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Form 8-K NCI BUILDING SYSTEMS For: Mar 29

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March 30, 2016 6:01 AM EDT



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________________________________

FORM 8-K
__________________________________________________________________

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): March 29, 2016 (March 29, 2016)

__________________________________________________________________
NCI Building Systems, Inc.
(Exact name of Registrant as specified in its charter)
__________________________________________________________________


Delaware
(State or other jurisdiction of incorporation)
001-14315
(Commission
File Number)
76-0127701
(IRS Employer
Identification No.)

10943 North Sam Houston Parkway West
Houston, Texas
(Address of principal executive offices)
 
 
77064
(Zip Code)

Registrant’s telephone number, including area code: (281) 897-7788
__________________________________________________________________

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the Registrant under any of the following provisions:
 
 
¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
 
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
 
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
 
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))



Item 8.01. Other Events.

On November 12, 2014, NCI Building Systems, Inc. (the “Company” or “NCI”) filed a Current Report on Form 8-K with the Securities and Exchange Commission announcing, among other things, that NCI Group, Inc., a wholly-owned subsidiary of the Company and Steelbuilding.com, LLC, a wholly owned subsidiary of NCI Group, Inc. (together with NCI Group, Inc., “Buyers”), had entered into an Interest Purchase Agreement dated November 7, 2014 (“Interest Purchase Agreement”) with SMST Management Corp., a Pennsylvania corporation, and Riverfront Capital Fund, a Pennsylvania limited partnership, and CENTRIA, a Pennsylvania general partnership (“CENTRIA”), pursuant to which Buyers agreed, subject to the terms and conditions set forth therein, to acquire all of the general partnership interests of CENTRIA, in exchange for $245,000,000 in cash, subject to post-close working capital adjustments (such acquisition, the “Acquisition”).

On December 30, 2014, the Company filed a Current Report on Form 8-K to make publicly available certain audited historical financial information of CENTRIA and unaudited pro forma financial information of the Company.

Pursuant to the Interest Purchase Agreement, the Acquisition was completed on January 16, 2015. The Company is filing this Current Report on Form 8-K in order to make publicly available certain additional audited historical financial information of CENTRIA and unaudited pro forma financial information of NCI described in Items 9.01(a) and (b) below and incorporated by reference herein.

Item 9.01. Financial Statements and Exhibits.

(a)
Financial Statements of Acquired Business.

The audited consolidated balance sheets of CENTRIA as of December 31, 2014 and 2013 and the related consolidated statements of income, comprehensive income, partners’ capital and cash flows for the years then ended, and the notes to these consolidated financial statements, together with the report thereon of Ernst & Young LLP, filed as Exhibit 99.1 hereto and incorporated by reference herein.

(b)
Pro Forma Financial Information.

The unaudited pro forma combined consolidated statements of operations of NCI Building Systems, Inc. and CENTRIA for the fiscal year ended November 1, 2015 filed as Exhibit 99.2 hereto and incorporated by reference herein.

(d)
Exhibits.

Exhibit
Number
 
Description
23.1

 
Consent of Ernst & Young LLP
99.1

 
Audited Financial Statements of CENTRIA for the years ended December 31, 2014 and 2013
99.2

 
Unaudited Pro Forma Combined Consolidated Financial Information

2


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
NCI BUILDING SYSTEMS, INC.
 
 
 
BY:
/s/ Mark E. Johnson
 
 
Mark E. Johnson
 
 
Executive Vice President, Chief Financial
 
 
Officer and Treasurer

Date: March 29, 2016

3


Exhibit Index

Exhibit
Number
 
Description
23.1

 
Consent of Ernst & Young LLP
99.1

 
Audited Financial Statements of CENTRIA for the years ended December 31, 2014 and 2013
99.2

 
Unaudited Pro Forma Combined Consolidated Financial Information

4


Exhibit 23.1
 

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the following Registration Statements:

(1)
Registration Statement (Form S-8 No. 333-186467) of NCI Building Systems, Inc.,
(2)
Registration Statement (Form S-8 No. 333-176737) of NCI Building Systems, Inc.,
(3)
Registration Statement (Form S-8 No. 333-193057) of NCI Building Systems, Inc.,
(4)
Registration Statement (Form S-8 No. 333-173417) of NCI Building Systems, Inc.,
(5)
Registration Statement (Form S-8 No. 333-172822) of NCI Building Systems, Inc.,
(6)
Registration Statement (Form S-8 No. 333-166279) of NCI Building Systems, Inc.,
(7)
Registration Statement (Form S-8 No. 333-162568) of NCI Building Systems, Inc.,
(8)
Registration Statement (Form S-8 No. 333-139983) of NCI Building Systems, Inc.,
(9)
Registration Statement (Form S-8 No. 333-124266) of NCI Building Systems, Inc.,
(10)
Registration Statement (Form S-8 No. 333-111142) of NCI Building Systems, Inc.,
(11)
Registration Statement (Form S-8 No. 333-111139) of NCI Building Systems, Inc.,
(12)
Registration Statement (Form S-8 No. 333-34899) of NCI Building Systems, Inc.,
(13)
Registration Statement (Form S-8 No. 333-14957) of NCI Building Systems, Inc.,
(14)
Registration Statement (Form S-8 No. 333-12921) of NCI Building Systems, Inc.,
(15)
Registration Statement (Form S-3 No. 333-186466) of NCI Building Systems, Inc., and
(16)
Registration Statement (Form S-3 No. 333-156448) of NCI Building Systems, Inc.

of our report dated March 28, 2016, with respect to the consolidated financial statements of CENTRIA, included in this Current Report on Form 8-K of NCI Building Systems, Inc.


/s/ Ernst & Young LLP

Houston, Texas
March 28, 2016




  


Exhibit 99.1
 




Consolidated Financial Statements
 
CENTRIA and Subsidiaries
Years Ended December 31, 2014 and 2013
With Report of Independent Auditors
 


CENTRIA and Subsidiaries
 
Consolidated Financial Statements
 
Years Ended December 31, 2014 and 2013
  
Contents
 
Report of Independent Auditors
1

 
 

Consolidated Financial Statements
 

 
 

Consolidated Balance Sheets
2

Consolidated Statements of Income
3

Consolidated Statements of Comprehensive Income
4

Consolidated Statements of Partners’ Capital
5

Consolidated Statements of Cash Flows
6

Notes to Consolidated Financial Statements
7




Report of Independent Auditors
 
The Partners
CENTRIA
 
We have audited the accompanying consolidated financial statements of CENTRIA (a Pennsylvania general partnership) and subsidiaries, which comprise the consolidated balance sheets as of December 31, 2014 and 2013, and the related consolidated statements of income, comprehensive income, partners’ capital, and cash flows for the years then ended, and the related notes to the consolidated financial statements.
 
Management’s Responsibility for the Financial Statements
 
Management is responsible for the preparation and fair presentation of these financial statements in conformity with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error.
 
Auditor’s Responsibility
 
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
 
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
 
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of CENTRIA and subsidiaries at December 31, 2014 and 2013, and the consolidated results of their operations and their cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

/s/ Ernst & Young LLP

Houston, Texas
March 28, 2016

1


CENTRIA and Subsidiaries
 
Consolidated Balance Sheets
 
 
 
December 31,
 
 
2014
 
2013
Assets
 
 

 
 

Current assets:
 
 

 
 

Cash and cash equivalents
 
$
3,758,199

 
$
8,932,316

Accounts receivable, net of allowance for uncollectible amounts of $2,300,000 and $2,238,000, respectively
 
41,516,386

 
33,627,364

Costs and estimated earnings in excess of billings on uncompleted contracts
 
2,229,791

 
1,320,129

Inventories
 
26,917,831

 
23,591,426

Prepaid expenses and other current assets
 
2,380,698

 
2,045,108

Unbilled retention
 
1,334,309

 
652,151

Total current assets
 
78,137,214

 
70,168,494

Property and equipment:
 
 

 
 

Land and buildings
 
10,376,917

 
10,376,917

Machinery and equipment
 
80,501,912

 
77,523,220

Construction-in-process
 
117,500

 
693,494

Office furniture and equipment
 
6,047,237

 
6,097,237

Vehicles
 
141,443

 
141,443

 
 
97,185,009

 
94,832,311

Less accumulated depreciation and amortization
 
73,256,909

 
68,765,997

Net property and equipment
 
23,928,100

 
26,066,314

Prepaid pension expense
 
—

 
1,322,117

Other noncurrent assets
 
588,120

 
100,467

Total assets
 
$
102,653,434

 
$
97,657,392

Liabilities and partners’ capital
 
 

 
 

Current liabilities:
 
 

 
 

Current portion of long-term debt
 
$
—

 
$
2,090,284

Revolving credit facility
 
3,076,252

 
—

Accounts payable
 
10,868,368

 
10,291,172

Book overdrafts
 
4,988,146

 
2,973,663

Accrued wages and benefits
 
8,614,883

 
8,001,440

Other accrued expenses
 
10,120,690

 
11,767,105

Billings in excess of costs and estimated earnings on uncompleted contracts
 
15,390,467

 
18,331,928

Total current liabilities
 
53,058,806

 
53,455,592

Deferred warranty revenue
 
2,342,902

 
2,358,891

Long-term debt
 
3,700,000

 
3,700,000

Pension and other postretirement benefits
 
7,755,479

 
6,814,234

Other noncurrent liabilities
 
4,025,020

 
5,189,593

Total liabilities
 
70,882,207

 
71,518,310

Partners’ capital:
 
 

 
 

Limited and general partners
 
44,229,025

 
35,571,237

Note receivable from partner
 
(4,422,544
)
 
(4,422,544
)
Accumulated other comprehensive loss
 
(8,035,254
)
 
(5,009,611
)
Total partners’ capital
 
31,771,227

 
26,139,082

Total liabilities and partners’ capital
 
$
102,653,434

 
$
97,657,392

 
See accompanying notes.
 


2



CENTRIA and Subsidiaries
 
Consolidated Statements of Income
  
 
 
Year Ended December 31,
 
 
2014
 
2013
Revenues
 
$
239,352,739

 
$
225,932,819

Cost of goods sold
 
184,690,306

 
169,182,698

 
 
54,662,433

 
56,750,121

Operating expenses:
 
 

 
 

Selling
 
17,808,831

 
16,571,769

General and administrative
 
14,955,158

 
15,947,274

Depreciation
 
4,711,183

 
5,020,757

Total operating expenses
 
37,475,172

 
37,539,800

Income from operations
 
17,187,261

 
19,210,321

Other expense (income):
 
 

 
 

Interest expense
 
106,993

 
62,479

Other (income) expense, net
 
(7,773
)
 
141

Total other expense
 
99,220

 
62,620

Income before income tax provision
 
17,088,041

 
19,147,701

Provision for income taxes
 
30,253

 
104,055

Net income
 
$
17,057,788

 
$
19,043,646

 
See accompanying notes.
 
























3


CENTRIA and Subsidiaries
 
Consolidated Statements of Comprehensive Income
  
 
 
Year Ended December 31,
 
 
2014
 
2013
Net income
 
$
17,057,788

 
$
19,043,646

Other comprehensive income (loss):
 
 

 
 

Pension and other postretirement benefits
 
(3,025,643
)
 
5,207,781

Other comprehensive income (loss)
 
(3,025,643
)
 
5,207,781

Comprehensive income
 
$
14,032,145

 
$
24,251,427

 
See accompanying notes.
 




































4


CENTRIA and Subsidiaries
 
Consolidated Statements of Partners’ Capital
 
 
 
Partners’
Capital
 
Note
Receivable
From
Partner
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total
December 31, 2012
 
31,927,591

 
(4,422,544
)
 
(10,217,392
)
 
17,287,655

Net income
 
19,043,646

 
—

 
—

 
19,043,646

Other comprehensive income
 
—

 
—

 
5,207,781

 
5,207,781

Distribution to partners
 
(15,400,000
)
 
—

 
—

 
(15,400,000
)
December 31, 2013
 
35,571,237

 
(4,422,544
)
 
(5,009,611
)
 
26,139,082

Net income
 
17,057,788

 
—

 
—

 
17,057,788

Other comprehensive income (loss)
 
—

 
—

 
(3,025,643
)
 
(3,025,643
)
Distribution to partners
 
(8,400,000
)
 
—

 
—

 
(8,400,000
)
December 31, 2014
 
$
44,229,025

 
$
(4,422,544
)
 
$
(8,035,254
)
 
$
31,771,227

 
See accompanying notes.
 



























5


CENTRIA and Subsidiaries
 
Consolidated Statements of Cash Flows
  
 
 
Year Ended December 31,
 
 
2014
 
2013
Operating activities
 
 

 
 

Net income
 
$
17,057,788

 
$
19,043,646

Adjustments to reconcile net income to net cash provided by operating activities:
 
 

 
 

Depreciation
 
4,711,183

 
5,020,757

Changes in assets and liabilities:
 
 

 
 

Accounts receivable
 
(7,889,022
)
 
(8,713,219
)
Costs and estimated earnings in excess of billings on uncompleted contracts
 
(909,662
)
 
781,469

Inventories
 
(3,326,405
)
 
3,152,662

Prepaid expenses and other current assets, and noncurrent assets
 
(335,590
)
 
(210,407
)
Unbilled retention
 
(682,158
)
 
(146,096
)
Other noncurrent assets
 
(487,653
)
 
—

Accounts payable
 
177,198

 
(4,502,237
)
Accrued expenses, deferred revenue, and other noncurrent liabilities
 
(199,053
)
 
(504,623
)
Billings in excess of costs and estimated earnings on uncompleted contracts
 
(2,941,461
)
 
(4,385,445
)
Pension and other postretirement benefits
 
(762,281
)
 
736,495

Net cash provided by operating activities
 
4,412,884

 
10,273,002

Investing activities
 
 

 
 

Capital expenditures, net
 
(2,572,969
)
 
(5,359,913
)
Net cash used in investing activities
 
(2,572,969
)
 
(5,359,913
)
Financing activities
 
 

 
 

Net increase in revolving credit facility
 
3,076,252

 
—

Payments on long-term debt
 
(2,090,284
)
 
(614,019
)
Distributions to partners
 
(8,000,000
)
 
(15,000,000
)
Net cash used in financing activities
 
(7,014,032
)
 
(15,614,019
)
Net decrease in cash and cash equivalents
 
(5,174,117
)
 
(10,700,930
)
Cash and cash equivalents, beginning of year
 
8,932,316

 
19,633,246

Cash and cash equivalents, end of year
 
$
3,758,199

 
$
8,932,316

Supplemental data
 
 

 
 

Cash paid during the year for:
 
 

 
 

Interest
 
$
97,999

 
$
65,111

 
See accompanying notes.
 


6

CENTRIA and Subsidiaries
 
Notes to Consolidated Financial Statements
 

1. Organization and Operation
 
CENTRIA (the Partnership) is engaged in the manufacturing of exterior metal wall and roof systems for the nonresidential construction market primarily throughout the United States. CENTRIA, Inc. (CI) is a wholly owned subsidiary of the Partnership and is engaged in the installation of exterior metal wall and roof systems, usually under long-term, fixed-price, construction-type contracts. CENTRIA International LLC (International) is a single-member LLC and wholly owned subsidiary of the Partnership that is engaged in the international sales and manufacture of CENTRIA products.

On November 7, 2014, the Partnership entered into a definitive agreement to be acquired by NCI Group, Inc., a Nevada corporation (“NCI”) and a wholly owned subsidiary of NCI Building Systems, Inc., and Steelbuilding.com, Inc., a Delaware corporation and direct wholly owned subsidiary of NCI Group, Inc. (together with NCI, “Buyers”) for approximately $247 million in cash, which was completed on January 16, 2015. See Note 10 — Subsequent Events.

2. Partnership Agreement
 
The Partnership was formed by a Partnership Agreement dated February 11, 1993, by three general partners pursuant to the Pennsylvania Uniform Partnership Act. This agreement was amended on April 25, 1997, effective as of January 1, 1997, in connection with the buyout of the former owners of H.H. Robertson. The Amended and Restated Partnership Agreement provides, among other things:
 
a.
The term of the Partnership expires December 31, 2050; however, dissolution will occur as the result of the sale or other disposition of all or substantially all of the Partnership’s properties. In addition, dissolution will occur with the written consent or affirmative vote of all of the partners.

b.
With certain exceptions, net profits and losses are to be allocated to the managing general partner until its capital account balance reaches a defined balance, then 20% to the managing general partner and 80% to the other partner.

c.
Distributions are to be made by the managing general partner to pay the federal and state income tax liabilities resulting from ownership interests in the Partnership. Tax distributions were approximately $5,000,000 and $5,000,000 during 2014 and 2013, respectively. Also, partner distributions paid during 2014 and 2013 were approximately $3,000,000 and $10,000,000, respectively. The managing general partner receives a management fee of approximately $400,000 per year. The aforementioned amounts are recorded as equity distributions.

3. Summary of Significant Accounting Policies
 
The accompanying consolidated financial statements reflect the application of the following significant accounting policies.
 
Principles of Consolidation
 
The consolidated financial statements include the accounts of the Partnership, CI, and International. All significant intercompany transactions and accounts have been eliminated.

Operating Cycle
 
The length of CI’s construction contracts vary, but are typically between 6 and 24 months. Amounts applicable to construction contracts are classified as current assets and liabilities in the accompanying consolidated financial statements, even though some portions are not expected to be realized within one year.


7

CENTRIA and Subsidiaries
 
Notes to Consolidated Financial Statements (continued)


3. Summary of Significant Accounting Policies (continued)

Revenue Recognition
 
Revenue for manufactured products is recognized as the material is shipped to the customer, while revenues for engineered and long-term construction contracts are recognized under the percentage-of-completion method of accounting. Revenues under this method are measured by the percentage of direct costs (primarily material and labor) incurred to date to the total estimated cost for each engineered or construction contract. Shipping and handling fees charged to customers are recorded as revenues, and the related costs are recorded as cost of sales.
 
All indirect costs related to contract performance and general and administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined.

Cash and Cash Equivalents
 
The Partnership considers all short-term investments with maturities of three months or less when acquired to be cash equivalents. The carrying amount approximates fair value.
 
Accounts Receivable and Allowance for Uncollectible Accounts
 
Management continually evaluates its accounts receivable and adjusts its allowance for uncollectible accounts for changes in potential credit risk. The Partnership does not require collateral for its trade accounts receivable. Trade accounts receivable are charged off directly to the allowance for uncollectible accounts when deemed uncollectible. The allowance is estimated based on the aging of the accounts receivable and historical collection experience.
 
There are no significant concentrations of credit risk exceeding 10% to any individual customer.
 
Inventories
 
Inventories are carried at the lower of first-in, first-out (FIFO) cost or market and consist of the following:
 
 
 
December 31,
 
 
2014
 
2013
Raw materials
 
$
15,029,578

 
$
11,881,906

Work-in-process
 
5,693,027

 
5,493,220

Finished goods
 
6,195,226

 
6,216,300

 
 
$
26,917,831

 
$
23,591,426

 
Work-in-process and finished goods inventories include material, labor, and overhead and other direct expenses applied to the production of contract work.

Property and Equipment
 
Property and equipment are stated at cost. Depreciation, including amortization of assets held under capital lease, is provided using the straight-line method over the estimated useful lives of the assets, which are as follows:
 
Buildings
40 years
Manufacturing equipment
12 years
Office furniture, equipment, and computers
6–10 years
Automobiles and trucks
3–5 years


8

CENTRIA and Subsidiaries
 
Notes to Consolidated Financial Statements (continued)


3. Summary of Significant Accounting Policies (continued)
 
Leasehold improvements are amortized over the lesser of ten years or the term of the lease. Assets capitalized under capital leases are amortized in accordance with the respective class of owned assets or the life of the lease, whichever is shorter. Expenses for repairs, maintenance, and renewals are charged to operations as incurred. Expenditures that improve an asset or extend its useful life are capitalized.
 
Long-Lived Assets
 
The Partnership reviews long-lived assets for possible impairment when indicators of potential impairment are present on the basis of whether the carrying amount of such assets is fully recoverable from projected, undiscounted net cash flows from the related business. If such review indicates that the carrying amount of long-lived assets is not recoverable, then the Partnership reduces the carrying amount of such assets to their fair value.
 
Note Receivable
 
The Partnership has a note receivable of approximately $4,423,000 due from one of its partners. As this note will ultimately be repaid through equity distributions, the balance is displayed as a reduction to partners’ capital. The note accrues interest at the average Euro rate (1.65% as of December 31, 2014), and interest is paid semiannually. The note had an original maturity of February 28, 2008, but was extended during 2007 until February 28, 2018.

Workers’ Compensation
 
The Partnership is a member of Affinity Insurance Ltd. (Affinity), which provides for insurance related to workers’ compensation, general liability, and automobile coverage. Affinity was created to provide long-term insurance security for a group of participants, which is a form of a captive insurance company owned by its insureds (called shareholders) domiciled in the Cayman Islands. In 2014, the Partnership increased its deposit with Affinity by $3,000 to $200,000 after having replaced a letter of credit of approximately $278,000 in 2013. The undiscounted estimated liability of approximately $193,000 and $248,000 included in other accrued expenses at December 31, 2014 and 2013, respectively, includes the estimate of the ultimate costs for incidents that may have occurred but have not yet been reported, and amounts for the maximum funded premium requirements.
 
Income Taxes
The accompanying consolidated financial statements do not reflect provisions or accruals for income taxes related to the Partnership or International, as all items of taxable income or loss and all tax credits will pass through to the respective partners and will be reported on their respective income tax returns.
CI, a Pennsylvania corporation, provides for current income taxes and deferred income tax differences that arise when items are reported for financial statement purposes in years different from those for income tax reporting purposes on the accompanying consolidated balance sheets in conformity with applicable tax accounting guidance.
Advertising
 
Advertising costs are expensed as incurred and totaled approximately $2,600,000 and $2,400,000 for 2014 and 2013, respectively. These amounts are included in selling expenses on the accompanying consolidated statements of income. 
Customer Concessions
 
The Partnership provides for the estimated costs that may be incurred to remedy deficiencies of quality or performance in its products. These concessions extend over a specified period of time depending upon the product. The Partnership accrues a provision for estimated future costs based upon the historical relationship between claims and costs incurred. The reserve is included in other accrued expenses in the accompanying consolidated balance sheets. The Partnership periodically reviews the adequacy of the accrual for product claims and adjusts the customer concession reserve for actual experience as necessary.


9

CENTRIA and Subsidiaries
 
Notes to Consolidated Financial Statements (continued)


3. Summary of Significant Accounting Policies (continued)

Vendor Rebates
 
The Partnership recognizes vendor rebates as a reduction of cost of goods sold based upon the amount of product purchased as a percentage of the total quantity to be purchased as specified in the applicable agreements.

Extended Warranties/Deferred Revenue
 
The Partnership also sells extended warranties to certain customers. Provisions for estimated future warranty costs are accrued based upon the project’s square footage and claims are applied against the provision as incurred. Revenue from extended warranties is deferred and recognized in income on a straight-line basis over the contract period.

The following table represents the roll forward of our accrued warranty obligation and deferred warranty revenue activity:
 
 
 
Year Ended December 31,
 
 
2014
 
2013
Balance at January 1
 
$
2,358,891

 
$
2,618,916

Deferred revenue for sales of extended warranties in the current year
 
267,206

 
67,286

Warranty income
 
(283,195
)
 
(327,311
)
Balance at December 31
 
$
2,342,902

 
$
2,358,891

  
Fair Value Measurements
 
As of December 31, 2014 and 2013, the Partnership held cash equivalents, long-term debt, and a revolving credit facility that are required to be measured at fair value on a recurring basis. The valuation techniques used to measure fair value are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs are generally unsupported by market activity. The three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value, includes the following: 

•
Level 1 – Quoted prices for identical assets or liabilities in active markets.
•
Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-driven valuations whose inputs are observable or whose significant value drivers are observable.
•
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

As of December 31, 2014 and 2013, the Partnership’s cash equivalents of $0 and $5,423,500 of money market funds, respectively, were classified as Level 2 in the fair value hierarchy and were measured at fair value using observable inputs, including the net asset value of the investments.

As of December 31, 2014 and 2013, the fair value of the Partnership's debt and revolving credit facility approximated the carrying amounts, and are classified as Level 2 in the fair value hierarchy using primarily observable inputs.

Use of Estimates in Preparation of Financial Statements
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The use of estimates is an integral part of applying the percentage-of-completion method of accounting for contracts.
 


10

CENTRIA and Subsidiaries
 
Notes to Consolidated Financial Statements (continued)


3. Summary of Significant Accounting Policies (continued)

Recent Accounting Pronouncements Adopted

In February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The standard requires reporting and disclosure about changes in accumulated other comprehensive income (AOCI) balances and reclassifications out of AOCI. The guidance is to be applied prospectively and is effective for fiscal years beginning after December 15, 2013, with early adoption permitted. The Partnership adopted this standard for the year ended December 31, 2014, and it had no impact on the consolidated financial statements, results of operations, or liquidity of the Partnership.

4. Other Accrued Expenses
 
The components of other accrued expenses were as follows:
 
 
 
2014
 
2013
Warranty
 
$
6,533,021

 
$
7,365,957

Other taxes and interest
 
701,500

 
787,082

Vendor obligation
 
1,440,000

 
1,440,000

Current pension and other post-employment benefits obligations
 
675,098

 
587,224

Workers’ compensation
 
192,595

 
247,628

Other
 
578,476

 
1,339,214

Total
 
$
10,120,690

 
$
11,767,105

 
The following table represents a roll forward of the accrued warranty obligations:

 
 
2014
 
2013
Beginning balance
 
$
7,365,957

 
$
6,013,155

Additions
 
41,638

 
1,527,800

Payments
 
(47,000
)
 
(90,000
)
Adjustments
 
(827,574
)
 
(84,998
)
Ending balance
 
$
6,533,021

 
$
7,365,957


Subsequent to December 31, 2014, we settled two lawsuits that resulted in a reduction of $0.6 million, representing a portion of the amount previously accrued for these matters, which activity is reflected in the rollforward above.
5. Revolving Loan and Credit Agreement
 
The Partnership entered into an amended and restated credit agreement with a bank that is scheduled to expire on January 31, 2016 (the Credit Facility). The Credit Facility has a maximum availability under a revolving loan facility of $22,000,000. Revolver borrowings are limited to the extent the Partnership does not maintain a borrowing base for qualified accounts receivable and inventory as defined in the credit agreement.
The Credit Facility enables the Partnership to incur additional senior indebtedness of up to $750,000 to finance equipment. The Credit Facility also provides the Partnership with additional borrowing capacity for a new capital expenditure term loan of up to $6,000,000. All borrowings under the Credit Facility bear interest at a defined base rate or Euro rate selected at the discretion of the Partnership, plus an additional applicable margin that is based on a formula taking into consideration the Partnership’s ratio of funded debt to earnings before interest, taxes, depreciation, and amortization (EBITDA) on a rolling four‑quarter basis.
Letters of credit outstanding and available as of December 31, 2014, are $7,016,000 and $2,984,000, respectively.

11

CENTRIA and Subsidiaries
 
Notes to Consolidated Financial Statements (continued)


5. Revolving Loan and Credit Agreement (continued)

The Credit Facility requires the Partnership to maintain compliance with certain financial covenants, and places restrictions on distributions to the partners in certain circumstances. The Credit Facility also contains acceleration clauses in the event of a material adverse change in the Partnership’s business. The Partnership’s other debt agreements contain cross-default provisions for events of default in the revolving and term loan agreement. Borrowings for the term loans under the credit facility are secured by substantially all of the Partnership’s assets and are cross-collateralized by the security granted for the revolving loan discussed, the Partnership had outstanding borrowings under the revolving facility of $3,076,252 and $0 as of December 31, 2014 and 2013, respectively, and no amounts outstanding under the equipment or term loan facility. The Partnership is in compliance with all covenants associated with the credit facility as of December 31, 2014.
6. Long-Term Debt
 
Long-term debt consisted of the following:
 
 
 
December 31,
 
 
2014
 
2013
Sheridan Industrial Revenue Bonds, with interest payable monthly at variable rates based on U.S. treasury obligations. $2.7 million due August 1, 2020, and $1.0 million due August 1, 2016. Secured by letter of credit.
 
$
3,700,000

 
$
5,700,000

Capital lease with payments due monthly of $53,527 with imputed interest rate of 7.27%. Final payment March 2014.
 
—

 
90,284

Total
 
3,700,000

 
5,790,284

Less: Current portion of long-term debt
 
—

 
2,090,284

Long-term debt
 
$
3,700,000

 
$
3,700,000

  
In 2004, the Partnership entered into a financing lease that meets the criteria for capital lease accounting. The Partnership completed the monthly payments of $41,816 for 84 months in March 2014. The lease was secured by equipment at the Cambridge plant.
 
Future minimum payments for all long-term debt and capital leases are as follows:
 
2015
$
—

2016
1,000,000

2017
—

2018
—

2019
—

Thereafter
2,700,000

Total
$
3,700,000

  
7. Employee Benefit Plans
 
The Partnership has noncontributory defined benefit pension plans covering certain of its hourly employees. Benefits are calculated based on fixed amounts for each year of service rendered. Partnership contributions to the plan are made based upon the amounts required or allowed under the Employee Retirement Income Security Act of 1974 (ERISA).
The Partnership sponsors postretirement medical and life insurance plans that cover certain of its employees and their spouses. The contributions to the plans by retirees vary from none to 25% of the total premium cost. The postretirement plan was amended in August 2009, and an adjustment of approximately $582,000 was recorded to reduce the obligation for retiree medical participants. The amendment grandfathered current retirees in the previous retiree plan, but as active participants retire, they will be entered into the new plan that includes a higher deductible.

12

CENTRIA and Subsidiaries
 
Notes to Consolidated Financial Statements (continued)


7. Employee Benefit Plans (continued)

The financial statement disclosures for the Partnership’s employee benefit plans are as follows:

 
 
Pension Benefits
 
Other Benefits
 
 
2014
 
2013
 
2014
 
2013
Change in benefit obligation
 
 

 
 

 
 

 
 

Benefit obligation at beginning of year
 
$
11,747,239

 
$
12,471,299

 
$
7,401,458

 
$
9,179,518

Service cost
 
144,643

 
179,161

 
36,788

 
51,817

Interest cost
 
512,961

 
456,522

 
255,534

 
275,380

Actuarial loss (gain)
 
2,593,651

 
(825,168
)
 
1,095,417

 
(1,598,151
)
Benefits paid
 
(584,205
)
 
(534,575
)
 
(635,897
)
 
(507,106
)
Benefit obligation at end of year
 
$
14,414,289

 
$
11,747,239

 
$
8,153,300

 
$
7,401,458

  
 
 
Pension Benefits
 
Other Benefits
 
 
2014
 
2013
 
2014
 
2013
Change in plan assets
 
 

 
 

 
 

 
 

Fair value of plan assets at beginning of year
 
$
13,069,356

 
$
10,432,132

 
$
—

 
$
—

Actual gain (loss) on plan assets
 
939,861

 
2,459,799

 
—

 
—

Employer contributions
 
712,000

 
712,000

 
—

 
—

Benefits paid
 
(584,205
)
 
(534,575
)
 
—

 
—

Fair value of plan assets at end of year
 
$
14,137,012

 
$
13,069,356

 
$
—

 
$
—

 
 
 
 
 
 
 
 
 
Funded status at end of year
 
$
(277,277
)
 
$
1,322,117

 
$
(8,153,300
)
 
$
(7,401,458
)
 
 
 
 
 
 
 
 
 
Funded status at end of year
 
$
(277,277
)
 
$
1,322,117

 
$
(8,153,300
)
 
$
(7,401,458
)
Unrecognized net actuarial loss
 
5,120,189

 
2,956,876

 
2,880,271

 
2,029,101

Unrecognized prior service cost (benefit)
 
85,120

 
149,592

 
(204,125
)
 
(279,757
)
Net amount recognized
 
$
4,928,032

 
$
4,428,585

 
$
(5,477,154
)
 
$
(5,652,114
)
Amounts recognized on the consolidated balance sheets
 
 

 
 

 
 

 
 

Prepaid benefit cost – noncurrent
 
$
—

 
$
1,322,117

 
$
—

 
$
—

Accrued benefit liability – current
 
—

 
—

 
(675,098
)
 
(587,224
)
Accrued benefit liability – long-term
 
(277,277
)
 
—

 
(7,478,202
)
 
(6,814,234
)
Accumulated other comprehensive loss
 
5,205,309

 
3,106,468

 
2,676,146

 
1,749,344

Net amount recognized
 
$
4,928,032

 
$
4,428,585

 
$
(5,477,154
)
 
$
(5,652,114
)
 
The primary actuarial assumptions used in determining the actuarial present value of the projected benefit obligation are as follows:
 
 
 
Pension Benefits
 
Other Benefits
 
 
2014
 
2013
 
2014
 
2013
Discount rate
 
3.85
%
 
4.50
%
 
3.50
%
 
3.75
%
Expected return on plan assets
 
7.75
%
 
7.75
%
 
7.75
%
 
7.75
%


13

CENTRIA and Subsidiaries
 
Notes to Consolidated Financial Statements (continued)


7. Employee Benefit Plans (continued)

Net periodic pension expense for the years ended December 31 includes the following components:
 
 
 
Pension Benefits
 
Other Benefits
 
 
2014
 
2013
 
2014
 
2013
Service cost – benefits earned during the year
 
$
144,643

 
$
179,161

 
$
36,788

 
$
51,817

Interest cost on projected benefit obligation
 
512,961

 
456,522

 
255,534

 
275,380

Expected return on plan assets
 
(900,396
)
 
(778,841
)
 
—

 
—

Net amortization and deferral
 
468,338

 
707,461

 
169,186

 
396,043

Net periodic pension expense
 
$
225,546

 
$
564,303

 
$
461,508

 
$
723,240

 
The assumptions used in determining the net periodic pension expense for the years ended December 31 are as follows:
 
 
 
Pension Benefits
 
Other Benefits
 
 
2014
 
2013
 
2014
 
2013
Discount rate
 
4.50
%
 
3.75
%
 
3.75
%
 
3.25
%
Expected return on plan assets
 
7.75
%
 
7.75
%
 
7.75
%
 
7.75
%
 
The Partnership’s expected return on plan assets is estimated based on consideration of actual historical returns assuming current asset allocations, as well as judgments about future return prospects for the same current asset allocations based on all available, known information.
 
For measurement purposes, an 8% annual rate of increase in the per capita cost of covered health care benefits was assumed for the first two years beginning in 2014, 7% for the next four years, 6% for the next four years, and 5% per year thereafter.
At December 31, 2014, the accumulated benefit obligations exceeded plan assets for pensions. The accrued benefit liability was $277,277. The accumulated benefit obligation for the other benefits was $8,153,300.
The accounting records of the Partnership’s pension plans are maintained on the accrual basis of accounting. The assets of the plans are maintained within Principal investment funds. The fair values of the plans’ assets represent their proportionate interest in the fair value of the funds, which is based upon the quoted market value of the underlying investments as of the last business day of the plan year.


14

CENTRIA and Subsidiaries
 
Notes to Consolidated Financial Statements (continued)


7. Employee Benefit Plans (continued)

The following table sets forth by level, within the fair value hierarchy, the pension plan assets carried at fair value:
 
 
Level 1
(Quoted Prices
in Active
Markets for
Identical
Assets)
 
Level 2
(Significant
Other
Observable
Inputs)
 
Level 3
(Significant
Unobservable
Inputs)
 
Total
December 31, 2014
 
 

 
 

 
 

 
 

Equity mutual funds
 
$
10,898,509

 
$
36,471

 
$
—

 
$
10,934,980

International equity mutual funds
 
287,280

 
1,698,262

 
—

 
1,985,542

Bond, mortgage, and other funds
 
6,326

 
1,178,292

 
31,872

 
1,216,490

Total assets at fair value
 
$
11,192,115

 
$
2,913,025

 
$
31,872

 
$
14,137,012

December 31, 2013
 
 

 
 

 
 

 
 

Equity mutual funds
 
$
9,616,619

 
$
149,763

 
$
—

 
$
9,766,382

International equity mutual funds
 
258,620

 
1,952,777

 
—

 
2,211,397

Bond, mortgage, and other funds
 
87,217

 
965,827

 
38,533

 
1,091,577

Total assets at fair value
 
$
9,962,456

 
$
3,068,367

 
$
38,533

 
$
13,069,356


The valuation techniques required by the fair value guidance are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. These two types of inputs create the fair value hierarchy as presented in Note 3.
 
Level 2 assets held by the Partnership’s pension plan are valued primarily using observable inputs. When Level 2 quoted market prices are unobservable, quotes from independent pricing vendors based on recent trading activity and other relevant information, including market interest rate curves, referenced credit spreads, and estimated prepayment rates where applicable, are used for valuation purposes. Alternative investments, which are classified as Level 3, are not readily marketable. They are carried at estimated fair value as provided by investment managers based primarily on unobservable information. Those estimated fair values may differ significantly from the values that would have been used had a ready market for these securities existed. As of December 31, 2014 and 2013, the Partnership’s plan held $31,872 and $38,533, respectively, in investments classified as Level 3. Activity related to these investments was not material during the year.
The Partnership’s pension plan weighted average asset allocations, by asset category, are as follows:
 
 
 
December 31
 
 
2014
 
2013
Equity mutual funds
 
91.39
%
 
91.65
%
Fixed income mutual funds
 
8.61
%
 
8.35
%
Total
 
100.00
%
 
100.00
%
 
The Partnership’s investment policies and strategies are set by management and consist of allocations to achieve a reasonable balance between performance and risk aversion. Management and its investment consultant monitor the long-term return rates for the Partnership's portfolio and change the fund allocation accordingly between large cap, small cap, and international equity mutual funds to achieve the desired return and risk. The current target allocations are 0% to 50% fixed income mutual funds and 50% to 95% equity mutual funds.
 
Planned contributions for fiscal 2015 are expected to approximate $712,000.

 


15

CENTRIA and Subsidiaries
 
Notes to Consolidated Financial Statements (continued)


7. Employee Benefit Plans (continued)
 
The following benefit payments, which reflect expected future service as appropriate, are expected to be paid by the pension plan during the years ending December 31:
 
 
 
Pension
Benefits
 
Other
Benefits
2015
 
$
815,995

 
$
675,098

2016
 
753,804

 
645,933

2017
 
799,714

 
693,605

2018
 
862,936

 
721,709

2019
 
888,057

 
677,546

2020-2024
 
4,445,027

 
2,600,403

 
Amounts in accumulated other comprehensive income (loss) that are expected to be recognized as components of net periodic benefit cost in 2015 are as follows:
 
 
 
Pension
 
Other
Benefits
 
Total
Amortization of prior service cost
 
$
53,942

 
$
(75,632
)
 
$
(21,690
)
Amortization of net actuarial loss
 
714,037

 
407,810

 
1,121,847

Amortization of accumulated other comprehensive loss
 
$
767,979

 
$
332,178

 
$
1,100,157

 
To develop the expected long-term rate of return on assets assumption, the Partnership considered the historical returns and the future expectations for returns for each asset class, as well as the target asset allocation of the pension portfolio.
 
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. A one-percentage-point change in assumed health care cost trend rates would have the following effects:
 
 
 
One-
Percentage-
Point
Increase
 
One-
Percentage-
Point
Decrease
Effect on total of service and interest components
 
$
27,508

 
$
(23,845
)
Effect on the postretirement benefit obligation
 
700,620

 
(607,756
)
 
The Partnership maintains qualified 401(k) and profit-sharing plans covering substantially all employees. Under the terms of the plans, the Partnership will match 60% of the first 6% of participant contributions and make additional contributions as required by the plans. The Partnership may also make discretionary contributions to the plans. During 2014 and 2013, the Partnership made a matching contribution of approximately $1,000,000 and $837,000, respectively. The total matching and discretionary contributions made by the Partnership were $4,168,000 and $3,831,000 for the years ended December 31, 2014 and 2013, respectively.

 


16

CENTRIA and Subsidiaries
 
Notes to Consolidated Financial Statements (continued)


8. Accumulated Other Comprehensive Loss
The following table sets forth the accumulated other comprehensive loss (income) and consists of the following components:
 
 
Currency
Translation
Adjustment
 
Pension
and OPEB
Minimum
Liability
 
Accumulated
Other
Comprehensive
Loss (Income)
Balances, December 31, 2012
 
$
153,799

 
$
10,063,593

 
$
10,217,392

2013 activity
 
—

 
(5,207,781
)
 
(5,207,781
)
Balances, December 31, 2013
 
153,799

 
4,855,812

 
5,009,611

2014 activity
 
—

 
3,025,643

 
3,025,643

Balances, December 31, 2014
 
$
153,799

 
$
7,881,455

 
$
8,035,254

 
9. Commitments and Contingencies
 
Minimum annual rental payments under non-cancelable operating leases as of December 31, 2014, are as follows:
 
2015
$
2,115,783

2016
2,017,783

2017
2,013,783

2018
1,773,283

2019
1,473,145

Thereafter
1,090,010

 
The non-cancelable operating leases relate to office and warehouse space, forklift trucks, and office equipment. Rental expense was approximately $1,880,000 and $2,051,000 during 2014 and 2013, respectively.

The Partnership is involved in various claims and litigation incidental to the conduct of its business. Based on consultation with legal counsel, management does not believe that any of these other claims of litigation to which the Partnership is a party could have a material effect on the Partnership’s consolidated financial position or results of operations.

10. Subsequent Events

Management evaluated subsequent events through March 28, 2016, the date the accompanying financial statements were available to be issued.

On January 16, 2015, the Buyers completed the acquisition of all the general partnership interests of CENTRIA in exchange for $257.9 million in cash, including $8.7 million cash acquired and post-close working capital adjustments of $2.1 million. In connection with the acquisition, NCI repaid the Partnership's outstanding long-term debt and revolving credit facility balance and terminated the revolving credit facility.


17


Exhibit 99.2
 
Unaudited Pro Forma Combined Consolidated Financial Information
 
On January 16, 2015, NCI Group, Inc., a Nevada corporation (“NCI Group”) and a wholly owned subsidiary of NCI Building Systems, Inc. (“NCI” or the “Company”), and Steelbuilding.com, LLC, a Delaware corporation and direct wholly owned subsidiary of NCI Group, completed the acquisition of CENTRIA (the “Acquisition”), a Pennsylvania general partnership (“CENTRIA”), pursuant to the terms of the Interest Purchase Agreement dated November 7, 2014 (“Interest Purchase Agreement”) with SMST Management Corp., a Pennsylvania corporation, Riverfront Capital Fund, a Pennsylvania limited partnership, and CENTRIA. NCI acquired all of the general partnership interests of CENTRIA, in exchange for $257.9 million in cash, including cash acquired of $8.7 million and post-close working capital adjustments of $2.1 million.
 
The following unaudited pro forma combined consolidated financial statements are based upon the historical consolidated financial statements of the Company and CENTRIA and have been prepared to give effect to (i) the Acquisition and (ii) the issuance of $250 million in aggregate principal amount of 8.25% senior notes due 2023 (the “Notes”) to fund the Acquisition (together with the Acquisition, the “Transactions”).
 
The unaudited pro forma combined consolidated statements of income for the fiscal year ended November 1, 2015 combine the historical statements of income of the Company and CENTRIA, adjusted to reflect the pro forma effects of the Transactions as if they had occurred on November 3, 2014, the beginning of the Company's fiscal year ended November 1, 2015. The statement of income of CENTRIA reflects the results of operations for the period from November 3, 2014 (the beginning of Company's fiscal year ended November 1, 2015) to January 16, 2015 (the “Acquisition Date”). The results of CENTRIA's operations from January 16, 2015 are included in the Company's consolidated financial statements for the fiscal year ended November 1, 2015. The historical consolidated financial statements referred to above for the Company were included in the Company’s Annual Report on Form 10-K for the fiscal year ended November 1, 2015 filed with the Securities and Exchange Commission (the “SEC”) on December 22, 2015.

The unaudited pro forma combined consolidated financial statements are presented in accordance with Article 11 of Regulation S-X. The accompanying unaudited pro forma combined consolidated financial information and the historical consolidated financial information presented herein should be read in conjunction with and are qualified by the historical consolidated financial statements and notes thereto for the Company as described above. The historical financial information of CENTRIA has been adjusted to reflect certain reclassifications to conform with the Company's financial statement presentation.
 
The unaudited pro forma combined consolidated statements of income include pro forma adjustments which reflect transactions and events that (a) are directly attributable to the Transactions, (b) are factually supportable, and (c) do not have a continuing impact on consolidated results. The pro forma adjustments are described in the accompanying combined notes to the unaudited pro forma combined consolidated financial statements.
 
The unaudited pro forma combined consolidated financial statements do not reflect the costs of any integration activities or the synergies expected from the Acquisition. We cannot assure that we will not incur charges in excess of those included in the pro forma total consideration related to the Transactions or that management will be successful in its efforts to integrate the operations of the companies. The unaudited pro forma combined consolidated financial information is provided for informational purposes only and is not necessarily indicative of the operating results that would have occurred if the Acquisition had been consummated as of the beginning of the fiscal periods presented nor is it necessarily indicative of our future operating results.

1


NCI BUILDING SYSTEMS, INC.
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENTS OF INCOME
FOR THE FISCAL YEAR ENDED NOVEMBER 1, 2015
(In thousands, except per share data)
 
 
Historical
 
 
 
 
 
 
 
NCI
 
CENTRIA(1)
 
Pro Forma
Adjustments
 
 
 
Pro Forma Combined
 
(Audited)
 
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sales
$
1,563,693

 
$
44,486

 
$
—

 
 
 
$
1,608,179

Cost of sales, excluding fair value adjustment of acquired inventory
1,189,019

 
38,287

 
694

 
(a)
 
1,228,000

Fair value adjustment of acquired inventory
2,358

 
—

 
—

 
 
 
2,358

Gross profit
372,316

 
6,199

 
(694
)
 
 
 
377,821

Engineering, selling, general and administrative expenses
286,840

 
6,389

 
(917
)
 
(a)
 
292,312

Intangible asset amortization
16,903

 
—

 
1,297

 
(b)
 
18,200

Strategic development and acquisition related costs
4,201

 
—

 
(3,511
)
 
(c)
 
690

Restructuring and impairment charges
11,306

 
—

 
—

 
 
 
11,306

Gain on legal settlements
(3,765
)
 
—

 
—

 
 
 
(3,765
)
Income from operations
56,831

 
(190
)
 
2,437

 
 
 
59,078

Interest income
72

 
—

 
 

 
 
 
72

Interest expense
(28,460
)
 
(120
)
 
(4,536
)
 
(d)
 
(33,116
)
Foreign exchange loss
(2,152
)
 
—

 
 

 
 
 
(2,152
)
Other income (expense), net
499

 
(113
)
 
—

 
 
 
386

Income (loss) before income taxes
26,790

 
(423
)
 
(2,099
)
 
 
 
24,268

Provision (benefit) for income taxes
8,972

 
—

 
(984
)
 
(e)
 
7,988

Net income (loss)
$
17,818

 
$
(423
)
 
$
(1,115
)
 
 
 
$
16,280

Net income allocated to participating securities
(172
)
 
—

 
—

 
 
 
(172
)
Net income (loss) applicable to common shares
$
17,646

 
$
(423
)
 
$
(1,115
)
 
 
 
$
16,108

Income per common share:
 
 
 

 
 

 
 
 
 
Basic
$
0.24

 
 

 
 

 
 
 
$
0.22

Diluted
$
0.24

 
 

 
 

 
 
 
$
0.22

Weighted average number of common shares outstanding:
 
 
 

 
 

 
 
 
 
Basic
73,271

 
 
 
 
 
 
 
73,271

Diluted
73,923

 
 
 
 
 
 
 
73,923

 
(1)
The unaudited consolidated statement of income of CENTRIA for the period from November 3, 2014 to January 16, 2015 has been derived from CENTRIA's accounting records.

See accompanying notes to unaudited pro forma combined consolidated financial statements.
 

2


NOTES TO UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS
 
1. Basis of Presentation
 
The accompanying unaudited pro forma combined consolidated financial statements present the pro forma results of operations of NCI Building Systems, Inc. (“NCI” or the "Company") and CENTRIA, a Pennsylvania general partnership (“CENTRIA”) on a combined basis based on the historical financial information of each company after giving effect to NCI's acquisition of CENTRIA. The unaudited pro forma combined consolidated statement of operations has been prepared assuming the Transactions occurred on November 3, 2014, the beginning of the Company's fiscal year ended November 1, 2015.
 
In accordance with generally accepted accounting principles in the United States, the Transactions have been accounted for using the purchase method of accounting. As a result, the unaudited pro forma combined consolidated balance sheet has been adjusted to reflect the allocation of the purchase price to identified net assets acquired based primarily on NCI’s review of a fair value assessment and the excess purchase price to goodwill. The purchase price allocation in these unaudited pro forma combined consolidated financial statements is based upon a net purchase price of approximately $249.2 million, including post-close working capital adjustments.
 
2. Pro Forma Adjustments 

The pro forma adjustments included in the unaudited pro forma combined consolidated financial statements are as follows:

a)
To adjust depreciation expense based on the fair value and estimated useful lives of CENTRIA’s property, plant and equipment and a reclassification of a portion of depreciation expense from operating expenses to cost of sales.

b)
To record amortization expense related to CENTRIA identified intangible assets which include customer relationships, backlog and trade names over their estimated useful lives.

c)
To remove acquisition-related costs.

d)
To record interest expense on $250.0 million in aggregate principal amount of 8.25% senior notes due 2023 issued to fund the Acquisition.

e)
To reflect the effective statutory tax rate of 39.0% for the fiscal year ended November 1, 2015 on pro forma adjustments and the pre-tax income of CENTRIA.
 
3. Pro Forma Net Income Per Share

The unaudited pro forma basic and diluted net income per share is based upon the weighted average number of outstanding shares of the Company's common stock for the fiscal year ended November 1, 2015. See Note 9 in the notes to the Company's consolidated financial statements for the fiscal year ended November 1, 2015 filed on Form 10-K for discussion of the calculation of the weighted average number of outstanding shares of common stock.

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