Core Natural Resources Inc (CNR) 2003 Q1 法說會逐字稿

Good morning. Welcome to the NCI Building Systems Incorporated Conference Call. Today's call is being recorded. At this time for opening remarks and introductions, I would like turn the call over to Mr. Burton Rice. Please go ahead sir.

Thank you Pam. Good morning as well and welcome to this NCI conference call to review the company's results for the first quarter of fiscal 2003. The results were released yesterday afternoon in a press release that has been covered by the financial media. Let me also note, a release has been issued advising to the accessibility of the conference call on a listen-only basis over the internet. As we start, let me express that some statements made in this call will be forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that include projections, expectations, or beliefs about future events or results or otherwise are not statements of historical facts. Actual performance of the company may differ from that projected in such statements. Investors should refer to statements followed by the company with the Securities and Exchange Commission for discussion of those factors that could affect NCI's operations, and the forward-looking statements made in this call. The information being provided today is of this date only, and NCI expressly disclaims any obligation to release publicly any updates or revisions to these forward-looking statements to reflect any changes in expectations. I will now turn the call over to A.R. Ginn, Chairman, please go ahead, A.R.

Thank you Burton and good morning everyone and welcome to the conference call. Johnie Schulte, Ken Maddox, and Bob Medlock are with me this morning to comment on our results for the first fiscal quarter of '03. And then, when Bob is through with his financials, we will be happy to answer any questions you might have. With our [inaudible] days of research coverage at the present time, it is hard for us to really know what outside investors are expecting as precisely as we did in the past. Certainly the earnings of 20 cents per share are not as high as we had hoped to hit for this quarter. But against, the confusion that currently characterizes the economy and the fact that the [DDP] barely even got a gain in the fourth quarter of '02. When you combine it with high [inaudible] confirms that it is being broadcast about the nations security and the threat of war. We really believe that NCI's report of a gain year-over-year even though it is modest, it is a strong testament of the soundness of our controls and procedures. I can tell you that from the reports we have seen of our competitors in the metal construction industry, most would gladly trade their numbers for ours.

As was in the case in the fourth quarter of fiscal '02, we found ourselves in the first quarter of this year reporting lower sales with an increased bottom line. We knew that reporting any gain in revenues for the first quarter was going to be challenging, but we certainly didn't expect a fall of 9%. This is a seasonally tough quarter for us to read because of the slow pace of construction during the winter. We weren't helped this year by the weather and we are certainly not being helped right this minute. The weather combined with an uncertainty plague in all economic forecasts has contributed to the decline of sales of both building systems and components. Let me emphasize that while we are not happy at all with the decline in sales of any sort, NCI has continued to outpace the industry, which was probably all about 12% in building systems sales, and we guess to be at least 12% or more for components. You know, all of [inaudible] both, I have to agree with what the number of CEO's are saying in their quarterly news releases and their conference calls of late. Namely, if you give your economic scenario, I will give you a range of numbers for your models that would probably make sense for us. We really are not seeing any major geographical differences in our business. Certainly the large -- the demand for the large structures is out more than any other category, but we now are seeing the smaller buildings and even the self storage center decline in sales. Optimism usually bursts forth in this industry in the spring. But for those in the North East digging out of 3-5 feet of snow, this is not the sort of environment that promotes a sustainable turnaround in orders. And right here in Central Texas, where a large number of our sales grow, we are so [wet] that we can't even get a foundation in for one of the depot stores that we were trying to build.

Let me summarize the outlook this way. As we said in our last call, we still see the full year as having too much uncertainty to support an earnings estimate or even a reasonable range. And for the immediate term, the picture is not much more revealing. We firmly believe, we'll be in the black in the second quarter, and we should earn about 10-12 cents per share. That level of profitability is far from what management believes the long-term earnings expectations of NCI really are. Looking beyond the current quarter, it seems reasonable that we will some up-swing in demand in the second half. It's only because of seasonal factors. The degree of that improvement, however, is very uncertain, and heavily dependent on what our course as a nation may be in dealing with the economy, Iran -- I mean, Iraq and North Korea, and even the threat of terrorism. We know that as investors you have to look at the nearer as well as the longer terms. I wish we could be more specific about the former because our business normally does provide sufficient visibility for us to help with more specific estimates or at least some kind of range. But the approach we suggest for investors right now is to consider our results in fiscal '03 as a measure of our relative competitive strength and not as any meaningful signal about our full earnings potential.

In other words, if we can successfully gain market share during such a difficult industry environment, our enhanced competitive position should translate directly into our ability to hit new heights in sales and earnings, and the ensuring recovery. As an example of gain in market share, our system builder account at the end of first quarter was 1,582 representing an increase of approximately 12% over the same period in '02. Those who have tracked NCI for some time are no doubt familiar with the competitive advantages we've built in to this organization. Primarily, our [hub and spoke] system for example, which is designed to make us responsive on the local level and still gain maximum efficiency on expensive equipment and processing systems. These systems are best concentrated in a central facility that supports regional locations. Value, which means to us service quality and on time deliveries is the key attribute that we try to provide the customers with. Containing costs is another interval components of this, but not at the expense of impairing their ability to support the future plans of NCI and the growth of NCI. This is a lead in -- that sentence was a lead in to my reference to the announcement we made on Monday about the plans, to build a new plant in Lexington, Tennessee. This plant will manufacture frames and frames only from metal building systems. The frames will then be combined with parts that we manufacture at other facilities and market it as complete metal building systems.

The facility, which is expected to open in the third quarter of '03, is being built on 25 acres at an estimated cost of $8m. This excludes the proceeds we expect to receive after an existing plant is closed. I know you are going to ask, so we are just going to tell you that the plant we intend to close it is located in Grapevine, Texas, which is in the Dallas-Fort Worth area. An economic study has demonstrated that the land is better suited for use other than a manufacturing plant. When this plant was built several years ago, it was sort of out in the country. It is now surrounded by shops and commercial buildings and little, you know, commercial operations. This is not the kind of backdrop that you want to have a metal building plant located in. The other thing is that we cannot modernize or expand this plant at all. The city that it's located in will not allow us to do that. So the decision to make the investment this time in Lexington, when many competitors are compelled to have scale back the scope of there operations is tangible evidence of the confidence that the management of NCI have in the long term growth prospects for the metal construction industry. We have been through downturns before, and while this one is certainly proving more protracted than others, it will end. And the demand for use of metal in construction will resume its well-established path of growth. This period, when direct competitors are cutting back their operations, provides an outstanding opportunity for NCI to capitalize on our strong financial positions and execute this expansion.

The location of the Lexington facility was chosen to position us close to our principle raw material suppliers, as well as to many of our own manufacturing facilities. Because of the proximity to our key suppliers, we will have the advantage of relatively low inbound freight costs, but let me tell you that Lexington will have the lowest cost raw product of any metal building plant that we have. A centralized location of the new plant will also aid us in being competitive in shipping building systems throughout the United States. We have got a unique layout for this new plant. It will employ approximately 200 individuals and it has been specifically designed to increase productivity, quality, and promote employee safety. I might add that employee safety as an operational item that we work hard at controlling and we are especially pleased that our record for the first quarter of '03 was the best ever for NCI. Therefore, we expect the Lexington facility to set a new industry standard in terms of cost, employees safety, and value and we described a few minutes ago as a service in on-time deliveries and quality.

The Lexington project is the most recent example of what NCI is doing to support our plans for future expansion. You will recall the opening in last August of our new Big Rapids, Michigan component facility that is by the way performing well. You will also recall us mentioning the national accounts program that is also progressing well. NCI is not standing still. We are working hard to make fiscal '03 as successful as possible. But we are not neglecting the actions that we need to enhance our future beyond just the next three quarters.

Let me see if I can say that in another way. The new plant and the national accounts programs are examples of the investment NCI is making to position this company for growth when the economy turns. We are in an industry that is well positioned to capture an increasing share of each non-residential construction dollar. And NCI intends to get more than its share of that. NCI also has one of the strongest balance sheets in this industry, and we are intent on capitalizing fully on all our resources. Before I turn the call over to Bob Medlock, I would like to just emphasize that we further reduced our debt during the first quarter '03 by $11.3m or whatever it was. I will now turn the call over to Bob.

Thanks A.R. Briefly going through the numbers, sales for the first quarter $208m were down 9% a year earlier, reflecting the continued decline in non-residential construction. The weakness in the industrial and commercial end markets and the lack of, particularly, large projects accounted for the majority of this decline. Gross margins in the first quarter increased from 19.9% last year to 21.1%, reflecting the improved manufacturing efficiencies achieved from in the closure of five manufacturing facilities a year ago. Operating expenses were down $2m year-over-year, reflecting the variable portion of our operating expenses on the lower sales volume, which more than offset increases that we have seen in healthcare, professional costs, and general insurance costs in the current year. Based on the lower level of sales the operating expenses as a percent of sales increased to 15.6% compared to 15% a year earlier. Higher gross margins resulted in an improved operating income percent of 4.9 in the prior year to 5.5% in the current quarter. Interest expense declined by a $1m or 17% compared to prior years first quarter based on lower levels of outstanding debt.

Tax rate in the first quarter, a 40.5% increased from prior year rate of 37% because of changes in some state tax statues, which subjected NCI tohigher rates and to taxation in more states than in the prior year. In addition, there was a one-time adjustment of deferred tax balances in the first quarter to reflect the state tax law changes. On an annual basis the effective tax rate for fiscal year 2003 should be approximately 39.3% compared to an effective tax rate of 38.3% in the prior year. EPS were [28] cents, were up 17.6%, and 17 cents earned in the prior year before cumulative change in accounting principle.

On the separate basis Engineered Building division sales were $70.4m compared to $76.5m year ago, a decline of 8%. Operating income of $4.8m compared to $6.4m in the prior year, representing a decline of 26%. Heightened price competition accounted for the majority of this decline. Incoming orders for the Engineered Building segment were down 5% year-over-year, backlog at the end of the quarter was $149m, which is up 4% from a year earlier. Product segment sales in the first quarter were $137.4m, down 9.6% in the prior year, most of this decline occurred in the industrial and commercial end markets. Operating income of $12.7m was up 13% from the $11.1m posted in the first quarter of fiscal year 2002. Most of this increase was due to greater plant utilization and improved efficiencies due to the closing of four component facilities a year earlier.

Turning to the balance sheet, receivables were down $15m at year-end reflecting lower sales volume. Inventory increased by $5m, since we had a decline in the expected sales, our inventories increased during the first quarter. We had a modest decline in net working capital of a $1.5m. Capital spending was $3.8m, up from the $1.8m spent in the first quarter of last year, but still it is $2m less than our first quarter depreciation. As A.R has mentioned, for the quarter we reduced our long-term debt by $11.3m. For our lending group trailing 12 months EBITDA number was $100m, debt to this EBITDA number was 2.9-1 and debt to total capitalization at the end of first quarter was 48% compared to 56% a year earlier. With that I will turn it back over to the operator and we'll open this up for your questions.

Thank you. The question and answer session will be conducted electronically. If you would like to ask a question please do so by pressing the "*" key followed by the digit "1" on your touchtone telephone. If you are on a speakerphone please be sure your mute function is turned off, to allow your signal to reach our equipment. Once again for questions, please press the "*" "1". We'll take our first question from Lee Brating (ph.) with Wachovia Securities.

Hello gentlemen. The first question I had was even though the sales was down graded, it sounds like then you expected and what I expected, it still seems that the EBITDA was in kind of line of what I was looking for and just wanted to -- you touched on it earlier, if you could expand on your discussion on that bearable cost nature of your business, specifically if you can get a break out I guess over the cost side, variable versus fixed will be great?

Well, the majority of our cost is fixed. Obviously, we still represent 55% of our total sales dollar and of our 75% or 78% cost to sales, probably it reached 65% and that is variable. And the SG&A area, most of our drafting over a longer term is bearable, but we have made the cuts that are necessary or that we felt like put us in a position to continue this serve this side. Customers and any additional cuts are not something we'd like to make right now. So, on a short-term most of that cost, I would consider to be somewhat semi-fixed.

Okay. And on the aspect of the plant you were talking about $8m to go into Lexington, I guess to be completed by third quarter of '03, could you if this -- is that going to be an addition? I think in the past you've talked about spinning about $12m in CAPEX in '03. So is that an additional incremental $8m? And with that the plan -- the location you think you can sell in Grapevine. Can you give us any estimate or timetable and amount of proceeds that you might receive from that?

The $8m would be an addition to the $12m that we had previously shown or indicated for fiscal year 2003. Our expectations are that the plant in Grapevine when we disclosed that the land value would yield somewhere around $4m. So, I wish you could say our net increase and expected capital expenditures would be around $4m. Probably, we will not list that property for sale and so we'll spring and try and coordinate the sale of it with the opening in the new plant. There is no assurance that we'll be able to dispose of that property in a short period of time, although it is an area that has had rapid expansion over the last 2-3 years.

Okay. Great. And then the last item was just, in regards to that $8m, when you guys look at investing and expanding what's the criteria, you know, pin pointing particularly I guess a certain payback period that you might be looking for in that project?

May you -- would you repeat question please?

Yes. When you evaluated to go to expand in the Lexington facility, spending the $8m. Your criteria for doing that, did you look at certain payback period or certain return, what were the company's specifics when you evaluated that decision?

We in all our capital expenditures, we look for payback not to exceed a 4-5 year payback period. And that would definitely fall in that range or lower.

Okay. Thank you very much.

Our next question comes from Catherine Thompson with BB & T Capital Markets.

Hi. I have a quick question about the new plant and specifically, does the new plant in Lexington have some effect on the ANS plant in Tennessee and the Georgia plant closer by?

It does not have any effect on them, in fact it will enhance the product we are manufacture there would really help the other operations as well, where we manufacture other frames. I think at this plant here is going to be highly automated for a portion of our products and which will be coming out of any of these plants and then the other plants would be concentrated on different projects, the heavier, complex jobs at the other plants. So, it wouldn't have any effect on any of the sales from the other operations.

Great. Thank you.

Our next question from John Vaulthausen (ph.) with Peridian (ph.) Capital Management].

Good morning and congratulation on a real good quarter in a tough environment. In terms of the Lexington plant, you had about a 4-5 year payback, is that assumed without the benefit of the added capacity, which you get there, is that all from productivity?

The way the analysis for that plant was based on a very conservative, which had very minimal historic market expansion in our approval process, but we do expect when the economy improves to have significant increase in revenues generated by that plant.

Okay. Good, that's really helpful. And finally, could you correct, you said that the year-over-year the backlog was actually up, although you were saying that the big projects are really the thing that is hurting worse. Can you reconcile that or did I just mishear?

Well, the backlog is up but the shipments are down. You know our imports revenues are down, but the backlog is up and part of the reason that they are down is, you know, this weather that we're having and you can't ship anything right this minute. You know, we are having a very difficult time shipping out of most of the plants, we had a number of plants that were closed yesterday because of the weather. You know, people just couldn't go to work, couldn't get to the plant. And if you can't get to the plant, you certainly can't be outside, you know, putting on new roofs or erecting metal buildings.

Okay. So, that's a factor in that.

Yes, to some respect, you know, we are getting a lot of sales on the west coast or had been for the last year or so when the approval process for construction is a lot longer than what you would normally find.

Right.

So, you know some of the work you book today may be work that you may not be able to ship for 6-9 months particularly if it's going in the California.

Right. Are there jobs in the backlog that you wouldn't ship expected to complete this fiscal year?

Generally, no. You know, all of our backlogs -- we've always said this is you know subject to cancellation until we begin to work on it. So there is always some portion of your backlog that you may, you know, that may end up being cancelled.

Right.

[inaudible] is not very large number.

Yes, but based on the schedules, as you know them?

That's correct.

Okay. Good that's helpful thanks.

We'll go next to David [inaudible].

As far as the first quarter sales at this point, you guys have -- can you isolate any particular areas, customer base, I mean could you did indicate that a lot was in the bigger projects with the widespread. Can you give us a little more sense as to how that might be profiled in a little more detail?

David, I would say the obvious, biggest equation on industrial segment accounts were about 1/3 of our total revenue and if you are well aware of manufacturing and expansion in the industrial segment has been very much non-existing. Commercial markets, larger projects are just not being posed -- we're still hoping [inaudible] and I think the lower interest rates have helped in popping that market up a little bit. You know, generally it would be the industrial segment where you could see the largest decline on a year-over-year basis and I think that is true for everyone in the industry.

But that's primarily where your disappointment was in achieving some of the objective on your sales. If you would have looked at any particular segment of your business that would probably compare to where you ended up in the quarter, that's where you would focus, that this point was [inaudible]?

That was -- there were some commercial projects that we expected would close. If we could begin to work on those projects are still out there, but I think people are delaying decisions based on not only the uncertainty of the economy but based on the fact, whether we are going to find ourselves in a war with Iraq.

So these projects haven't even closed as far as financing and all that you are saying?

That's correct.

These does give us sense as to you can't isolate from other things. As far as the current quarter outlook, is a lot of that basically more the same or is weather playing a more of an important role here right now?

Weather definitely has had an impact in February, from time to time we've had probably eight or nine plants that have closed for some as long as a day, some for three or four days. So we are getting off to a very slow start in February, which is normally, seasonally one of our lowest months to begin with. So that is being also impacted by weather not only snow but also all the rain that we've had in the southwestern part of the United States. Obviously, we're looking at a second quarter that's going to be from the revenue standpoint somewhat flat to possibly down slightly from the first quarter and that again would apply to the 9-11% decline compared to the second quarter of the last year.

But it sounds like some of that ['02] could be recouped if you get better weather, but it is just a case of -- [inaudible] this point the national accounts initiative -- you seem to be -- from your comments, very encouraged by how that's developing. I suppose it is just more of economics than anything else. Is there any thing that -- what are the characteristics that you are finding as you pursue this national accounts that are giving you optimism that once we get some certainty in the economy, this thing could really develop some [inaudible] returns.

I think we've been well received in the national accounts area. I think that our guys have done a great job for us there. We have already seen several accounts developed and we have orders on the books now for several orders in the national accounts area. I think once the economy turns and the activity that we see right now, with the core activity and so forth, we think that it is going to contribute considerably to our future growth. I think the one positive outlook right now and really you can't have your hand on anything until you get orders in hand. But I think that our core activity has shown some improvement over the last several weeks and that is always an indicator for us that brings and there will be some buying may be in the third quarter and that's kind of how it follows. That is a positive example, but we don't count on them until they are on the books. So it -- we will see some positive things but not as great as what we expected.

Is that in the national accounts you're seeing an increase of cored activity or just in general?

In general the core activity is up the last four, five weeks has shown some improvement.

But looking at the success with the national accounts, it's going to be the ability to sort of the balance sheet -- the things you are doing in this new expansion, spending in to the downturn. Are those the kind of things that are given these potential national accounts confidence that you are going to be there then, so to speak, when recovery does come compared to may be some other people? I am just kind of curious as to what the confidence factor is that they will end up going to you ultimately anyway just because of your capabilities.

I think that's exactly right. I think that when they see the company and they have a lot -- most [inaudible] analyze the company pretty well. And when they get through and they see what we do and how we do it, how we go about it and service and so forth, the location we have and so forth. I think it had a tremendous effect on the future for them buying from us versus maybe somebody else. I think that's right.

Finally in the metal building segment. Do the -- the rate of decline at least seems to be abating somewhat. Is that a fair indication of maybe -- what coming into some level of kind of sustained building going on would you think. Or how do you feel for that at all? Because the rate of decline has been at least slowing down.

It has been slowing down David but you know this is seasonally a low period for our business anyway.

Right.

So its really until you get into March and April, it's really hard to rate anything and to order and take is to whether it's more the same from -- again on general decline or whether it's just the seasonal nature of our business. So I think we are going to have a better idea of you know, what the year is going to look like as we get into the April-May time frame.

Okay. I appreciate your recent perspectives. You are certainly doing well in a hostile environment. Thanks.

Thank you.

We'll take your next question from Greg Macasco (ph.) with Lloyd Abbott (ph.).

[No answer]

We'll move forward to Dana Walker (ph.) with Cameron Investments (ph.).

Maybe I'll ask some of Greg's questions and we'll help each other out here. Good morning. How would you describe your original Q1 revenue plan versus the down nine that you reported?

Obviously, our expectations for the first quarter were -- we'd anticipated a quarter that will probably be somewhat flat relative to last year. So these are the overall expectations for - I guess you could say we missed our expectation by roughly the same amount that we'd reported and declined in sales. We did a better job I think from our standpoint. In the operating expense area, our margins were somewhat inline with our expectations that we had for the year.

Looking at Q2 if your revenue is in the Ballpark of Q1 revenue. Nevertheless, your earnings guidance will suggest about $3m less in operating income. How do the numbers differ versus the Q1 profile?

I think we still have some -- I think we're still seeing a general decline in [audio gap] for the business it's abatable, which obviously is probably the biggest dropper of how much operating income we're going to have. So I think we will see some pressure trying to sell and to differ in the fourth quarter, we will probably be spending a little more money in the area selling [it]. So all of those factor into our expectations that even though sales will be flat may be slightly down, they are not in the level of operating income or decline -- and the biggest factor there is price.

Your paint coil operations as I recall have been acting quite well for you more recently, how would you describe Q1 performance and your near-term outlook?

The payments may depend 65% on the family, the building group and the components group. So the total group, you know, revenues decline just like the components group and the building group and they're, you know, going to be basically in the same shape as the component group and the building group, the problem is we normally build inventory during this time of the year, at the [coil paint] lab and its not inventory we own only thing we own only is actually the paint and the labor that we have involved in it steel mills [inaudible] of steel. But we have completed [audio gap] that inventory bill for the most part and we have already had to cut one shift to one of the paint lines. And so you know their performance in the second quarter is not -- there is not even any one that I know has run out of business in the last year, in the coatings group. Not that we can recall of.

Something you said about a year ago at this time.

The thing that has happened with the coating group, it's the same thing it's happening with buildings and components, and that is that we are not as slow as the rest of the industry, those are other people that paint coils for, you know, our competitors. They are out there now calling on the other 35% of the coaters business, and they live in that 35% just like they give 65% to family control, but what's happening to that 35% is the process to plan and keep some of the business. And we have actually walked away from some business because we got new deals.

Fair enough. Looking at one of the things that I hear from some people in the construction trade is that a metal building might be more prone to issues when there is a awful lot of snow that weighs down on it's roof. Is that a true statement or not and how does that affect you when we have got an awful lot of snow in the mid-Atlantic?

Metal buildings absolutely perform better than single-ply built up roof, I mean that's the just the news standing seam-roofing profile that we have in the metal building industry absolutely out perform single-ply built up you know any day of the week. I mean that is -- I tell you what, if you go look when a hurricane or tornado goes through what you will find is metal buildings standing and the rest of the buildings on the ground. I am telling you there is nothing built that will take direct hit from a tornado, but I am talking about one in the area that the conventional building will find a lot more damage than the metal buildings.

And what happens when you have got a couple of feet of snow on the roof, does that matter?

Absolutely nothing. They are designed for that dead load.

One final thing. You continue to add to your builder account, which has impressed us greatly as our shareholder period has lengthened here. Can you talk about how meaningful your role is though with the builders as you go from they first calling you, to their coming, then using you for a year a two year of three years. Are you adding to their-- your share of their business in your judgment?

I think that -- I don't know we are adding to their share but I think we have had builders come to us because of the performance in what we do and the capability we have of producing the product in the area they are. If we got plans that can produce a product to deliver to their job sites with less rates and I do think that's the one that come with us. I think that our performance speaks for itself. I think that as we go on and they see how we perform, I think, that builders will [convince other] builders to uphold them. I know that all of our good builders though we don't lose very many. So I think we have [an add] but not much of a deduct.

Would you agree though that the importance for that metric is only worthy if you are adding to your share of their business over time because they are just sampling you one off for occasionally then that doesn't have as much merit as it would if you are becoming their key resource?

The majority of them -- once we sell our building [they are] pretty much our builder. That's been proven by us way back in the beginning. Once they buy from us and see our performance and see how we deliver and see how we handle their projects, they pretty much -- they are repeat customers after that. I think there may be misunderstanding there. When you sign a builder up I mean you are agreeing to do some [all out] advertising with him in his area and so on and so forth and when a builder signs up with you it is usually with a intent to give a 100% of the building order to us or to the company, whichever company he goes with. And you know, most of the building companies have some kind of rebate system based on volume of small rebate. They don't give the rebate if they don't buy exclusively from the company. Okay?

Oh, then that would be a misunderstanding. I figured that as you are trying new builders that they are not exclusively dealing with any particular metal building vendor.

No, you don't usually sign them up until they are ready to become your exclusive builder because I mean all their advertising with [Semi Metallic] or AMS or whichever one of our companies it is in their advertising and they'll sign and one of their plates will say you know Metallic Builders. You know, when ever they become a builder you are pretty much getting [embedded] together.

I think the confusion there is that the same people that we sign as builders, they tried us prior to signing a deal with you. I think that's what you are probably talking about. You know they might buy a building from us and drive the company. Once they become a builder they are pretty much our builder.

Will do. Keep up the good work. Thank you.

How many more questions do we have in queue?

I was standing by with one question.

Why don't take that and then AR and Bob will be available for calls later in the day?

Right, we will take our final question from James Linnard (ph.) with Linnard (ph.) Management Group.

Good morning gentlemen. I just wanted to get a better understanding of how you major your bid rate. That is something that's been talked about on several conference calls but I don't really have an understanding of what kind of systems you use -- we don't see any number what your bid rate is so we don't know really how to judge what you are telling us? Could you help us a little bit?

Well I don't know whether we have you know -- your bid is difficult to put on the exact amount because a lot of your bidding is projects that are being planned and a lot of your bidding is projects that are ready to go. So it is difficult to put a number but I would say that the majority of our bidding jobs that are going to be bought in the next 12 months I would say. So in bid activity it kind of follows whether we don't sell especially when you get into some of the larger-- you know, the one place that I think it is difficult for us to tell you the percentage is because we have concentrated a lot more in the conventional area. We have gone after the conventional market to convert to the building market, and I think that some do and some don't. So, I don't have an answer for you on percentage.

Well, I guess we are -- I am just trying to figure out how to when you tell us that your quote rate is up from the last two or three weeks. What does that really means? What does up mean?

It means activity. When your low quote percentage is down I think that the activity is not there. When you see the activity pick up, that means that people are thinking about buying again. They are putting packages together and building projects and getting ready. It's just a sign, it's not a -- when quote activity is low that means the people are not exactly excited about buying. As that quote activity goes up, they are more excited about placing orders in the near future.

If you look at it, John you, -- if you look at components and/or building, you usually sell about 10% of what you call total quote, because the a lot of those quotes are simply quoted to get a budget number to see if a project, like a school project can be brought in within the budget that they want to spend. Okay? But usually historically we sell about 10% of what we quote. So when the quote activity goes up, we know we are going to sell a little more.

Wouldn't it -- this is a, you are coming out of seasonal low period. Wouldn't, just on a normal seasonal basis, your quote activity go up?

Not necessarily. See, a lot of business we don't even quote. A lot of business are just orders that we receive over the computers or over faxes; both components and buildings work that away. I mean, we get orders from ongoing customers, builders that are, you know, metallic builders or customers of the component company. And so, you don't quote that business at all. So, quote activity is really on new projects that are outside the standard envelope, okay.

Okay. Thank you.

This does conclude today's question and answer session. I will turn the conference back over to you gentlemen for additional or closing comments.

As always, we thank all of you for joining this call this morning. We probably have a [inaudible] chance is that prices over the new term, over the near term rather but we've also tried to communicate our optimism for the longer-term success of NCI and the steps that we are talking to capitalize on this potential. Again, thank you and good day.

And it does conclude today's conference. We do appreciate your participation. You may now disconnect.