Core Natural Resources Inc (CNR) 2010 Q4 法說會逐字稿

Welcome to the NCI Building Systems fourth quarter 2010 earnings conference call. As a reminder, all participants will be in listen-only mode. There will be an opportunity for you to ask questions at the end of today's presentation. (Operator Instructions). The conference is being recorded.

At this time, I would like to turn the conference over to Todd Moore. Please proceed, Mr. Moore.

Thank you, Amy. Good afternoon, and welcome to NCI Building Systems' conference call to review the Company's results for the fourth quarter of fiscal 2010. This call is being recorded. To access the taped replay, please dial 412-317-0088, and then the passcode 419727 when prompted. The webcast archive and taped replay will be available approximately two hours after this call, and will remain available through December 14. The replay will also be available at NCI's website, which is www.ncilp.com. The Company's fourth quarter results were issued earlier today in a press release that was covered by the financial media. A release was also issued, advising of the accessibility of this conference call on a listen-only basis over the Internet.

Some statements made on this call may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and section 27A of the Securities Act. These statements and other statements identified by words such as potential, expect, should, will, and similar expressions are forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements are subject to a number of risks and uncertainties that may cause the Company's actual performance to differ materially from that projected in such statements. Investors should refer to statements filed by the Company with the Securities and Exchange Commission, and in today's news release, for a discussion of factors that could affect NCI's operations, as well as any forward-looking statements made on this call.

To the extent that any non-GAAP financial measures are discussed, 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 today's news release. Information being provided today is as 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 would like to turn the call over to NCI's Chairman, President and Chief Executive Officer, Norman C Chambers.

Thank you, Todd. Good evening, everyone, and welcome to our fourth quarter 2010 conference call. Joining me this evening are Mark Johnson, our Chief Financial Officer, and Mark Dobbins, our Chief Operating Officer, and Todd Moore, our General Counsel. I will provide an overview, and Mark Johnson will review our financial results, followed by Mark Dobbins who will review our operations. And then we'll be happy to take your questions.

Each of our business segments felt the effects of the muted seasonal pick-up that characterized our markets during the fiscal fourth quarter. We had expected that a stabilizing economy would enable us to return to a more normal level of seasonal demand. This would have resulted in greater volume in our fourth quarter than in our third quarter. This was not the case.

Nonresidential construction fell 15% sequentially from our fiscal third quarter to our fourth quarter. The deceleration in the economy had the effect of reducing our volume sequentially by 3.8%. Our components and coatings group continued to post operating profits within this very tough environment. However, our buildings group, while reporting sequential improvement, remained in negative territory.

This time last year, I spoke about the challenges we would face in the 2010 market that was forecast to have some 4% less volume than 2009. You will recall that we were coming off 2009, the worst year for nonresidential construction in 50 years. In our fiscal 2010, the market was much worse, down 24% to some 635 million square feet. From the top of the last cycle, at fiscal year-end 2007, nonresidential new construction stats measured in square feet are down 62.4%. Many forecasters believe the worst is nearly over.

So, despite these major headwinds, we shipped the same amount of tonnage in 2010 that we did in 2009. This is an important indicator that NCI has maintained, and even enhanced this market leadership, and that this has been across the board in each of our business segments. This is the direct result of both our initiatives, as well as the effects of this protracted downturn on some of our competitors. Several small regional fabricators of steel buildings have either closed or have reorganized their businesses to continue as providers of services, but without the manufacturing capability.

Additionally, over the past several years, there has been considerable consolidation amongst the larger manufacturers of pre-engineered metal buildings. Also, several coating services and components manufacturers have shut down over the past year. NCI stands to be a strong beneficiary of these structural changes in our industry, when our markets recover, because of our leadership positions and our ability to serve a much larger marketplace with significantly lower infrastructure costs.

And we do see some positive macro indicators on the horizon. As you know, the AIA September building index finally crossed the line into positive territory for the first time in 32 months. But, it was back on the negative side in October. But more importantly to us, the commercial and industrial sector of the index, which until 2009 and 2010 accounted for 70% of our business, has had six consecutive months of growth scoring above 50. This would lead to the conclusion that construction activity in our markets in the next nine to 12 months will be up on a year-over-year basis.

We are seeing some positive signs of this as well. Beginning in mid-October, there has been an increase in quoting activity, and we have noted an increase in the proportion of commercial industrial work in our backlog. As this sector has been decimated over the last two years, we have aggressively moved into sectors that have been relatively active, like energy, mining, agriculture, government, and local institutional markets.

We need to be cautious about calling a bottom to this great recession of nonresidential construction. But, our bookings in October and November were significantly better than October and November of the previous year. A sustained, even modest recovery in commercial industrial construction will begin to rebuild our demand foundation, which we would see in higher dollar and tonnage values of our future backlog. We will have to see solid evidence of sustained improvement in demand to know that the market is recovering.

So back to our results for the fourth quarter. Both the coatings and the components group achieved the level of profitable performance we expected. However, the buildings group experienced both lower volumes and lower margins than we anticipated. In particular, the expected improvement in spread between material costs and sales in our buildings group did not materialize due to lower shipping volumes resulting in part from project delays. The modest improvement we did see was at the tail end of the quarter, and did not really benefit the results of the quarter. Therefore, margins in the buildings group trended down, rather than up as expected.

I do not want to diminish the importance of this quarter, or this year's lousy results. But we realize that financial results are challenged by the declining nonresidential market. However, the financial stability that resulted from the CD&R investment in NCI has allowed us to focus with them on key operating initiatives that we believe will enable us to achieve outstanding financial results as the economy and the nonresidential construction improve.

We have accomplished much this year, and Mark Dobbins will go into some detail about the potential impact on our future financial results. We believe these accomplishments will begin to benefit our 2011 results, while establishing the foundation to achieve our goal of generating EBITDA near the 2008 peak of $200 million, and a nonresidential market of 1.0 billion square feet

Now to put this in perspective, in 14 of the last 16 years, the US economy has supported over 1.4 billion square feet of new construction. And through every recession, for 41 years, until 2009 the US economy has managed to support about 1.0 billion square feet at the bottom of every recession. Therefore, we are basing our EBITDA goal on a reduced market size. Many of you will recall the last time we generated over $200 million in EBITDA in 2008, the market was about 1.4 billion square feet.

So Mark Dobbins will discuss specific 2010 accomplishments and planned initiatives for 2011, that form the roadmap for this higher level of profitability. I will highlight just a few that point toward our EBITDA goal. Our operating initiatives start with cost-containment.

First, our operating leverage, even in a slow growth, weak economy, has been greatly improved by keeping the $121 million in fixed cost that we took out in 2009 from leaking back into the cost structure as we go forward. We need to be as successful in 2011 as we have been in 2010. And I am confident that we will.

Second, we will continue to drive topline revenue growth. In our coatings group, our customers are recognizing the improvements we have made in delivery times and quality. In 2011, we expect to see double-digit growth in our coatings group revenues compared to 2010, driven by both external and internal demands.

Third, our components group will generate significant sales growth from both their energy efficient insulated metal panels, and retrofit roofing products. Even in the poor 2010 market, these lines gained very good traction. It is likely that we will convert several of our existing plants to insulated metal panel production, as we move forward to satisfy market demand from both our components customers and our builder network.

Finally, three areas of operating initiatives within our buildings group are fundamental to our ultimate success. Sales and marketing, engineering and drafting, and manufacturing. In 2011, we will support the success of our builder network with greater end market opportunities, faster turn around of designed documents, and value enhanced buildings.

To sum up, if the recent positive macro indicators of commercial industrial construction are sustainable, even to a modest extent, our market leadership and improved operating leverage will put NCI in a strong position. And the actions we are taking now will further enhance that position as our markets recover.

Now I'd like to turn the call over to Mark Johnson for a review of our fourth quarter financial performance. Mark?

Thanks, Norm. Our fourth quarter revenues were $241 million, which is slightly below the $243 million of last year's fourth quarter. We generated approximately $7.5 million in adjusted EBITDA in the fourth quarter. As Norm mentioned, this was below our expectations, which were closer to the $10.2 million reported for our third quarter. We had expected the pressure on operating margins in our coating and components group to be offset by the performance of our buildings group. However, while we did see operating margin improvement in our buildings group as a result of better pricing discipline, lower volumes kept the segment from achieving break-even operating results.

Our gross profit margin for the fourth quarter was 19.2% compared to 24.8% a year ago. Keep in mind that we were able to achieve our normalized gross margin levels in last year's fourth quarter despite low volume because of the low cost basis of our adjusted inventory. While we expect gross margin levels to progressively improve in our fiscal 2011, we do not expect to return to our normalized margins of 24% to 26% until we begin to see meaningful volume improvement from increased demand.

Selling, general and administrative costs were $48.5 million, down 5% from last year's fourth quarter. For the full year, our SG&A costs were $190.9 million, which is 9% below 2009, and 32% less than 2008. Our SG&A costs have now stabilized, and we would expect our SG&A costs in 2011 to be similar to 2010, plus any variable cost increases commensurate with changes in volume.

The $3.8 million loss from operations reported for our fourth quarter include special charges totaling $2 million, which were comprised of the following. $1.6 million to finalize the restructuring activities we undertook in 2009 and 2010. $180,000 to reach final settlement on a pre-acquisition contingency, and $220,000 in impairment charges related to the valuation of our assets held for sale.

Total revenue for this quarter in our coatings group was $46.9 million, which was up 5% from the prior year. The year-over-year decline in operating margin was due to the combination of lower fixed cost absorption due to reduced internal volume, and lower selling prices relative to material costs. As noted in our earnings release, both the coatings and components groups held prices stable during the quarter for the benefit of our customers, while we worked through higher priced steel inventory.

The components group's revenues for the quarter were approximately 3% lower than last year. The year-over-year decline resulted from an 11% decrease in volume, offset somewhat by slightly higher prices. Similar to the coatings group, which also has a very short order-to-ship sales cycle, margin decline resulted from less favorable selling prices compared to material costs, and lower fixed cost absorption.

The buildings group revenue this quarter was $134 million, 4% higher than the year ago period. Although improved on an adjusted sequential basis, due to better pricing discipline, operating margins were significantly impacted by lower volume combined with higher material cost per ton. Last year, operating margin benefited from higher selling prices relative to the rapidly declining material cost of 2009.

Considering our outlook for 2011, I want to provide a few comments about our financial expectations. We have completed our cost restructuring programs, which began in 2009, and our SG&A costs have now stabilized at significantly reduced levels. As I mentioned, we expect similar costs to those experienced in 2010, with variations for variable cost changes as volumes change. However, as compared to 2010, we do expect to have incrementally higher costs in the first half of the year, with lower costs in the second half as we reinitiate certain sales and marketing programs. In addition, based on the streamlining of our operations, and an expectation of modest improvements in market demand in the latter half of our fiscal year, we expect our gross profit margin to progressively improve, with each quarter showing modest improvements over the comparable period of 2010, but not to return to our historical levels until we see meaningful improvements in demand.

For the fourth quarter, we generated $27 million in cash from operations, bringing our cash balance to $77 million compared to $54 million at the end of our third quarter. In addition to our available cash on hand, our $125 million ABO credit facility remains undrawn.

Our $82 million accounts receivable remained relatively unchanged from the prior quarter, and represented approximately 32.9 days of sales outstanding compared to 32.6 days last quarter, and 32.1 days last year. Despite the significant economic strain in our sector, we have not seen any meaningful increase in our bad debt experience, as we have continued to maintain stringent credit criteria.

Our year-end inventory balance was approximately $81 million, down by almost $24 million from the prior quarter, and represented approximately 42.5 days of inventory on hand. This is a significant improvement over the 50.9 days from last quarter, but not quite as good as the 36.2 days from last year.

Capital expenditures, including our $4.9 million purchase of the Middletown, Ohio, coating facility were $14 million for the year, consistent with our forecasts. We are currently evaluating spending plans for fiscal 2011. At this point, we expect to spend approximately $18 million, which includes continued enhancements to our engineering and drafting systems, improvements to our MRP and transportation systems, and further integration and automation of our manufacturing equipment, particularly in the buildings and coatings segment. However, depending on evolving market conditions over the next two years, we could spend an additional $25 million to $30 million to expand our insulated panel capabilities, and refurbish our newly acquired Middleton, Ohio, facility.

Now I'd like to turn the call over to Mark Dobbins, our Chief Operating Officer.

Thank you, Mark. I would like to start with a few comments on the business and market conditions that we experienced in the fourth quarter, and throughout the year, before moving on to the operational comments.

First, steel costs fluctuated throughout much of 2010, but began to stabilize during our fiscal fourth quarter. This created a situation where components and coatings groups experienced some margin compression, while our buildings group began to experience some improvement in margins. This is typical of past steel price fluctuations, as a short sale-to-delivery business cycle of our components and coatings group, allow them to better manage and pass through material cost increases on the way up. This contrast with the longer cycle of our buildings group, which tends to see margin compression as material costs are increasing and margin expansion as material costs stabilize and/or retreat.

With respect to our markets, first, as Norm mentioned, our smaller regional competitors have been severely weakened by this long downturn in nonresidential construction activity, and several have closed, others have significantly curtailed their operations. During the fourth quarter, our buildings group addressed project delivery demands from our customers that vary dramatically. On one hand, we processed projects that required immediate delivery, as certain builders had low backlog and needed to keep their crews busy. We have commented in the past about how this generally increases our cost as a result of overtime and duplication of resources.

But on the other hand, we also had large export projects, whose deliveries were pushed out into Q1 and Q2 of 2011 by the end user. In this situation, given the overall reduced volumes we are dealing with in this environment, requests for delivery delays of larger projects have a measurable impact on cost and revenues in a period.

Customer confidence wavered for much of the fourth quarter, similar to what we experienced in Q3. However, as the quarter came to a close, many in our sales organizations noticed improving sentiment within their customer base, and began to see a pick up in activity on larger projects. Specific areas that have shown promise are agriculture, both equipment and product storage, small partial distribution, discount retail, energy providers, mining, and export projects for various end users. A sampling of some of the notable projects either in process or that we completed in the fourth quarter are a steel processing facility in the southern United States, an indoor soccer arena shipped to eastern Canada, an IT related server form complex in the northwest United States, manufacturing and warehouse facilities for oil field tubulars in Texas, and electrical manufacturing and warehousing facility exported to South America, and a nice retrofit roofing project for the Army base at Fort Belvoir, Virginia.

As you can see, these projects are quite varied in their end use, reflecting a change from a year ago when we were seeing an institutional and government dominated market. Additionally, we are currently experiencing improved demand for lower complexity, small building projects, which is often an early indicator of market recovery and improved customer confidence. This lower complexity marketplace is one of several areas where we are focusing technology and system improvements, which allow us to offer shorter delivery times to our builders, and reduce our own engineering, drafting and manufacturing costs.

Throughout 2009 and most of 2010, we have operated in a price driven market. However, it appears that this market is beginning to recognize and price-in the additional value this organization provides to the builder and end customer. This change is in its early stages, but it is a positive indication that we're seeing across several markets.

Norm mentioned earlier the accomplishments of 2010, and rather than speak to each one individually, I will share with you the end results, which are reflected as improvements in our cost structure. Now to keep this in context, I would like to just remind you that we made substantial restructuring and re-organizational changes in 2009, which substantially reduced our engineering drafting, manufacturing and G&A costs. So on the heels of those changes, during 2010 we continued to improve our efficiencies through improved technology, equipment upgrades and focused management metrics as measured on a per-unit basis. Specifically in 2010, we reduced engineering drafting cost per ton by an additional 12%. We reduced manufacturing costs per ton by an additional 8% And we reduced ESG&A costs per ton by an additional 10%.

Each business segment has improved operating metrics in many areas. For example, components group, which has a great discipline in their overall SG&A and manufacturing costs, improved their outbound freight fuel ratios 13%, while reducing overall scrap incidents by 6%. The coatings segment, which also maintains very low SG&A costs, reduced their manufacturing costs per ton 6%, while reducing scrap losses by 18%. The building segment reduced engineering and drafting costs by 12%, as mentioned earlier, manufacturing expense by 16%, and overall ESG&A by 15%. All of these metrics are measured on a per ton basis, allowing us to judge their performance without consideration of volume swings.

Norm has also mentioned actions and initiatives that will impact our future results. We continue to target reductions in our engineering and drafting costs through automation and specific technical system upgrades, which should allow us to significantly reduce our processing time per order on the majority of the building units sold. We are implementing a transportation management system, along with centralized scheduling of our manufacturing operations that should drive reduced freight costs, and improve utilization of our plant capacities.

There are a number of sales initiatives, which I will not go into in detail, except to say that they are targeted at specific end markets, in growth of our new products and services, such as insulated metal panels, retrofit roofing products, and a growing demand for more efficient building envelopes. All of the actions we have taken and the opportunities that we have mentioned here will enhance our long-term profitability.

We are currently operating in a very lean and efficient manner, which we will be able to maintain as the industry recovers. Considering the fixed cost reductions Norm spoke of at the beginning of the call, and our commitment not to add these costs back, modest incremental increases in volume should have significant impact on our operating results.

And with that, operator, we would like to open the call for questions. Thank you very much.

(Operator Instructions) Our first question comes from Eric Prouty at Canaccord.

Great thanks a lot, and thanks for taking my question guys. First on some of the new initiatives, can you just explain, right now today what type of impact is both the retrofit roofing and the insulated panel business having? What type of percent of revenue it is? And then as those businesses grow, it sounds like they are growing faster than the traditional business, what sort of margin impact will that have on the overall Company, are those higher or lower margin businesses?

Okay. The first thing is that we have between the two initiatives certainly still are on the order of something less than 10% of our revenue. And we expect that they will both grow at double digits individually, independently. Both of these businesses provide margin levels that are in line with the highest margins, plus some that the components group generated during the uptick in cycles of 2004 to 2007. So both have good margins.

The issue around the delivery of both the products is very different. And the speed of going to market, and the ability to leverage the networks that we have , which are fundamentally the same, both of these products are being offered through the components distribution system as well as through the builder network we have. So it is involved a fair amount during this year of education of our builder network and DSM's, and that is reaching pretty much the conclusion so that we're really able to move at a faster pace of growth.

Great. And then Norm, with the decline in the backlog that you guys saw, yet on this call it sounds like your Outlook for the quarter and into the new quarter here. Your Outlook for the January quarter for from a revenue standpoint?

Well, I think that the backlog number -- while certainly being lower by comparison to backlogs in the past -- has a couple of interesting things in it. First of all, we can identify and determine the pricing relative to the market, and we are happy that the work that we are taking is value priced. And that is very important to us. And so while the total dollar volume may be less than one would expect, we believe the value in that is considerably more than we have seen in the recent past.

The second thing is as Mark mentioned, in past years Eric, when we've been in recovery, the smaller buildings have a much quicker turn. In the advent of the technology that we are employing in our businesses has really enhanced our sales capability there. So, we could easily see numbers returning that reflect the backlog, plus a considerable increase in the actual revenue in the period as a result of these small buildings piece of this. So, we are going to be circumspect to some extent about the guidance, but you could expect that we are endeavoring to have every quarter be better than the same quarter of the previous year, in all respects.

Sure, okay.

And that's the way we are going about this , and frankly our folks in every part of this company are focused on doing that every single month.

Your next question comes from our near Arnie Ursaner of CJS security.

Hi good afternoon. Staying on the issue at you just begin to speak about, you had several project delays you highlighted for some exports. How much of that you expect to ship in the current quarter? ?

I think that when we look at our backlog, there is something less than 5% of our backlog that represents the larger projects that are going to be shipped, and we would expect that pretty much evenly in the first and second quarter.

5% at most.

And given the seasonality, obviously Q4 historically is your strongest quarter and you lost money in engineered buildings in the quarter, and given the seasonality in your other businesses, should we assume pretty healthy losses in the first half of next year?

As I said just a minute ago, our goal is certainly to have every quarter be better than the quarter that we had on our operating level basis in 2010. And that would start with the first quarter. So, I wouldn't characterize them as healthy losses. In fact, I'll go one step further. There is a firm view, on my part at least, that the buildings group could have been, should have been profitable in both our third and fourth quarter. They were profitable in our third quarter, should been profitable in our fourth quarter. That focus has certainly, within the management team there, to make sure that even at modest levels, that they return to profitability. Whether that is just a smaller loss in the buildings group in the first quarter of this year than it was in the first quarter of this past year, it may look something like that.

I think you indicated expected double digit revenue growth in coatings, and I think the term you used in components is significant improvement year-over-year. What are you expecting in engineered buildings for improvement? What descriptive words do you want to use for engineered buildings for next year?

I am glad you asked that. Because I certainly am conscious about the efforts that were made in the buildings group in 2009 and 2010 to regain their market share that was lost as a result of our refinance endeavors in 2009. But to be sure, throughout that organization, and I've had the pleasure of meeting with all of our sales force there as well, we focused on value pricing, and it's really important that our guys stayed focused on the value and creating the value, maybe marking offer a little more color. But, I won't say I'm not concerned about the top line, but I am much more concerned about our choice of work and our ability to sell the value that we know that we can bring. Mark, do you want to add something to that?

Yes. Certainly less emphasis and concern about the tonnage shipping -- volume of tons shipped, more emphasis on over the top line and the profitability of those sales.

My final question is when you made your proposals or projections for the banks a couple of years ago, you had targeted as much of $70 million of EBITDA for next year. And you use the term modest improvement year-over-year. Maybe you can give us a better feel for some of the factors that are the difference between call it $17 million and $70 million that were in your projections 18 months ago for banks?

Sure. I wished it wasn't, but it is a fair question. When we went into 2010, we certainly went in with the expectation that the market was going to be off, but we really did think that we would see something less than 5% decline. And instead, we saw 24% decline. So, the issue then becomes how much recovery will we really see in 2011, and when will it occur? Now I have to tell you, I am pleasantly surprised and quite pleased with the fact that in October and November, the level of bookings that we had in our buildings group was materially significantly improved over the previous year.

But when I look at that, Arnie, in whole numbers that's still kind of back to 2009. So when I answer your question, I can think about our recovery in 2011, kind of conceptually with the macro economics in the forecasters on what we're seeing, and saying, Jesus, we're kind of looking at conditions on demand side that is probably more like 2009. But we'll see.

So, it's difficult for us to give, if we could give guidance we certainly would. But as I said, we certainly are slightly more encouraged that the bookings we have seen in October and November are consistent with what we're seeing in the AIA, and maybe even a little ahead of what McGraw-Hill is forecasting, in terms of recovery. But, none of us on the call a bottom of the market, none of us want to say that that's sustainable, we have to just see it every single month. So my final conclusion to your answer is that we expect it will be significantly better in 2011 on the bottom line that we were in 2010. But it's clear that to imagine us approaching $70 million -- the conditions are vastly different than when we made that projection

And I appreciate that. I am not trying to minimize the work and effort your team has done to right size through the more challenging environment . One quick financial question. The number of picked shares issued in the quarter, please?

Sure. At the end of Q3 we had approximately 43 million of converted shares, as converted shares. And at the end of this quarter, considering the fact that we paid the last dividend as we announced in our press release in cash, that significantly reduced what the incremental shares would be. I am flipping my pages to find it here. We ended the quarter at about 43.6 million as converted shares.

Perfect, thank you.

You're welcome Arnie. Thank you.

The next question comes from Michael Plants at UBS.

Good evening.

Good evening Michael.

Two questions for you. First one, if you could comment on a little bit on what you've seen recently in terms of steel costs?

Sure. We clearly -- and I know that Tim there has a particular view on this -- so I won't dare to debate that view. But we clearly have seen, as she is indicated, that steel prices are going up. And they are going up fairly aggressively. Rate currently as we speak, this week last week. And I think our view, we fall on the view that we would expect to see some modest increases in steel prices during the course of this year, and the only thing that would change our view is if demand were to improve earlier in our fiscal year than people like McGraw-Hill and others have forecasted. And then there would be some chance that steel prices could go up more.

Okay, and your shift to a more value-based pricing, is that going to be enough to help offset some of that increase?

So, the way this works is, and this has been historically the case even in terrible market conditions. In our quick term businesses, which is our coding business and our components business, we tend to do rather better in a rising steel price environment. The pass-through is more real time. In our buildings business, we often times see a bit of compression in margins as steel prices rise, even though we have the contractual right to increase our steel prices, we oftentimes do that in a very selective way. Having said that, I can tell you that the value pricing should recognize and should enable our buildings group to value price, which should help them in terms of rising steel prices costs.

Okay. Then my second question regards to working capital. You've done a nice job working down the inventories. As you look up to 2011, will there be any material swings over the course of the year?

I would say that there is not going to be material swings, absent material changes in demand. Where we would typically try to maintain somewhere between 40 and at time 50 days of inventory. As the level of activity increases, we would increase our inventory level.

Great thank you.

You're welcome.

(Operator Instructions) Our last question comes from Eric Prouty at Canaccord

Great, just a quick follow-up on your comments on the pick. It's great you're able to use cash this quarter to pay the dividend. Is that your anticipation going forward, is that you'll be paying in cash, given your cash balance?

So, we went into a fair level of detail in the press release about the conditions for us to make that decision. That is made by an independent subcommittee of the Board of Directors. And Eric, you will appreciate the fact that we have constraints within our term loan be. We have the actually in many ways more important view about our forecasting our cash flow needs, along our business. So, at the end of the day, that decision as to whether to pick up or pay cash will be made in every -- at every quarter. It is clearly the desire and intention that we pay in cash. And the reason for that is it's a more of efficient use of our capital and lower cost than paying a pick.

Right. And then finally, with a lot of the dislocation in the market that you have described, with smaller competitors being knocked out, etc. Maybe could take a step back and talk about any more opportunities for acquisitions, and what geographies or business unit you're looking at.

Well, we really picked up we think a hell of an asset with the Middletown facility -- I mean with the coding group. Something that an asset that if we would've build it ourselves it would have cost us $50 million, and we'll put a few million into it, but that'll be a great facility for us. We clearly see expansion in the insulated panels piece, which would be in our components group. The re-roofing initiative in the components group doesn't actually require more manufacturing, we have adequate manufacturing now. Then in the buildings group, we really like what we have right now. See no real need -- we've got enough capacity to take us back to 2008 levels. So we've got adequate capacity to handle all of the demand that we believe we would need to have to reach our $200 million EBITDA goal at 1 billion square feet.

Great thanks a lot.

When I think, Eric, about acquiring companies, I will tell you that I think it's better use of our time to look at acquiring the customers of those companies. And take advantage of the things we are doing in terms of enhancing our service and try to use that instead of buy a company.

Sure, fair enough. Thanks Norm.

This concludes the question and answer session. I will now turn the conference back over to Norman Chambers, Chairman, President and CEO.

Thank you very much for your questions everyone. I look forward to reporting hopefully improved market conditions in 2011. Thank you.

Thank you all very much for participating in the NCI Buildings Systems fourth quarter 2010 earnings conference call. This concludes today's event.