.S. national securities
exchange; (5) comply with our obligations to convert the
Convertible Preferred Stock in accordance with our obligations
under the Certificate of Designations; (6) redeem
Convertible Preferred Stock in compliance with the Certificate
of
84
Designations; or (7) comply with any dividend payment
restrictions with respect to junior securities dividends. If, at
a time when a 3% per annum default dividend rate is in effect
after June 30, 2011 we fail to reserve and keep available
authorized common shares pursuant to the terms of the
Certificate of Designations the default dividend rate shall
increase to 6% until such default is no longer continuing. The
default dividend represents an embedded derivative which is
bifurcated from the Equity Investment host contract. See
Note 14 for further discussion of the Convertible Preferred
Stock Investment Agreement.
To determine the level 3 fair value of the embedded
derivative, we used a probability-weighted discounted cash flow
model and assigned probabilities for each qualified default
event. At November 1, 2009, we recorded the fair value of
the embedded derivative of $1.0 million in other accrued
liabilities on the Consolidated Balance Sheet. The majority of
the value of the derivative was derived from the default
dividend rate. As discussed further in Note 14, our
majority equity holder has stated its intent to vote for the
proposed reverse stock split. As this event is expected to occur
in the second quarter of fiscal 2010, the value of this
derivative is expected to decrease substantially in fiscal 2010.
The change in fair value in other income and expense was
inconsequential in fiscal 2009.
At November 1, 2009 and November 2, 2008, the fair
value carrying amount of our derivative instruments were
recorded as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Derivatives
|
|
|
|
|
|
November 1, 2009
|
|
|
November 2, 2008
|
|
|
|
Balance Sheet Location
|
|
Fair Value
|
|
|
Fair Value
|
|
|
Derivative designated as hedging instrument under ASC 815:
|
|
|
|
|
|
|
|
|
|
|
Interest rate contract
|
|
Other long-term liabilities
|
|
$
|
|
|
|
$
|
3,928
|
|
Derivatives not designated as hedging instruments under ASC
815:
|
|
|
|
|
|
|
|
|
|
|
Interest rate contract
|
|
Other accrued expenses
|
|
$
|
2,208
|
|
|
$
|
|
|
Embedded derivative
|
|
Other accrued expenses
|
|
|
1,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging instrument under ASC
815
|
|
|
|
$
|
3,249
|
|
|
$
|
3,928
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
|
|
$
|
3,249
|
|
|
$
|
3,928
|
|
|
|
|
|
|
|
|
|
|
|
|
The effect of derivative instruments on the Consolidated
Statement of Income for the fiscal years ended November 1,
2009 and November 2, 2008 was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Loss Reclassified
|
|
|
|
|
|
|
|
|
from Accumulated
|
|
|
Amount of Loss Recognized
|
|
Location of Loss Reclassified
|
|
OCI into Income
|
Derivative in ASC
|
|
in OCI on Derivative
|
|
from Accumulated OCI
|
|
(Effective Portion)
|
815 Cash Flow Hedging
|
|
(Effective Portion)
|
|
into Income (Loss)
|
|
November 1,
|
|
November 2,
|
Relationship
|
|
November 1, 2009
|
|
November 2, 2008
|
|
(Effective Portion)
|
|
2009
|
|
2008
|
|
Interest rate contract
|
|
$
|
(739
|
)
|
|
$
|
(428
|
)
|
|
|
Interest expense
|
|
|
$
|
(1,756
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Loss Recognized
|
|
|
Derivatives Not Designated as Hedging
|
|
in Income (Loss) on Derivative
|
|
Location of Loss Recognized in Income
|
Instruments Under ASC 815
|
|
November 1, 2009
|
|
November 2, 2008
|
|
(Loss) on Derivative
|
|
Interest rate contract
|
|
$
|
(3,072
|
)
|
|
$
|
|
|
|
Interest expense
|
At November 2, 2008, accumulated other comprehensive loss
associated with the Swap Agreement previously qualifying for
hedge accounting treatment was $(2.4) million, net of
income tax effects.
85
|
|
13.
|
FAIR
VALUE MEASUREMENTS
|
Effective November 3, 2008, we adopted the guidance that
has been codified under ASC
820-10
related to assets and liabilities recognized or disclosed in the
financial statements at fair value on a recurring basis. ASC
820-10
defines fair value, establishes a framework for measuring fair
value and expands disclosures about fair value measurements. ASC
820-10
applies to other accounting pronouncements that require or
permit fair value measurements, but does not require any new
fair value measurements. The adoption of these provisions did
not have a material effect on our consolidated financial
statements.
ASC 820-10
clarifies that fair value is an exit price, representing the
price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market
participants based on the highest and best use of the asset or
liability. As such, fair value is a market-based measurement
that should be determined based on assumptions that market
participants would use in pricing an asset or liability. ASC
820-10
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 table summarizes information regarding our
financial assets and liabilities that are measured at fair value
as of November 1, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments in deferred compensation plan(1)
|
|
$
|
3,359
|
|
|
|
|
|
|
|
|
|
|
|
3,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan liability
|
|
$
|
(3,480
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,480
|
)
|
Interest rate contract
|
|
|
|
|
|
|
(2,208
|
)
|
|
|
|
|
|
|
(2,208
|
)
|
Embedded derivative
|
|
|
|
|
|
|
|
|
|
|
(1,041
|
)
|
|
|
(1,041
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
(3,480
|
)
|
|
|
(2,208
|
)
|
|
|
(1,041
|
)
|
|
|
(6,729
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Unrealized holding gains (losses) for the fiscal years ended
November 1, 2009 and November 2, 2008 was
$0.9 million and $(1.1) million, respectively. These
unrealized holding gains (losses) are primarily offset by
changes in the deferred compensation plan liability. |
The following table summarizes the activity in Level 3
financial instruments during fiscal 2009:
|
|
|
|
|
|
|
November 1,
|
|
|
|
2009
|
|
|
Beginning balance
|
|
$
|
|
|
Addition
|
|
|
(1,041
|
)
|
|
|
|
|
|
Ending balance
|
|
$
|
(1,041
|
)
|
|
|
|
|
|
|
|
14.
|
SERIES B
CUMULATIVE CONVERTIBLE PARTICIPATING PREFERRED STOCK
|
Execution
of Investment Agreement
On August 14, 2009, the Company entered into an Investment
Agreement (as amended, the Investment Agreement), by
and between the Company and Clayton, Dubilier & Rice
Fund VIII, L.P. (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
86
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. (CD&R,
Inc.), the manager of CD&R Fund VIII, of
$8.25 million), 250,000 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 196.1 million common shares or 68.4% of the
voting power and common stock of the Company on an as-converted
basis.
Certain
Terms of the Convertible Preferred Stock
In connection with the consummation of the Equity Investment, on
October 19, 2009 we filed the Certificate of Designations,
setting forth the terms, rights, obligations, and preferences of
the Convertible Preferred Stock.
Liquidation Value. Each Convertible Preferred
Share has an initial liquidation preference of $1,000.
Rank. The Convertible Preferred Stock ranks
senior as to dividend rights and liquidation to the common stock
of the company and all other classes of capital or series of our
Companys preferred stock and junior to each class or
series of equity securities of the Company, whether currently
issued or issued in the future, that by its terms ranks senior
to the Convertible Preferred Stock.
Dividends. Dividends on the Convertible
Preferred Stock are payable, on a cumulative daily basis, as and
if declared by the our board of directors, at a rate per annum
of 12% of the liquidation preference of $1,000 per Preferred
Share if paid in-kind or at a rate per annum of 8% of the
liquidation preference of $1,000 per Preferred Share if paid in
cash. Members of our board of directors who are independent of
directors affiliated with the CD&R Funds, have the right to
choose whether dividends are paid in cash or in-kind, subject to
the conditions of the Amended Credit Agreement and ABL Facility
including being limited in our ability to pay cash dividends
until the first quarter of fiscal 2011 under the Amended Credit
Agreement and until October 20, 2010 under the ABL
Facility, except for certain specified purposes.
The dividend rate will increase by 3% per annum above the rates
described in the preceding paragraph upon and during certain
specified defaults and, after June 30, 2011, will increase
by up to 6% per annum above the rates described in the preceding
paragraph upon and during any such specified default if due to
the failure to have sufficient authorized and unissued shares of
common stock of the Company to convert all outstanding Preferred
Shares.
In addition to any dividends declared and paid as described in
the preceding paragraphs, holders of the outstanding Preferred
Shares also have the right to participate equally and ratably,
on an as-converted basis, with the holders of shares of common
stock of the Company in all cash dividends and distributions
paid on the common stock.
If, at any time after the
30-month
anniversary of the Closing Date, the trading price of the common
stock of the Company exceeds 200% of the initial conversion
price (as defined in the Certificate of Designations) for each
of 20 consecutive trading days, the dividend rate (excluding any
applicable adjustments as a result of a default) will become
0.00%. However, this does not preclude the payment of default
dividends after the
30-month
anniversary of the Closing Date. We expect the dividend for each
quarter of fiscal 2010 to be paid in-kind as a result of certain
restrictions on our Amended Credit Agreement and ABL Facility
and have, therefore, accrued a pro rata 12% rate per annum. See
Note 10 for more information on our Amended Credit
Agreement and ABL Facility.
Convertibility and Antidilution
Adjustments. To the extent that we have
authorized but unissued shares of common stock, holders of
Preferred Shares will have the right, at any time and from time
to time, at their option, to convert any or all of their
Preferred Shares, in whole or in part, into fully paid and
non-assessable shares of our common stock at the conversion
price, initially equal to $1.2748 and subject to adjustment as
set forth in the Certificate of Designations. The number of
shares of common stock of the Company into which a Preferred
Share can be convertible is determined by dividing the
liquidation preference in effect at the time of conversion by
the conversion price in effect at the time of conversion.
87
The conversion price is subject to customary anti-dilution
adjustments, including stock dividends and issuance of our
common stock at a price below the then-current market price and,
within the first three years after the Closing Date, issuances
of our common stock below the conversion price.
Vote. Holders of Preferred Shares generally
are entitled to vote with the holders of the shares of our
common stock on all matters submitted for a vote of holders of
shares of our common stock (voting together with the holders of
shares of our common stock as one class) and are entitled to a
number of votes equal to the number of votes to which shares of
common stock issuable upon conversion of such available
Preferred Shares would have been entitled (without any
limitations based on our authorized but unissued shares of our
common stock) if such shares of our common stock had been
outstanding at the time of the applicable vote and related
record date.
Additionally, certain matters require the approval of the
holders of a majority of the outstanding available Preferred
Shares, voting as a separate class, including
(1) amendments or modifications to the Companys
Certificate of Incorporation, by-laws or the Certificate of
Designation, (2) authorization, creation, increase in the
authorized amount of, or issuance of any class or series of
senior securities or any security convertible into, or
exchangeable or exercisable for, shares of senior securities and
(3) any increase or decrease in the authorized number of
Preferred Shares or the issuance of additional Preferred Shares,
subject to certain exceptions.
Milestone Redemption Right. The Company
has the right, at any time on or after the tenth anniversary of
the Closing Date, to redeem in whole, but not in part, all
then-issued and outstanding shares of Convertible Preferred
Stock in accordance with the procedures set forth in the
Certificate of Designations. Any holder of Convertible Preferred
Stock has the right, at any time on or after the tenth
anniversary of the Closing Date, to require that the Company
redeem all, but not less than all, of its shares of Convertible
Preferred Stock in accordance with the procedures set forth in
the Certificate of Designations.
Change of Control Redemption Right. Upon
a Change of Control (as defined in the Certificate of
Designations), so long as the CD&R Funds do not own 45% or
more of the voting power of the Company or are otherwise able to
designate a majority of the directors on the board of directors,
holders of Preferred Shares are able to require redemption by
the Company, in whole but not in part, of the Convertible
Preferred Stock (1) if redeemed after the fourth
anniversary of the Closing Date, at the liquidation value of
such Preferred Shares or (2) if redeemed prior to the
fourth anniversary of the Closing Date, at the liquidation value
of such Preferred Shares plus a make-whole premium equal to the
net present value of the sum of all dividends that would
otherwise be payable on and after the redemption date, to and
including such fourth anniversary date, assuming that such
dividends are paid in cash.
In the event of a merger or other business combination in which
the holders of shares of our common stock receive cash or
securities of an unaffiliated entity as consideration for such
shares, if the holder of Preferred Shares does not exercise the
change of control redemption right as described above, such
holder will be entitled to receive, pursuant to such merger or
business combination, the consideration such holder would have
received for its Preferred Shares had it converted such shares
immediately prior to the merger or business combination
transaction.
Restriction on Dividends on Junior
Securities. Except for ordinary cash dividends
and dividends payable solely in shares of our common stock or
other junior securities, the Company is prohibited from paying
any dividend with respect to the our common stock or other
junior securities or repurchasing or redeeming any shares of our
common stock or other junior securities, unless, in each case,
we have sufficient access to lawful funds immediately following
such action such that we would be legally permitted to redeem in
full all Preferred Shares then outstanding.
Accounting
for Convertible Preferred Stock
In accordance with guidance that has been codified under ASC
Topic 815, Derivatives and Hedging, and ASC Topic 480,
Distinguishing Liabilities from Equity, we classified the
Convertible Preferred Stock as mezzanine equity because the
Convertible Preferred Stock (1) can be settled in cash or
common shares,
88
(2) contains change of control rights allowing for early
redemption, and (3) contains Milestone
Redemption Rights which allow the convertible preferred
stock to remain outstanding without a stated maturity date.
In addition, the Convertible Preferred Stock includes features
that are required to be bifurcated and recorded at fair value.
We classified the Convertible Preferred Stock as an equity host
contract because of (1) the voting rights, (2) the
participating dividends on common stock and mandatory,
cumulative preferred stock dividends, and (3) the Milestone
Redemption Right which allows the convertible preferred
stock to remain outstanding without a stated maturity date. We
then determined that the conditions resulting in the application
of the default dividend rate are not clearly and closely related
to this equity host contract and we bifurcated and separately
recorded these features at fair value (See Note 12
Derivative Instruments and Hedging Strategy).
The Convertible Preferred Stock, at execution, was recorded with
a book value of $221.6 million which is the
$250.0 million initial liquidation preference less
$27.7 million of direct transaction costs and
$0.6 million for the fair value, net of income tax, of the
bifurcated embedded derivative liability related to the dividend
default rate. The $28.4 million difference between the book
value and the initial liquidation preference is accreted using
the effective interest rate method from the execution of the
contract to the Milestone Redemption Right date or
10 years. The accretion recorded for fiscal 2009 is
$0.1 million.
Because the dividends accrue and accumulate on a daily basis and
are included in the liquidation preference, accrued dividends
are recorded into Convertible Preferred Stock. Dividends are
accrued at the 12% paid in-kind rate and increased the
Convertible Preferred Stock by $1.1 million during fiscal
2009. As such, as of November 1, 2009, the book value of
our Convertible Preferred Stock is $222.8 million.
In accordance with guidance that has been codified under ASC
Topic
470-20,
Debt with Conversion and Other Options, the Convertible
Preferred Stock contains a beneficial conversion feature because
it was issued with a conversion price of $1.2748 per common
share equivalent and the closing stock price per common share
just prior to the execution of the Equity Investment was $2.51.
The intrinsic value of the beneficial conversion feature cannot
exceed the issuance proceeds of the Convertible Preferred Stock
less the cash paid to the CDR Funds, and thus is
$241.4 million. At November 1, 2009, 8.2 million
of the potentially 196.1 million common shares, if
converted, are authorized and unissued. Therefore,
$10.5 million of the beneficial conversion feature was
recognized in fiscal 2009. The remaining $230.9 million of
the beneficial conversion feature will be recognized when the
contingency related to the availability of authorized shares is
resolved.
As of November 1, 2009, the Preferred Shares are
convertible into 196.1 million shares of common stock, at a
conversion price of $1.2748. However, as of that date, only
approximately 8.2 million shares of common stock were
authorized and unissued, and therefore, the CD&R Funds may
not fully convert the Preferred Shares. To the extent that the
CD&R Funds opt to convert their Preferred Shares, as of
November 1, 2009, their conversion right was limited to
conversion of their Preferred Shares into the approximately
8.2 million shares of common stock that are currently
authorized and unissued. We intend to submit to a shareholder
vote, at our annual meeting of shareholders, a proposal to amend
the Companys certificate of incorporation to effect a
reverse stock split of the common stock of the Company. We
expect the shareholders to vote in favor of the reverse stock
split at the annual meeting and we expect that, following the
completion of the reverse stock split, the CD&R Funds will
be able to convert 100% of their Preferred Shares into shares of
common stock.
Pursuant to the Investment Agreement and a Stockholders
Agreement (the Stockholders Agreement), dated as of
the Closing Date between the Company and the CD&R Funds,
the CD&R Funds have the right to designate a number of
directors to our board of directors that is equivalent to the
CD&R Funds percentage interest in the Company. Among
other directors appointed by the CD&R Funds, our board of
directors appointed to the board of directors James G. Berges,
Nathan K. Sleeper and Jonathan L. Zrebiec. Messrs. Berges
and Sleeper are partners and Mr. Zrebiec is a principal of
Clayton, Dubilier & Rice, LLC, (CD&R,
LLC), an affiliate of the CD&R Funds.
89
As a result of their respective positions with CD&R, LLC
and its affiliates, one or more of Messrs. Berges, Sleeper
and Zrebiec may be deemed to have an indirect material interest
in certain agreements executed in connection with the Equity
Investment. Messrs. Berges, Sleeper and Zrebiec may be
deemed to have an indirect material interest in the following
agreements:
|
|
|
|
|
the Investment Agreement, pursuant to which the CD&R Funds
acquired a 68.4% interest in the Company, CD&R Fund
VIIIs transaction expenses were reimbursed and a deal fee
of $8.25 million was paid to CD&R, Inc., which
indirectly controls CD&R, LLC, on the Closing Date;
|
|
|
|
the Stockholders Agreement, which sets forth certain terms and
conditions regarding the Equity Investment and the CD&R
Funds ownership of the Preferred Shares, including certain
restrictions on the transfer of the Preferred Shares and the
shares of our common stock issuable upon conversion thereof and
on certain actions of the CD&R Funds and their controlled
affiliates with respect to the Company, and to provide for,
among other things, subscription rights, corporate governance
rights and consent rights as well as other obligations and
rights;
|
|
|
|
a Registration Rights Agreement, dated as of the Closing Date
(the Registration Rights Agreement), between the
Company and the CD&R Funds, pursuant to which the Company
granted to the CD&R Funds, together with any other
stockholder of the Company that may become a party to the
Registration Rights Agreement in accordance with its terms,
certain customary registration rights with respect to the shares
of our common stock issuable upon conversion of the Preferred
Shares; and
|
|
|
|
an Indemnification Agreement, dated as of the Closing Date
between the Company, NCI Group, Inc., a wholly owned subsidiary
of the Company, Robertson-Ceco II Corporation, a wholly
owned subsidiary of the Company, the CD&R Funds and
Clayton, Dubilier & Rice, Inc., pursuant to which the
Company, NCI Group, Inc. and Robertson-Ceco II Corporation
agreed to indemnify CD&R, Inc., the CD&R Funds and
their general partners, the special limited partner of CD&R
Fund VIII and any other investment vehicle that is a stockholder
of the Company and is managed by CD&R, Inc. or any of its
affiliates, their respective affiliates and successors and
assigns and the respective directors, officers, partners,
members, employees, agents, representatives and controlling
persons of each of them, or of their respective partners,
members and controlling persons, against certain liabilities
arising out of the Equity Investment and transactions in
connection with the Equity Investment, including, but not
limited to, the Amended Credit Agreement, the ABL Facility, the
Exchange Offer, and certain other liabilities and claims.
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16.
|
GOODWILL
AND OTHER INTANGIBLE ASSETS
|
In accordance with guidance that has been codified under ASC
Topic 350, Intangibles Goodwill and Other,
goodwill is tested for impairment at least annually at the
reporting unit level, which is defined as an operating segment
or a component of an operating segment that constitutes a
business for which financial information is available and is
regularly reviewed by management. Management has determined that
we have six reporting units for the purpose of allocating
goodwill and the subsequent testing of goodwill for impairment.
Our metal components and engineered building systems segments
are each split into two reporting units and the metal coil
coating segment is its own reporting unit for goodwill
impairment testing purposes.
Subsequent to our fiscal 2008 annual assessment of the
recoverability of goodwill and indefinite lived intangibles, and
beginning largely in late September, our stock price and market
capitalization decreased from $36.51 and $720.3 million,
respectively, at July 27, 2008 to $18.61 and
$367.3 million, respectively, at November 2, 2008. We
evaluated whether the recent decline in our stock price and
market capitalization represents a significant decline in the
underlying fair value of the Company. Based upon our analysis we
concluded that the decline in our stock price and the resulting
decline in our market capitalization did not require us to
perform an additional goodwill and indefinite lived intangibles
impairment test because we did not believe the decline was
caused by significant underperformance of the Company relative
to historical or projected future operating results, a
significant change in the manner of our use of the acquired
assets or the strategy for our overall business, or a
significant sustained negative industry or economic trend.
90
However, based on lower than projected sales volumes in our
first quarter of fiscal 2009 and based on a revised lower
outlook for non-residential construction activity in 2009,
management reduced the Companys cash flow projections. We
concluded that this reduction was an impairment indicator
requiring us to perform an interim goodwill impairment test for
each of our six reporting units as of February 1, 2009. As
a result of this impairment indicator, we updated the first step
of our goodwill impairment test in the first quarter of fiscal
2009. The first step of our goodwill impairment test determines
fair value of the reporting unit based on a blend of estimated
discounted cash flows, publicly traded company multiples and
acquisition multiples reconciled to our recent publicly traded
stock price, including a reasonable control premium. The result
from this model was then weighted and combined into a single
estimate of fair value. We determined that our carrying value
exceeded our fair value at most of our reporting units in each
of our operating segments, indicating that goodwill was
potentially impaired. As a result, we initiated the second step
of the goodwill impairment test which involved calculating the
implied fair value of our goodwill by allocating the fair value
of the reporting unit to all assets and liabilities other than
goodwill and comparing it to the carrying amount of goodwill.
The fair value of each of the reporting units assets and
liabilities were determined based on a combination of prices of
comparable businesses and present value techniques.
As of February 1, 2009, we estimated the market implied
fair value of our goodwill was less than its carrying value by
approximately $508.9 million, which was recorded as a
goodwill impairment charge in the first quarter of fiscal 2009.
This charge was an estimate based on the result of the
preliminary allocation of fair value in the second step of the
goodwill impairment test. However, due to the timing and
complexity of the valuation calculations required under the
second step of the test, we were not able to finalize our
allocation of the fair value until the second quarter of fiscal
2009 with regard to property, plant and equipment and intangible
assets in which their respective values are dependent on
property, plant and equipment. The finalization was included in
our goodwill impairment charge in the second quarter of fiscal
2009.
Further declines in cash flow projections and the corresponding
implementation of the Phase III restructuring plan caused
management to determine that there was an indicator requiring us
to perform another interim goodwill impairment test for each of
our reporting units with goodwill remaining as of May 3,
2009. As a result of this impairment indicator, we again
performed the first step of our goodwill impairment test in the
second quarter of fiscal 2009, the results of which indicated
that our carrying value exceeded our fair value at most of our
reporting units with goodwill remaining, indicating that
goodwill was potentially impaired. As a result, we initiated the
second step of the goodwill impairment test. As of May 3,
2009, we determined the market implied fair value of our
goodwill was less than the carrying value for certain reporting
units by approximately $102.5 million, which has been
recorded as a goodwill impairment charge in the second quarter
of fiscal 2009.
At the beginning of the fourth quarter of each fiscal year, we
perform an annual assessment of the recoverability of goodwill
and indefinite lived intangibles. Additionally, we assess
goodwill and indefinite lived intangibles for impairment
whenever events or changes in circumstances indicate that such
carrying values may not be recoverable. We completed our annual
assessment of the recoverability of goodwill and indefinite
lived intangibles in the fourth quarter of fiscal 2009 and
determined that no further impairments of our goodwill or
long-lived intangibles were required.
Our goodwill balance and changes in the carrying amount of
goodwill by operating segment are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metal
|
|
|
|
|
|
Engineered
|
|
|
|
|
|
|
Coil
|
|
|
Metal
|
|
|
Building
|
|
|
|
|
|
|
Coating
|
|
|
Components
|
|
|
Systems
|
|
|
Total
|
|
|
Balance as of October 28, 2007
|
|
$
|
98,959
|
|
|
$
|
149,180
|
|
|
$
|
368,261
|
|
|
$
|
616,400
|
|
Transfer(1)
|
|
|
|
|
|
|
(1,940
|
)
|
|
|
1,940
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
226
|
|
|
|
226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of November 2, 2008
|
|
$
|
98,959
|
|
|
$
|
147,240
|
|
|
$
|
370,427
|
|
|
$
|
616,626
|
|
Impairments
|
|
|
(98,959
|
)
|
|
|
(147,240
|
)
|
|
|
(365,227
|
)
|
|
|
(611,426
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of November 1, 2009
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,200
|
|
|
$
|
5,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91
|
|
|
(1) |
|
During the fourth quarter of fiscal 2008, we changed the
reporting structure and management team responsibilities to
better align certain of our products in order to respond
effectively to current market opportunities. As a result of this
change, certain amounts of goodwill have been transferred
accordingly. Fiscal 2007 segment presentation has been
reclassified to conform to fiscal 2008 presentation. |
The following table represents all our intangible assets
activity for the fiscal years ended November 1, 2009 and
November 2, 2008 (in thousands):
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
Range of
|
|
|
November 1,
|
|
|
November 2,
|
|
|
|
Life (Years)
|
|
|
2009
|
|
|
2008
|
|
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
|
|
15
|
|
|
$
|
5,588
|
|
|
$
|
5,588
|
|
Backlog
|
|
|
1
|
|
|
|
3,019
|
|
|
|
3,019
|
|
Customer lists and relationships
|
|
|
15
|
|
|
|
8,710
|
|
|
|
8,710
|
|
Non-competition agreements
|
|
|
5-10
|
|
|
|
8,132
|
|
|
|
8,132
|
|
Property rights
|
|
|
7
|
|
|
|
990
|
|
|
|
990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
26,439
|
|
|
$
|
26,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
|
|
|
|
|
$
|
(1,719
|
)
|
|
$
|
(1,345
|
)
|
Backlog
|
|
|
|
|
|
|
(3,019
|
)
|
|
|
(3,019
|
)
|
Customer lists and relationships
|
|
|
|
|
|
|
(1,937
|
)
|
|
|
(1,356
|
)
|
Non-competition agreements
|
|
|
|
|
|
|
(4,236
|
)
|
|
|
(3,273
|
)
|
Property rights
|
|
|
|
|
|
|
(613
|
)
|
|
|
(472
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(11,524
|
)
|
|
$
|
(9,465
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value
|
|
|
|
|
|
$
|
14,915
|
|
|
$
|
16,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names, beginning of year
|
|
|
|
|
|
$
|
24,704
|
|
|
$
|
24,704
|
|
Impairments
|
|
|
|
|
|
|
(11,249
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names, end of year
|
|
|
|
|
|
|
13,455
|
|
|
|
24,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets at net book value
|
|
|
|
|
|
$
|
28,370
|
|
|
$
|
41,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RCCs Star and Ceco trade name assets have an indefinite
life and are not amortized, but are reviewed annually and tested
for impairment. The RCC trade names were determined to have
indefinite lives due to the length of time the trade names have
been in place, with some having been in place for decades. Our
past practice with other significant acquisitions and current
intentions are to maintain the trade names indefinitely.
As a result of the aforementioned goodwill impairment indicators
and in accordance with SFAS 142, we performed an impairment
analysis on our indefinite lived intangible asset related to
RCCs trade names in our engineered building systems
segment to determine the fair value. Based on changes to our
projected cash flows in the first quarter of fiscal 2009 and
based on the lower projected cash flows and related
Phase III restructuring plan in the second quarter of
fiscal 2009, we determined the carrying cost exceeded the future
fair value attributable to the intangible asset, and recorded
impairment charges of $8.7 million in the first quarter of
fiscal 2009 and $2.4 million in the second quarter of
fiscal 2009 related to the intangible asset.
All other intangible assets are amortized on a straight-line
basis over their expected useful lives. As of November 1,
2009, the weighted average amortization period for all our
intangible assets was 13.3 years.
92
Amortization expense of intangibles was $2.1 million,
$2.2 million and $3.4 million for fiscal 2009, 2008
and 2007, respectively. We expect to recognize amortization
expense over the next five fiscal years as follows (in
thousands):
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
$
|
2,058
|
|
2011
|
|
|
|
|
|
|
2,058
|
|
2012
|
|
|
|
|
|
|
1,746
|
|
2013
|
|
|
|
|
|
|
1,563
|
|
2014
|
|
|
|
|
|
|
1,563
|
|
In accordance with SFAS 142, we evaluate the remaining
useful life of these intangible assets on an annual basis. We
also review for recoverability when events or changes in
circumstances indicate the carrying values may not be
recoverable in accordance with guidance that has been codified
under ASC Topic 360, Property, Plant and Equipment.
Income tax expense is based on pretax financial accounting
income. Deferred income taxes are recognized for the temporary
differences between the recorded amounts of assets and
liabilities for financial reporting purposes and such amounts
for income tax purposes. The income tax provision (benefit) for
the fiscal years ended 2009, 2008 and 2007, consisted of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
November 1,
|
|
|
November 2,
|
|
|
October 28,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(28,706
|
)
|
|
$
|
44,330
|
|
|
$
|
42,369
|
|
State
|
|
|
(1,366
|
)
|
|
|
6,903
|
|
|
|
5,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
(30,072
|
)
|
|
|
51,233
|
|
|
|
48,186
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(21,368
|
)
|
|
|
179
|
|
|
|
(6,404
|
)
|
State
|
|
|
(3,084
|
)
|
|
|
87
|
|
|
|
(686
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
(24,452
|
)
|
|
|
266
|
|
|
|
(7,090
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision (benefit)
|
|
$
|
(54,524
|
)
|
|
$
|
51,499
|
|
|
$
|
41,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The reconciliation of income tax computed at the United States
federal statutory tax rate to the effective income tax rate is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
November 1,
|
|
November 2,
|
|
October 28,
|
|
|
2009
|
|
2008
|
|
2007
|
|
Statutory federal income tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State income taxes
|
|
|
3.3
|
%
|
|
|
3.5
|
%
|
|
|
3.4
|
%
|
Non-deductible goodwill impairment
|
|
|
(27.0
|
)%
|
|
|
|
|
|
|
|
|
Canadian valuation allowance
|
|
|
(0.1
|
)%
|
|
|
1.3
|
%
|
|
|
0.8
|
%
|
Non-deductible interest expense
|
|
|
(0.2
|
)%
|
|
|
1.2
|
%
|
|
|
1.5
|
%
|
Production activities deduction
|
|
|
|
|
|
|
(2.0
|
)%
|
|
|
(1.1
|
)%
|
Premium on Convertible Notes exchange offer
|
|
|
(4.1
|
)%
|
|
|
|
|
|
|
|
|
Other
|
|
|
(0.1
|
)%
|
|
|
0.5
|
%
|
|
|
(0.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
6.8
|
%
|
|
|
39.5
|
%
|
|
|
39.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93
The decrease in our effective tax rate for the fiscal year ended
November 1, 2009 as compared to the prior year period was
primarily due to the following:
|
|
|
|
|
The $611.4 million goodwill impairment charges discussed in
Note 16 Goodwill and Other Intangible Assets.
|
|
|
|
The $84.5 million premium paid on the exchange offer to
retire our Convertible Notes which is not deductible.
|
Deferred income taxes reflect the net impact of temporary
differences between the amounts of assets and liabilities
recognized for financial reporting purposes and such amounts
recognized for income tax purposes. The tax effects of the
temporary differences for fiscal 2009 and 2008 are as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
November 1,
|
|
|
November 2,
|
|
|
|
2009
|
|
|
2008
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Inventory obsolescence
|
|
$
|
1,008
|
|
|
$
|
1,281
|
|
Bad debt reserve
|
|
|
2,137
|
|
|
|
2,115
|
|
Accrued and deferred compensation
|
|
|
11,545
|
|
|
|
14,212
|
|
Accrued insurance reserves
|
|
|
1,878
|
|
|
|
2,211
|
|
Deferred revenue
|
|
|
6,266
|
|
|
|
6,712
|
|
Interest rate swap
|
|
|
847
|
|
|
|
1,508
|
|
Net operating loss carryover
|
|
|
6,469
|
|
|
|
3,943
|
|
Depreciation and amortization
|
|
|
454
|
|
|
|
867
|
|
Deferred financing costs
|
|
|
2,390
|
|
|
|
|
|
Other reserves
|
|
|
725
|
|
|
|
218
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
33,719
|
|
|
|
33,067
|
|
Less valuation allowance
|
|
|
(5,018
|
)
|
|
|
(4,972
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
28,701
|
|
|
|
28,095
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(25,163
|
)
|
|
|
(47,809
|
)
|
Pension
|
|
|
(2,566
|
)
|
|
|
|
|
Other
|
|
|
(776
|
)
|
|
|
(359
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(28,505
|
)
|
|
|
(48,168
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset (liability)
|
|
$
|
196
|
|
|
$
|
(20,073
|
)
|
|
|
|
|
|
|
|
|
|
There were no amounts of accrued income taxes payable included
in other accrued expenses at November 1, 2009. Other
accrued expenses include accrued income taxes payable of
$4.9 million at November 2, 2008.
We carry out our business operations through legal entities in
the U.S., Canada and Mexico. These operations require that we
file corporate income tax returns that are subject to U.S.,
state and foreign tax laws. We are subject to income tax audits
in these multiple jurisdictions.
94
The entire U.S. federal net operating loss will be fully
utilized through carryback against taxable income generated in
fiscal 2008 and 2007. Our foreign operations have a net
operating loss carryforward of approximately $15.6 million
that will start to expire in fiscal 2025 if unused. The
utilization of these losses is uncertain and we currently have a
full valuation allowance against the deferred tax asset related
to this loss carryforward. Of the $5.0 million valuation
allowance, $3.3 million was recorded as part of the
purchase accounting related to the acquisition of RCC. The
following table represents the rollforward of the valuation
allowance on deferred taxes activity for the fiscal years ended
November 1, 2009, November 2, 2008 and
October 28, 2007 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 1,
|
|
|
November 2,
|
|
|
October 28,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Beginning balance
|
|
$
|
4,972
|
|
|
$
|
4,603
|
|
|
$
|
3,171
|
|
Additions
|
|
|
46
|
|
|
|
369
|
|
|
|
1,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
5,018
|
|
|
$
|
4,972
|
|
|
$
|
4,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASC
740-10
Prior to fiscal 2008, in evaluating the exposures connected with
the various tax filing positions, the company established an
accrual when, despite managements belief that the
companys tax return positions are supportable, management
believed that certain positions may be successfully challenged
and a loss was probable. When facts and circumstances changed,
these accruals were adjusted.
We adopted guidance that has been codified under ASC Topic
740-10,
Income Taxes - Overall (ASC
740-10)
on October 29, 2007. The cumulative effect of adopting ASC
740-10 was
recorded as of October 29, 2007 as a decrease to retained
earnings of $0.4 million. The total amount of unrecognized
tax benefit at November 1, 2009 was $0.7 million, of
which $0.7 million would impact the Companys
effective tax rate if recognized. The total amount of
unrecognized tax benefits at November 2, 2008 was
$1.3 million, of which $0.9 million would impact the
Companys 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.
The following table summarizes the activity related to the
Companys unrecognized tax benefits during fiscal 2009 and
2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
November 1,
|
|
|
November 2,
|
|
|
|
2009
|
|
|
2008
|
|
|
Unrecognized tax benefits at beginning of year
|
|
$
|
1,321
|
|
|
$
|
864
|
|
Additions for tax positions related to prior years
|
|
|
239
|
|
|
|
590
|
|
Reductions due to lapse of applicable statute of limitations
|
|
|
(875
|
)
|
|
|
(133
|
)
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefits at end of year
|
|
$
|
685
|
|
|
$
|
1,321
|
|
|
|
|
|
|
|
|
|
|
We recognize interest and penalties related to uncertain tax
positions in income tax expense. To the extent accrued interest
and penalties do not ultimately become payable, amounts accrued
will be reduced and reflected as a reduction of the overall
income tax provision in the period that such determination is
made. We did not have a material amount of accrued interest and
penalties related to uncertain tax positions as of
November 1, 2009.
We file income tax returns in the U.S. federal jurisdiction
and multiple state and foreign jurisdictions. Our tax years are
closed with the IRS through the year ended October 30, 2005
as the statute of limitations related to these tax years has
closed. In addition, open tax years related to state and foreign
jurisdictions remain subject to examination but are not
considered material.
95
|
|
18.
|
ACCUMULATED
OTHER COMPREHENSIVE (LOSS) INCOME
|
Accumulated other comprehensive (loss) income consists of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
November 1,
|
|
|
November 2,
|
|
|
|
2009
|
|
|
2008
|
|
|
Foreign exchange translation adjustments
|
|
$
|
391
|
|
|
$
|
589
|
|
Defined benefit pension plan
|
|
|
(9,250
|
)
|
|
|
391
|
|
Unrealized losses on interest rate swap
|
|
|
|
|
|
|
(2,420
|
)
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive (loss) income
|
|
$
|
(8,859
|
)
|
|
$
|
(1,440
|
)
|
|
|
|
|
|
|
|
|
|
|
|
19.
|
OPERATING
LEASE COMMITMENTS
|
We have operating lease commitments expiring at various dates,
principally for real estate, office space, office equipment and
transportation equipment. Certain of these operating leases have
purchase options that entitle us to purchase the respective
equipment at fair value at the end of the lease. In addition,
many of our leases contain renewal options at rates similar to
the current arrangements. As of November 1, 2009, future
minimum rental payments related to noncancellable operating
leases are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
$
|
7,162
|
|
|
|
|
|
2011
|
|
|
|
|
|
|
4,603
|
|
|
|
|
|
2012
|
|
|
|
|
|
|
2,142
|
|
|
|
|
|
2013
|
|
|
|
|
|
|
577
|
|
|
|
|
|
2014
|
|
|
|
|
|
|
465
|
|
|
|
|
|
Thereafter
|
|
|
|
|
|
|
1,474
|
|
|
|
|
|
Rental expense incurred from operating leases, including leases
with terms of less than one year, for fiscal 2009, 2008 and 2007
was $11.9 million, $12.4 million and
$12.2 million, respectively.
|
|
20.
|
STOCK
REPURCHASE PROGRAM
|
Our board of directors has authorized a stock repurchase
program. Subject to applicable federal securities law, such
purchases occur at times and in amounts that we deem
appropriate. Shares repurchased are used primarily for later
re-issuance in connection with our equity incentive and 401(k)
profit sharing plans. Although we did not repurchase any shares
of our common stock during fiscal 2009 and 2008, we did withhold
shares of restricted stock to satisfy tax withholding
obligations arising in connection with the vesting of awards of
restricted stock, which are included in treasury stock purchases
in the Consolidated Statements of Stockholders Equity. At
November 1, 2009, there were 0.6 million shares
remaining authorized for repurchase under the program. While
there is no time limit on the duration of the program, our
Amended Credit Agreement and ABL Facility apply certain
limitations on our repurchase of shares of our common stock.
During fiscal 2009, we retired all treasury shares outstanding.
Changes in treasury common stock, at cost, were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Balance, October 28, 2007
|
|
|
2,590
|
|
|
$
|
114,373
|
|
Purchases
|
|
|
80
|
|
|
|
2,226
|
|
|
|
|
|
|
|
|
|
|
Balance, November 2, 2008
|
|
|
2,670
|
|
|
|
116,599
|
|
Purchases
|
|
|
177
|
|
|
|
451
|
|
Retirements
|
|
|
(2,847
|
)
|
|
|
(117,050
|
)
|
|
|
|
|
|
|
|
|
|
Balance, November 1, 2009
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
96
|
|
21.
|
SHARE-BASED
COMPENSATION
|
Our 2003 Long-Term Stock Incentive Plan (the 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, stock appreciation
rights, performance share awards, phantom stock awards and cash
awards. In fiscal 2009, our stockholders approved the amendment
and restatement of the Incentive Plan to increase the number of
common stock reserved for issuance under the plan by
approximately 1.1 million shares of common stock and
provide for the extension of the effective date of the Incentive
Plan to 10 years after its approval. As amended, the
aggregate number of shares of common stock that may be issued
under the plan may not exceed 3.66 million.
In fiscal 2005, our stockholders approved the amendment and
restatement of the Incentive Plan, which, among other things,
increased the number of shares of common stock reserved for
issuance under the plan by approximately 1.1 million shares
of common stock and allowed us to grant performance awards,
including performance-based cash awards, under the plan. As a
general rule, awards terminate on the earlier of
(i) 10 years from the date of grant,
(ii) 30 days after termination of employment or
service for a reason other than death, disability or retirement,
(iii) one year after death or (iv) one year for
incentive stock options or five years for other awards after
disability or retirement. Awards are non-transferable except by
disposition on death or to certain family members, trusts and
other family entities as the Compensation Committee of our Board
of Directors (the Committee) may approve. Awards may
be paid in cash, shares of our common stock or a combination, in
lump sum or installments and currently or by deferred payment,
all as determined by the Committee. As of November 1, 2009
and for all periods presented, our share-based awards under
these plans have consisted of restricted stock grants and stock
option grants, neither of which can be settled through cash
payments. Both our stock options and restricted stock awards
contain only service condition requirements and typically vest
over four years, although from time to time certain individuals
have received special one-time restricted stock awards that vest
at retirement, upon a change of control and on termination
without cause or for good reason, as defined by the agreements
governing such awards. A total of approximately 567,000 and
495,000 shares were available at November 1, 2009 and
November 2, 2008, respectively, under the Incentive Plan
for the further grants of awards.
Since December 2006, the Committees policy has been to
provide for grants of restricted stock once per year, with the
size of the awards based on a dollar amount set by the
Committee. For executive officers and designated members of
senior management, a portion of the award may be fixed and a
portion may be subject to adjustment, up or down, depending on
the average rate of growth in NCIs earnings per share over
the three fiscal years ended prior to the award date. The number
of shares awarded on the grant date equals the dollar value
specified by the Committee (after adjustment with regard to the
variable portion) divided by the closing price of the stock on
the grant date, or if the grant date is not a trading day, the
trading day prior to the grant date. The restricted stock vests
ratably over four years. All restricted stock awards to all
award recipients, including executive officers, are subject to a
cap in value set by the Committee.
Our option awards and restricted stock awards are typically
subject to graded vesting over a service period, which is
typically four years. We recognize compensation cost for these
awards on a straight-line basis over the requisite service
period for the entire award. In addition, certain of our awards
provide for accelerated vesting upon qualified retirement, after
a change of control or upon termination without cause or for
good reason. We recognize compensation cost for such awards over
the period from grant date to the date the employee first
becomes eligible for retirement. On October 20, 2009, we
completed a financial restructuring that resulted in a change of
control of the Company. With the exception of certain executive
officers who received 2004 Long-Term Restricted Stock Awards
that vest in full only on retirement, the vesting of all
unvested restricted stock and stock options within our stock
incentive plans accelerated upon the change of control. As a
result, we recorded $9.1 million in share-based
compensation expense upon the accelerated vesting of our stock
incentive plans. In December 2008, the Committee determined to
change its policy to provide for semi-annual grants of
restricted stock in December and June of each year.
The fair value of each option award is estimated as of the date
of grant using a Black-Scholes-Merton option pricing formula.
Expected volatility is based on historical volatility of our
stock over a preceding period
97
commensurate with the expected term of the option. The risk-free
rate for the expected term of the option is based on the
U.S. Treasury yield curve in effect at the time of grant.
Expected dividend yield was not considered in the option pricing
formula since we historically have not paid dividends and have
no current plans to do so in the future. There were no options
granted during the fiscal years ended November 1, 2009,
November 2, 2008 and October 28, 2007. We have
estimated a forfeiture rate of 10% for our non-officers and 0%
to 10% for our officers in our calculation of share-based
compensation expense for the fiscal years ended November 1,
2009, November 2, 2008 and October 28, 2007. These
estimates are based on historical forfeiture behavior exhibited
by our employees.
The following is a summary of stock option transactions during
fiscal 2009, 2008 and 2007 (in thousands, except weighted
average exercise prices, weighted average remaining life):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
Life
|
|
|
Value
|
|
|
Balance October 29, 2006
|
|
|
901
|
|
|
$
|
27.43
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(3
|
)
|
|
|
(35.75
|
)
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(153
|
)
|
|
|
(25.59
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance October 28, 2007
|
|
|
745
|
|
|
$
|
27.78
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(18
|
)
|
|
|
(31.21
|
)
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(34
|
)
|
|
|
(19.86
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance November 2, 2008
|
|
|
693
|
|
|
$
|
28.09
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(41
|
)
|
|
|
(27.78
|
)
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1
|
)
|
|
|
(15.15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance November 1, 2009
|
|
|
651
|
|
|
$
|
28.13
|
|
|
|
4.2 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at November 1, 2009
|
|
|
651
|
|
|
$
|
28.13
|
|
|
|
4.2 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value of options exercised during fiscal
2009 was insignificant and during fiscal 2008 and 2007 was
$0.4 million and $3.9 million, respectively. Options
exercisable at fiscal years ended 2009, 2008 and 2007 were
0.7 million, 0.6 million and 0.6 million,
respectively. The weighted average exercise prices for options
exercisable at fiscal years ended 2009, 2008 and 2007 were
$28.13, $27.22 and $25.71, respectively. The following
summarizes additional information concerning outstanding options
at November 1, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding and Exercisable
|
|
Range of Exercise
|
|
|
|
|
|
Weighted Average
|
|
|
Weighted Average
|
|
Prices
|
|
|
Number of Options
|
|
|
Remaining Life
|
|
|
Exercise Price
|
|
|
$
|
15.13 19.38
|
|
|
|
130,824
|
|
|
|
2.4 years
|
|
|
$
|
16.85
|
|
|
20.64 30.18
|
|
|
|
232,863
|
|
|
|
4.2 years
|
|
|
|
26.91
|
|
|
31.00 38.01
|
|
|
|
245,490
|
|
|
|
4.8 years
|
|
|
|
32.40
|
|
|
44.00 60.64
|
|
|
|
42,093
|
|
|
|
6.1 years
|
|
|
|
44.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
651,270
|
|
|
|
4.2 years
|
|
|
$
|
28.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98
Restricted stock transactions during fiscal 2009, 2008 and 2007
were as follows (in thousands, except weighted average grant
prices):
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Weighted Average
|
|
|
|
Shares
|
|
|
Grant Price
|
|
|
Balance October 29, 2006
|
|
|
436,272
|
|
|
$
|
32.42
|
|
Granted
|
|
|
151,456
|
|
|
|
53.82
|
|
Distributed
|
|
|
(67,482
|
)
|
|
|
37.26
|
|
Forfeited
|
|
|
(5,346
|
)
|
|
|
43.47
|
|
|
|
|
|
|
|
|
|
|
Balance October 28, 2007
|
|
|
514,900
|
|
|
$
|
37.97
|
|
Granted
|
|
|
251,295
|
|
|
|
26.01
|
|
Distributed
|
|
|
(273,685
|
)
|
|
|
34.64
|
|
Forfeited
|
|
|
(10,791
|
)
|
|
|
39.09
|
|
|
|
|
|
|
|
|
|
|
Balance November 2, 2008
|
|
|
481,719
|
|
|
$
|
33.59
|
|
Granted
|
|
|
708,789
|
|
|
|
8.65
|
|
Distributed
|
|
|
(136,018
|
)
|
|
|
36.08
|
|
Forfeited
|
|
|
(33,659
|
)
|
|
|
28.49
|
|
|
|
|
|
|
|
|
|
|
Balance November 1, 2009
|
|
|
1,020,831
|
|
|
$
|
16.11
|
|
|
|
|
|
|
|
|
|
|
The total recurring pre-tax share-based compensation cost that
has been recognized in results of operations was
$4.8 million, $9.5 million and $8.6 million for
the fiscal years ended November 1, 2009, November 2,
2008 and October 28, 2007, respectively. Of these amounts,
$4.3 million, $8.5 million and $7.8 million were
included in selling, general and administrative expense for the
fiscal years ended November 1, 2009, November 2, 2008
and October 28, 2007, respectively, with the remaining
costs in each period in cost of goods sold. On October 20,
2009, upon the change of control, we recorded $9.1 million
of accelerated unamortized compensation expense which was
included in the change of control charges on the Consolidated
Statement of Operations. As of November 1, 2009, we do not
have any amounts capitalized for share-based compensation cost
in inventory or similar assets. The total income tax benefit
recognized in results of operations for share-based compensation
arrangements was $5.3 million, $3.6 million and
$3.3 million for the fiscal years ended November 1,
2009, November 2, 2008 and October 28, 2007,
respectively. As a result of the change of control, all
compensation cost related to share-based compensation
arrangements have been recognized as of November 1, 2009.
Cash received from option exercises was insignificant during
fiscal 2009 and was $0.7 million and $3.9 million
during fiscal 2008 and 2007, respectively. The actual tax
benefit realized for the tax deductions from option exercises
totaled $0.2 million and $1.5 million for fiscal 2008
and 2007, respectively.
99
Basic earnings (loss) per common share is computed by dividing
net income (loss) by the weighted average number of common
shares outstanding. Diluted earnings (loss) per common share
considers the effect of common stock equivalents. The
reconciliation of the numerator and denominator used for the
computation of basic and diluted earnings (loss) per share is as
follows (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
November 1,
|
|
|
November 2,
|
|
|
October 28,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Numerator for Basic and Diluted Earnings (Loss) Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common shares
|
|
$
|
(758,677
|
)
|
|
$
|
78,881
|
|
|
$
|
63,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for Diluted Earnings (Loss) Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding for basic earnings (loss)
per share
|
|
|
22,013
|
|
|
|
19,332
|
|
|
|
19,582
|
|
Common stock equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options
|
|
|
|
|
|
|
104
|
|
|
|
211
|
|
Unvested restricted stock awards
|
|
|
|
|
|
|
50
|
|
|
|
78
|
|
Convertible Notes(1)
|
|
|
|
|
|
|
|
|
|
|
922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted weighted average shares and assumed conversions for
diluted earnings (loss) per share
|
|
|
22,013
|
|
|
|
19,486
|
|
|
|
20,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(34.06
|
)
|
|
$
|
4.08
|
|
|
$
|
3.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(34.06
|
)
|
|
$
|
4.05
|
|
|
$
|
3.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The indenture under which the Convertible Notes were issued
contains a net share settlement provision as
described in guidance that has been codified under ASC Topic
260-10,
Earnings Per Share Overall, whereby
conversions are settled for a combination of cash and shares,
and shares are only issued to the extent the conversion value
exceeds the principal amount. The incremental shares that we
would have been required to issue had the Convertible Notes been
converted at the average trading price during the period have
been included in the diluted earnings per share calculation
because our average stock trading price had exceeded the $40.14
conversion threshold. However, during fiscal 2009, the
Convertible Notes could only be converted by the holders if our
stock price traded above the initial conversion price of our
Convertible Notes (see Note 10) for at least 20
trading days in each of the 30 consecutive trading day period of
the preceding calendar quarter or upon other specified events.
At November 1, 2009, the Convertible Notes were not
convertible. |
The weighted average number of common shares outstanding
increased by 2.5 million due to the completion of the
Exchange Offer in October 2009. In connection with the exchange
offer, we issued 70.2 million common shares. In addition to
the Exchange Offer, our 2009 refinancing transaction included
the issuance of $250 million shares of Convertible
Preferred Stock which required the use of the
two-class method in determining diluted earnings per
share, but did not increase the weighted average number of
common shares outstanding. The Convertible Preferred Stock will
be convertible into 196.1 million common shares and will
only be included in the weighted average common shares
outstanding under the if-converted method which is
required when it results in a lower earnings per share than
determined under the two-class method.
Dividends on the Convertible Preferred Stock are payable, on a
cumulative daily basis, as, if and when declared by our board of
directors, at a rate per annum of 12% of the liquidation
preference of $1,000 per Preferred Share, subject to certain
adjustments, if paid in-kind or at a rate per annum of 8% of the
liquidation preference of $1,000 per Preferred Share if paid in
cash. We have the right to choose whether dividends are
100
paid in cash or in-kind, subject to the conditions of the
Amended Credit Agreement and ABL Facility including being
contractually limited in our ability to pay cash dividends until
the first quarter of fiscal 2011 under the Amended Credit
Agreement and until October 20, 2010 under the ABL
Facility, except for certain specified purposes.
For the fiscal year ended November 1, 2009, all options and
unvested restricted shares were anti-dilutive and, therefore,
not included in the diluted loss per share calculation. 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 was approximately 309,000 and
2,500 shares for the fiscal years ended November 2,
2008 and October 28, 2007, respectively. The anti-dilutive
weighted average unvested restricted shares that were not
included in the diluted earnings per share calculation was
approximately 142,000 shares for the fiscal year ended
November 2, 2008. For the fiscal year ended
October 28, 2007, there were no anti-dilutive weighted
average unvested restricted shares excluded from the diluted
earnings per share calculation.
|
|
23.
|
EMPLOYEE
BENEFIT PLANS
|
Defined Contribution Plan We have a 401(k)
profit sharing plan (the Savings Plan) that covers
all eligible employees. The Savings Plan requires us to match
employee contributions up to 6% of a participants salary.
On February 27, 2009, the Savings Plan was amended
effective January 1, 2009 to make the matching
contributions fully discretionary and future contributions were
temporarily suspended. Additional amounts may be contributed
depending upon our annual return on assets. Contributions
expense for the fiscal years ended 2009, 2008 and 2007 was
$0.8 million, $8.6 million and $9.0 million,
respectively, for contributions to the Savings Plan. In fiscal
2008 and 2007, Company matching contributions were paid in cash.
Our match ranges from 67% to 100% of the participants
contribution, depending on the return on adjusted operating
assets. Our match was 83.3% in fiscal years 2008 and 2007.
As a result of the economic downturn and restructuring, we have
determined our Savings Plan has experienced a partial plan
termination which is defined by the IRS as 20% or more of the
participating employees being involuntarily terminated. As a
result, the affected employee participants of the Savings Plan
become fully vested upon termination. As of November 1,
2009, the impact of this partial plan termination was
immaterial, excluding the impact of the employer contributions.
Deferred Compensation Plan On
October 23, 2006, the board of directors approved an
Amended and Restated Deferred Compensation Plan for NCI (as
amended and restated, the Deferred Compensation
Plan) effective for compensation beginning in calendar
2007. The Deferred Compensation Plan allows our officers and key
employees to defer up to 80% of their annual salary and up to
90% of their bonus until a specified date in the future,
including at or after retirement. Additionally, the Deferred
Compensation Plan allows our directors to defer up to 100% of
their annual fees and meeting attendance fees until a specified
date in the future, including at or after retirement. The
Deferred Compensation Plan also permits us to make contributions
on behalf of our key employees who are impacted by the federal
tax compensation limits under the NCI 401(k) plan, and to
receive a restoration matching amount which, under the current
NCI 401(k) terms, will be at 4% and up to 6% of compensation in
excess of those limits, based on our Companys performance.
On February 27, 2009, restoration matching contributions
were indefinitely suspended, effective January 1, 2009. In
addition, the Deferred Compensation Plan provides for us to make
discretionary contributions to employees who have elected to
defer compensation under the plan. Deferred Compensation Plan
participants will vest in our discretionary contributions
ratably over three years from the date of each of our
discretionary contributions. Any unvested matching contributions
in a participants Deferred Compensation Plan account
became vested upon consummation of the Equity Investment on
October 20, 2009. In addition, the Deferred Compensation
Plan also permitted participants to have their account balances
paid out upon a change of control which reduced the rabbi trust
assets and corresponding liability by $2.6 million. As of
November 1, 2009 and November 2, 2008, the liability
balance of the Deferred Compensation Plan is $3.5 million
and $2.6 million, respectively, and is included in accrued
compensation and benefits in the Consolidated Balance Sheet. We
have accrued restoration matching contributions in the amount of
$0.3 million for 2008. We have not made any discretionary
contributions to the Deferred Compensation Plan.
101
With the Deferred Compensation Plan, the Board also approved the
establishment of a rabbi trust to fund the Deferred Compensation
Plan and the formation of an administrative committee to manage
the Deferred Compensation Plan and its assets. The investments
in the rabbi trust are $3.4 million and $2.6 million
at November 1, 2009 and November 2, 2008,
respectively. The rabbi trust investments include debt and
equity securities, along with cash equivalents and are accounted
for as trading securities.
Defined Benefit Plan As a result of the
closing of the RCC acquisition on April 7, 2006, we assumed
a defined benefit plan (the RCC Benefit Plan).
Benefits under the RCC Benefit Plan are primarily based on years
of service and the employees compensation. The RCC Benefit
Plan is frozen and, therefore, employees do not accrue
additional service benefits. Plan assets of the RCC Benefit Plan
are invested in broadly diversified portfolios of government
obligations, hedge funds, mutual funds, stocks, bonds and fixed
income securities. In accordance with guidance that has been
codified under ASC 805, we quantified the projected benefit
obligation and fair value of the plan assets of the RCC Benefit
Plan and recorded the difference between these two amounts as an
assumed liability.
As a result of the economic downturn and restructuring, we have
determined our RCC Benefit Plan has experienced a partial plan
termination which is defined by the IRS as 20% or more of the
participating employees being involuntarily terminated. As a
result, the affected employee participants become fully vested
upon termination. However, the RCC Benefit Plan is frozen,
therefore, accrued benefits are already fully vested. As of
November 1, 2009, the impact of this partial plan
termination was immaterial.
Adoption of ASC
715-20. On
October 28, 2007, we adopted the recognition and disclosure
provisions of guidance that has been codified under ASC
715-20. This
Statement requires us to recognize the funded status of the RCC
Benefit Plan in our statement of financial position and
recognize the changes in the RCC Benefit Plans funded
status in comprehensive income in the year in which the changes
occur. The effects of the adoption of the recognition and
disclosure provisions of ASC
715-20 on
our Consolidated Balance Sheet as of October 28, 2007 are
presented in the following table. The adoption of ASC
715-20 had
no effect on our Consolidated Statements of Operations for the
fiscal year ended October 28, 2007, or for any prior period
presented, and it will not affect our Consolidated Statements of
Operations in future periods.
The impact of adopting ASC
715-20 on
our Consolidated Balance Sheet at October 28, 2007 is as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of October 28, 2007
|
|
|
Effect of Adopting
|
|
As Reported at
|
|
|
ASC 715-20
|
|
October 28, 2007
|
|
Non-current pension asset
|
|
$
|
2,292
|
|
|
$
|
2,292
|
|
Non-current accrued pension liability
|
|
|
1,016
|
|
|
|
|
|
Long-term deferred tax liability
|
|
|
(1,289
|
)
|
|
|
(1,289
|
)
|
Accumulated other comprehensive income, net of tax
|
|
|
(2,019
|
)
|
|
|
(2,019
|
)
|
The following table reconciles the change in the benefit
obligation for the RCC Benefit Plan from the beginning of the
fiscal year to the end of the fiscal year (in thousands):
|
|
|
|
|
|
|
|
|
|
|
November 1,
|
|
|
November 2,
|
|
|
|
2009
|
|
|
2008
|
|
|
Accumulated benefit obligation
|
|
$
|
46,091
|
|
|
$
|
38,127
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation beginning of fiscal year
|
|
$
|
38,127
|
|
|
$
|
48,805
|
|
Interest cost
|
|
|
3,077
|
|
|
|
2,810
|
|
Benefit payments
|
|
|
(4,253
|
)
|
|
|
(4,580
|
)
|
Actuarial losses (gains)
|
|
|
9,236
|
|
|
|
(8,908
|
)
|
Plan amendments
|
|
|
(96
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation end of fiscal year
|
|
$
|
46,091
|
|
|
$
|
38,127
|
|
|
|
|
|
|
|
|
|
|
102
Actuarial assumptions used to determine benefit obligations were
as follows:
|
|
|
|
|
|
|
|
|
|
|
November 1,
|
|
November 2,
|
|
|
2009
|
|
2008
|
|
Assumed discount rate
|
|
|
5.75
|
%
|
|
|
8.50
|
%
|
The following table reconciles the change in plan assets of the
RCC Benefit Plan from the beginning of the fiscal year to the
end of the fiscal year (in thousands):
|
|
|
|
|
|
|
|
|
|
|
November 1,
|
|
|
November 2,
|
|
|
|
2009
|
|
|
2008
|
|
|
Fair value of assets beginning of fiscal year
|
|
$
|
38,859
|
|
|
$
|
51,097
|
|
Actual return on plan assets
|
|
|
4,868
|
|
|
|
(7,658
|
)
|
Benefit payments
|
|
|
(4,253
|
)
|
|
|
(4,580
|
)
|
|
|
|
|
|
|
|
|
|
Fair value of assets end of fiscal year
|
|
$
|
39,474
|
|
|
$
|
38,859
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the funded status of the RCC
Benefit Plan and the amounts recognized in the Consolidated
Balance Sheet (in thousands):
|
|
|
|
|
|
|
|
|
|
|
November 1,
|
|
|
November 2,
|
|
|
|
2009
|
|
|
2008
|
|
|
Fair value of assets
|
|
$
|
39,474
|
|
|
$
|
38,859
|
|
Benefit obligation
|
|
|
46,091
|
|
|
|
38,127
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
$
|
(6,617
|
)
|
|
$
|
732
|
|
Unrecognized actuarial loss (gain)
|
|
|
6,428
|
|
|
|
(634
|
)
|
Unrecognized prior service cost
|
|
|
(95
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid benefit cost (benefit)
|
|
$
|
(284
|
)
|
|
$
|
98
|
|
|
|
|
|
|
|
|
|
|
The amounts in accumulated other comprehensive income that have
not yet been recognized as components of net periodic benefit
income (in thousands):
|
|
|
|
|
|
|
|
|
|
|
November 1,
|
|
|
November 2,
|
|
|
|
2009
|
|
|
2008
|
|
|
Unrecognized actuarial loss (gain)
|
|
|
6,428
|
|
|
|
(634
|
)
|
Unrecognized prior service cost
|
|
|
(95
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,333
|
|
|
$
|
(634
|
)
|
|
|
|
|
|
|
|
|
|
The following table sets forth the components of the net
periodic benefit income (in thousands):
|
|
|
|
|
|
|
|
|
|
|
November 1,
|
|
|
November 2,
|
|
|
|
2009
|
|
|
2008
|
|
|
Interest cost
|
|
$
|
3,076
|
|
|
$
|
2,810
|
|
Expected return on assets
|
|
|
(2,694
|
)
|
|
|
(3,924
|
)
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost (income)
|
|
$
|
382
|
|
|
$
|
(1,114
|
)
|
|
|
|
|
|
|
|
|
|
At November 1, 2009, there are no amounts included in
accumulated other comprehensive income that are expected to be
recognized during the next fiscal year.
Actuarial assumptions used to determine net periodic benefit
income were as follows:
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2009
|
|
Fiscal 2008
|
|
Assumed discount rate
|
|
|
5.75
|
%
|
|
|
8.5
|
%
|
Expected rate of return on plan assets
|
|
|
7.1
|
%
|
|
|
8.0
|
%
|
The basis used to determine the overall expected long-term asset
return assumption was a ten year forecast of expected return
based on the target asset allocation for the plan. The expected
return for this portfolio over the forecast period is 7.1%, net
of investment related expenses.
103
The weighted-average asset allocations by asset category are as
follows:
|
|
|
|
|
|
|
|
|
|
|
November 1,
|
|
November 2,
|
Investment Type
|
|
2009
|
|
2008
|
|
Equity securities
|
|
|
27
|
%
|
|
|
21
|
%
|
Debt securities
|
|
|
38
|
|
|
|
56
|
|
Hedge funds
|
|
|
13
|
|
|
|
12
|
|
Cash and cash equivalents
|
|
|
9
|
|
|
|
4
|
|
Real estate
|
|
|
4
|
|
|
|
3
|
|
Other
|
|
|
9
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
The investment policy is to maximize the expected return for an
acceptable level of risk. Our expected long-term rate of return
on plan assets is based on a target allocation of assets, which
is based on our goal of earning the highest rate of return while
maintaining risk at acceptable levels. The RCC Benefit Plan
strives to have assets sufficiently diversified so that adverse
or unexpected results from one security class will not have an
unduly detrimental impact on the entire portfolio. We regularly
review our actual asset allocation and the RCC Benefit
Plans investments are periodically rebalanced to our
target allocation when considered appropriate. We have set the
target asset allocation for the plan as follows: 2% cash, 43% US
bonds, 13% alpha strategies (hedge funds), 16% large cap US
equities, 5% small cap US equities, 4% real estate investment
trusts, 7% foreign equity, 4% emerging markets and 6% commodity
futures.
We do not expect to contribute any amount to the RCC Benefit
Plan in fiscal 2010.
We expect the following benefit payments to be made (in
thousands):
|
|
|
|
|
|
|
Pension
|
Fiscal Years Ended
|
|
Benefits
|
|
2010
|
|
$
|
4,087
|
|
2011
|
|
|
3,750
|
|
2012
|
|
|
3,842
|
|
2013
|
|
|
3,676
|
|
2014
|
|
|
3,732
|
|
2015-2019
|
|
|
17,061
|
|
From time to time, we are involved in various legal proceedings
and contingencies, including environmental matters, considered
to be in the ordinary course of business. While we are not able
to predict whether we will incur any liability in excess of
insurance coverages or to accurately estimate the damages, or
the range of damages, if any, we might incur in connection with
these legal proceedings, we believe these legal proceedings and
claims will not have a material adverse effect on our business,
consolidated financial position or results of operations.
We have aggregated our operations into three reportable segments
based upon similarities in product lines, manufacturing
processes, marketing and management of our businesses: metal
coil coating; metal components; and engineered building systems.
All business segments operate primarily in the non-residential
construction market. Sales and earnings are influenced by
general economic conditions, the level of non-residential
construction activity, metal roof repair and retrofit demand and
the availability and terms of financing available for
construction. Products of our business 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
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 reporting segments follow the same
accounting policies used for our Consolidated Financial
Statements.
104
We evaluate a segments 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 business segments.
Summary financial data by segment is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Total sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Metal coil coating
|
|
$
|
169,897
|
|
|
$
|
305,657
|
|
|
$
|
272,543
|
|
Metal components
|
|
|
458,734
|
|
|
|
715,255
|
|
|
|
663,331
|
|
Engineered building systems
|
|
|
541,609
|
|
|
|
1,110,534
|
|
|
|
1,021,544
|
|
Intersegment sales
|
|
|
(202,317
|
)
|
|
|
(367,287
|
)
|
|
|
(332,350
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
967,923
|
|
|
$
|
1,764,159
|
|
|
$
|
1,625,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Metal coil coating
|
|
$
|
53,189
|
|
|
$
|
96,957
|
|
|
$
|
83,583
|
|
Metal components
|
|
|
389,132
|
|
|
|
600,010
|
|
|
|
561,622
|
|
Engineered building systems
|
|
|
525,602
|
|
|
|
1,067,192
|
|
|
|
979,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
967,923
|
|
|
$
|
1,764,159
|
|
|
$
|
1,625,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Metal coil coating
|
|
$
|
(99,631
|
)
|
|
$
|
29,381
|
|
|
$
|
25,136
|
|
Metal components
|
|
|
(129,975
|
)
|
|
|
82,094
|
|
|
|
49,609
|
|
Engineered building systems
|
|
|
(389,309
|
)
|
|
|
107,851
|
|
|
|
113,265
|
|
Corporate
|
|
|
(64,583
|
)
|
|
|
(64,616
|
)
|
|
|
(56,276
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income (loss)
|
|
$
|
(683,498
|
)
|
|
$
|
154,710
|
|
|
$
|
131,734
|
|
Unallocated other expense
|
|
|
(117,990
|
)
|
|
|
(24,330
|
)
|
|
|
(26,909
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
$
|
(801,488
|
)
|
|
$
|
130,380
|
|
|
$
|
104,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Metal coil coating
|
|
$
|
5,456
|
|
|
$
|
6,574
|
|
|
$
|
6,510
|
|
Metal components
|
|
|
9,282
|
|
|
|
9,384
|
|
|
|
8,856
|
|
Engineered building systems
|
|
|
14,823
|
|
|
|
15,940
|
|
|
|
16,794
|
|
Corporate
|
|
|
3,215
|
|
|
|
3,690
|
|
|
|
3,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization expense
|
|
$
|
32,776
|
|
|
$
|
35,588
|
|
|
$
|
35,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Metal coil coating
|
|
$
|
1,865
|
|
|
$
|
3,073
|
|
|
$
|
4,150
|
|
Metal components
|
|
|
14,726
|
|
|
|
9,109
|
|
|
|
17,693
|
|
Engineered building systems
|
|
|
1,347
|
|
|
|
10,912
|
|
|
|
15,839
|
|
Corporate
|
|
|
3,719
|
|
|
|
1,709
|
|
|
|
4,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures
|
|
$
|
21,657
|
|
|
$
|
24,803
|
|
|
$
|
42,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
Metal coil coating
|
|
$
|
36,116
|
|
|
$
|
39,738
|
|
|
|
|
|
Metal components
|
|
|
89,256
|
|
|
|
84,026
|
|
|
|
|
|
Engineered building systems
|
|
|
77,551
|
|
|
|
108,876
|
|
|
|
|
|
Corporate
|
|
|
28,917
|
|
|
|
18,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property, plant and equipment, net
|
|
$
|
231,840
|
|
|
$
|
251,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets as of fiscal year end 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
Metal coil coating
|
|
$
|
57,208
|
|
|
$
|
196,615
|
|
|
|
|
|
Metal components
|
|
|
159,690
|
|
|
|
371,464
|
|
|
|
|
|
Engineered building systems
|
|
|
241,260
|
|
|
|
716,671
|
|
|
|
|
|
Corporate
|
|
|
155,690
|
|
|
|
95,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
613,848
|
|
|
$
|
1,380,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106
|
|
26.
|
QUARTERLY
RESULTS (Unaudited)
|
Shown below are selected unaudited quarterly data (in thousands,
except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
FISCAL YEAR 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
260,364
|
|
|
$
|
224,719
|
|
|
$
|
238,439
|
|
|
$
|
244,401
|
|
Gross profit
|
|
$
|
16,527
|
|
|
$
|
31,212
|
|
|
$
|
61,080
|
|
|
$
|
60,034
|
|
Net income (loss)
|
|
$
|
(528,610
|
)
|
|
$
|
(120,207
|
)
|
|
$
|
3,971
|
|
|
$
|
(102,118
|
)(2)
|
Net income (loss) applicable to common shares
|
|
$
|
(528,610
|
)
|
|
$
|
(120,207
|
)
|
|
$
|
3,971
|
|
|
$
|
(113,831
|
)
|
Earnings (loss) per share:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(27.20
|
)
|
|
$
|
(6.17
|
)
|
|
$
|
0.20
|
|
|
$
|
(3.54
|
)
|
Diluted
|
|
$
|
(27.20
|
)
|
|
$
|
(6.17
|
)
|
|
$
|
0.20
|
|
|
$
|
(3.54
|
)
|
FISCAL YEAR 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
361,489
|
|
|
$
|
416,143
|
|
|
$
|
477,596
|
|
|
$
|
508,931
|
|
Gross profit
|
|
$
|
82,431
|
|
|
$
|
103,440
|
|
|
$
|
128,525
|
|
|
$
|
124,139
|
|
Net income
|
|
$
|
7,510
|
|
|
$
|
14,866
|
|
|
$
|
31,891
|
|
|
$
|
24,614
|
|
Earnings per share:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.39
|
|
|
$
|
0.77
|
|
|
$
|
1.65
|
|
|
$
|
1.27
|
|
Diluted
|
|
$
|
0.39
|
|
|
$
|
0.76
|
|
|
$
|
1.63
|
|
|
$
|
1.26
|
|
|
|
|
(1) |
|
The sum of the quarterly income per share amounts may not equal
the annual amount reported, as per share amounts are computed
independently for each quarter and for the full year based on
the respective weighted average common shares outstanding. |
|
(2) |
|
Included in net income (loss) is pre-tax debt extinguishment and
refinancing costs of $99.2 million incurred as a result of
the completion of the Recapitalization Plan. |
The quarterly income (loss) amounts were impacted by the
following special income (expense) items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
FISCAL YEAR 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill and other intangible asset impairment
|
|
$
|
(517,628
|
)
|
|
$
|
(104,936
|
)
|
|
$
|
|
|
|
$
|
|
|
Lower of cost or market charge
|
|
|
(29,378
|
)
|
|
|
(10,608
|
)
|
|
|
|
|
|
|
|
|
Restructuring charges
|
|
|
(2,479
|
)
|
|
|
(3,796
|
)
|
|
|
(1,213
|
)
|
|
|
(1,564
|
)
|
Change in control charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,168
|
)
|
Asset impairment
|
|
|
(623
|
)
|
|
|
(5,295
|
)
|
|
|
(26
|
)
|
|
|
(347
|
)
|
Pre-acquisition contingency adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,115
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total special charges in operating income (loss)
|
|
$
|
(550,108
|
)
|
|
$
|
(124,635
|
)
|
|
$
|
(1,239
|
)
|
|
$
|
(14,194
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FISCAL YEAR 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lower of cost or market charge
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(2,739
|
)
|
Executive retirement costs
|
|
|
(663
|
)
|
|
|
(2,189
|
)
|
|
|
|
|
|
|
|
|
Restructuring charges
|
|
|
(226
|
)
|
|
|
(640
|
)
|
|
|
(43
|
)
|
|
|
(150
|
)
|
Asset impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(157
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total special charges in operating income
|
|
$
|
(889
|
)
|
|
$
|
(2,829
|
)
|
|
$
|
(43
|
)
|
|
$
|
(3,046
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure.
|
Not applicable.
|
|
Item 9A.
|
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 November 1,
2009. 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 SECs 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
companys 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. Based on the evaluation of our
disclosure controls and procedures as of November 1, 2009,
our chief executive officer and chief financial officer
concluded that, as of such date, our disclosure controls and
procedures were effective.
Managements report on internal control over financial
reporting is included in the financial statement pages at
page 47.
No change in our internal control over financial reporting (as
defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act) occurred during the fiscal quarter ended
November 1, 2009 that has materially affected, or is
reasonably likely to materially affect, our internal control
over financial reporting.
|
|
Item 9B.
|
Other
Information.
|
None.
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance.
|
We have adopted a Code of Business Conduct and Ethics, a copy of
which is available on our website at www.ncilp.com under
the heading Corporate Governance NCI
Guidelines. Any amendments to, or waivers from the Code of
Business Conduct and Ethics that apply to our executive officers
and directors will be posted on the Corporate
Governance NCI Guidelines section of our
Internet web site located at www.ncilp.com. However, the
information on our website is not incorporated by reference into
this
Form 10-K.
The information under the captions Election of
Directors, Management,
Section 16(a) Beneficial Ownership Reporting
Compliance, Board of Directors and
Corporate Governance in our definitive proxy
statement for our annual meeting of shareholders to be held on
February 19, 2010 is incorporated by reference herein.
|
|
Item 11.
|
Executive
Compensation.
|
The information under the captions Compensation Discussion
and Analysis, Report of the Compensation
Committee and Executive Compensation in our
definitive proxy statement for our annual meeting of
shareholders to be held on February 19, 2010 is
incorporated by reference herein.
108
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
|
The information under the captions Outstanding Capital
Stock and Securities Reserved for Issuance Under
Equity Compensation Plans in our definitive proxy
statement for our annual meeting of shareholders to be held on
February 19, 2010 is incorporated by reference herein.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence.
|
The information under the captions Board of
Directors and Transactions with Directors, Officers
and Affiliates in our definitive proxy statement for our
annual meeting of shareholders to be held on February 19,
2010 is incorporated by reference herein.
|
|
Item 14.
|
Principal
Accounting Fees and Services.
|
The information under the caption Audit Committee and
Auditors Our Independent Registered Public
Accounting Firm and Audit Fees in our definitive proxy
statement for our annual meeting of shareholders to be held on
February 19, 2010 is incorporated by reference herein.
|
|
Item 15.
|
Exhibits,
Financial Statement Schedules.
|
(a) The following documents are filed as a part of this
report:
1. Consolidated Financial Statements (see Item 8).
2. Consolidated Financial Statement Schedules.
All schedules have been omitted because they are inapplicable,
not required, or the information is included elsewhere in the
consolidated financial statements or notes thereto.
3. 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.
109
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on the 22nd day of December, 2009.
NCI BUILDING SYSTEMS, INC.
|
|
|
|
By:
|
/s/ Norman
C. Chambers
|
Norman C. Chambers, President and
Chief Executive Officer
POWER OF
ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Norman C. Chambers, Mark
E. Johnson and Todd R. Moore, and each of them severally, his or
her true and lawful attorney or attorneys-in-fact and agents,
with full power to act with or without the others and with full
power of substitution and resubstitution, to execute in his
name, place and stead, in any and all capacities, this Annual
Report on
Form 10-K
and any or all amendments (including pre-effective and
post-effective amendments) to this Annual Report and to file the
same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents and
each of them full power and authority, to do and perform in the
name and on behalf of the undersigned, in any and all
capacities, each and every act and thing necessary or desirable
to be done in and about the premises, to all intents and
purposes and as fully as they might or could do in person,
hereby ratifying, approving and confirming all that said
attorneys-in-fact and agents or their substitutes may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities indicated as
of the 22nd day of December, 2009.
|
|
|
|
|
Name
|
|
Title
|
|
|
|
|
/s/ Norman
C. Chambers
Norman
C. Chambers
|
|
Chairman of the Board, President and Chief Executive Officer
(Principal Executive Officer)
|
|
|
|
/s/ Mark
E. Johnson
Mark
E. Johnson
|
|
Executive Vice President, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
|
|
|
|
*
Kathleen
J. Affeldt
|
|
Director
|
|
|
|
*
James
G. Berges
|
|
Director
|
|
|
|
*
Gary
L. Forbes*
|
|
Director
|
|
|
|
*
John
J. Holland
|
|
Director
|
110
|
|
|
|
|
Name
|
|
Title
|
|
|
|
|
*
Lawrence
J. Kremer
|
|
Director
|
|
|
|
*
George
Martinez
|
|
Director
|
|
|
|
*
Nathan
K. Sleeper
|
|
Director
|
|
|
|
*
Jonathan
L. Zrebiec
|
|
Director
|
|
|
|
*By:
|
/s/ Norman
C. Chambers
|
|
Norman C. Chambers,
Attorney-in-Fact
111
Index to
Exhibits
|
|
|
|
|
|
2
|
.1
|
|
Stockholders Agreement, dated as of October 20, 2009, by and
between the Company, Clayton, Dubilier & Rice Fund VIII,
L.P. and CD&R Friends & Family Fund VIII, L.P. (filed
as Exhibit 2.1 to NCIs Current Report on Form 8-K dated
October 26, 2009 and incorporated by reference herein)
|
|
2
|
.2
|
|
Registration Rights Agreement, dated as of October 20, 2009, by
and between the Company, Clayton, Dubilier & Rice Fund
VIII, L.P. and CD&R Friends & Family Fund VIII, L.P.
(filed as Exhibit 2.2 to NCIs Current Report on Form 8-K
dated October 26, 2009 and incorporated by reference herein)
|
|
2
|
.3
|
|
Indemnification Agreement, dated as of October 20, 2009, by and
between the Company, NCI Group, Inc., Robertson-Ceco II
Corporation, Clayton, Dubilier & Rice Fund VIII, L.P.,
CD&R Friends & Family Fund VIII, L.P. and Clayton,
Dubilier & Rice, Inc. (filed as Exhibit 2.3 to NCIs
Current Report on Form 8-K dated October 26, 2009 and
incorporated by reference herein)
|
|
2
|
.5
|
|
Investment Agreement, dated as of August 14, 2009, by and
between NCI Building Systems, Inc. and Clayton, Dubilier &
Rice Fund VIII, L.P. (filed as Exhibit 2.1 to NCIs Current
Report on Form 8-K dated August 19, 2009 and incorporated by
reference herein)
|
|
2
|
.6
|
|
Amendment, dated as of August 28, 2009, to the Investment
Agreement, dated as of August 14, 2009, by and between NCI
Building Systems, Inc. and Clayton, Dubilier & Rice Fund
VIII, L.P. (filed as Exhibit 2.1 to NCIs Current Report
on Form 8-K dated August 28, 2009 and incorporated by reference
herein)
|
|
2
|
.7
|
|
Amendment No. 2, dated as of August 31, 2009, to the Investment
Agreement (as amended), dated as of August 14, 2009, by and
between NCI Building Systems, Inc. and Clayton, Dubilier &
Rice, Fund VIII, L.P., including exhibits thereto (filed as
Exhibit 2.1 to NCIs Current Report on Form 8-K filed
September 1, 2009 and incorporated by reference herein)
|
|
2
|
.8
|
|
Amendment No. 3, dated as of October 8, 2009, to the Investment
Agreement (as amended), dated as of August 14, 2009, by and
between NCI Building Systems, Inc. and Clayton, Dubilier &
Rice, Fund VIII, L.P., including exhibits thereto (filed as
Exhibit 2.1 to NCIs Current Report on Form 8-K filed
October 8, 2009 and incorporated by reference herein)
|
|
2
|
.9
|
|
Amendment No. 4, dated as of October 16, 2009, to the Investment
Agreement (as amended), dated as of August 14, 2009, by and
between NCI Building Systems, Inc. and Clayton, Dubilier &
Rice, Fund VIII, L.P., including exhibits thereto (filed as
Exhibit 2.1 to NCIs Current Report on Form 8-K filed
October 19, 2009 and incorporated by reference herein)
|
|
3
|
.1
|
|
Restated Certificate of Incorporation, as amended through
September 30, 1998 (filed as Exhibit 3.1 to NCIs Annual
Report on Form 10-K for the fiscal year ended November 2, 2002
and incorporated by reference herein)
|
|
3
|
.2
|
|
Certificate of Amendment to Restated Certificate of
Incorporation, effective as of March 12, 2007 (filed as Exhibit
3.2 to NCIs Quarter Report on Form 10-Q for the quarter
ended April 29, 2007 and incorporated by reference herein)
|
|
3
|
.3
|
|
Second Amended and Restated By-Laws, effective as of October 20,
2009 (filed as Exhibit 3.4 to NCIs Current Report on Form
8-K dated October 26, 2009 and incorporated by reference herein)
|
|
3
|
.4
|
|
Certificate of Designations, preferences, limitations and
relative rights of Series B Cumulative Convertible Participating
Preferred Stock of the Company (filed as Exhibit 3.1 to
NCIs Current Report on Form 8-K dated October 26, 2009 and
incorporated by reference herein)
|
|
3
|
.5
|
|
Certificate of Elimination of the Series A Junior Participating
Preferred Stock of the Company (filed as Exhibit 3.2 to
NCIs Current Report on Form 8-K dated October 26, 2009 and
incorporated by reference herein)
|
|
3
|
.6
|
|
Certificate of Increase of Number of Shares of Series B
Cumulative Convertible Participating Preferred Stock of the
Company (filed as Exhibit 3.3 to NCIs Current Report on
Form 8-K dated October 26, 2009 and incorporated by reference
herein)
|
|
4
|
.1
|
|
Form of certificate representing shares of NCIs common
stock (filed as Exhibit 1 to NCIs registration statement
on Form 8-A filed with the SEC on July 20, 1998 and incorporated
by reference herein)
|
|
4
|
.2
|
|
Credit Agreement, dated June 18, 2004, by and among NCI, certain
of its subsidiaries, as guarantors, Wachovia Bank, National
Association, as administrative agent, Bank of America, N.A., as
syndication agent, and the several lenders named therein (filed
as Exhibit 4.1 to NCIs Form 10-Q/A, filed with the SEC on
September 16, 2004, amending its quarterly report on Form 10-Q
for the quarter ended July 31, 2004 and incorporated by
reference herein)
|
112
|
|
|
|
|
|
4
|
.3
|
|
First Amendment to Credit Agreement, dated as of November 9,
2004, between NCI Building Systems, Inc, as borrower, certain of
its subsidiaries, as guarantors, Wachovia National Bank,
National Association, as administrative agent and lender, and
the several lenders named therein (filed as Exhibit 10.1 to
NCIs Current Report on Form 8-K dated November 16, 2004
and incorporated by reference herein)
|
|
4
|
.4
|
|
Second Amendment to Credit Agreement, dated as of October 14,
2005, between NCI Building Systems, Inc, as borrower, certain of
its subsidiaries, as guarantors, Wachovia National Bank,
National Association, as administrative agent and lender, and
the several lenders named therein (filed as Exhibit 10.1 to
NCIs Current Report on Form 8-K dated October 14, 2005 and
incorporated by reference herein)
|
|
4
|
.5
|
|
Third Amendment, dated April 7, 2006, to Credit Agreement, dated
June 18, 2004, by and among NCI Building Systems, Inc. as
borrower, certain of its subsidiaries, as guarantors, Wachovia
Bank, National Association, as administrative agent and lender,
and the several lenders parties thereto (filed as Exhibit 10.2
to NCIs Current Report on Form 8-K dated April 7, 2006 and
incorporated by reference herein)
|
|
4
|
.6
|
|
Indenture, dated November 16, 2004, by and among NCI, and The
Bank of New York (filed as Exhibit 4.1 to NCIs Current
Report on Form 8-K dated November 16, 2004 and incorporated by
reference herein)
|
|
4
|
.7
|
|
Amended Credit Agreement, dated as of October 20, 2009, among
the Company, as borrower, Wachovia Bank, National Association,
as administrative agent and collateral agent and the several
lenders party thereto (filed as Exhibit 10.1 to NCIs
Current Report on Form 8-K dated October 26, 2009 and
incorporated by reference herein)
|
|
4
|
.8
|
|
Loan and Security Agreement, dated as of October 20, 2009, by
and among NCI Group, Inc. and Robertson-Ceco II
Corporation, as borrowers, the Company and Steelbuilding.Com,
Inc., as guarantors, Wells Fargo Foothill, LLC, as
administrative and co-collateral agent, Bank of America, N.A.
and General Electric Capital Corporation, as co-collateral
agents and the lenders and issuing bank party thereto (filed as
Exhibit 10.2 to NCIs Current Report on Form 8-K dated
October 26, 2009 and incorporated by reference herein)
|
|
4
|
.9
|
|
Intercreditor Agreement, dated as of October 20, 2009, by and
among the Company, as borrower or guarantor, certain domestic
subsidiaries of the Company, as borrowers or guarantors,
Wachovia Bank, National Association, as term loan agent and term
loan administrative agent, Wells Fargo Foothill, LLC, as working
capital agent and working capital administrative agent and Wells
Fargo Bank, National Association, as control agent (filed as
Exhibit 10.3 to NCIs Current Report on Form 8-K dated
October 26, 2009 and incorporated by reference herein)
|
|
4
|
.10
|
|
Guarantee and Collateral Agreement, dated as of October 20, 2009
by the Company and certain of its subsidiaries in favor of
Wachovia Bank, National Association as administrative agent and
collateral agent (filed as Exhibit 10.4 to NCIs Current
Report on Form 8-K dated October 26, 2009 and incorporated by
reference herein)
|
|
4
|
.11
|
|
Guaranty Agreement, dated as of October 20, 2009 by NCI Group,
Inc., Robertson-Ceco II Corporation, the Company and
Steelbuilding.com, Inc., in favor of Wells Fargo Foothill, LLC
as administrative agent and collateral agent (filed as Exhibit
10.5 to NCIs Current Report on Form 8-K dated October 26,
2009 and incorporated by reference herein)
|
|
4
|
.12
|
|
Pledge and Security Agreement, dated as of October 20, 2009, by
and among the Company, NCI Group, Inc. and
Robertson-Ceco II Corporation, to and in favor of Wells
Fargo Foothill, LLC in its capacity as administrative agent and
collateral agent (filed as Exhibit 10.6 to NCIs Current
Report on Form 8-K dated October 26, 2009 and incorporated by
reference herein)
|
|
10
|
.1
|
|
Employment Agreement, dated April 12, 2004, among the Company,
NCI Group, L.P. and Norman C. Chambers (filed as Exhibit 10.1 to
NCIs Quarterly Report on Form 10-Q for the quarter ended
May 1, 2004 and incorporated by reference herein)
|
|
*10
|
.2
|
|
Amendment Agreement, dated August 14, 2009, among the Company,
NCI Group, L.P. and Norman C. Chambers.
|
|
10
|
.3
|
|
Amended and Restated Bonus Program, as amended and restated as
of September 4, 2008 (filed as Exhibit 10.2 to NCIs Annual
Report on Form 10-K for the fiscal year ended November 2, 2008
and incorporated by reference herein)
|
113
|
|
|
|
|
|
10
|
.4
|
|
Stock Option Plan, as amended and restated on December 14, 2000
(filed as Exhibit 10.4 to NCIs Annual Report on Form 10-K
for the fiscal year ended October 31, 2000 and incorporated by
reference herein)
|
|
10
|
.5
|
|
Form of Nonqualified Stock Option Agreement (filed as Exhibit
10.5 to NCIs Annual Report on Form 10-K for the fiscal
year ended October 31, 2000 and incorporated by reference herein)
|
|
10
|
.6
|
|
2003 Long-Term Stock Incentive Plan, as amended and restated
March 12, 2009 (filed as Annex C to NCIs Proxy Statement
for the Annual Meeting held March 12, 2009 and incorporated by
reference herein)
|
|
10
|
.7
|
|
Form of Nonqualified Stock Option Agreement (filed as Exhibit
4.2 to NCIs registration statement no. 333-111139 and
incorporated by reference herein)
|
|
10
|
.8
|
|
Form of Incentive Stock Option Agreement (filed as Exhibit 4.3
to NCIs registration statement no. 333-111139 and
incorporated by reference herein)
|
|
10
|
.9
|
|
Form of Restricted Stock Award Agreement for Senior Executive
Officers (Electronic) (filed as Exhibit 10.2 to NCIs
Current Report on Form 8-K dated December 7, 2006 and
incorporated by reference herein)
|
|
10
|
.10
|
|
Form of Restricted Stock Award Agreement for Key Employees
(filed as Exhibit 10.3 to NCIs Current Report on Form 8-K
dated December 7, 2006 and incorporated by reference herein)
|
|
10
|
.11
|
|
Form of Restricted Stock Unit Agreement (filed as Exhibit 10.1
to NCIs Current Report on Form 8-K dated December 7, 2006
and incorporated by reference herein)
|
|
10
|
.12
|
|
Form of Restricted Stock Award Agreement for Non-Employee
Directors (filed as Exhibit 10.4 to NCIs Current Report on
Form 8-K dated October 23, 2006 and incorporated by reference
herein)
|
|
10
|
.13
|
|
Restricted Stock Agreement, dated April 26, 2004, between NCI
and Norman C. Chambers (filed as exhibit 10.2 to NCIs
Quarterly Report on Form 10-Q for the quarter ended May 1, 2004
and incorporated by reference herein)
|
|
10
|
.14
|
|
First Amendment, dated October 24, 2005, to Restricted Stock
Agreement, dated April 26, 2004, between NCI and Norman C.
Chambers (filed as Exhibit 10.21 to NCIs Annual Report on
Form 10-K for the fiscal year ended October 29, 2005 and
incorporated by reference herein)
|
|
*10
|
.15
|
|
Restricted Stock Agreement, effective August 26, 2004,
between NCI and Mark Dobbins
|
|
*10
|
.16
|
|
Restricted Stock Agreement, effective August 26, 2004
between NCI and Charles Dickinson
|
|
10
|
.17
|
|
Amended and Restated NCI Building Systems, Inc. Deferred
Compensation Plan (as amended and restated effective
January 1, 2007) (filed as Exhibit 10.23 to NCIs
Annual Report on Form 10-K for the fiscal year ended
October 29, 2006 and incorporated by reference herein)
|
|
*10
|
.18
|
|
First Amendment to the NCI Building Systems, Inc. Deferred
Compensation Plan (as amended and restated effective October 20,
2009)
|
|
10
|
.19
|
|
Form of Employment Agreement between NCI and executive officers
(filed as Exhibit 10.25 to NCIs Annual Report on Form 10-K
for the fiscal year ended October 28, 2007 and incorporated by
reference herein)
|
|
*10
|
.20
|
|
Form of Amendment Agreement, dated August 14, 2009, among the
Company, NCI Group, L.P. and executive officers
|
|
10
|
.21
|
|
Form of Indemnification Agreement for Officers and Directors
(filed as Exhibit 10.1 to NCIs Current Report on Form 8-K
dated October 22, 2008 and incorporated by reference herein)
|
|
10
|
.22
|
|
Form of Director Indemnification Agreement (filed as Exhibit
10.7 to NCIs Current Report on Form 8-K dated October 26,
2009 and incorporated by reference herein)
|
|
*21
|
.1
|
|
List of Subsidiaries
|
|
*23
|
.1
|
|
Consent of Independent Registered Public Accounting Firm
|
|
*24
|
.1
|
|
Powers of Attorney
|
|
*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)
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*32
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.2
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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)
|
|
|
|
* |
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Filed herewith |
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|
Management contracts or compensatory plans or arrangements |
114