Core Natural Resources Inc (CNR) 2006 Q4 法說會逐字稿

Good morning, and welcome to this NCI Building Systems conference call to review the Company's results for the fourth quarter of fiscal 2006. This call is being recorded, and a telephonic replay may be accessed through December 14th by dialing 719-457-0820 and entering access code 5457515. The replay will also be available at NCI's Website, which is ncilp.com. The fourth quarter results were issued yesterday in a press release that has been covered by the financial media. A release has also been issued advising of the accessibility of this conference call on a listen-only basis over the Internet.

Some statements made in this conference call may 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 fact. Actual performance of the Company may differ from that projected in such statements. Investors should refer to statements filed by the Company with the Securities and Exchange Commission and in yesterday's news release for a discussion of factors that could affect NCI's operations and the forward-looking statements made in this call.

To the extent any non-GAAP financial measures are discussed in today's call, you may also find a reconciliation of that measure to the most directly comparable financial measure calculated according to GAAP on the Company's Website by following the news link to see yesterday's news release. 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. At this time, I will turn the call over to NCI's Chairman and Chief Executive Officer, Mr. A.R. Ginn. Please go ahead, sir.

Thank you, Scott. And good morning, everyone, and welcome to our fourth quarter 2006 conference call. I'm pleased to have with me this morning Norm Chambers, our President and Chief Operating Officer; Frances [Haas], our Chief Financial Officer; and Ken Maddox, our Executive Vice President of Administration. I'll try to provide some color about our fourth quarter and year end, and additionally we'll give you guidance for our fiscal 2007, and our underlying assumptions for that guidance.

We had a good fourth quarter and finished our year ahead of our improved revised guidance. The nonresidential market continues to be good, and the low rise nonresidential construction, including the rural and agricultural sectors we service, continue to grow. Our quoting activity, which had slowed down a bit during the quarter, is again good. McGraw-Hill Dodge forecast 2007 growth of new construction to be 2% in square feet, with dollar values at 6%. While that's a slower rate of growth than Dodge had forecast for 2006, we feel it still provides a good underpinning to support our expected double-digit earnings growth for fiscal 2007.

Now, much continues to be written about where we are in the nonresidential cycle. From my nearly 50 years in the business, it does not appear to me to be nearly as overheated as it was in 1999 and 2000. Not only are we well below the top of the last cycle in new construction square footage, but more importantly, our quoting activity remains good, and our builders and customers continue to see a good business environment. This is not the way things were before the last downturn in 2001 through 2003. A good market with flat steel prices is a good business environment for us and our customers. Frankly speaking, I think the steel mills are keeping steel prices too high. It would be better if steel prices came down some so that our products can be even more competitive against conventional building materials.

Let's talk about the quarter. External sales for the quarter were up 46% over the fourth quarter of 2006, and net income for the same period improved by 42%. Sales for fiscal 2006 compared to fiscal 2005 were up 39%, while net income for the same period increased by 32%. SG&A as a percentage of sales was 14.1% for the quarter and 15.7% for the year. Our sales increase for the fourth quarter was driven by an increase in external sales of our Buildings Group of 112% and our Components Group of 6%, offsetting a weaker external sales in our Coaters Group, 16%, resulting from a shift to a greater amount of tolling work. When we look at external sales for the entire year, our Buildings Group was up 73%, which was fueled by the acquisition of Robertson-Ceco. The Components Group was up 18%. And I believe it is noteworthy to mention Components increased their revenues through organic growth by over $100 million during fiscal 2006, and the Coaters Group was up 6%. Our tons shipped for the year were up 29% and our plant utilization finished at approximately 75%.

While we are pleased with the levels of operating income for the quarter achieved by our three operating divisions, keep in mind each had to overcome steel price increases of nearly 7.5% that we told you about during the third quarter conference call. The higher steel price in the third quarter increased the value of inventory shipped in the fourth quarter. The elevated cost of steel negatively impacted both sales and profitability in our Components Group. Even with this temporary impact, our Components Group posted 13% operating income margins. Our Coaters Group saw a shift from our packaged products at Metal Prep. The customer is paying us per ton to paint their steel. Even with this lower-risk, lower-margin tolling work, our Coaters Group generated operating income margins of 24%. Our Buildings Group produced excellent sequential improvement in their operating income margins from 8% to 11%. During the third quarter call, we said we believed we would improve Building margins by 100 basis points sequentially, and they improved by 300 basis points.

We continue to believe that we can achieve substantial and sustainable margin improvements over the next couple of years once we have established the RCC Engineering System throughout the Buildings Group, upgraded our plants, and effected our hub and spoke delivery system. Our financial results have benefited from synergies from purchasing and coil coating which are reflected in margin improvement in our Buildings division and increased intersegment activity. We expect to realize greater levels of synergies in 2007 through further integration of RCC benefiting from components and product adoptions, such as our standing seam roof systems, architectural products, our Long Bay System, and our Insulated Panel Systems. Also on a positive note, I'm pleased to tell you that we have settled both our Metal Prep environmental issue and our dispute with steel producer, Sigosa.

Our guidance for fiscal 2007 of $4.55 to $4.80 per share reflects nearly 25% to 32% growth in earnings per share. We assume the nonresidential market, as reflected by Dodge, will grow at about 2% in square feet. We expect to ship at least 10% more steel than we did in 2006. We anticipate plant utilization for the year will be about 80%. Additionally, we expect our weighted average cost of steel to remain flat with the cost we experienced in our third quarter. We expect our tax rate to run at approximately 39%. And we also expect to fund increased capital expenditures of about $60 million for fiscal 2007 to improve our manufacturing plant efficiencies, while also meeting a very challenging goal of paying down debt by an additional $100 million during the year. We have started our fiscal 2007 with a good backlog. We believe it is weighted more to our second fiscal quarter than our first. And as most of you know, our first two quarters are our seasonally slowest. While our first half of the year establishes a foundation, we look to our last two quarters to drive our year end results. We have historically generated about 65% to 75% of our earnings from the second half of our fiscal year. The way we think the year may play out is the low end of our 2007 guidance would have us generate 68% of our earnings in our second half, and the high end of our guidance would have us generate 69% of our earnings in our second half of 2007.

As you can see, our guidance is in line with our historic seasonal earning trends and about the same as 2006. During 2006, we continued to successfully manage our cash as a result of aggressively managing inventory and our receivables. We generated cash, which enabled us to repurchase 732,000 shares of NCI stock for $36.5 million, fund capital expenditures of $27.1 million, and repay $78.5 million of debt. We feel that our discipline regarding our use of cash, paying down debt, buying back shares, and investing in our business is in you, our shareholders', best interest. This Company has been built on this discipline. I'm confident the Company will remain committed to that same discipline in the future. We also see exciting opportunities to increase our share of the nonresidential construction market with new products and new channels, while working with all our customers to grow their businesses. These disciplines and initiatives are the factors that will drive our future growth.

In closing, as we announced in September, I will be stepping back as Norm takes over as CEO at the first of the year. It has been my distinct pleasure and honor to serve you as CEO. I will remain Chairman until about this same time next year to assist Norm and the excellent team of men and women who do a great job for this Company every single day by supporting our customers and producing ever-improving results for you, our shareholders. And they do this in the most safe and environmentally responsible manner. Again, thank you for the opportunity to serve. We are now ready to take your questions.

[OPERATOR INSTRUCTIONS] Arnie Ursaner, CJS Securities.

The question I really am trying to come to grips with, is obviously you've been working through high-cost steel inventory, which obviously impacted Q4 and appears to be one of the key factors in your guidance for Q1. Yet your guidance for the full year for steel prices is in line with trends in Q3, despite the fact there have been some pretty good reductions in some steel costs. Could you elaborate a little bit more on that? And the corollary to that is your ability to recover these steel costs from your customers by segment.

Yes, Arnie. What I would like to say is that we never know entirely what steel prices are going to do during the course of the year. We'd given guidance last year of a 6% increase in steel costs, and it was double that by the end of the year. You're right, we are seeing some moderation in steel prices on hot roll and some other steel products, and we would expect to see some benefit from that. But when we forecast for the whole year, we thought it was prudent to forecast on a slightly higher cost in the event that steel prices come back up some. And to the extent they do, we have historically, as I think most people know, have historically done a good job of passing those steel prices on. We saw in the quarter that the momentum of steel price increases in our Building Group largely led to us finally having improvement in the margins. And that's important to realize, that's across the whole piece, Robertson-Ceco and our Building Group.

By the same token, we had in the Components Group a kind of a double hit. We had the higher steel costs. But also, the marketplace which is a much quicker turn for our Components Group, was dealing with our customers and our competitors having inventory overhang, which was being dumped into the market. So while our Components Group had higher costs, they were in a marketplace where prices were coming down. We dealt with this before in 2005 and before, and have found that it's better to try to hold our prices, and that's with commercial discipline, and that's what we have done. As we've seen before, our Components Group is very quick to adjust. As you know, we had margins down in the second quarter of 2006 and saw the margins improve as the business came back up. We have total confidence in our Components Group to return to higher levels of margins. But frankly, we're damn please with the job they did in the fourth quarter. It was a tough market, and they still came through with good earnings.

Another more global question, if I can. On your SG&A and other corporate expenses, frankly, you actually beat me by quite a bit. I had expected you to be more aggressive about spending for infrastructure. Trying to get the systems in place earlier to get the benefit for all of next year. Did you, in fact, slow that spending down a little bit? Or can you just freshen it up for us?

No, we didn't slow down on that at all. We always have some ins and outs in our overhead costs. And at the end of the day, we had, as you know during the course of the year, been criticized by our overheads being higher. Some of that were period costs that worked through. So we're kind of back in a lower range, which, frankly, we had forecasted internally. And that's kind of the way that shook out.

Okay. Final mathematical question, if you don't mind. Your utilization by segment, please, in Q4?

By segment. Yes, I've got that, just one second. Utilization by segment: Components for fourth quarter ran at about 79%, Coating ran at about 72%, Buildings Group ran at about 90%, for a total of 85%. So we finished the year at 75%, blended in for the year, which is up about 10 points from the same time last year.

I'll jump back in queue. Thank you.

Jason Feldman, UBS.

First question, the guidance for the first quarter basically represents a decline from the first quarter of '06, even with the Robertson-Ceco acquisition giving you a benefit in the first quarter. Is that just the inventory overhang issue in the market?

It's that, Jason, and when we look at our backlog, which at $373 million, is a very solid one, it seems to us to be more loaded towards the second quarter rather than the first. So as we have said, we have every expectation that we'll finish the first half of the year well ahead of the first half of the year last year. And I think the thing that A.R. tried to do in the script was to lay out a little more succinctly that the seasonality of our business is such that we always have higher earnings in the last two quarters. But even with the high end of our guidance, we're still at only 69% earnings in the last two quarters compared to this year, which we were at 68%. The low range of our guidance is 68%. So from our perspective, going back over the years, we've earned anywhere between 75% and 65% of our earnings in the last two quarters. So we believe that the way we're seeing the year is pretty consistent with our past.

Can you just elaborate perhaps a little bit on what factors give you confidence that things are going to improve significantly after the first quarter? Because again, the earnings for the year as a whole seems very plausible and reasonable to me. But it just seems inconsistent with the year-over-year decline in the first quarter. Is there something you're aware of? Is it the timing of the backlog -- ?

It is primarily the timing of the backlog and the fact that our Components Group is still dealing with a tough market with inventory overhang at our competitors and working through our inventory, which is -- which we would expect to get done during the first quarter. So it's those few -- two factors and we don't want to get ahead of ourselves.

Okay. And then last thing. In terms of margins, they were up, obviously, very nicely sequentially in Engineered Building Systems. Kind of on a year-over-year basis, though, or in the other two segments, they were down substantially. Was steel cost and pricing that you were able to get from the customers the two primary components of that?

Yes, I mean we certainly had a more challenging fourth quarter. And as we've said before, the linkage between our Components and our Coating Group is fundamental. And that came down a bit. There's no question about it. But by the same token, it was offset where we really, frankly, have been putting a lot of effort in to improve the margins in our Buildings Group, and pleased to see the team do such a good job.

David, also, the service center have an overhang in inventory, and they don't set on inventory, they'll dump it. And that's caused customers that normally would buy a packaged products from Metal Prep, that's for hot roll painted for secondary framing, the [inaudible]. They're not buying the the steel from Metal Prep, they're buying it from the service centers, and then just toll coating it through Metal Prep. So we lose the margin on the steel that we would normally see. So it has sort of a two-fold effect, if you will.

Okay. Thanks a lot. I appreciate it.

David Yuschak, Sanders Morris Harris.

First of all, in last quarter's conference call, I asked you specifically about that first half of this year, because I was concerned the way it played out in your first half of 2006, and that you had a strong first quarter and a weak second quarter, and generally that is uncharacteristic of you guys. I was concerned a little about the flip-flop. And I think as I look through the notes, you'd consistently said if -- expected a very strong first half. So from my point of view, when you were looking at those numbers back then, because you specifically avoided my concerns about a tough comparison in the first half, even with Ceco, were you seeing that mix at that time too, that you were really addressing the first half instead of addressing the first quarter?

Yes. I mean, as those of you that have followed us a long time know, we really look at the first half of the year, because we have over the years had sometimes when our first quarter's up and our second quarter's down, or our second quarter's down and our first quarter's up, it really for us, is the blend of how we combine the first quarter -- the first half. And as I say, when we look at our backlog, which now represents approaching $1 billion worth of business in our Builders Group for a year, it looks to us to be more loaded towards the second half. And so that's the reason why we came up with what we believe to be as a realistic approach for the first quarter.

Now, the -- another question on this somewhat -- in some regards, your Ceco acquisition is changing your product mix, because it's being more skewed toward Engineered Building Systems and Components. Does that mean, just because of the seasonality of Building, that you end up having a first quarter that maybe also have some unabsorbed overhead because the Engineered Building Systems tends to be slower in the first half than it does in the second half?

That's exactly correct. That's spot-on. And it's a function of the seasonality of the building activity and there's two things with that. One is that we look to and have always had good performance in the second half of the year. And we're pleased with the level of integration that we're getting. And we're seeing both the intercompany and the -- plus the improvement on the margins building side to be consistent with where we're trying to drive this thing. But the Components Group is just, it's solid, it's quick turn. They suffer the market moves more probably than the other. But always respond well, and they will continue to respond well, even though there's a tough market for them in the fourth quarter.

But the Components business is something we'd had to live with anyway, so it's not the new in the equation.

That's right.

What I'm trying to drill through is, as you look at the second half then, the way you're guiding on the second half, you're looking at this business more as a traditional business as you've done in the past, as far as earnings potential in the second half. But if in fact, I've got more dynamics in the second half because I've got a better mix towards the second half in the way of Engineered Building Systems, isn't it possible that the second half could skew you more to a 75%, 25% mix longer term in that second half, just because of the potential Engineered Building Systems being in the mix?

There is that possibility. There is that possibility. And there also is, of course, the thing that we're working on very hard is to really start to achieve higher levels of synergies. And as A.R. has mentioned, we really are working very hard to bring the engineering systems in. We're actually testing that in three of our sites now. We're ahead of our schedule on that. Very pleased to see that. We've got teams that are working very hard on that. And -- but we wouldn't expect to see any meaningful benefit of that for the second half of the year. So when you talk about the potential in the Building side, both from a seasonality, as well as from all the things that we're working on. We expect all our groups to do well. But we certainly have high expectations for the Buildings Group.

Now, as far as that $60 million in spending, that's up a lot more than you generally spend. Could you just help us out on that? Because I think what you're kind of saying is it will help your Engineered Building Systems become even stronger, maybe not so much in the second half of this next -- of this year, but longer term to wether it's improving the profitability of the unit or to increase your presence in the place. Can you just maybe help us out as to what things you're doing there to kind of complement and supplement that?

Dave, let me take you back to 1998 when we put NCI and MBCI together. And that was in May of '98. And then we had $550 million, $600 million worth of debt. And in 1999, we spent $30 million -- in excess of $30 million on capital. And that capital is what fueled the growth for the success that NCI has realized over the last several years. And we've got substantially less debt now than we had in '99, and the Company is over twice as big as it was in 1999 and we are going to spend $60 million. But that $60 million is going primarily to plant improvements that will absolutely secure the future growth of this Company. And so you just -- you almost have to -- you almost have to look at history and the way that we've done this.

And the other thing I'd like to mention is, is that no one in this industry has had the success in integrating and consolidating that NCI has had. We put two companies together in '98 that were about the same size, and we grew them over the years. And then we've made the acquisition of Robertson-Ceco, and we've integrated Robertson-Ceco with absolutely no fanfare, no one-off costs. It's running just as smooth as anything could possibly run. And there's nobody -- and I can take you back in history to where people bought like companies in our industry, and they were unsuccessful. And we have a history of putting these companies together and running them just like a little well-oiled sewing machine. So this $60 million that we're going to spend is going to be what fuels the growth for NCI in the future.

One last question and I'll get back in queue. On the burn in the backlog going from third quarter to fourth quarter, again, going back to some of that seasonality and having bigger capacity to move stuff through the Engineering Building Systems, is that something we should probably normally expect longer term, that because of added capacity and your capabilities to deliver more, and that we might see normally a more of a burn rate in the fourth quarter from the third quarter given normal conditions?

Yes, yes, you should. And I think that when we look at it, and we look back historically, it's not unusual. Now it's amplified because we have twice the size of business in our Buildings Group.

Okay. Thanks, and I'll get back into queue.

John Diffendal, BB&T Capital Markets.

I wonder if we can do a little separation to understand a little better in the quarter the same-store sales, trying to strip the acquisition out a little bit. I know in the third quarter you gave us some same-store sales stat numbers on sales tonnage. And particularly, would be interested in backlog. Looking at that backlog number, how much of that is organic?

Yes, we can. On the sales side, same-store sales were up about 13.6%, and the overall was up 39%. Okay?

That's a total sales number, okay. Same-store sales -- ?

Yes.

Okay.

So if you look at it kind of incrementally, $440 odd million in increase, and about 285 of that was the Robertson-Ceco side.

This is the quarter now?

This is the year.

Okay.

Okay.

What about for the quarter?

The quarter, let's see. You got that quarter handy? Yes, in the quarter we had about 80%, 85% of the improvement was Robertson-Ceco side.

Okay.

Okay?

Okay. And of the backlog number you've given, how much of that would be organic growth, relative to just what Ceco loaded in there?

What you'll find is that it's pretty evenly split. A little bit more bias towards the NCI side. So we had -- we don't really have a handle on the backlog that Robertson-Ceco had last year, they are on a calendar year. But we certainly are, at 373, are pretty much in line with kind of where we were coming into the first quarter of 2005.

Okay. So, if you looked at just your Engineered Systems X Ceco, you're saying the backlogs are basically flat?

About that way, yes.

Okay. Got it.

Don't forget, we had 20% growth in the first quarter of 2006.

Right, okay. And I want to get back to synergies for a bit. Is there any -- sort of understand a little bit what your assumptions are in your guidance range in terms of how much of the synergies you may be capturing of the 6 to $25 million range that was given earlier.

Yes, certainly there are higher levels of synergies in the upper end of our range. But let me just try to approach this a little different way. We have said all along and know that the Engineering Systems have created a 300 basis point cost advantage on the Engineering cost side. But in addition to that, we know that the level of automation in the Robertson-Ceco plant and much of what we're investing in 2007 is automating our plant, as well, has created a situation where they're able to produce almost the same amount of steel as our Building Group, with as much as 25% fewer people. Now, that's not an apples and apples comparison. But still we see substantial, significant opportunities going into 2008 that this automation can bring us. And that's a very big opportunity for us. And that's in part, fueling our desire to make these investments.

And that was considered going in? I seem to remember most of the margin gain, like say up to 300 basis points, was really driven by the ordering or whatever technology and the turn time on projects. But you're saying that spending the $60 million is to put your existing plants on the same footing. And is that another layer of synergies that was not laid out before? Or is that still in the old number?

We think it's a potential additional.

Okay, okay. But in any event, anything that you can tell us about how much of the synergies you captured in this year, is there a number that you can attach to that?

We had laid in about $0.01 of synergies in 2006, and we probably picked up closer to $0.03. Okay?

Okay.

And we will be working this very hard through 2007 to capture more of the synergies.

I guess part of the thinking being, given that you're projecting a down first quarter, and obviously the less three have to show some even greater gains, I'm trying to sort of gauge a little bit -- you seem very confident about the rollout of the synergies there through the year. I'm just trying to understand how big a piece of that is critical to making that guidance range.

I want to be careful how I answer this. We certainly have not gotten ahead of ourselves on planning to realize large amounts of synergies in 2007. The guidance we have given is largely based on what we have been able to achieve in 2006, looking at that in 2007 without advantages from the engineering, without advantages from the hub and spoke, without advantages from automation. So there's not a whole lot of synergies in our guidance.

Okay. So there's some upside there, especially in the second half as you implement the new system, potentially?

Well, we want to get this done, John, and we'll be the first ones to be waving the flag.

Okay. Two quick questions to exit. You mentioned settlement costs on the environmental. Can you put a number on that that was included in the quarter?

I think we can. It's going to be in our Q. Yes, in fact, I'll have to get that to you after the call, John. I don't know what that is off the top of my head.

Okay. Would it be $0.02, potentially, or -- ?

There were some ins and outs, I'm not sure what the net was. But it was more kind of getting it sorted out, and getting the state approval of the completion.

Okay. And lastly, you mentioned the shift toward toll processing in Coatings. Is this something that you expect to be a permanent change or a temporary -- I'm trying to understand what has driven this in the quarter, and whether that's something that we'll continue to see.

John, we think it's a temporary change due to the service centers trying to get rid of their inventory overhang.

Yes, it's more a function of what's going on in the market in terms of inventory.

Okay. But something you'd probably perceive at least through the January quarter, but then starting to tail off after that?

Right. And of course, we're not sitting on our hands. The team is out looking at some new contracts, as well, and working on a couple of very nice pieces of business in the Coatings side that I think will be very good, and they're not tolling work. They're long-term contracts with major manufacturers.

Great. Thanks, guys.

Cliff Walsh, Sidoti & Company.

Norm, can you comment on maybe when you'll feel a little bit more comfortable updating us on your projections for synergies? What projects you want to complete, what time frame you're looking at to give us a narrower range, or maybe a different number altogether?

Yes, I mean, as I tried to say, we have certainly built in in our guidance the synergies that we know we get on the procurement side, synergies that we know we will get on the Coatings side. We have picked those up and we'll be analyzing that, and we can report back and give you some good sense of that. But as I said, there's a couple of pennies probably for this year, and we would expect that to bring us into the lower range of our synergy forecast of 6 to 25 during the course of 2007. And again, we, as you'd expect, kind of built that more in the upper range of our guidance, and we are also seeing opportunities, as A.R. said in the script, with more product work. And that, we think, provides some nice upside opportunities, as well.

Okay. Now with respect -- one of the first things you guys were trying to do when you acquired Robertson-Ceco, was to hold on to some of the builders that they had. You didn't want to lose somebody -- lose anybody. Have you seen any turnover change in that, now that we're a decent ways into the acquisition here?

To my knowledge, sitting here right this minute, we've not lost any significant builder on -- from NCI or from RCC.

Okay, great. Maybe you can give me just a sense of with this big CapEx spending you're doing, what a more maintenance type level would be, given the structure of the firm at this point?

Yes, the maintenance level would be pretty close to our D&A, which is around $30 million. And then the additional $30 million is really all growth and efficiencies, which is between hard manufacturing equipment and IT.

Okay, great. And Norm, just one last question. Where do you see the balance sheet at the end of this year in terms of debt levels?

Well, have got an audacious goal of paying down another $100 million.

Okay. You had mentioned that. I wasn't sure if you said that was the goal for last year, which you did, or if that was the goal -- ?

That's going forward. We've been good in the past. And if we can -- we'll fund the $60 million in capital expenditure paydown. $100 million, I would be very pleased with that at the end of the year.

Okay. Great. Thank you very much.

Michael Corelli, Barry Vogel & Associates.

Just had a question about the share count. I know you had been nice enough in the past to provide us a sheet that showed what the addition of shares would be based on the stock price related to the convertible debt. Could you tell us what base of diluted share count we should use before adding those shares going forward?

The share count rounds to $20 million at the end of the year.

All right. So approximately $20 million, plus the convertible.

That's correct.

Okay, great. And just one note to the Company, as far as the press release is concerned, it gets a little confusing with all the breakout of the different earnings related to the convertible, not related to the convertible. I think it might be better in the future if you just put the earnings, and not break that part out. Because I know it's an accounting convention, but at the same time, the Company did benefit from the cash they got related to the convertible, which allowed them to buy Robertson-Ceco. So I know there's a negative. But there's also a positive impact related to the convertible notes. And it just might be easier for investors to read and understand, and be on the same page related to your earnings if you didn't have all those different earnings numbers in the release.

Sure, Michael. I appreciate that. One of the things that we -- one of the little issues that we have, of course, is when we project our guidance, it's without the convertible, because we don't know what the share price is going to be. And therefore, don't make an assumption on that. But I hear what you're saying, and I think we can move in that direction.

All right, thank you.

Dana Walker, Kalmar Investments.

A.R., I hope that your sunset is a beautiful thing to behold.

Thank you.

The '07 guidance that you folks have talked about, where you impute Dodge tonnage being up 2%, and you say that NCI tonnage would be up 10% or more, is that an apples to apples number? Or does that incorporate the full-year effect of owning Robertson-Ceco?

That's a full-year effect of Robertson-Ceco. And we said at least 10%. If you look at kind of what Dodge did this year, Dodge is going to be at about 5% growth in square feet, and we produced 29% greater tons, okay? And I think that that's a reflection both of us increasing our market share of nonresidential, taking some share from competitors, as well. So the 2% [inaudible] run rate on growth in square footage for 2007, we're saying that we will generate at least 10% growth in tons.

The 5 -- or the 29%, though, that you will have seen in '06, if you were to pare back the effect of RC, what does that number look like?

11.3% on NCI, and the balance on RCC.

Are you presupposing that you will see tonnage share gain in '07, before the effect of RC?

We would expect to see some continued growth in our ability to take share, which we've done over the last several years, yes.

All right. The Q4 tonnage, can you break that out between the different segments?

I won't give you the exact numbers, but I'll give you what we had for growth. Let's see here. We don't have our percentage. Okay, exactly. We were flat in Coating, we were up 83% in Buildings, and down about 6% in Components.

All right, that helps. The Engineered Building Systems margins in Q4 where you were of the mind that you would gain 100 basis points or more from the Q3 level, and you came up, my number says you improved by 320 basis points. You talked about price realization. Were you not of the mind that price realization would favor you in Q4? Maybe you could talk about the difference between what you achieved versus what you thought you might achieve?

Well, I mean, A.R. made a pretty bold statement, given that we had had three quarters of dampening -- dampened performance in the Buildings Group. We made some management changes there, as well. And we [inaudible] both from the standpoint of what we knew the team doing and working with change orders and their pricing. And we were historically comfortable, because we had seen a similar situation occur in 2004, that there's a level of momentum and lagging that occurs in an environment where the steel prices are going up in the [inaudible]. Okay. So it was a function of both those things. But I think weighted towards the team that we have in there being very much more focused upon improving their margins. And as we've said before, we think that business should run at 10% to 12%, and our goal is to get it there. And we think with the advent of the Robertson-Ceco systems and the hub and spoke, that we can do better than that. It's going to take e us longer, but that's our view.

I've heard folks reference a premise that I'm not sure I completely agree with, and perhaps we'd get you folks to offer a thought. Given that Robertson-Ceco had more of a northern climate focus, there's -- if we were to take Robertson-Ceco and overlay it upon your '06 in its entirety, would Robertson-Ceco have been accretive for the full first half of the year?

Yes.

It would have been?

Yes.

In the first half?

Yes, sure.

So it wasn't just second half accretive. It was -- even though you didn't own it except for a couple of weeks in the first half?

Yes, we actually picked up I think $0.02 in the second quarter, and we had them a couple weeks.

Well, but you owned it at the very tail end of April, which would be the beginning of the better seasonality. So I'm just wondering if you owned it for the whole -- from November through the end of April, whether that would have been a positive or a negative?

Definitely a positive. It would have been biased towards less positive, but it still would have been positive. More positive in the second half of the year.

One final thought, if you would. Would you comment on your inventory levels, and how that is affecting your business engagement?

Well, I'll tell you, A.R. and I were very pleased with the team on how they worked the inventories during the course of the year. And as you know, we're up at I think 160. And the prior year was 113, if memory serves me. And when you consider we had a 12% increase in the weighted average cost of steel during the course of the year. You put that on the 113, plus you add the Robertson-Ceco piece in, they did a great job to come in at 160.

Very well. Thank you.

David Yuschak, Sanders Morris Harris.

Just a -- you commented earlier, guys, that your quote activity remains good. Is good down from excellent? Can you give us a sense as to what that really means? Is the business -- because everything we looks at, the nonresidential business still remains very robust. And I didn't know whether good is less than robust, as we're seeing it?

We said strong at the third quarter, right? I think it was strong. Good is slightly less strong. Okay? But good is still good. Good is better than fair. Good is better than flat. Good is definitely better than down.

Okay. Now as you look at good, where are you seeing the business being the best as you look at? Because for the most part for the year, nonresidential spending had kind of broadened out. Is yours and Dodge's expectations are that it may be narrow just because of the softness in the economy? Or just kind of curious as to where you see the strengths right now in your optimism, and where it might be consistent with, or divergent from what Dodge is saying.

Just a couple of points. We sold 68% of our business roughly into the commercial industrial piece. So we continue to be strong there. And stores and warehousing and manufacturing is still strong. Our average building sale is probably close to $62,000. On the institutional side, we've always been strong in, and that's about 20% of our business. And we find that that we might see that improve and increase in 2007. And the size of the buildings there are slightly bigger than the commercial industrial. And then, the agricultural side. In fact, our Components Group grew the [heritage] and steel building by something like 46%. They really have done a first-class job on pushing the smaller types of buildings, which are about half the value in terms of sales as the bigger in commercial and industrial. We see -- continue to see great opportunities to expand that part of our business, and continue to work this retail piece much more effectively than last year. We've got some nice growth initiatives with the Component side, as well. So we're pretty pleased. But I would probably bet that we'd see the institutional grow a bit in 2007.

Okay. And on the Component side, is your assumptions in the first quarter then basically to see more of the same here in this quarter as that inventory thing works out. Is that basically your assumption?

Yes.

Okay. So, second quarter should -- your thought is that kind of wrings itself out?

Absolutely.

Okay. And then, as far as one other question on this debt reduction, I know A.R., you'd indicated at last conference call $115 million is kind of what your objective was. And when you pay down what you paid down in the second half of this last past fiscal year plus the $100 million there, that gets you north of $175 million, plus you throw in the $60 million of CapEx. That 150 that you guys initially thought, did that include the potential to spend $60 million in CapEx this year?

Yes, sir. But we paid down additional debt in the fourth quarter that we hadn't assumed that we'd be able to pay down when we made the third quarter call.

Okay. So from your point of view, just the cash flows, I would suppose then, that your working capital -- are you able to squeeze more out of the working capital at this point in time, given the problems you've had in inventory, with the steel issues, with pricing and all of that?

Yes. We think that we -- we think we will manage the inventory and continue to improve our management there. We are continually bringing the days receivables side down with the Robertson-Ceco folks and seeing nice improvement there. And I would hope we'd have them more in line with us by the end of 2007. And that all squeezes cash out. And that's what we've been good at.

So your working capital assumptions are relatively modest this fiscal year 2007?

Correct.

Given the kind of potential revenue that might be out there?

Yes, but, again, we've got to do it. So, I mean -- .

Right, that's right. But that's what we're paying you to do.

Yes.

One last -- and the synergies, you said that you're not counting on much in the way of synergies in the 2007. You had, was it $25 million or so, that you thought of the total life?

We will be in the lower range of that in 2007, just as I said. But it's going to be still the procurement piece, the Coating piece, some product work. Right? We really have to complete the Engineering and the hub and spoke to really jump all over the large end of that. And that's what we're working on.

Okay. That's all I got. Thanks, gentlemen.

We have time for one more question. Arnie Ursaner, CJS Securities.

Two real bookkeeping questions. On the environmental charge, which I think you kind of said you've settled that up, you had indicated it hit the SG&A line in Q3. Was that a reversal in Q4?

I believe it did come out of the SG&A in Q4, Arnie.

Can you quantify that, please?

Now we believe it was 1.3.

So part of the SG&A decline, literally, is that reversal of the environmental charge, which is probably a one-time?

Which is what we took before.

Correct. And going back to a -- I just went back and reviewed what you said in the Q3 transcript regarding Coatings. And I think at that point you were asked about the very strong margins there. And you indicated you felt pretty strongly they were sustainable. And yet three months later, they pretty much fell off a cliff. Obviously, some of this relates to the change in the steel buying habits and some tolling. But I'm trying to get a better feel for as outsiders, how you could have that material a change in a two to three-month period?

I think there's two things. We probably underestimated the inventory overhang and the effect it was going to have. But at the end of the day, we're still at -- on third party sales, Arnie, on page 11, I think we're still at 24%. And we've said that if we can be in that mid-20s range, then that's pretty good. And when we have a period where Components is growing and doing well, those margins can go up. So we took it on the chin a little bit. But frankly, we're still pretty pleased where it came out.

Okay. Thank you very much.

And that does conclude the question-and-answer session. Mr. Ginn, I'll turn the conference back over to you.

Thank you for everyone's participation today. And thank you for the continued interest in NCI. And we look forward to continuing to produce good results in the future. Thank you.

That does conclude today's conference. Again, thank you for your participation.