-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WPtR+MSjBexwZ7pRRkwLR0DaBxovq02nbfSk1dk3z6OL+kmHTt6fj97AqBAo7t3A TYigkYOkz/rTtjG/Bd2KCQ== 0001072613-06-002187.txt : 20061101 0001072613-06-002187.hdr.sgml : 20061101 20061031205140 ACCESSION NUMBER: 0001072613-06-002187 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20060930 FILED AS OF DATE: 20061101 DATE AS OF CHANGE: 20061031 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTH AMERICAN GALVANIZING & COATINGS INC CENTRAL INDEX KEY: 0000055805 STANDARD INDUSTRIAL CLASSIFICATION: COATING, ENGRAVING & ALLIED SERVICES [3470] IRS NUMBER: 710268502 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03920 FILM NUMBER: 061176972 BUSINESS ADDRESS: STREET 1: 5314 S YALE AVENUE STREET 2: SUITE 1000 CITY: TULSA STATE: OK ZIP: 74135 BUSINESS PHONE: (918)494-0964 MAIL ADDRESS: STREET 1: 5314 S YALE AVENUE STREET 2: SUITE 1000 CITY: TULSA STATE: OK ZIP: 74135 FORMER COMPANY: FORMER CONFORMED NAME: KINARK CORP DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: KIN ARK OIL CO DATE OF NAME CHANGE: 19690601 FORMER COMPANY: FORMER CONFORMED NAME: KIN ARK OIL & GAS CO DATE OF NAME CHANGE: 19680906 10-Q 1 form10q_14667.htm FORM 10-Q DATED 9/30/06 WWW.EXFILE.COM, INC. -- 14667 -- NORTH AMERICAN GALVANIZING AND COATINGS, INC. -- FORM 10-Q
 


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM 10-Q
 

QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For The Quarterly Period Ended September 30, 2006

Commission File No. 1-3920
 
 

 
NORTH AMERICAN GALVANIZING & COATINGS, INC.
(Exact name of the registrant as specified in its charter)
 
 
Delaware
(State of Incorporation)

 
71-0268502
(I.R.S. Employer Identification No.)

 
5314 S. Yale Avenue, Suite 1000, Tulsa, Oklahoma 74135
(Address of principal executive offices)

 
Former address of registrant: 2250 East 73rd Street, Tulsa, Oklahoma 74136
 
 
(918) 494-0964
(Registrant's telephone number)
 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 and 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes x    No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, as defined in Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer o
Accelerated filer o
Non-accelerated filer x
  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the exchange Act).      Yes o             No x

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of September 30, 2006:
 
Common Stock $ .10 Par Value . . . . . 7,852,871





NORTH AMERICAN GALVANIZING & COATINGS, INC.
AND SUBSIDIARY

Index to Quarterly Report on Form 10-Q

 
 

Part I.
Financial Information   Page
         
  Forward Looking Statements or Information  
2
         
  Item 1. 
Financial Statements
   
         
   
Report of Independent Registered Public Accounting Firm
 
3
         
   
Condensed Consolidated Balance Sheets as of September 30, 2006 (unaudited), and December 31, 2005
 
4
         
   
Condensed Consolidated Statements of Income for the three- and nine-month periods ended September 30, 2006 and 2005 (unaudited)
 
5
         
   
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2006 and 2005 (unaudited)
 
6
         
   
Condensed Consolidated Statement of Stockholders’ Equity for the nine months ended September 30, 2006 (unaudited)
 
7
         
   
Notes to Condensed Consolidated Interim Financial Statements for the three- and nine-month periods ended September 30, 2006 and 2005 (unaudited)
 
8-14
         
         
  Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
15-22
         
         
  Item 3.
Quantitative and Qualitative Disclosure About Market Risks
 
22
         
         
  Item 4. 
Controls and Procedures
 
23
         
         
         
Part II.
Other Information  
23-24
         
  Signatures and Certifications  
25-64
 
 



1




Forward Looking Statements or Information

Certain statements in this Form 10-Q, including information set forth under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, constitute “Forward-Looking Statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are typically punctuated by words or phrases such as “anticipates,” “estimate,” “should,” “may,” “management believes,” and words or phrases of similar import. The Company cautions investors that such forward-looking statements included in this Form 10-Q, or hereafter included in other publicly available documents filed with the Securities and Exchange Commission, reports to the Company’s stockholders and other publicly available statements issued or released by the Company involve significant risks, uncertainties, and other factors which could cause the Company’s actual results, performance (financial or operating) or achievements to differ materially from the future results, performance (financial or operating) or achievements expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences could include, but are not limited to, market substitution of other corrosion protection alternatives, such as paint, changes in demand, prices, the raw materials cost of zinc and the cost of natural gas; changes in economic conditions of the various markets the Company serves, as well as the other risks detailed herein and in the Company’s reports filed with the Securities and Exchange Commission. The Company believes that the important factors set forth in the Company’s cautionary statements at Exhibit 99 to this Form 10-Q could cause such a material difference to occur and investors are referred to Exhibit 99 for such cautionary statements.


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


 
2

 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders of
North American Galvanizing & Coatings, Inc.

We have reviewed the accompanying condensed consolidated balance sheet of North American Galvanizing & Coatings, Inc. and subsidiary (the “Company”) as of September 30, 2006, and the related condensed consolidated statements of income for the three- and nine-month periods ended September 30, 2006 and 2005, stockholders’ equity for the nine-month period ended September 30, 2006, and of cash flows for the nine-month periods ended September 30, 2006 and 2005. These interim financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of North American Galvanizing & Coatings, Inc. and subsidiary as of December 31, 2005, and the related consolidated statements of operations and comprehensive income, stockholders’ equity and cash flows for the year then ended (not presented herein); and in our report dated February 10, 2006, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2005 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.


/s/  Deloitte & Touche LLP

Tulsa, Oklahoma
October 31, 2006
 
 
 
 
 
 

 



3

 
         
           
CONDENSED CONSOLIDATED BALANCE SHEETS
         
(In thousands, except per share amounts)
 
 
 
 
 
   
Unaudited
     
   
September 30,
 
December 31,
 
ASSETS
 
2006
 
2005
 
           
CURRENT ASSETS:
         
Cash and cash equivalents
 
$
131
 
$
1,367
 
Investments
   
1,008
   
 
Trade receivables—less allowances of $239 for 2006 and $124 for 2005
   
11,838
   
6,808
 
Inventories
   
6,569
   
6,077
 
Prepaid expenses and other assets
   
451
   
966
 
Deferred tax asset—net
   
802
   
243
 
Total current assets
   
20,799
   
15,461
 
               
PROPERTY, PLANT AND EQUIPMENT—AT COST:
             
Land
   
2,167
   
2,167
 
Galvanizing plants and equipment
   
36,567
   
35,330
 
     
38,734
   
37,497
 
Less—allowance for depreciation
   
(18,054
)
 
(15,954
)
Construction in progress
   
424
   
325
 
Total property, plant and equipment—net
   
21,104
   
21,868
 
               
GOODWILL—Net
   
3,448
   
3,448
 
               
OTHER ASSETS
   
252
   
278
 
               
TOTAL ASSETS
 
$
45,603
 
$
41,055
 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY
         
               
CURRENT LIABILITIES:
           
Current maturities of long-term obligations
 
$
758
 
$
715
 
Current portion of bonds payable
   
760
   
731
 
Subordinated notes payable
   
   
1,000
 
Trade accounts payable
   
4,414
   
1,838
 
Accrued payroll and employee benefits
   
1,190
   
1,222
 
Accrued taxes
   
2,229
   
591
 
Other accrued liabilities
   
2,916
   
2,338
 
Total current liabilities
   
12,267
   
8,435
 
               
DEFERRED TAX LIABILITY—Net
   
907
   
1,047
 
               
LONG-TERM OBLIGATIONS
   
3,414
   
7,072
 
               
BONDS PAYABLE
   
4,630
   
5,203
 
               
Total liabilities
   
21,218
   
21,757
 
               
COMMITMENTS AND CONTINGENCIES (NOTES 6 AND 7)
             
             
STOCKHOLDERS’ EQUITY:
         
Common stock—$.10 par value:
             
Issued—8,209,925 shares in 2006 and 2005
   
821
   
821
 
Additional paid-in capital
   
14,922
   
17,391
 
Retained earnings
   
10,072
   
6,543
 
Common shares in treasury at cost— 357,054 in 2006 and 1,362,977 in 2005
   
(1,430
)
 
(5,457
)
Total stockholders’ equity
   
24,385
   
19,298
 
               
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
 
$
45,603
 
$
41,055
 
 
 
 
             
See notes to condensed consolidated interim financial statements.
             
 
 
4

 
             
                   
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
             
(In thousands, except per share amounts)
 
 
 
 
 
 
 
 
 
   
For the Three Months Ended
 
For the Nine Months Ended
 
   
September 30
 
September 30
 
   
2006
 
2005
 
2006
 
2005
 
                   
SALES
 
$
20,155
 
$
12,687
 
$
53,793
 
$
34,768
 
                           
COSTS AND EXPENSES:
                         
Cost of sales
   
15,109
   
9,721
   
38,811
   
26,254
 
Selling, general and administrative expenses
   
2,119
   
1,778
   
6,206
   
5,209
 
Depreciation and amortization
   
842
   
600
   
2,134
   
1,865
 
Total costs and expenses
   
18,070
   
12,099
   
47,151
   
33,328
 
                           
OPERATING INCOME
   
2,085
   
588
   
6,642
   
1,440
 
                           
INTEREST EXPENSE
   
172
   
285
   
651
   
788
 
                           
INCOME BEFORE INCOME TAXES
   
1,913
   
303
   
5,991
   
652
 
                           
INCOME TAX EXPENSE
   
809
   
124
   
2,462
   
262
 
                         
NET INCOME
 
$
1,104
 
$
179
 
$
3,529
 
$
390
 
                         
NET INCOME PER COMMON SHARE:
                         
Net income
                         
Basic
 
$
0.14
 
$
0.03
 
$
0.48
 
$
0.06
 
Diluted
 
$
0.14
 
$
0.02
 
$
0.46
 
$
0.05
 
                           
 
 
 
 
 
 
                         
See notes to condensed consolidated interim financial statements.
                 




 



5

 
NORTH AMERICAN GALVANIZING & COATINGS, INC.
     
           
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
     
NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
         
(In thousands, except per share amounts)
 
 
 
 
 
           
   
2006
 
2005
 
           
OPERATING ACTIVITIES:
         
Net income
 
$
3,529
 
$
390
 
Loss on disposal of assets
   
19
   
51
 
Depreciation
   
2,134
   
1,865
 
Non-cash directors’ fees
   
352
   
175
 
Deferred income taxes
   
(699
)
 
456
 
Non-cash share-based compensation
   
61
   
 
Changes in operating assets and liabilities, net of purchase of assets from Gregory Industries, Inc. (Note 2):
             
Accounts receivable—net
   
(5,030
)
 
(1,643
)
Inventories and other assets
   
49
   
108
 
Accounts payable, accrued liabilities and other
   
4,559
   
2,828
 
Cash provided by operating activities
   
4,974
   
4,230
 
               
INVESTING ACTIVITIES:
             
Capital expenditures
   
(944
)
 
(606
)
Purchase of investment
   
(1,008
)
 
 
Payment for purchase of Gregory Industries' galvanizing operation
   
   
(4,188
)
Cash used in investing activities
   
(1,952
)
 
(4,794
)
           
FINANCING ACTIVITIES:
             
Payments on long-term obligations
   
(19,948
)
 
(16,017
)
Proceeds from long-term obligations
   
16,089
   
17,469
 
Payment of subordinated notes payable
   
(1,000
)
 
 
Proceeds from exercise of stock options
   
771
   
 
Payment on bonds
   
(544
)
 
(516
)
Tax benefit realized from stock options exercised
   
320
   
 
Proceeds from exercise of stock warrants
   
57
   
 
Purchase of common stock for the treasury
   
(3
)
 
 
Proceeds from sale of treasury stock
   
   
100
 
Cash provided by/(used in) financing activities
   
(4,258
)
 
1,036
 
               
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS
   
(1,236
)
 
472
 
               
CASH AND CASH EQUIVALENTS:
             
Beginning of period
   
1,367
   
634
 
 
             
End of period
 
$
131
 
$
1,106
 
               
CASH PAID DURING THE PERIOD FOR:
             
Income taxes (net of refunds of $432 in 2005)
 
$
1,419
 
$
(376
)
Interest
 
$
750
 
$
733
 
NON-CASH INVESTING AND FINANCING ACTIVITIES:
             
Acquisitions of fixed assets under capital lease obligations
 
$
244
 
$
 
 
 
 
See notes to condensed consolidated interim financial statements.
             

 
6

 
NORTH AMERICAN GALVANIZING & COATINGS, INC.
                     
                               
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
                     
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006
                         
(In thousands, except per share amounts)
 
 
 
 
 
 
 
 
 
 
 
 
 
                               
                               
                               
 
 
   
Common Stock
 
Additional
                 
   
$.10 Par Value
 
Paid-in
 
Retained
 
Treasury Stock
     
   
Shares
 
Amount
 
Capital
 
Earnings
 
Shares
 
Amount
 
Total
 
                               
BALANCE—January 1, 2006
   
8,209,925
 
$
821
 
$
17,391
 
$
6,543
   
1,362,977
 
$
(5,457
)
$
19,298
 
                                             
Net income
   
   
   
   
3,529
   
   
   
3,529
 
 
                                           
Stock units for Director Stock Unit Program
   
   
   
352
   
   
   
   
352
 
                                             
Incentive Stock Plan Compensation
   
   
   
61
   
   
   
   
61
 
 
                                           
Purchase of common stock for the treasury
   
   
   
   
   
535
   
(3
)
 
(3
)
 
                             
 
                                           
Issuance of treasury shares for stock option transactions, net of shares tendered for payment and including tax benefit
   
   
   
(558
)
 
   
(411,823
)
 
1,649
   
1,091
 
 
                                           
Issuance of treasury shares for warrant transactions, net of shares tendered for payment
   
   
   
(2,324
)
 
   
(594,635
)
 
2,381
   
57
 
                                             
BALANCE—September 30, 2006
   
8,209,925
 
$
821
 
$
14,922
 
$
10,072
   
357,054
 
$
(1,430
)
$
24,385
 
                                             
 
 
See notes to consolidated financial statements.
 

 
7

NORTH AMERICAN GALVANIZING & COATINGS, INC.AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE- AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2006 and 2005
UNAUDITED

Note 1.  Basis of Presentation
The condensed consolidated interim financial statements included in this report have been prepared by North American Galvanizing & Coatings, Inc. (the “Company”) pursuant to its understanding of the rules and regulations of the Securities and Exchange Commission for interim reporting and include all normal and recurring adjustments which are, in the opinion of management, necessary for a fair presentation. The condensed consolidated interim financial statements include the accounts of the Company and its subsidiary.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations for interim reporting. The Company believes that the disclosures are adequate to make the information presented not misleading. However, these interim financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 2005. The financial data for the interim periods presented may not necessarily reflect the results to be anticipated for the complete year.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 balance sheet dates and the reported amounts of revenues and expenses for each of the periods. Actual results will be determined based on the outcome of future events and could differ from the estimates. The Company’s sole business is hot dip galvanizing and coatings which is conducted through its wholly owned subsidiary, North American Galvanizing Company (“NAG”).

Note 2.       Business Expansion - Purchase of Assets
On February 28, 2005, NAGalv-Ohio, Inc., a subsidiary of North American Galvanizing Company, purchased certain galvanizing assets of Gregory Industries, Inc., located in Canton, Ohio, for a cash purchase price of $3.7 million plus approximately $0.5 million in purchase related expenses. The purchase expands the service area of North American Galvanizing into the northeast region of the United States. The results of the operations of NAGalv-Ohio, Inc. have been included in the consolidated financial statements since February 28, 2005. Goodwill of less than $0.1 million was recognized in the purchase. The net purchase price was allocated as follows:
 

Current assets
$1.8 million
Net property, plant & equipment
  2.3
Goodwill
  0.1
Purchase price
$4.2 million
 
Pro-forma unaudited results of operations of the Company for the nine-month period ended September 30, 2005, prepared as if the purchase had taken place on January 1, 2005 would have been as follows:
 
 
 Nine Months
Ended September 30
 
Dollars in Thousands, Except per Share Amounts  
 
2005
   
Sales
 
$
35,872
   
Net Income
   
270
   
Earnings per share:
         
Basic
 
$
.04
   
Diluted
 
$
.04
   
 
 
8

Note 3.       Stock Options

On September 30, 2006 the Company has two share-based compensation plans, which are shareholder-approved, the 2004 Incentive Stock Plan and the Director Stock Unit Plan (Note 8). The Company’s 2004 Incentive Stock (the Plan) permits the grant of share options and shares to its employees and directors for up to 1,250,000 shares of common stock. The Company believes that such awards better align the interests of its employees and directors with those of its shareholders. Option awards are granted with an exercise price equal to the market price of the Company’s stock at the date of grant; those option awards vest based on 4 years of continuous service and have 10-year contractual terms.

The Company adopted Statement of Financial Accounting Standards No. 123(R), “Share-Based Payment” (“SFAS No. 123(R)”) under the modified prospective method on January 1, 2006. Under the “modified prospective” method, compensation cost is recognized in the financial statements beginning with the effective date, based on the requirements of SFAS No. 123(R) for all share-based payments granted after that date, and based on the requirements of Statement of Financial Accounting Standards No.123, “Accounting for Stock Based Compensation” (“SFAS No. 123”) for all unvested awards granted prior to the effective date of SFAS No. 123(R).

SFAS No. 123(R) eliminates the intrinsic value measurement method of accounting in APB Opinion 25 and generally requires measuring the cost of the employee services received in exchange for an award of equity instruments based on the fair value of the award on the date of the grant. The standard requires grant date fair value to be estimated using either an option-pricing model which is consistent with the terms of the award or a market observed price, if such a price exists. Such costs must be recognized over the period during which an employee is required to provide service in exchange for the award. The standard also requires estimating the number of instruments that will ultimately be issued, rather than accounting for forfeitures as they occur.

The compensation cost for the Plan was $32,000 for the three-months ended September 30, 2006 and $61,000 for the first nine-months of 2006. No tax benefit was recognized for the incentive stock plan compensation cost. There was no share-based compensation cost capitalized during the first nine months of 2006.

In 2005, the Company accounted for its stock option plans in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”, under which no compensation cost was recognized for stock option awards. Had compensation cost for the Company’s stock option plans been determined according to the methodology of SFAS No. 123, the Company’s pro forma net earnings and basic and diluted earnings per share for the three- and nine-month periods ended September 30, 2005 would have been as follows:
 
   
Three Months Ended
 
Nine Months Ended
 
(Dollars in Thousands, Except per Share Amounts)  
September 30, 2005
 
September 30, 2005
 
Net Income, as reported
 
$
179
 
$
390
 
Deduct: Total stock-based employee compensation expense determined under fair value based methods, net of tax
 
$
(24
)
$
(39
)
               
Pro forma net income
 
$
155
 
$
351
 
Earnings per share:
             
Basic and Diluted - as reported
 
$
.03
 
$
.06
 
Basic and Diluted - pro forma
 
$
.02
 
$
.05
 
 
 
9

 
The fair value of options granted under the Company’s stock option plans was estimated using the Black-Scholes option-pricing model with the following assumptions used:
 
   
 Three Months Ended September 30
 
Nine Months Ended September 30
 
Dollars in Thousands, Except per Share Amounts    
2006
   
2005
   
2006
   
2005
 
Volatility
   
   
47
%
 
54
%
 
47
%
Discount Rate
   
   
4.2
%
 
4.7
%
 
4.2
%
Dividend Yield
   
   
   
   
 
Fair Value
   
 
$
1.25
 
$
1.50
 
$
1.48
 

 
In the first nine months of 2006, the Company issued stock options for 167,500 shares at $2.14 per share, and issued stock options for 140,000 shares at $2.33 per share in the first nine months of 2005. The fair value of options which became fully vested during the first nine months of 2006 was $32,550. The intrinsic value of options exercised during the first nine months of 2006 was $1,479,000.
 
 
 
Number of
Shares
 
Weighted Average
Exercise Price
 
Outstanding, December 31, 2005 (518,333 exercisable)
   
713,333
  $ 2.11  
Granted
   
167,500
    2.14  
Exercised
   
(413,750
)
  2.19  
Surrendered/expired/cancelled
   
(40,000
)
  2.42  
Outstanding, September 30, 2006 ( 178,083 exercisable)
   
427,083
  $ 2.02  

 
Information about stock options as of September 30, 2006:
 
   
Options Outstanding
 
Options Exercisable
 
           
Weighted-
         
Weighted-
 
       
Weighted-
 
Average
     
Weighted-
 
Average
 
       
Average
 
Remaining
     
Average
 
Remaining
 
Range of
 
Number of
 
Exercise
 
Contractual
 
Number of
 
Exercise
 
Contractual
 
Exercise Prices
 
Shares
 
Price
 
Life (Years)
 
Shares
 
Price
 
Life (Years)
 
                           
$1.00 to $1.50
   
95,833
 
$
1.28
   
5.1
   
88,333
 
$
1.26
   
5.5
 
$1.70 to $2.10
   
230,000
   
2.05
   
8.5
   
70,000
   
1.97
   
7.6
 
$2.41 to $2.85
   
81,250
   
2.51
   
8.5
   
   
   
 
$3.06 to $3.50
   
20,000
   
3.16
   
1.2
   
20,000
   
3.16
   
1.2
 
                                       
     
427,083
 
$
2.02
   
7.4
   
178,083
 
$
1.75
   
5.9
 
 
As of September 30, 2006, the total compensation cost related to nonvested awards not yet recognized was $306,890, which is expected to be recognized over a weighted average period of 1.6 years. The aggregate intrinsic value of options outstanding and options exercisable was $1,842,468 and $816,018, respectively, at September 30, 2006.
 
Note 4.       Income Per Common Share

Basic earnings per common share for the periods presented are computed based upon the weighted average number of shares outstanding, adjusted for stock unit grants. Diluted earnings per common share for the periods presented are based on the weighted average shares outstanding, adjusted for stock unit grants and for the assumed exercise of stock options and warrants using the treasury stock method.

10

 
   
Three Months Ended September 30
 
   
Number of Shares
 
   
2006
 
2005
 
Basic
   
7,804,952
   
6,909,360
 
Diluted
   
8,091,372
   
7,626,642
 
 
 

   
Nine Months Ended September 30
 
   
Number of Shares
 
   
2006
 
2005
 
Basic
   
7,360,852
   
6,857,820
 
Diluted
   
7,594,776
   
7,584,103
 

 
The options excluded from the calculation of diluted earnings per share, due to the option price being higher than the share market value is 295,000 at September 30, 2005. There were no options priced higher than the share market value at September 30, 2006.

Note 5.       Long-Term Obligations

   
September 30
 
December 31
 
(Dollars in Thousands)  
2006
 
2005
 
Revolving line of credit
 
$
 
$
3,304
 
Term loan
   
3,930
   
4,465
 
Capital lease obligations
   
225
   
 
9.5% note due 2015
   
17
   
18
 
               
   
$
4,172
 
$
7,787
 
Less current portion
   
(758
)
 
(715
)
   
$
3,414
 
$
7,072
 
 
 
In February 2005, the Company amended a three-year bank credit agreement that was scheduled to expire in December 2007 and extended its maturity to February 28, 2008. Subject to borrowing base limitations, the amended agreement provides (i) an $8,000,000 maximum revolving credit facility for working capital and general corporate purposes and (ii) a $5,001,000 term loan that combined the outstanding principal balance of the existing term loan with additional financing for the purchase of assets of a galvanizing facility (Note 2).

Term loan payments are based on a seven-year amortization schedule with equal monthly payments of principal and interest, and a final balloon payment in February 2008. The term loan may be prepaid without penalty. The revolving line of credit may be paid down without penalty, or additional funds may be borrowed up to the maximum line of credit. At September 30, 2006, the Company had unused borrowing capacity of $7.4 million under the $8.0 million line of credit, based on the underlying borrowing base of accounts receivable and inventory. At September 30, 2006, there were no borrowings outstanding under the bank credit agreement, and $.6 million was reserved for outstanding irrevocable letters of credit to secure payment of current and future workers’ compensation claims.

Substantially all of the Company’s accounts receivable, inventories, fixed assets and the common stock of its subsidiary are pledged as collateral under the agreement, and the credit agreement is secured by a full and unconditional guaranty from NAG. Amounts borrowed under the agreement bear interest at the prime rate of JPMorgan Chase Bank or the LIBOR rate, at the option of the Company, subject to a rate margin adjustment determined by the Company’s consolidated debt service coverage ratio. The interest rate on these borrowings was 8.50% at September 30, 2006. In the event the Company fails to maintain a consolidated debt service coverage
 
11

 
ratio for any fiscal quarter of at least 1.25 to 1.00, the Applicable LIBOR Rate Margin will be increased from 3.0% to 5.75% and the Applicable Prime Rate Margin will be increased from .25% to 3.00%. Thereafter, the increased rate margin will remain in effect until such time as the Company has maintained a consolidated debt service coverage ratio greater than or equal to 1.25 to 1.00 for a subsequent fiscal quarter.

In the event the Company fails to maintain a consolidated EBITDA to capital expenditures plus current maturity of long-term debt ratio for any fiscal quarter of not less than 1.00 to 1.00, the increase in the Applicable LIBOR Rate Margin ranges from 3.75% to 5.75%, and the increase in the Applicable Prime Rate Margin ranges from 1.00% to 3.00%.

The credit agreement requires the Company to maintain compliance with covenant limits for current ratio, debt to tangible net worth ratio, debt service coverage ratio and a capital expenditures ratio. At September 30, 2006, the Company was in compliance with the covenants. The actual financial ratios compared to the required ratios, were as follows: Current Ratio - actual 1.70 versus minimum required of 1.10; Debt to Tangible Net Worth Ratio - actual 1.01 vs. maximum permitted of 2.50; Debt Service Coverage Ratio - actual 3.94 versus minimum permitted of 1.25; Capital Expenditures Coverage Ratio - actual 1.98 versus minimum required of 1.0.

Note 6.       Subordinated Debt

On August 31, 2006, North American Galvanizing & Coatings, Inc. prepaid the $1 million subordinated promissory notes due to mature in February of 2007. In February 2006, the Company offered the noteholders of its $1 million subordinated promissory notes the opportunity to extend the maturity date one year to February 17, 2007. The extension, which was offered on a voluntary basis, was 100% subscribed. The notes were issued with warrants to purchase 666,666 shares of common stock of the Company. All of the warrants were exercised by the holders during the third quarter of 2006, at the exercise price of $.856 per share.

Note 7.       Commitments and Contingencies
The Company has commitments with domestic and foreign zinc producers and brokers to purchase zinc used in its hot dip galvanizing operations. Commitments for the future delivery of zinc reflect rates then quoted on the London Metals Exchange and are not subject to price adjustment or are based on such quoted prices at the time of delivery. At September 30, 2006 the aggregate commitments for the procurement of zinc at fixed prices was approximately $1.0 million. The Company reviews these fixed price contracts for losses using the same methodology employed to estimate the market value of its zinc inventory. The Company had unpriced commitments for the purchase of 3.0 million pounds of zinc at September 30, 2006.

The Company’s financial strategy includes evaluating the selective use of derivative financial instruments to manage zinc and interest costs. As part of its inventory management strategy, the Company expects to continue evaluating hedging instruments to minimize the impact of zinc price fluctuations. The Company had no derivative instruments required to be reported at fair value at September 30, 2006 or December 31, 2005, and did not utilize derivatives in the nine-month period ended September 30, 2006 or the year ended December 31, 2005, except for the forward purchase agreements described above, which are accounted for as normal purchases.

The Company’s total off-balance sheet contractual obligations at September 30, 2006, consist of approximately $1.8 million for long-term operating leases for vehicles, office space, office equipment, galvanizing facilities and galvanizing equipment and approximately $1.0 million for zinc purchase commitments. The various leases for galvanizing facilities, including option renewals, expire from 2006 to 2017. A lease for galvanizing equipment expires in 2007.

On August 30, 2004, the Company was informed by counsel for the Metropolitan Water Reclamation District of Greater Chicago (the “Water District”) that the Water District had, on August 25, 2004 filed a Second Amended Complaint in the United States District Court, Northern District of Illinois, Eastern Division, naming North American Galvanizing & Coatings, Inc. (formerly known as Kinark Corporation) as an added defendant. Counsel for the Water District also gave the Company notice of the Water District’s intent to file (or amend the Complaint
 
 
12

 
to include) a Citizens Suit under the Resource Compensation and Recovery Act (“RCRA”) against North American Galvanizing & Coatings, Inc., pursuant to Section 7002 of RCRA, 42 U.S.C. Section 6972. This Second Amended Complaint seeks enforcement of an August 12, 2004 default judgment in the amount of $1,810,463.34 against Lake River Corporation and Lake River Holding Company, Inc. in connection with the operation of a storage terminal by Lake River Corporation in violation of environmental laws. Lake River Corporation conducted business as a subsidiary of the Company until September 30, 2000, at which time Lake River Corporation was sold to Lake River Holding Company, Inc. and ceased to be a subsidiary of the Company. The Second Amended Complaint asserts that prior to the sale of Lake River Corporation, the Company directly operated the Lake River facility and, accordingly, seeks to have the Court pierce the corporate veil of Lake River Corporation and enforce the default judgment order of August 12, 2004 against the Company. The Company denies the assertions set forth in the Water District’s Complaint and on November 13, 2004 filed a partial motion for dismissal of the Second Amended Complaint.

In December 2004, the Water District filed a Third Amended complaint in the litigation, adding two claims: (1) a common law claim for nuisance; and (2) a claim under the federal Resource Conservation and Recovery Act, in which the Water District argues that the Company is responsible for conditions on the plaintiff’s property that present an “imminent and substantial endangerment to human health and the environment.” In January 2005, the Company filed a partial motion to dismiss the Third Amended Complaint. On April 12, 2005, the Court issued an order denying in part and granting in part the Company’s partial motion to dismiss plaintiff’s third amended complaint. The Company has filed an appeal with the Seventh Circuit Court of Appeals requesting dismissal of the sole CERCLA claim contained in the Third Amended Complaint that was not dismissed by the United States District Court’s April 12, 2005 order. The Water District has also appealed those rulings contained in the April 12, 2005 order that are adverse to the Water District. Meanwhile, litigation in the United States District Court continues.
 
The Company has denied any liability with respect to this claim and intends to vigorously defend this case. At this time, the Company has not determined the amount of any liability that may result from this matter
or whether such liability, if any, would have a material adverse effect on the Company’s financial condition, results of operations, or liquidity.

The Internal Revenue Service is reviewing the Harris County Industrial Development Corporation Adjustable Rate Industrial Development Bonds and compliance with the Internal Revenue Code section (IRC) 144(a)(4)(ii)’s dollar limitation on capital expenditures within a relevant period. The IRS review concerns whether two operating leases commencing in January 2001 are conditional sales contracts, not true leases, according to Revenue Ruling 55-540. Should the Company be completely unsuccessful in its position that the bonds meet the tax-exempt financing requirements, the bonds could lose their tax exempt status, the Company could be required to redeem the bonds, which had a principal balance of $5,390,000 at September 30, 2006, and the Company could be required to pay up to $145,000 in additional income tax on the interest payments made to the bondholders. Management of the Company, based upon their analysis of known facts and circumstances and advice from legal counsel, does not believe that this matter will have a material adverse effect on the results of operations, financial conditions or cash flows of the Company and continues to classify $4,630,000 of the bond liability as long-term according to the original terms of the bond agreement. In addition, management believes the Company has sufficient long-term borrowing capacity to repay the bonds in the unlikely event it is required.

NAG was notified in 1997 by the Illinois Environmental Protection Agency (“IEPA”) that it was one of approximately 60 potentially responsible parties (“PRPs”) under the Comprehensive Environmental Response, Compensation, and Liability Information System (“CERCLIS”) in connection with cleanup of an abandoned site formerly owned by Sandoval Zinc Co. A number of the PRPs have agreed to work together and with IEPA on a voluntary basis. The Company has been and continues to participate in this volunteer group. The group has retained consultants and legal representatives familiar with IEPA regulations. This volunteer group, with its consultants, has cooperated with IEPA in attempting to better define the environmental issues associated with the Sandoval Zinc site. To that extent, this voluntary group prepared and submitted to IEPA in August 2000 a work plan. The purpose of this work plan is to attempt to define the extent of environmental remediation that might be required, assess risks, and review alternatives to addressing potential remediation. The IEPA has yet to respond to
 
 
13

this proposed work plan or suggest any other course of action, and there has been no activity in regards to this issue during 2006. Therefore, the Company has no basis for determining potential exposure and estimated remediation costs at this time.

The Company is committed to complying with all federal, state and local environmental laws and regulations and using its best management practices to anticipate and satisfy future requirements. As is typical in the galvanizing business, the Company will have additional environmental compliance costs associated with past, present and future operations. Management is committed to discovering and eliminating environmental issues as they arise. Because of frequent changes in environmental technology, laws and regulations management cannot reasonably quantify the Company’s potential future costs in this area.

North American Galvanizing & Coatings, Inc. and its subsidiary are parties to a number of other lawsuits and environmental matters which are not discussed herein. Management of the Company, based upon their analysis of known facts and circumstances and reports from legal counsel, does not believe that any other such matter will have a material adverse effect on the results of operations, financial conditions or cash flows of the Company.

Note 8.       Director Stock Unit Program
On January 1, 2005, the Company implemented the Director Stock Unit Program (approved by the stockholders at the Annual Meeting held July 21, 2004) under which a Director is required to defer 50% of his or her board fee and may elect to defer up to 100% of his or her board fee, plus a matching contribution by the Company that varies from 25% to 75% depending on the level of deferral. Such deferrals are converted into a stock unit grant, payable to the Director five years following the year of deferral. For 2005 and 2006, all of the Company’s Outside Directors elected to defer 100% of the annual board fee and the Company’s chief executive officer and Inside Director has elected to defer a corresponding amount of his salary. Outside Directors currently receive an annual fee of $35,000, which includes attendance at board meetings and service on committees of the board.

Information related to fees and salary deferred by the Directors for the three- and nine-month periods ended September 30, 2006 and 2005, are following:
 
   
Three Months Ended September 30
 
Nine Months Ended September 30
 
   
2006
 
2006
 
2006
 
2005
 
Deferred director stock units
   
23,716
   
35,712
   
125,588
   
79,632
 
Average value per stock unit
 
$
4.52
 
$
1.96
 
$
2.80
 
$
2.20
 
 

The value of a stock unit grant is the average of the closing prices for a share of the Company’s stock for the 10 trading days before the date the director fees otherwise would have been payable in cash.

Note 9.       Certain Relationships and Related Transactions
A subsidiary of North American Galvanizing Company (NAGalv-Ohio, Inc.) purchased the after-fabrication hot dip galvanizing assets of Gregory Industries, Inc. located in Canton, Ohio on February 28, 2005. Gregory Industries, Inc. is a manufacturer of products for the highway industry. T. Stephen Gregory, appointed a director of North American Galvanizing & Coatings, Inc. on June 22, 2005 is the chairman of the board and a shareholder of Gregory Industries, Inc. Total sales to Gregory Industries, Inc. for the three-month periods ended September 30, 2006 and 2005 were approximately $645,000 and $465,000, respectively. Total sales to Gregory Industries, Inc. for the nine-month periods ended September 30, 2006 and 2005 were approximately $1,389,000 and $1,018,000, respectively. The amount due from Gregory Industries, Inc. included in trade receivables at September 30, 2006 and December 31, 2005 was $411,000 and $254,000, respectively.

Note 10.     Change in Depreciation Method for Plant and Equipment
Effective in 2001, the Company adopted the units of production method of depreciation for certain equipment at new galvanizing plants and for significant expansions of existing plants. The units of production method of depreciation was based on projected total tonnage to be processed over the estimated lives of the respective plant equipment.
 
14

The straight-line method of depreciation was continued for all other plant and equipment. In recognition of subsequent experience that indicated the equipment being depreciated under the units of production method was affected to a greater extent by age than by the level of production activity taking place within the plants, effective July 1, 2006, the Company changed its depreciation method for these assets, with an aggregate cost basis of $5.9 million, from the units of production method to the straight-line method. This change in accounting estimate effected by a change in accounting principle is preferable because the straight-line method better allocates the cost of these assets to accounting periods in a systematic and rational manner more closely related to the assets’ pattern of consumption.

The impact on the current period earnings from this change, which was applied prospectively beginning July 1, 2006, was a decrease in operating income of $174,000, a decrease in net income of $108,000 and a reduction in basic and diluted earnings per share of $.01 for the three and nine months ended September 30, 2006.
 
Note 11.     Investments
The Company has classified its investments as available-for-sale and records the unrealized holding gains (losses) on these investments as a separate component of Stockholder’s Equity as other comprehensive income. If the Company believes that a decline in the fair value of a security is other than temporary, the cost basis of such security is written down and the loss is reflected as a charge to income. Investment income is recognized on the accrual method. Cost is determined on the specific identification basis in computing realized gains and losses on sales of investments. The Company’s investments consist of debt securities. There is no difference in amortized cost and fair value of the Company’s available-for-sale debt securities at September 30, 2006.
  























15

North American Galvanizing & Coatings, Inc. and Subsidiary

Item 2.       Management’s Discussion and Analysis of Financial Condition and Results of Operations

GENERAL

North American Galvanizing is a leading provider of corrosion protection for iron and steel components fabricated by its customers. Hot dip galvanizing is the process of applying a zinc coating to fabricated iron or steel material by immersing the material in a bath consisting primarily of molten zinc.

Effective in 2001, the Company adopted the units of production method of depreciation, for certain equipment at new galvanizing plants and for significant expansions of existing plants. The units of production method of depreciation was based on projected total tonnage to be processed over the estimated lives of the respective plant equipment. The straight-line method of depreciation was continued for all other plant and equipment. In recognition of subsequent experience that indicated the equipment being depreciated under the units of production method was affected to a greater extent by age than by the level of production activity taking place within the plants, effective July 1, 2006, the Company changed its depreciation method for these assets, with an aggregate cost basis of $5.9 million, from the units of production method to the straight-line method. This change in accounting estimate effected by a change in accounting principle is preferable because the straight-line method better allocates the cost of these assets to accounting periods in a systematic and rational manner more closely related to the assets’ pattern of consumption.
 
The impact on the current period earnings from this change, which was applied prospectively beginning July 1, 2006, was a decrease in operating income of $174,000, a decrease in net income of $108,000 and a reduction in basic and diluted earnings per share of $.01 for the three and nine months ended September 30, 2006.
 
The Company has classified its investments as available-for-sale and records the unrealized holding gains (losses) on these investments as a separate component of Stockholder’s Equity as other comprehensive income. If the Company believes that a decline in the fair value of a security is other than temporary, the cost basis of such security is written down and the loss is reflected as a charge to income. Investment income is recognized on the accrual method. Cost is determined on the specific identification basis in computing realized gains and losses on sales of investments. The Company’s investments consist of debt securities. There is no difference in amortized cost and fair value of the Company’s available-for-sale debt securities at September 30, 2006.

There have been no other changes in critical accounting policies previously disclosed in Form 10-K for the year ended December 31, 2005.

On February 28, 2005, NAGalv-Ohio, Inc., a subsidiary North American Galvanizing Company, purchased the hot-dip galvanizing assets of a galvanizing facility located in Canton, Ohio. The transaction was structured as an asset purchase, pursuant to an Asset Purchase Agreement dated February 28, 2005 by and between NAGalv-Ohio, Inc., and the privately owned Gregory Industries, Inc. for all of the plant, property and equipment of Gregory Industries’ after-fabrication hot dip galvanizing operation. Operating results of the purchased galvanizing business are included in the Company’s financial statements commencing from the date of the purchase on February 28, 2005.

The Company’s galvanizing plants offer a broad line of services including centrifuge galvanizing for small threaded products, sandblasting, chromate quenching, polymeric coatings, and proprietary INFRASHIELDSM Coating Application Systems for polyurethane protective linings and coatings over galvanized surfaces. The Company’s mechanical and chemical engineers provide customized assistance with initial fabrication design, project estimates and steel chemistry selection.

The Company’s galvanizing and coating operations are composed of eleven facilities located in Colorado, Kentucky, Missouri, Ohio, Oklahoma, Tennessee and Texas. These facilities operate galvanizing kettles ranging in length from 16 feet to 62 feet, and have lifting capacities ranging from 12,000 pounds to 40,000 pounds.


16


The Company maintains a sales and service network coupled with its galvanizing plants, supplemented by national account business development at the corporate level. In a typical year, the Company will galvanize in excess of 365,000,000 pounds of steel products for approximately 2,000 customers nationwide.

All of the Company’s sales are generated for customers whose end markets are principally in the United States. The Company markets its galvanizing and coating services directly to its customers and does not utilize agents or distributors. Although hot dip galvanizing is considered a mature service industry, the Company is actively engaged in developing new markets through participation in industry trade shows, metals trade associations and presentation of technical seminars by its national marketing service team.

Hot dip galvanizing provides metals corrosion protection for many product applications used in commercial, construction and industrial markets. The Company’s galvanizing can be found in almost every major application and industry that requires corrosion protection where iron or steel is used, including the following end user markets:
 
·     
highway and transportation,
·     
power transmission and distribution,
·     
wireless and telecommunications,
·     
utilities,
·     
petrochemical processing,
·     
industrial grating,
·     
infrastructure including buildings, airports, bridges and power generation;
·     
wastewater treatment,
·     
fresh water storage and transportation;
·     
pulp and paper,
·     
pipe and tube,
·     
food processing,
·     
agricultural (irrigation systems),
·     
recreation (boat trailers, marine docks, stadium scaffolds),
·     
bridge and pedestrian handrail,
·     
commercial and residential lighting poles, and
·     
original equipment manufactured products, including general fabrication.

As a value-added service provider, the Company’s revenues are directly influenced by the level of economic activity in the various end markets that it serves. Economic activity in those markets that results in the expansion and/or upgrading of physical facilities (i.e., construction) may involve a time-lag factor of several months before translating into a demand for galvanizing fabricated components. Despite the inherent seasonality associated with large project construction work, the Company maintains a relatively stable revenue stream throughout the year by offering fabricators, large and small, reliable and rapid turn-around service.

The Company records revenues when the galvanizing and coating processes are completed. The Company generates all of its operating cash from such revenues, and utilizes a line of credit secured by the underlying accounts receivable and zinc inventory to facilitate working capital needs.

Each of the Company’s galvanizing plants operate in a highly competitive environment underscored by pricing pressures, primarily from other public and privately-owned galvanizers and alternative forms of corrosion protection, such as paint. The Company’s long-term response to these challenges has been a sustained strategy focusing on providing a reliable quality of galvanizing to standard industry technical specifications and rapid turn-around time on every project, large and small. Key to the success of this strategy is the Company’s continuing commitment and long-term record of reinvesting earnings to upgrade its galvanizing facilities and provide technical
 
 
17

 
innovations to improve production efficiencies; and to construct new facilities when market conditions present opportunities for growth. The Company is addressing long-term opportunities to expand its galvanizing and coatings business through programs to increase industry awareness of the proven, unique benefits of galvanizing for metals corrosion protection. Each of the Company’s galvanizing plants is linked to a centralized system involving sales order entry, facility maintenance and operating procedures, quality assurance, purchasing and credit and accounting that enable the plant to focus on providing galvanizing and coating services in the most cost-effective manner.

The principal raw materials essential to the Company’s galvanizing and coating operations are zinc and various chemicals which are normally available for purchase in the open market.

Key Indicators

Key industries which historically have provided the Company some indication of the potential demand for galvanizing in the near-term, (i.e., primarily within a year) include highway and transportation, power transmission and distribution, telecommunications and the level of quoting activity for regional metal fabricators. In general, growth in the commercial/industrial sectors of the economy generates new construction and capital spending which ultimately impacts the demand for galvanizing.
 
Key operating measures utilized by the Company include new orders, zinc inventory, tons of steel galvanized, revenue, pounds and labor costs per hour, zinc usage related to tonnage galvanized, and lost-time safety performance. These measures are reported and analyzed on various cycles, including daily, weekly and monthly.

The Company utilizes a number of key financial measures to evaluate the operations at each of its galvanizing plants, to identify trends and variables impacting operating productivity and current and future business results, which include: return on capital employed, sales, gross profit, fixed and variable costs, selling and general administrative expenses, operating cash flows, capital expenditures, interest expense, and a number of ratios such as profit from operations and accounts receivable turnover. These measures are reviewed by the Company’s operating and executive management each month, or more frequently, and compared to prior periods, the current business plan and to standard performance criteria, as applicable.

Key Developments

During the period of January, 2003 through February 2005, the Company reported a number of developments supporting its strategic program to reposition its galvanizing business in the national market.
 
On February 28, 2005, NAGalv-Ohio, Inc., a subsidiary of North American Galvanizing Company, purchased the hot-dip galvanizing assets of a galvanizing facility located in Canton, Ohio. The transaction was structured as an asset purchase, pursuant to an Asset Purchase Agreement dated February 28, 2005 by and between NAGalv-Ohio, Inc., and the privately owned Gregory Industries, Inc. for all of the plant, property, and equipment of Gregory Industries’ after-fabrication hot dip galvanizing operation. Operating results of the purchased galvanizing business are included in the Company’s financial statements commencing from the date of purchase on February 28, 2005.
 
This strategic expansion provides NAG an important, established customer base of major fabricators serving industrial, OEM, and highway markets as well as residential and commercial markets for lighting poles. Canton’s 52 foot long dipping kettle is designed to handle large steel structures, such as bridge beams, utility poles and other steel structural components that require galvanizing for extended-life corrosion protection. The Canton plant also processes small parts used in construction, such as nuts and anchor rods, in a dedicated facility with a smaller 16 foot dipping kettle and a spinner operation.
 
In January 2003, the Company opened its St. Louis galvanizing plant, replacing a smaller plant at the same location. This larger facility is providing NAG a strategic base for extending its geographic area of service. A 51-foot kettle at this facility provides the largest galvanizing capacity in the St. Louis region. In 2004, production tonnage at St. Louis
 
18

 
more than doubled compared to production at the plant it replaced.
 
In January 2003, the Company expanded services at its Nashville galvanizing plant with the announced installation of a state-of-the-art spinner line to galvanize small products, including bolts and threaded material.
 

RESULTS OF OPERATIONS

The following table shows the Company’s results of operations for the three- and nine-month periods ended September 30, 2006 and 2005:

   
(Dollars in thousands)
 
   
Three Months Ended September 30,
 
   
2006
 
2005
 
       
% of
     
% of
 
   
Amount
 
Sales
 
Amount
 
Sales
 
                   
Sales
 
$
20,155
   
100.0
%
$
12,687
   
100.0
%
Cost of sales
   
15,109
   
75.0
%
 
9,721
   
76.6
%
Gross profit
   
5,046
   
25.0
%
 
2,966
   
23.4
%
                           
Selling, general and administrative expenses
   
2,119
   
10.5
%
 
1,778
   
14.0
%
Depreciation and amortization
   
842
   
4.2
%
 
600
   
4.7
%
Operating income
   
2,085
   
10.3
%
 
588
   
4.6
%
                           
Interest expense
   
172
   
0.9
%
 
285
   
2.2
%
Income before income taxes
   
1,913
   
9.5
%
 
303
   
2.4
%
Income tax expense
   
809
   
4.0
%
 
124
   
1.0
%
                           
Net income
 
$
1,104
   
5.5
%
$
179
   
1.4
%
                           


   
(Dollars in thousands)
 
   
Nine Months Ended September 30,
 
   
2006
 
2005
 
       
% of
     
% of
 
   
Amount
 
Sales
 
Amount
 
Sales
 
                   
Sales
 
$
53,793
   
100.0
%
$
34,768
   
100.0
%
Cost of sales
   
38,811
   
72.1
%
 
26,254
   
75.5
%
Gross profit
   
14,982
   
27.9
%
 
8,514
   
24.5
%
                           
Selling, general and administrative expenses
   
6,206
   
11.5
%
 
5,209
   
15.0
%
Depreciation and amortization
   
2,134
   
4.0
%
 
1,865
   
5.4
%
Operating income
   
6,642
   
12.3
%
 
1,440
   
4.1
%
                           
Interest expense
   
651
   
1.2
%
 
788
   
2.3
%
Income before income taxes
   
5,991
   
11.1
%
 
652
   
1.9
%
Income tax expense
   
2,462
   
4.6
%
 
262
   
0.8
%
                           
Net income
 
$
3,529
   
6.6
%
$
390
   
1.1
%
                           
 

 
19

2006 COMPARED TO 2005

Sales.  Sales for the three-months and nine-months ended September 30, 2006 increased 59% and 55%, respectively, over the prior year. The main reason for the increase in third quarter revenues was a higher average sales price and a 4% increase in volume. Sales prices have increased primarily in response to increases in zinc costs. The increase in revenues for the first nine months is due to a higher average sales price and a 13% increase in volume over the same period in 2005.

For 2006, average selling prices for galvanizing and related coating services were 53% higher than the prior year third quarter and 37% higher than the first nine months of 2005. The London Metals Exchange (LME) market price for zinc in the first nine months of 2006 averaged $1.34 per pound, compared to $.59 in the first nine months of 2005. At September 30, 2006 the LME market price for zinc was $1.52 per pound.

The Canton, Ohio galvanizing facility was purchased on February 28, 2005. The results for the first nine months of 2006 include nine months for Ohio versus only seven months in the first nine months of 2005. The impact of Ohio revenue on variances other than price and volume of third quarter and first nine-month total revenues, current to prior year, is minimal.

Gross Profit.  For the quarter ended September 30, 2006, gross profit was $5.0 million compared to $3.0 million for the third quarter of 2005. The Company’s ability to increase average selling prices due to zinc cost increases had a favorable impact on gross profit of $1.8 million. Increased volumes for the quarter of 4% contributed $.2 million to gross profit. In total, other manufacturing costs were in line with the prior year third quarter. Favorable cost variances on labor and energy were offset by increased spending on plant overhead, primarily for repairs and maintenance.

Pricing on the Company’s zinc purchases during the three-months ended September 30, 2006 did not vary significantly from current market prices. During the six-months ended June 30, 2006, the favorable impact from forward purchases of zinc at prices lower than current market contributed $2.9 million to gross profit.

The gross profit for the nine-months ended September 30, 2006 increased $6.5 million from the same prior year period. In addition to the favorable impact from forward purchases of zinc, gross profit increased due to increases in average selling prices, $2.4 million, and increased volumes, $1.7 million. Cost increases in plant overhead, primarily repairs and maintenance, reduced gross profit for the nine months ended September 30 by $.5 million compared to the same period in 2005.

Selling, General and Administrative (SG&A) Expenses.  SG&A increased $.3 million, or 19%, in the third quarter of 2006 compared to the prior year, but decreased as a percentage of revenues from 14.0% in 2005 to 10.5% in 2006.
In the first nine months of 2006, SG&A increased $1 million, or 19%, compared to the same period in the prior year, but decreased as a percentage of revenues from 15% in 2005 to 11.5% in 2006. Increases in both periods were primarily due to increases in personnel costs, 7.7%, information technology and outsourced services related to Sarbanes-Oxley 404 compliance efforts, 5.0%, board of director fees, 3.3%, legal fees related to the Lake River litigation, 2.4%, and other increases, .6%.

Depreciation and Amortization.  Depreciation increased $.2 million for the three-months and increased $.3 million for the nine-months ended September 30, 2006 compared to the same prior year periods, primarily resulting from a change in depreciation method. For newer galvanizing facilities, the Company previously used the units of production method for machinery and equipment. Effective July 1, 2006, the Company changed methods to the straight-line method.

Interest Expense.  Interest expense decreased $.1 million for the three-months and nine-months ended September 30, 2006 compared to the same prior year periods, due to decreased debt outstanding resulting from the payment of long-term debt obligations and the August 31, 2006 payment of the subordinated notes payable.
 
20

Income Taxes.  The Company’s effective income tax rates for the third quarter of 2006 and 2005 were 42.3% and 40.9%, respectively. For the nine months ended September 30, 2006 and 2005, the effective tax rates were 41.1% and 40.2%, respectively. The effective tax rates differ from the federal statutory rate primarily due to state income taxes and minor adjustments to previous tax estimates based on actual tax returns filed.

Net Income.  For the third quarter of 2006, the Company reported net income of $1.1 million compared to net income of $.2 million for the third quarter of 2005. The increase in net income for the third quarter of 2006 versus the prior year is due to an increase in average selling prices and volume.

For the nine months ended September 30, 2006, the Company’s net income was $3.5 million compared to $.4 million for the nine months ended September 30, 2005. The increase in net income for the nine-months ended September 30, 2006 compared to the same prior year period is due to an increase in average selling prices and volume, and purchases of zinc at prices lower than current market.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s cash flow from operations and borrowings under credit facilities have consistently been adequate to fund its current facilities’ working capital and base capital spending requirements. During 2006 and 2005, operating cash flow and borrowings under credit facilities have been the primary sources of liquidity. The Company monitors working capital and planned capital spending to assess liquidity and minimize cyclical cash flow.

Cash provided by operating activities was $5.0 million for the nine months ended September 30, 2006, compared to $4.2 million in the same prior year period, reflecting higher net income offset by a decrease in net deferred tax liabilities and a net cash outflow of $.2 million from other operating assets and liabilities compared to a net cash inflow of $1.3 million in the prior year.

Cash used in investing activities during the nine months ended September 30, 2006, totaled $2.0 million compared to $4.8 million in the same prior year period. The Company invested $4.2 million in the first nine months of 2005 to acquire certain assets of Gregory Industries’ Inc. Investing activities in the first nine months of 2006 included the purchase of investments in debt securities totaling $1.0 million. Additionally, capital expenditures for the first nine months of 2006 increased by $.3 million compared to the same period in 2005.

Cash used in financing activities for the nine months ended September 30, 2006 totaled $4.3 million primarily due to the payment on long-term obligations of $3.9 million and early redemption of the $1 million in subordinated notes payable scheduled to mature in February of 2007, offset by $.8 million received from the exercise of stock options.

In February 2005, the Company amended the three-year bank credit agreement that was scheduled to expire in December 2007 and extended its maturity to February 28, 2008. Subject to borrowing base limitations, the amended agreement provided (i) an $8,000,000 maximum revolving credit facility for working capital and general corporate purposes and (ii) a $5,001,000 term loan that combined the outstanding principal balance of the existing term loan with additional financing for the purchase of assets of a galvanizing facility (Note 2). Term loan payments are based on a seven-year amortization schedule with equal monthly payments of principal and interest, and a final balloon payment in February 2008. The term loan may be prepaid without penalty. The revolving line of credit may be paid down without penalty, or additional funds may be borrowed up to the maximum line of credit. At September 30, 2006, the Company had unused borrowing capacity of $7.4 million under the line of credit, based on the underlying borrowing base of accounts receivable and inventory. At September 30, 2006, there were no borrowings outstanding under the bank credit agreement, and $.6 million was reserved for outstanding irrevocable letters of credit to secure payment of current and future workers’ compensation claims.

Substantially all of the Company’s accounts receivable, inventories, fixed assets and the common stock of its subsidiary are pledged as collateral under the agreement, and the credit agreement is secured by a full and
 
 
21

 
unconditional guaranty from NAG. Amounts borrowed under the agreement bear interest at the prime rate of JPMorgan Chase Bank or the LIBOR rate, at the option of the Company, subject to a rate margin adjustment determined by the Company’s consolidated debt service coverage ratio. The interest rate on these borrowings was 8.50% at September 30, 2006. In the event the Company fails to maintain a consolidated debt service coverage ratio for any fiscal quarter of at least 1.25 to 1.00, the Applicable LIBOR Rate Margin will be increased from 3.0% to 5.75% and the Applicable Prime Rate Margin will be increased from .25% to 3.00%. Thereafter, the increased rate margin will remain in effect until such time as the Company has maintained a consolidated debt service coverage ratio greater than or equal to 1.25 to 1.00 for a subsequent fiscal quarter.

In the event the Company fails to maintain a consolidated EBITDA to capital expenditures plus current maturity of long-term debt ratio for any fiscal quarter of not less than 1.00 to 1.00, the increase in the Applicable LIBOR Rate Margin ranges from 3.75% to 5.75%, and the increase in the Applicable Prime Rate Margin ranges from 1.00% to 3.00%.

The credit agreement requires the Company to maintain compliance with covenant limits for current ratio, debt to tangible net worth ratio, debt service coverage ratio and a capital expenditures ratio. At September 30, 2006, the Company was in compliance with the covenants. The actual financial ratios compared to the required ratios, were as follows: Current Ratio - actual 1.70 versus minimum required of 1.10; Debt to Tangible Net Worth Ratio - actual 1.01 vs. maximum permitted of 2.50; Debt Service Coverage Ratio - actual 3.94 versus minimum permitted of 1.25; Capital Expenditures Coverage Ratio - actual 1.98 versus minimum required of 1.0.

The Company has various commitments primarily related to long-term debt, industrial revenue bonds, operating lease commitments, zinc purchase commitments and vehicle operating leases. The Company’s total off-balance sheet contractual obligations at September 30, 2006, consist of approximately $1.8 million for long-term operating leases for vehicles, office space, office equipment, galvanizing facilities and galvanizing equipment and approximately $1.0 million for zinc purchase commitments. The various leases for galvanizing facilities, including option renewals, expire from 2006 to 2017. A lease for galvanizing equipment expires in 2007. NAG periodically enters into fixed price purchase commitments with domestic and foreign zinc producers to purchase a portion of its requirements for its hot dip galvanizing operations; commitments for the future delivery of zinc can be for up to one year.

ENVIRONMENTAL MATTERS
 
The Company’s facilities are subject to extensive environmental legislation and regulations affecting their operations and the discharge of wastes. The cost of compliance with such regulations in the first nine months of 2006 and 2005 was approximately $948,000 and $953,000, respectively, for the disposal and recycling of wastes generated by the galvanizing operations.

On August 30, 2004, the Company was informed by counsel for the Metropolitan Water Reclamation District of Greater Chicago (the “Water District”) that the Water District had, on August 25, 2004 filed a Second Amended Complaint in the United States District Court, Northern District of Illinois, Eastern Division, naming North American Galvanizing & Coatings, Inc. (formerly known as Kinark Corporation) as an added defendant. Counsel for the Water District also gave the Company notice of the Water District’s intent to file (or amend the Complaint to include) a Citizens Suit under the Resource Compensation and Recovery Act (“RCRA”) against North American Galvanizing & Coatings, Inc., pursuant to Section 7002 of RCRA, 42 U.S.C. Section 6972. This Second Amended Complaint seeks enforcement of an August 12, 2004 default judgment in the amount of $1,810,463.34 against Lake River Corporation and Lake River Holding Company, Inc. in connection with the operation of a storage terminal by Lake River Corporation in violation of environmental laws. Lake River Corporation conducted business as a subsidiary of the Company until September 30, 2000, at which time Lake River Corporation was sold to Lake River Holding Company, Inc. and ceased to be a subsidiary of the Company. The Second Amended Complaint asserts that prior to the sale of Lake River Corporation, the Company directly operated the Lake River facility and, accordingly, seeks to have the Court pierce the corporate veil of Lake River Corporation and enforce the default judgment order of August 12, 2004 against the Company. The Company denies the assertions set forth in the Water District’s Complaint and on November 13, 2004 filed a partial motion for dismissal of the Second Amended Complaint.
 
22

In December 2004, the Water District filed a Third Amended complaint in the litigation, adding two claims: (1) a common law claim for nuisance; and (2) a claim under the federal Resource Conservation and Recovery Act, in which the Water District argues that the Company is responsible for conditions on the plaintiff’s property that present an “imminent and substantial endangerment to human health and the environment.” In January 2005, the Company filed a partial motion to dismiss the Third Amended Complaint. On April 12, 2005, the Court issued an order denying in part and granting in part the Company’s partial motion to dismiss plaintiff’s third amended complaint. The Company has filed an appeal with the Seventh Circuit Court of Appeals requesting dismissal of the sole CERCLA claim contained in the Third Amended Complaint that was not dismissed by the United States District Court’s April 12, 2005 order. The Water District has also appealed those rulings contained in the April 12, 2005 order that are adverse to the Water District. Meanwhile, litigation in the United States District Court continues.
 
The Company has denied any liability with respect to this claim and intends to vigorously defend this case. At this time, the Company has not determined the amount of any liability that may result from this matter or whether such liability, if any, would have a material adverse effect on the Company’s financial condition, results of operations, or liquidity.

NAG was notified in 1997 by the Illinois Environmental Protection Agency (“IEPA”) that it was one of approximately 60 potentially responsible parties (“PRPs”) under the Comprehensive Environmental Response, Compensation, and Liability Information System (“CERCLIS”) in connection with cleanup of an abandoned site formerly owned by Sandoval Zinc Co. A number of the PRPs have agreed to work together and with IEPA on a voluntary basis. The Company has been and continues to participate in this volunteer group. The group has retained consultants and legal representatives familiar with IEPA regulations. This volunteer group, with its consultants, has cooperated with IEPA in attempting to better define the environmental issues associated with the Sandoval Zinc site. To that extent, this voluntary group prepared and submitted to IEPA in August 2000 a work plan. The purpose of this work plan is to attempt to define the extent of environmental remediation that might be required, assess risks, and review alternatives to addressing potential remediation. The IEPA has yet to respond to this proposed work plan or suggest any other course of action, and there has been no activity in regards to this issue during 2006. Therefore, the Company has no basis for determining potential exposure and estimated remediation costs at this time.

The Company is committed to complying with all federal, state and local environmental laws and regulations and using its best management practices to anticipate and satisfy future requirements. As is typical in the galvanizing business, the Company will have additional environmental compliance costs associated with past, present and future operations. Management is committed to discovering and eliminating environmental issues as they arise. Because of frequent changes in environmental technology, laws and regulations management cannot reasonably quantify the Company’s potential future costs in this area.

North American Galvanizing & Coatings, Inc. and its subsidiary are parties to a number of other lawsuits and environmental matters which are not discussed herein. Management of the Company, based upon their analysis of known facts and circumstances and reports from legal counsel, does not believe that any such matter will have a material adverse effect on the results of operations, financial conditions or cash flows of the Company.

Item 3.       Quantitative and Qualitative Disclosures About Market Risk

The Company’s operations include managing market risks related to changes in interest rates and zinc commodity prices.

Interest Rate Risk. The Company is exposed to financial market risk related to changes in interest rates. Changing interest rates will affect interest paid on the Company’s variable rate debt. At September 30, 2006, the Company’s outstanding debt of $9.6 million consisted of the following: Variable rate debt aggregating $3.9 million under the bank credit agreement, with an effective rate of 8.50%; variable rate debt of $5.4 million under the industrial revenue
 
 
23

 
bond agreement, with an effective rate of 3.5%; and capital lease obligations of $.2 million. The borrowings under all of the Company’s debt obligations at September 30, 2006 are due as follows: $.4 million in 2006; $1.5 million in 2007; $3.9 million in 2008 and $3.8 million in years 2009 through 2013. Each increase of 10 basis points in the effective interest rate would result in an annual increase in interest charges on variable rate debt of approximately $9,600 based on September 30, 2006 outstanding borrowings. The actual effect of changes in interest rates is dependent on actual amounts outstanding under the various loan agreements. The Company monitors interest rates and has sufficient flexibility to renegotiate the loan agreement, without penalty, in the event market conditions and interest rates change.

Zinc Price Risk. NAG periodically enters into fixed price purchase commitments with domestic and foreign zinc producers to purchase a portion of its zinc requirements for its hot dip galvanizing operations. Commitments for the future delivery of zinc, typically up to one (1) year, reflect rates quoted on the London Metals Exchange. At September 30, 2006, the aggregate fixed price commitments for the procurement of zinc were approximately $1.0 million (Note 7). With respect to these zinc fixed price purchase commitments, a hypothetical decrease of 10% in the market price of zinc from the September 30, 2006 level represented a potential lost gross margin opportunity of approximately $100,000.
 
The Company’s financial strategy includes evaluating the selective use of derivative financial instruments to manage zinc and interest costs. As part of its inventory management strategy, the Company recognizes that hedging instruments may be effective in minimizing the impact of zinc price fluctuations. The Company’s current zinc forward purchase commitments are considered derivatives, but the Company has elected to account for these purchase commitments as normal purchases.

Item 4.       Controls and Procedures

As of the end of the period covered by this report, management, including our chief executive officer and chief financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based upon, and as of the date of, the evaluation, our chief executive officer and chief financial officer concluded that the disclosure controls and procedures were effective, in all material respects, to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required.

The Company’s certifying officers have indicated that there were no significant changes in internal controls over financial reporting that have occurred during the fiscal quarter ended September 30, 2006 that materially affected, or were reasonably likely to materially affect, internal controls over financial reporting.

Part II        Other Information

Item 1.       Legal Proceedings.

On August 30, 2004, the Company was informed by counsel for the Metropolitan Water Reclamation District of Greater Chicago (the “Water District”) that the Water District had, on August 25, 2004 filed a Second Amended Complaint in the United States District Court, Northern District of Illinois, Eastern Division, naming North American Galvanizing & Coatings, Inc. (formerly known as Kinark Corporation) as an added defendant. Counsel for the Water District also gave the Company notice of the Water District’s intent to file (or amend the Complaint to include) a Citizens Suit under the Resource Compensation and Recovery Act (“RCRA”) against North American Galvanizing & Coatings, Inc., pursuant to Section 7002 of RCRA, 42 U.S.C. Section 6972. This Second Amended Complaint seeks enforcement of an August 12, 2004 default judgment in the amount of $1,810,463.34 against Lake River Corporation and Lake River Holding Company, Inc. in connection with the operation of a storage terminal by Lake River Corporation in violation of environmental laws. Lake River Corporation conducted business as a subsidiary of the Company until September 30, 2000, at which time Lake River Corporation was sold to Lake River Holding Company, Inc. and ceased to be a subsidiary of the Company. The Second Amended Complaint asserts that prior to the sale of Lake River Corporation, the Company directly operated the Lake River facility and, accordingly, seeks to have the Court pierce the corporate veil of Lake River Corporation and enforce the default judgment order of August 12, 2004 against the Company. The Company denies the assertions set forth in the Water District’s Complaint and on November 13, 2004 filed a partial motion for dismissal of the Second Amended Complaint.
 
24

 
In December 2004, the Water District filed a Third Amended complaint in the litigation, adding two claims: (1) a common law claim for nuisance; and (2) a claim under the federal Resource Conservation and Recovery Act, in which the Water District argues that the Company is responsible for conditions on the plaintiff’s property that present an “imminent and substantial endangerment to human health and the environment.” In January 2005, the Company filed a partial motion to dismiss the Third Amended Complaint. On April 12, 2005, the Court issued an order denying in part and granting in part the Company’s partial motion to dismiss plaintiff’s third amended complaint. The Company has filed an appeal with the Seventh Circuit Court of Appeals requesting dismissal of the sole CERCLA claim contained in the Third Amended Complaint that was not dismissed by the United States District Court’s April 12, 2005 order. The Water District has also appealed those rulings contained in the April 12, 2005 order that are adverse to the Water District. Meanwhile, litigation in the United States District Court continues.
 
The Company has denied any liability with respect to this claim and intends to vigorously defend this case. At this time, the Company has not determined the amount of any liability that may result from this matter or whether such liability, if any, would have a material adverse effect on the Company’s financial condition, results of operations, or liquidity.

The Internal Revenue Service is reviewing the Harris County Industrial Development Corporation Adjustable Rate Industrial Development Bonds and compliance with the Internal Revenue Code section (IRC) 144(a)(4)(ii)’s dollar limitation on capital expenditures within a relevant period. The IRS review concerns whether two operating leases commencing in January 2001 are conditional sales contracts, not true leases, according to Revenue Ruling 55-540. Should the Company be completely unsuccessful in its position that the bonds meet the tax-exempt financing requirements, the bonds could lose their tax exempt status, the Company could be required to redeem the bonds, which had a principal balance of $5,390,000 at September 30, 2006, and the Company could be required to pay up to $145,000 in additional income tax on the interest payments made to the bondholders. Management of the Company, based upon their analysis of known facts and circumstances and advice from legal counsel, does not believe that this matter will have a material adverse effect on the results of operations, financial conditions or cash flows of the Company and continues to classify $4,630,000 of the bond liability as long-term according to the original terms of the bond agreement. In addition, management believes the Company has sufficient long-term borrowing capacity to repay the bonds in the unlikely event it is required.

North American Galvanizing & Coatings, Inc. and its subsidiary are parties to a number of other lawsuits and environmental matters which are not discussed herein. Management of the Company, based upon their analysis of known facts and circumstances and reports from legal counsel, does not believe that any such matter will have a material adverse effect on the results of operations, financial conditions or cash flows of the Company.

Item 1A.     Risk Factors.

There are no material changes from risk factors as previously disclosed in the Company’s Annual Report on Form 10-K filed on February 10, 2006.

Item 2.        Unregistered Sales of Equity Securities and Use of Proceeds - Not applicable.

Item 3.        Defaults Upon Senior Securities - Not applicable.

Item 4.        Submission of Matters to a Vote of Security Holders - Not applicable.

25

Item 5.        Other Information - Not applicable.

Item 6.        Exhibits.

 
(a)   Exhibits

   
3.1
The Company’s Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Pre-Effective Amendment No. 1 to Registration Statement on Form S-3 (Reg. No. 333-4937) filed on June 7, 1996).

3.2
The Company’s Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q dated September 30, 1996).

10.5
2004 Incentive Stock Plan 
 
18
Letter regarding Change in Accounting Principle
 
31.1
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
   
32
Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

99
Cautionary Statements by the Company Related to Forward-Looking Statements.
 
SIGNATURES

Pursuant to the requirements of Section 13 and 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized:
 
     
  NORTH AMERICAN GALVANIZING & COATINGS, INC.
  (Registrant)
 
 
 
 
 
 
Date:   October 31, 2006 By:   /s/ Beth B. Hood 
 
Vice President and
Chief Financial Officer
(Principal Financial Officer)
 
 



 
26

EX-10.5 2 exh10-5_14667.htm 2004 INCENTIVE STOCK PLAN WWW.EXFILE.COM, INC. -- 14667 -- NORTH AMERICAN GALVANIZING AND COATINGS, INC. -- EXHIBIT 10.5 TO FORM 10-Q
EXHIBIT  10.5
 
 
 
 
 
 
 
 
 
NORTH AMERICAN GALVANIZING & COATINGS, INC.
 
2004 INCENTIVE STOCK PLAN

(amended and Restated As of October 1, 2006)
 
 
 
 
 
 
 
 
 

TABLE OF CONTENTS
1
BACKGROUND AND PURPOSE
1
2
DEFINITIONS
1
2.1
Affiliate
1
2.2
Board
2
2.3
Change Effective Date
2
2.4
Change in Control
2
2.5
Code
4
2.6
Committee
4
2.7
Company
4
2.8
Director
4
2.9
Director Stock Unit Program
5
2.10
Eligible Employee
5
2.11
Fair Market Value
5
2.12
ISO
5
2.13
1933 Act
5
2.14
1934 Act
6
2.15
Non-ISO
6
2.16
Option
6
2.17
Option Certificate
6
2.18
Option Price
6
2.19
Parent
6
2.20
Plan
6
2.21
Preexisting Plan
6
2.22
Rule 16b-3
6
2.23
SAR Value
7
2.24
Stock
7
2.25
Stock Appreciation Right
7
2.26
Stock Appreciation Right Certificate
7
2.27
Stock Grant
7
2.28
Stock Grant Certificate
8
2.29
Stock Unit Grant
8
2.30
Subsidiary
8
 
 
 
 
 

TABLE OF CONTENTS
 
 
 
2.31
Ten Percent Shareholder
8
3
SHARES AND GRANT LIMITS
8
3.1
Shares Reserved
8
3.2
Source of Shares
9
3.3
Use of Proceeds
9
3.4
Grant Limits
10
3.5
Preexisting Plan
10
4
EFFECTIVE DATE
10
5
COMMITTEE
10
6
ELIGIBILITY AND ANNUAL GRANT CAPS
11
7
OPTIONS
11
7.1
Committee Action
11
7.2
$100,000 Limit
12
7.3
Option Price
12
7.4
Payment
13
7.5
Exercise
13
7.6
Compliance With Section 409A of the Code
14
8
STOCK APPRECIATION RIGHTS
15
8.1
Committee Action
15
8.2
Terms and Conditions
15
8.3
Exercise
17
8.4
Compliance With Section 409A of the Code
17
§ 9
STOCK GRANTS
18
9.1
Committee Action
18
9.2
Conditions
18
9.3
Dividends, Voting Rights and Creditor Status
20
9.4
Satisfaction of Forfeiture Conditions
22
9.5
Income Tax Deduction
22
9.6
Director Stock Unit Program
24
 
 
 

TABLE OF CONTENTS
 
9.7
Compliance With Section 409A of the Code
24
10
NON-TRANSFERABILITY
26
11
SECURITIES REGISTRATION
26
12
LIFE OF PLAN
27
13
ADJUSTMENT
28
13.1
Capital Structure
28
13.2
Transactions Described in § 424
28
13.3
Fractional Shares
29
13.4
Compliance With Section 409A of the Code
29
14
CHANGE IN CONTROL
30
15
AMENDMENT OR TERMINATION
30
16
MISCELLANEOUS
31
16.1
Shareholder Rights
31
16.2
No Contract of Employment
31
16.3
Withholding
32
16.4
Construction
32
16.5
Other Conditions
32
16.6
Rule 16b-3
33


 
The purpose of this Plan is to promote the interest of the Company by authorizing the Committee to grant Options and Stock Appreciation Rights and to make Stock Grants and Stock Unit Grants to Eligible Employees and Directors in order (1) to attract and retain Eligible Employees and Directors, (2) to provide an additional incentive to each Eligible Employee or Director to work to increase the value of Stock and (3) to provide each Eligible Employee or Director with a stake in the future of the Company which corresponds to the stake of each of the Company’s shareholders.  This document is an amendment and complete restatement of the Plan effective as of October 1, 2006.   
Any grant of an Option or Stock Appreciation Right under this Plan is intended to meet the requirements under Section 409A of the Code for a non-statutory stock option, an incentive stock option or a stock appreciation right that does not provide for a deferral of compensation.  Any Stock Grant or Stock Unit Grant under this Plan is intended to meet the requirements of Section 409A of the Code for a short-term deferral that does not provide for a deferral of compensation.  The provisions of

the Plan shall be construed to be consistent with the intent that the Plan not be treated as a plan providing for the deferral of compensation within the meaning of Section 409A.  The amendments with respect to Section 409A are to be considered effective as of January 1, 2005.
2.1                Affiliate.  – means any organization (other than a Subsidiary) that would be treated as under common control with the Company under § 414(c) of the Code if “50 percent” were substituted for “80 percent” in the income tax regulations under § 414(c) of the Code.
2.2                Board.  – means the Board of Directors of the Company.
2.3                Change Effective Date.  – means either the date which includes the “closing” of the transaction which makes a Change in Control effective if the Change in Control is made effective through a transaction which has a “losing” or the date a Change in Control is reported in accordance with applicable law as effective to the Securities and Exchange Commission if the Change in Control is made effective other than through a transaction which has a “closing”.
2.4                Change in Control.  – means a change in control of the Company of a nature that would be required to be reported in response to item 6(e) of Schedule 14A of Regulation 14A promulgated under the 1934 Act as in effect at the time of such “change in control”, provided that such a change in control shall be deemed to have occurred at such time as
(a)                 any “person” (as that term is used in Sections 13(d) and 14(d)(2)of the 1934 Act), is or becomes the beneficial owner (as defined in Rule 13d-3 under the 1934 Act) directly or indirectly, of securities representing 30% or more of the combined voting power for election of directors of the then outstanding securities of the Company or any successor to the Company;

(b)                 during any period of two consecutive years or less, individuals who at the beginning of such period constitute the Board cease, for any reason, to constitute at least a majority of the Board, unless the election or nomination for election of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period;
(c)                 the shareholders of the Company approve any reorganization, merger, consolidation or share exchange as a result of which the common stock of the Company shall be changed, converted or exchanged into or for securities of another corporation (other than a merger with a wholly-owned subsidiary of the Company) or any dissolution or liquidation of the Company or any sale or the disposition of 50% or more of the assets or business of the Company; or
(d)                 shareholders of the Company approve any reorganization, merger, consolidation or share exchange unless (A) the persons who were the beneficial owners of the outstanding shares of the common stock of the Company immediately before the consummation of such transaction beneficially own more than 60% of the outstanding shares of the common stock of the successor or survivor corporation in such transaction immediately following the consummation of such transaction and (B) the number of shares of the common stock of such successor or survivor corporation beneficially owned by the persons described in § 2.4(d)(A) immediately following the consummation of such transaction is beneficially owned by each such person in substantially the same proportion that each such person had beneficially owned shares of the Company common stock immediately before the consummation of such transaction, provided (C) the percentage described in § 2.4(d)(A) of the

beneficially owned shares of the successor or survivor corporation and the number described in § 2.4 (d)(B) of the beneficially owned shares of the successor or survivor corporation shall be determined exclusively by reference to the shares of the successor or survivor corporation which result from the beneficial ownership of shares of common stock of the Company by the persons described in § 2.4(d)(A) immediately before the consummation of such transaction.
2.5                Code.  – means the Internal Revenue Code of 1986, as amended.
2.6                Committee.  – means a committee of the Board which shall have at least 2 members, each of whom shall be appointed by and shall serve at the pleasure of the Board and shall come within the definition of a “non-employee director” under Rule 16b-3 and an “outside director” under § 162(m) of the Code.
2.7                Company.  – means North American Galvanizing & Coatings, Inc. and any successor to North American Galvanizing & Coatings, Inc.
2.8                Director.  – means any member of the Board who is not an employee of the Company or a Parent or Subsidiary or affiliate (as such term is defined in Rule 405 of the 1933 Act) of the Company.
2.9                Director Stock Unit Program.  – means the North American Galvanizing & Coatings, Inc. Director Stock Unit Program as effective as of the date approved by the shareholders of the Company and as amended from time to time thereafter.
2.10              Eligible Employee.  – means an employee of the Company or any Subsidiary or Parent or Affiliate to whom the Committee decides for reasons sufficient to the Committee to make a grant under this Plan.

2.11              Fair Market Value.  – means either (a) the closing price on any date for a share of Stock as reported by The Wall Street Journal or, if The Wall Street Journal no longer reports such closing price, such closing price as reported by a newspaper or trade journal selected by the Committee or, if no such closing price is available on such date, (b) such closing price as so reported in accordance with § 2.10(a) for the immediately preceding business day, or, if no newspaper or trade journal reports such closing price or if no such price quotation is available, (c) the price which the Committee acting in good faith determines through any reasonable valuation method that a share of Stock might change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of the relevant facts.  Such valuations shall always be determined in a manner consistent with the requirements of Section 409A of the Code.
2.12              ISO.  – means an option granted under this Plan to purchase Stock which is intended to satisfy the requirements of § 422 of the Code.
2.13              1933 Act.  – means the Securities Act of 1933, as amended.
2.14              1934 Act.  – means the Securities Exchange Act of 1934, as amended.
2.15              Non-ISO.  – means an option granted under this Plan to purchase Stock which is intended to fail to satisfy the requirements of § 422 of the Code.
2.16              Option.  – means an ISO or a Non-ISO which is granted under § 7.
2.17              Option Certificate.  – means the certificate (whether in electronic or written form) which sets forth the terms and conditions of an Option granted under this Plan.

2.18              Option Price.  – means the price which shall be paid to purchase one share of Stock upon the exercise of an Option granted under this Plan.
2.19              Parent.  – means any corporation which is a parent corporation (within the meaning of 424(e) of the Code) of the Company.
2.20              Plan.  – means this North American Galvanizing & Coatings, Inc. 2004 Incentive Stock Plan as effective as of the date approved by the shareholders of the Company and as amended from time to time thereafter.
2.21              Preexisting Plan.  – means each of the following plans, as each such plan has been amended from time to time up to the date this Plan is effective:  (1) the North American Galvanizing & Coatings, Inc. 1996 Stock Option Plan and (2) the North American Galvanizing & Coatings, Inc. 1988 Stock Option Plan.
2.22              Rule 16b-3.  – means the exemption under Rule 16b-3 to Section 16(b) of the 1934 Act or any successor to such rule.
2.23              SAR Value.  – means the value assigned by the Committee to a share of Stock in connection with the grant of a Stock Appreciation Right under § 8.
2.24              Stock.  – means the $0.10 par value common stock of the Company that is readily tradable on an established securities market, or if none, that class of common stock having the greatest aggregate value of common stock issued and outstanding.  Under no circumstances shall Stock include stock that is subject to a mandatory repurchase obligation or a put or call right that is not a lapse restriction as defined in the regulations under Section 83 of the Code and that is based on a measure other the Fair Market Value of the equity interest in the corporation represented by the stock. 

2.25              Stock Appreciation Right.  – means a right which is granted under § 8 to receive the appreciation in a share of Stock.
2.26              Stock Appreciation Right Certificate.  – means the certificate (whether in electronic or written form) which sets forth the terms and conditions of a Stock Appreciation Right which is not granted as part of an Option.
2.27              Stock Grant.  – means a grant under Section 9 which is designed to result in the issuance of the number of shares of Stock described in the grant (and cash in lieu of any fractional share) after conditions stated in the Stock Grant Certificate are satisfied. The stock described in the grant may, in the discretion of the Committee, be issued to the Eligible Employee or Director before the stock grant becomes non-forfeitable under the terms of the grant.
2.28              Stock Grant Certificate.  – means the certificate (whether in electronic or written form) which sets forth the terms and conditions of a Stock Grant or a Stock Unit Grant.
2.29              Stock Unit Grant.  – means a grant under Section 9 which is designed to result in the payment of shares of Stock described in the grant (and cash in lieu of any fractional share) after any conditions stated in the Stock Grant Certificate are satisfied.
2.30              Subsidiary.  – means a corporation which is a subsidiary corporation (within the meaning of § 424(f) of the Code) of the Company.
2.31              Ten Percent Shareholder.  – means a person who owns (after taking into account the attribution rules of § 424(d) of the Code) more than ten percent of the total combined voting power of all classes of stock of either the Company, a Subsidiary or Parent.

3.1                Shares Reserved.  There shall (subject to § 13) be reserved for issuance under this Plan (a) 1,250,000 shares of Stock, 489,667 of which were authorized for issuance under the North American Galvanizing & Coatings, Inc. 1996 Stock Option Plan and would have remained authorized and available for issuance under such plan if shares were issued under such plan on the effective date of this Plan sufficient to satisfy all then outstanding grants under such plan plus (b) the number of shares of Stock subject to grants under each Preexisting Plan which are outstanding on the effective date of this Plan and which are forfeited or expire on or after such effective date in accordance with the terms of such grants; provided, however, only the shares of Stock described in § 3.1(a) shall be issued in connection with the exercise of ISOs and nothing in this Plan shall affect any grants under a Preexisting Plan which are outstanding on the effective date of this Plan until such time, if any, that any shares of Stock subject to such grants are forfeited or grants respecting any shares of Stock expire on or after such effective date in accordance with the terms of such grants.
3.2                Source of Shares.  The shares of Stock described in § 3.1 shall be reserved to the extent that the Company deems appropriate from authorized but unissued shares of Stock and from shares of Stock which have been reacquired by the Company.  All shares of Stock described in § 3.1 shall remain available for issuance under this Plan until issued pursuant to the exercise of an Option or a Stock Appreciation Right or issued pursuant to a Stock Grant, and any such shares of stock which are issued pursuant to an Option, a Stock Appreciation Right or a Stock Grant which are forfeited thereafter shall again become available for issuance under this Plan.  Finally, if the Option Price under an Option is paid in whole or in part in shares of Stock or if shares of Stock are tendered to the Company in satisfaction of any condition to a Stock Grant, such shares thereafter shall become

available for issuance under this Plan and shall be treated the same as any other shares available for issuance under this Plan.
3.3                Use of Proceeds.  The proceeds which the Company receives from the sale of any shares of Stock under this Plan shall be used for general corporate purposes and shall be added to the general funds of the Company.
3.4                Grant Limits.  No Eligible Employee or Director in any calendar year shall be granted an Option to purchase (subject to § 13) more than 100,000 shares of Stock or a Stock Appreciation Right based on the appreciation with respect to (subject to § 13) more than 100,000 shares of Stock, and no Stock Grant or Stock Unit Grant shall be made to any Eligible Employee or Director in any calendar year where the Fair Market Value of the Stock subject to such grant on the date of the grant exceeds $100,000; provided, however, that this limit shall not apply to a Stock Unit Grant made pursuant to the Director Stock Unit Program.  No more than 100,000 non-forfeitable shares of Stock shall (subject to § 13) be issued pursuant to Stock Grants or Stock Unit Grants under § 9; provided, however, that no non-forfeitable shares of Stock issued pursuant to Stock Unit Grants under the Director Stock Unit Program shall be counted in determining whether this 100,000 share limitation has been reached.
3.5                Preexisting Plan.  No grants shall be made under any Preexisting Plan on or after the date this Plan becomes effective.
The effective date of this Plan shall be the date the shareholders of the Company (acting at a duly called meeting of such shareholders) approve the adoption of this Plan.

This Plan shall be administered by the Committee.  The Committee acting in its absolute discretion shall exercise such powers and take such action as expressly called for under this Plan and, further, the Committee shall have the power to interpret this Plan and (subject to § 14 and § 15 and Rule 16b-3) to take such other action in the administration and operation of this Plan as the Committee deems equitable under the circumstances, which action shall be binding on the Company, on each affected Eligible Employee or Director and on each other person directly or indirectly affected by such action.  Furthermore, the Committee as a condition to making any grant under this Plan to any Eligible Employee or Director shall have the right to require him or her to execute an agreement which makes the Eligible Employee or Director subject to non-competition provisions and other restrictive covenants which run in favor of the Company.
Only Eligible Employees who are employed by the Company or a Subsidiary or Parent shall be eligible for the grant of ISOs under this Plan.  All Eligible Employees and Directors shall be eligible for the grant of Non-ISOs and Stock Appreciation Rights and for Stock Grants and Stock Unit Grants under this Plan.
7.1                Committee Action.  The Committee acting in its absolute discretion shall have the right to grant Options to Eligible Employees and to Directors under this Plan from time to time to purchase shares of Stock, but the Committee shall not, absent the approval of the Company’s shareholders, take any action, whether through amendment, cancellation, replacement grants, or any other means, to reduce the Option Price of any outstanding Options.  Each grant of an Option to a Eligible Employee or Director shall be evidenced by an Option Certificate, and each Option Certificate shall set forth whether the Option is an ISO or a Non-ISO and shall set forth such other terms and conditions of such grant as the Committee acting in its absolute discretion deems consistent

with the terms of this Plan; however, (a) if the Committee grants an ISO and a Non-ISO to a Eligible Employee on the same date, the right of the Eligible Employee to exercise the ISO shall not be conditioned on his or her failure to exercise the Non-ISO and (b) if the only condition to exercise of the Option is the completion of a period of service, such period of service shall be no less than the one (1) year period which starts on the date as of which the Option is granted, unless the Committee determines that a shorter period of service (or no period of service) better serves the Company’s interest.
7.2                $100,000 Limit.  No Option shall be treated as an ISO to the extent that the aggregate Fair Market Value of the Stock subject to the Option which would first become exercisable in any calendar year exceeds $100,000.  Any such excess shall instead automatically be treated as a Non-ISO.  The Committee shall interpret and administer the ISO limitation set forth in this § 7.2 in accordance with § 422(d) of the Code, and the Committee shall treat this § 7.2 as in effect only for those periods for which § 422(d) of the Code is in effect.
7.3                Option Price.  The Option Price for each share of Stock subject to an Option shall be no less than the Fair Market Value of a share of Stock on the date the Option is granted; provided, however, if the Option is an ISO granted to an Eligible Employee who is a Ten Percent Shareholder, the Option Price for each share of Stock subject to such ISO shall be no less than 110% of the Fair Market Value of a share of Stock on the date such ISO is granted.
7.4                Payment.  The Option Price shall be payable in full upon the exercise of any Option and, at the discretion of the Committee, an Option Certificate can provide for the payment of the Option Price either in cash, by check or in Stock which has been held for at least 6 months and which is acceptable to the Committee, or through any cashless exercise procedure which is effected by an unrelated broker through a sale of Stock in the open market and which is acceptable to the Committee,

or in any combination of such forms of payment.  Any payment made in Stock shall be treated as equal to the Fair Market Value of such Stock on the date the certificate for such Stock (or proper evidence of such certificate) is presented to the Committee or its delegate in such form as acceptable to the Committee.
(a)                 Exercise Period. Each Option granted under this Plan shall be exercisable in whole or in part at such time or times as set forth in the related Option Certificate, but no Option Certificate shall make an Option exercisable on or after the earlier of
(1)                 the date which is the fifth anniversary of the date the Option is granted, if the Option is an ISO and the Eligible Employee is a Ten Percent Shareholder on the date the Option is granted, or
(2)                 the date which is the tenth anniversary of the date the Option is granted, if the Option is (a) a Non-ISO or (b) an ISO which is granted to an Eligible Employee who is not a Ten Percent Shareholder on the date the Option is granted.
(b)                 Termination of Status as Eligible Employee or Director.  Subject to § 7.5(a), an Option Certificate may provide for the exercise of an Option after an Eligible Employee’s or a Director’s status as such has terminated for any reason whatsoever, including death or disability.
7.6                Compliance With Section 409A of the Code.  The Options granted under this Plan are intended to be non-statutory stock options or incentive stock options that do not provide for a deferral of compensation within the meaning of Section 409A of the Code, and all the provisions of

this Plan shall be construed accordingly.  As provided in Section 7.3, the Option Price shall never be less than the Fair Market Value of a share of Stock on the date the Option is granted.  The transfer or exercise of non-statutory options will be subject to taxation under Section 83 of the Code.  The Option will not include any feature for the deferral of compensation beyond the date the Option is exercised or disposed of or the date the Stock acquired pursuant to the exercise of the Option first becomes substantially vested within the meaning of Section 83 of the Code.  Upon exercising the Option, the Option holder will receive the Stock subject to the Option or payment for the stock as soon as practicable but in any event on or before the end of the taxable year in which the Option is exercised or on or before the 15th day of the third month following the date of  exercise, if later.  No modification of the Option shall be allowed if the resulting Option would provide for a deferral of compensation within the meaning of Section 409A of the Code.  No Option holder will be entitled to receive dividends on the Stock subject to an Option unless the right to dividends is explicitly set forth in a separate agreement.
8.1                Committee Action.  The Committee acting in its absolute discretion shall have the right to grant Stock Appreciation Rights to Eligible Employees and to Directors under this Plan from time to time, and each Stock Appreciation Right grant shall be evidenced by a Stock Appreciation Right Certificate or, if such Stock Appreciation Right is granted as part of an Option, shall be evidenced by the Option Certificate for the related Option.
(a)                 Stock Appreciation Right Certificate.  If a Stock Appreciation Right is granted independent of an Option, such Stock Appreciation Right shall be evidenced by a

Stock Appreciation Right Certificate, and such certificate shall set forth the number of shares of Stock on which the Eligible Employee’s or Director’s right to appreciation shall be based and the SAR Value of each share of Stock.  Such SAR Value shall be no less than the Fair Market Value of a share of Stock on the date that the Stock Appreciation Right is granted.  The Stock Appreciation Right Certificate shall set forth such other terms and conditions for the exercise of the Stock Appreciation Right as the Committee deems appropriate under the circumstances, but no Stock Appreciation Right Certificate shall make a Stock Appreciation Right exercisable on or after the date which is the tenth anniversary of the date such Stock Appreciation Right is granted.
(b)                 Option Certificate.  If a Stock Appreciation Right is granted together with an Option, such Stock Appreciation Right shall be evidenced by an Option Certificate, the number of shares of Stock on which the Eligible Employee’s or Director’s right to appreciation shall be based shall be the same as the number of shares of Stock subject to the related Option, and the SAR Value for each such share of Stock shall be no less than the Option Price under the related Option.  Each such Option Certificate shall provide that the exercise of the Stock Appreciation Right with respect to any share of Stock shall cancel the Eligible Employee’s or Director’s right to exercise his or her Option with respect to such share and, conversely, that the exercise of the Option with respect to any share of Stock shall cancel the Eligible Employee’s or Director’s right to exercise his or her Stock Appreciation Right with respect to such share.  A Stock Appreciation Right which is granted as part of an Option shall be exercisable only while the related Option is exercisable.  The Option Certificate shall

set forth such other terms and conditions for the exercise of the Stock Appreciation Right as the Committee deems appropriate under the circumstances.
(c)                 Minimum Period of Service.  If the only condition to exercise of a Stock Appreciation Right is the completion of a period of service, such period of service shall be no less than the one (1) year period which starts on the date as of which the Stock Appreciation Right is granted, unless the Committee determines that a shorter period of service (or no period of service) better serves the Company’s interest.
8.3                Exercise.  A Stock Appreciation Right shall be exercisable only when the Fair Market Value of a share of Stock on which the right to appreciation is based exceeds the SAR Value for such share, and the payment due on exercise shall be based on such excess with respect to the number of shares of Stock to which the exercise relates.  An Eligible Employee or Director upon the exercise of his or her Stock Appreciation Right shall receive a payment from the Company in cash or in Stock issued under this Plan, or in a combination of cash and Stock, and the number of shares of Stock issued shall be based on the Fair Market Value of a share of Stock on the date the Stock Appreciation Right is exercised.  The Committee acting in its absolute discretion shall have the right to determine the form and time of any payment under this § 8.3.
8.4                Compliance With Section 409A of the Code.  The Stock Appreciation Rights granted under this Plan are intended to be stock appreciation rights that do not provide for a deferral of compensation within the meaning of Section 409A of the Code, and all the provisions of this Plan shall be construed accordingly. Compensation payable under the Stock Appreciation Right cannot, therefore, be greater than the difference between the Fair Market Value of the Stock on the date of grant and the Fair Market Value of the Stock on the date the Stock Appreciation Right  is exercised with respect to a number of shares of Stock fixed on or before the date the Stock Appreciation right is

granted.  As provided in Section 8.2, the SAR Value of each share of Stock subject to a Stock Appreciation Right shall never be less than the Fair Market Value of a share of Stock on the date the Stock Appreciation Right is granted.  The Stock Appreciation Right will not include any feature for the deferral of compensation beyond the date the Stock Appreciation Right is exercised.  Upon exercising the Stock Appreciation Right, the holder will receive payment pursuant to the right as soon as practicable but in any event on or before the end of the taxable year in which the Stock Appreciation Right is exercised or on or before the 15th day of the third month following the date of exercise, if later.  No modification of the Stock Appreciation Right shall be allowed if the resulting Stock Appreciation Right would provide for a deferral of compensation within the meaning of Section 409A of the Code.  No Stock Appreciation Right holder will be entitled to receive dividends on the Stock subject to a Stock Appreciation Right unless the right to dividends is explicitly set forth in a separate arrangement.
9.1                Committee Action.  The Committee acting in its absolute discretion shall have the right to make Stock Grants and Stock Unit Grants to Eligible Employees and to Directors.  Each Stock Grant and each Stock Unit Grant shall be evidenced by a Stock Grant Certificate, and each Stock Grant Certificate shall set forth the conditions, if any, under which Stock will be issued under the Stock Grant or the Stock Unit Grant and the conditions under which the Eligible Employee’s or Director’s interest in any Stock which has been or may be issued under a Stock Grant will become non-forfeitable.

(a)                 Conditions to Issuance of Stock.  The Committee acting in its absolute discretion may make the issuance of Stock under a Stock Grant or Stock Unit Grant subject to the satisfaction of one, or more than one, condition which the Committee deems appropriate under the circumstances for Eligible Employees or Directors generally or for an Eligible Employee or a Director in particular, and the related Stock Grant Certificate shall set forth each such condition and the deadline for satisfying each such condition.  Stock subject to a Stock Grant or Stock Unit Grant shall be issued in the name of an Eligible Employee or Director only after each such condition, if any, has been timely satisfied, and any Stock which is issued under a Stock Grant shall be held by the Company pending the satisfaction of the forfeiture conditions, if any, under § 9.2(b) for the related Stock Grant.
(b)                 Conditions on Forfeiture of Stock.  The Committee acting in its absolute discretion may make any Stock issued in the name of an Eligible Employee or Director under a Stock Grant non-forfeitable subject to the satisfaction of one, or more than one, objective employment, performance or other condition that the Committee acting in its absolute discretion deems appropriate under the circumstances for Eligible Employees or Directors generally or for an Eligible Employee or a Director in particular, and the related Stock Grant Certificate shall set forth each such condition, if any, and the deadline, if any, for satisfying each such condition.  An Eligible Employee’s or a Director’s non-forfeitable interest in the shares of Stock underlying a Stock Grant shall depend on the extent to which he or she timely satisfies each such condition.  Each share of Stock underlying a Stock Grant shall not be available under § 3 after such grant is effective until such time, if any, as such share thereafter is forfeited as a result of a failure to timely satisfy a forfeiture condition, in which event

such share of Stock shall again become available under § 3 as of the date of such forfeiture.  Finally, the Company shall have the right to require an Eligible Employee or Director to sign an irrevocable stock power in favor of the Company with respect to forfeitable shares of Stock issued under this § 9.2(b) in order for the Company to effect a forfeiture in accordance with this § 9.2(b).
(c)                 Minimum Period of Service.  If the only condition to the forfeiture of a Stock Grant or a Stock Unit Grant is the completion of a period of service, such period of service shall be no less than the three (3) year period which starts on the date as of which the Stock Grant or Stock Unit Grant is made, unless the Committee determines that a shorter period of service (or no period of service) better serves the Company’s interest.
(a)                 Cash Dividends.  Except as otherwise set forth in a Stock Grant, if a dividend is paid in cash on a share of Stock after such Stock has been issued under a Stock Grant but before the first date that an Eligible Employee’s or a Director’s interest in such Stock (1) is forfeited completely or (2) becomes completely non-forfeitable, the Company shall pay such cash dividend directly to such Eligible Employee or Director.
(b)                 Stock Dividends.  If a dividend is paid on a share of Stock in Stock after such Stock has been issued under a Stock Grant but before the first date that an Eligible Employee’s or a Director’s interest in such Stock (1) is forfeited completely or (2) becomes completely non-forfeitable, the Company shall hold such dividend Stock subject to the same conditions under § 9.2(b) as the related Stock Grant.

(c)                 Other.  If a dividend (other than a dividend described in § 9.3(a) or § 9.3(b)) is paid with respect to a share of Stock after such Stock has been issued under a Stock Grant but before the first date that an Eligible Employee’s or a Director’s interest in such Stock (1) is forfeited completely or (2) becomes completely non-forfeitable, the Company shall distribute or hold such dividend in accordance with such rules as the Committee shall adopt with respect to each such dividend.
(d)                 Voting.  Except as otherwise set forth in a Stock Grant, an Eligible Employee or a Director shall have the right to vote the Stock issued under his or her Stock Grant during the period which comes after such Stock has been issued under a Stock Grant but before the first date that an Eligible Employee’s or Director’s interest in such Stock (1) is forfeited completely or (2) becomes completely non-forfeitable.
(e)                 General Creditor Status.  An Eligible Employee and a Director to whom a Stock Unit grant is made shall be no more than a general and unsecured creditor of the Company with respect to any cash payable under such Stock Unit Grant.
9.4                Satisfaction of Forfeiture Conditions.  A share of Stock shall cease to be subject to a Stock Grant at such time as an Eligible Employee’s or a Director’s interest in such Stock becomes non-forfeitable under this Plan, and the certificate or other evidence of ownership representing such share shall be transferred to the Eligible Employee or Director as soon as practicable thereafter.
(a)                 General.  The Committee shall (where the Committee under the circumstances deems in the Company’s best interest) make Stock Grants and Stock Unit Grants to Eligible Employees either (1) subject to at least one condition related to one, or more

than one, performance goal based on the performance goals described in § 9.5(b) which seems likely to result in the Stock Grant or Stock Unit Grant qualifying as “performance-based compensation” under § 162(m) of the Code or (2) under such other circumstances as the Committee deems likely to result in an income tax deduction for the Company with respect such Stock Grant or Stock Unit Grant.  A performance goal may be set in any manner determined by the Committee, including looking to achievement on an absolute or relative basis in relation to peer groups or indexes.
(b)                 Performance Goals.  A performance goal is described in this § 9.5(b) if such goal relates to (1) the Companys return over capital costs or increases in return over capital costs, (2) the Company’s total earnings or the growth in such earnings, (3) the Company’s consolidated earnings or the growth in such earnings, (4) the Company’s earnings per share or the growth in such earnings, (5) the Company’s net earnings or the growth in such earnings, (6) the Company’s earnings before interest expense, taxes, depreciation, amortization and other non-cash items or the growth in such earnings, (7) the Company’s earnings before interest and taxes or the growth in such earnings, (8) the Company’s consolidated net income or the growth in such income, (9) the value of the Company’s common stock or the growth in such value, (10) the Company’s stock price or the growth in such price, (11) the Company’s return on assets or the growth on such return, (12) the Company’s cash flow or the growth in such cash flow, (13) the Company’s total shareholder return or the growth in such return, (14) the Company’s expenses or the reduction of such expenses, (15) the Company’s sales growth, (16) the Company’s overhead ratios or changes in such

ratios, (17) the Company’s expense-to-sales ratios or the changes in such ratios, or (18) the Company’s economic value added or changes in such value added.
(c)                 Adjustments.  In setting performance goals, the Committee may exclude from consideration before the performance period begins any or all “extraordinary items” as determined under U.S. generally accepted accounting principles and any other unusual or non-recurring items, including, without limitation, the charges or costs associated with restructurings of the Company, discontinued operations, and the cumulative effects of accounting changes.  Payment of a Stock Grant or a Stock Unit Grant shall not be conditioned upon the attainment of a performance goal unless the failure to obtain the goal presents a substantial risk of forfeiture within the meaning of the regulations under Section 409A of the Code.
9.6                Director Stock Unit Program.  The Company at the direction of the Committee may establish a revocable “rabbi trust” which is a part of this Plan and the Director Stock Unit Program and transfer a number of shares of Stock to the trustee of such trust which matches the number of Stock Unit Grants made pursuant to the Director Stock Unit Program if a determination is made that such transfers will minimize or eliminate the adverse financial accounting consequences, if any, to the Company as a result of Stock Unit Grants made pursuant to the Director Stock Unit Program.
9.7                Compliance with Section 409A of the Code.  It is intended that the Stock Grants and Stock Units Grants under this Plan shall not provide for a deferral of compensation within the meaning of Section 409A of the Code, and all the provisions of this Plan shall be construed accordingly.  If the Stock Grant or Stock Unit Grant is not subject to a substantial risk of forfeiture, as that term is defined in the regulations under Section 409A, the Stock or cash shall be paid as soon as practicable after the grant is made but in any event on or before March 15th of the year following the

year in which the grant is made.  If the Stock Grant or Stock Unit Grant is subject to a substantial risk of forfeiture, as that term is defined in the regulations under section 409A, the Stock or cash shall be paid as soon as practicable after the forfeiture conditions are satisfied but in any event on or before March 15 of the following year.   Notwithstanding the foregoing, a payment of Stock or cash will be delayed if the Company reasonably anticipates that the Company’s income tax deductions with respect to the payment will be limited by Section 162(m) of the Code.  Any payment so delayed will be made at the earliest date at which the Company reasonably anticipates the deduction of the payment will not be limited or the calendar year in which the Eligible Employee or Director separates from service.  In addition, a payment of Stock or cash will be delayed if the Company reasonably anticipates that the making of the payment will violate a term of a loan agreement to which the Company is a party, or other similar contract to which the Company is a party if such violation will cause material harm to the Company.  Any payment so delayed will be made at the earliest date at which the Company reasonably anticipates that the payment will not cause such violation or that the violation will not cause material harm to the Company.  In addition, a payment of Stock or cash will be delayed if the Company reasonably anticipates that the payment will violate Federal securities laws or other applicable law.  Any payment so delayed will be paid at the earliest date at which the Company reasonably anticipates that the payment will not cause such a violation.  Finally, the Company may delay a payment upon such other events and conditions as the Internal Revenue Service may prescribe in generally applicable guidance.  No modification of the Stock Grant or Stock Unit Grant shall be allowed if the resulting Stock Grant or Stock Unit Grant would provide for a deferral of compensation within the meaning of Section 409A of the Code. 

No Option, Stock Grant, Stock Unit Grant or Stock Appreciation Right shall (absent the Committee’s consent) be transferable by an Eligible Employee or a Director other than by will or by the laws of descent and distribution, and any Option or Stock Appreciation Right shall (absent the Committee’s consent) be exercisable during a Eligible Employee’s or Director’s lifetime only by the Eligible Employee or Director.  The person or persons to whom an Option or Stock Grant or Stock Unit Grant or Stock Appreciation Right is transferred by will or by the laws of descent and distribution (or with the Committee’s consent) thereafter shall be treated as the Eligible Employee or Director.
 
As a condition to the receipt of shares of Stock under this Plan, the Eligible Employee or Director shall, if so requested by the Company, agree to hold such shares of Stock for investment and not with a view of resale or distribution to the public and, if so requested by the Company, shall deliver to the Company a written statement satisfactory to the Company to that effect.  Furthermore, if so requested by the Company, the Eligible Employee or Director shall make a written representation to the Company that he or she will not sell or offer for sale any of such Stock unless a registration statement shall be in effect with respect to such Stock under the 1933 Act and any applicable state securities law or he or she shall have furnished to the Company an opinion in form and substance satisfactory to the Company of legal counsel satisfactory to the Company that such registration is not required.  Certificates or other evidence of ownership representing the Stock transferred upon the exercise of an Option or Stock Appreciation Right or upon the lapse of the forfeiture conditions, if any, on any Stock Grant may at the discretion of the Company bear a legend to the effect that such Stock has not been registered under the 1933 Act or any applicable state securities law and that such Stock cannot be sold or offered for sale in the absence of an effective registration statement as to such Stock under the 1933 Act and any applicable state securities law or an opinion in form and substance satisfactory to the Company of legal counsel satisfactory to the Company that such registration is not required.
 
No Option or Stock Appreciation Right shall be granted or Stock Grant or Stock Unit Grant made under this Plan on or after the earlier of:

(1)                 the tenth anniversary of the effective date of this Plan (as determined under § 4), in which event this Plan otherwise thereafter shall continue in effect until all outstanding Options and Stock Appreciation Rights have been exercised in full or no longer are exercisable and all Stock issued under any Stock Grants under this Plan have been forfeited or have become non-forfeitable, or
(2)                 the date on which all of the Stock reserved under § 3 has (as a result of the exercise of Options or Stock Appreciation Rights granted under this Plan or the satisfaction of the forfeiture conditions, if any, on Stock Grants) been issued or no longer is available for use under this Plan, in which event this Plan also shall terminate on such date.
13.1              Capital Structure.  The number, kind or class (or any combination thereof) of shares of Stock reserved under § 3, the grant caps described in § 3, the number, kind or class (or any combination thereof) of shares of Stock subject to Options or Stock Appreciation Rights granted under this Plan and the Option Price of such Options and the SAR Value of such Stock Appreciation Rights as well as the number, kind or class (or any combination thereof) of shares of Stock subject to Stock Grants or Stock Unit Grants made under this Plan shall be adjusted by the Committee in an equitable manner to reflect any equity restructuring or change in the capitalization of the Company, including, but not limited to, spin offs, stock dividends, large non-reoccurring dividends, rights offerings or stock splits.
13.2              Transactions Described in § 424.  The Committee as part of any corporate transaction described in § 424(a) of the Code shall adjust (in any manner which the Committee in its discretion

deems consistent with § 424(a) of the Code) the number, kind or class (or any combination thereof) of shares of Stock reserved under § 3 and the annual grant caps described in § 3.  Furthermore, the Committee as part of any corporate transaction described in § 424(a) of the Code shall adjust (in any manner which the Committee in its discretion deems consistent with § 424(a) of the Code) the number, kind or class (or any combination thereof) of shares of Stock subject to any outstanding Stock Grants or Stock Unit Grants under this Plan and any related grant conditions and forfeiture conditions, and the number, kind or class (or any combination thereof) of shares subject to Option and Stock Appreciation Right grants previously made under this Plan and the related Option Price and SAR Value for each such Option and Stock Appreciation Right, and, further, shall (in any manner which the Committee in its discretion deems consistent with § 424(a) of the Code and without regard to the annual grant caps described in § 3 of this Plan) make any Stock Grants and Option and Stock Appreciation Right grants to effect the assumption of, or the substitution for, stock grants, stock unit grants and option and stock appreciation right grants previously made by any other corporation to the extent that such corporate transaction calls for such substitution or assumption of such stock grants, stock unit grants and stock option and stock appreciation right grants.
13.3              Fractional Shares.  If any adjustment under this § 13 would create a fractional share of Stock or a right to acquire a fractional share of Stock under any Option, Stock Appreciation Right or Stock Grant, such fractional share shall be disregarded and the number of shares of Stock reserved under this Plan and the number subject to any Options or Stock Appreciation Right grants and Stock Grants shall be the next lower number of shares of Stock, rounding all fractions downward.  An adjustment made under this § 13 by the Committee shall be conclusive and binding on all affected persons.

13.4              Compliance With Section 409A of the Code.  Notwithstanding any other provision in this Section 13, no adjustments shall be made in the provisions of any award under this plan if the adjustment would cause the award to be subject to the compensation deferral rules of Section 409A.
If there is a Change in Control of the Company, then as of the Change Effective Date for such Change in Control any and all conditions to the exercise of all outstanding Options and Stock Appreciation Rights on such date and any and all outstanding issuance and forfeiture conditions on any Stock Grants and Stock Unit Grants on such date automatically shall be deemed 100% satisfied as of such Change Effective Date, and the Board shall have the right (to the extent expressly required as part of such transaction) to cancel such Options, Stock Appreciation Rights, Stock Grants and Stock Unit Grants after providing each Eligible Employee and Director a reasonable period to exercise his or her Options and Stock Appreciation Rights and to take such other action as necessary or appropriate to receive the Stock subject to any Stock Grants and the cash payable under any Stock Unit Grants; provided, if any issuance or forfeiture condition described in this § 14 relates to satisfying any performance goal and there is a target for such goal, such issuance or forfeiture condition shall be deemed satisfied under this § 14 only to the extent of such target unless such target has been exceeded before the Change Effective Date, in which event such issuance or forfeiture condition shall be deemed satisfied to the extent such target had been so exceeded.
 
AMENDMENT OR TERMINATION
This Plan may be amended by the Board from time to time to the extent that the Board deems necessary or appropriate; provided, however, (a) no amendment shall be made absent the approval of the shareholders of the Company to the extent such approval is required under applicable law or the rules of the stock exchange on which shares of Stock are listed and (b) no amendment shall be made to § 14 on or after the date of any Change in Control which might adversely affect any rights which otherwise would vest on the related Change Effective Date.  The Board also may suspend granting Options or Stock Appreciation Rights or making Stock Grants or Stock Unit Grants under this Plan at any time and may terminate this Plan at any time; provided, however, the Board shall not have the right unilaterally to modify, amend or cancel any Option or Stock Appreciation Right granted or Stock Grant made before such suspension or termination unless (1) the Eligible Employee or Director consents in writing to such modification, amendment or cancellation or (2) there is a dissolution or liquidation of the Company or a transaction described in § 13.2 or § 14.

MISCELLANEOUS
16.1              Shareholder Rights.  No Eligible Employee or Director shall have any rights as a shareholder of the Company as a result of the grant of an Option or a Stock Appreciation Right pending the actual delivery of the Stock subject to such Option or Stock Appreciation Right to such Eligible Employee or Director.  Subject to § 9.3, an Eligible Employee’s or a Director’s rights as a shareholder in the shares of Stock underlying a Stock Grant which is effective shall be set forth in the related Stock Grant Certificate.
16.2              No Contract of Employment.  The grant of an Option or a Stock Appreciation Right or a Stock Grant or Stock Unit Grant to an Eligible Employee or Director under this Plan shall not constitute a contract of employment or a right to continue to serve on the Board and shall not confer on an Eligible Employee or Director any rights upon his or her termination of employment or service in addition to those rights, if any, expressly set forth in this Plan or the related Option Certificate, Stock Appreciation Right Certificate, or Stock Grant Certificate.
16.3              Withholding.  Each Option, Stock Appreciation Right, Stock Grant and Stock Unit Grant shall be made subject to the condition that the Eligible Employee or Director consents to whatever action the Committee directs to satisfy the minimum statutory federal and state tax withholding requirements, if any, which the Company determines are applicable to the exercise of such Option or Stock Appreciation Right or to the satisfaction of any forfeiture conditions with respect to Stock subject to a Stock Grant or Stock Unit Grant issued in the name of the Eligible Employee or Director.  No withholding shall be effected under this Plan which exceeds the minimum statutory federal and state withholding requirements.

16.4              Construction.  All references to sections (§) are to sections (§) of this Plan unless otherwise indicated.  This Plan shall be construed under the laws of the State of Delaware.  Each term set forth in § 2 shall, unless otherwise stated, have the meaning set forth opposite such term for purposes of this Plan and, for purposes of such definitions, the singular shall include the plural and the plural shall include the singular.  Finally, if there is any conflict between the terms of this Plan and the terms of any Option Certificate, Stock Appreciation Right Certificate or Stock Grant Certificate, the terms of this Plan shall control.
16.5              Other Conditions.  Each Option Certificate, Stock Appreciation Right Certificate or Stock Grant Certificate may require that an Eligible Employee or a Director (as a condition to the exercise of an Option or a Stock Appreciation Right or the issuance of Stock subject to a Stock Grant) enter into any agreement or make such representations prepared by the Company, including (without limitation) any agreement which restricts the transfer of Stock acquired pursuant to the exercise of an Option or a Stock Appreciation Right or a Stock Grant or provides for the repurchase of such Stock by the Company.
16.6              Rule 16b-3.  The Committee shall have the right to amend any Option, Stock Grant or Stock Appreciation Right to withhold or otherwise restrict the transfer of any Stock or cash under this Plan to an Eligible Employee or Director as the Committee deems appropriate in order to satisfy any condition or requirement under Rule 16b-3 to the extent Rule 16 of the 1934 Act might be applicable to such grant or transfer.

IN WITNESS WHEREOF, the Company has caused its duly authorized officer to execute this Plan to evidence its adoption of this Plan.
 
North American Galvanizing & Coatings, Inc.
By: /s/ Beth B. Hood, Secretary
Date: September  29, 2006

 

EX-18 3 exh-18_14667.htm LETTER REGARDING CHANGE IN ACCOUNTING PRINCIPLE WWW.EXFILE.COM, INC. -- 14667 -- NORTH AMERICAN GALVANIZING AND COATINGS, INC. -- EXHIBIT 18 TO FORM 10-Q
 
EXHIBIT 18
 
 
LETTER REGARDING CHANGE IN ACCOUNTING PRINCIPLE
 
October 31, 2006
 
North American Galvanizing & Coatings, Inc.
5314 S. Yale Avenue, Suite 1000
Tulsa, Oklahoma
 
Dear Sirs/Madams:
 
At your request, we have read the description included in your Quarterly Report on Form 10-Q to the Securities and Exchange Commission for the quarter ended September 30, 2006, of the facts relating to the change in depreciation method for certain equipment from the units of production method to the straight-line method.  We believe, on the basis of the facts so set forth and other information furnished to us by appropriate officials of the Company, that the accounting change described in your Form 10-Q is to an alternative accounting principle that is preferable under the circumstances.
 
We have not audited any consolidated financial statements of North American Galvanizing & Coatings, Inc. and its subsidiary as of any date or for any period subsequent to December 31, 2005.  Therefore, we are unable to express, and we do not express, an opinion on the facts set forth in the above-mentioned Form 10-Q, on the related information furnished to us by officials of the Company, or on the financial position, results of operations, or cash flows of North American Galvanizing & Coatings, Inc. and its subsidiary as of any date or for any period subsequent to December 31, 2005.
 
Yours truly,
 
/s/ DELOITTE & TOUCHE LLP
 







EX-31.1 4 exh31-1_14667.htm 302 CERTIFICATION - C.E.O. WWW.EXFILE.COM, INC. -- 14667 -- NORTH AMERICAN GALVANIZING AND COATINGS, INC. -- EXHIBIT 31.1 TO FORM 10-Q
EXHIBIT 31.1
 
CERTIFICATION PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
 
I, Ronald J. Evans, President and Chief Executive Officer of North American Galvanizing & Coatings, Inc., certify that:
 
1. I have reviewed this quarterly report on Form 10-Q of North American Galvanizing & Coatings, Inc.;
 
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
 
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
 
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrants most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
                                           
 
     
   
 
 
 
 
 
 
Date: October 31, 2006 By:   /s/ Ronald J. Evans
 
Ronald J. Evans
  President and Chief Executive Officer  (Principal Executive Officer)
 
 
EX-31.2 5 exh31-2_14667.htm 302 CERTIFICATION - C.F.O. WWW.EXFILE.COM, INC. -- 14667 -- NORTH AMERICAN GALVANIZING AND COATINGS, INC. -- EXHIBIT 31.2 TO FORM 10-Q
EXHIBIT 31.2
 
CERTIFICATION PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
 
I, Beth B. Hood, Vice President and Chief Financial Officer of North American Galvanizing & Coatings, Inc., certify that:
 
1. I have reviewed this quarterly report on Form 10-Q of North American Galvanizing & Coatings, Inc.;
 
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
 
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
 
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
                                           
 
     
   
 
 
 
 
 
 
Date: October 31, 2006 By:   /s/ Beth B. Hood 
 
Beth B. Hood 
  Title: Vice President and Chief Financial Officer (Principal Financial Officer)
 
 
 
EX-32 6 exh32_14667.htm 906 CERTIFICATION WWW.EXFILE.COM, INC. -- 14667 -- NORTH AMERICAN GALVANIZING AND COATINGS, INC. -- EXHIBIT 32.1 TO FORM 10-Q
EXHIBIT 32
 
CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the Quarterly Report of North American Galvanizing & Coatings, Inc. (the “Company”) on Form 10-Q for the period ending September 30, 2006 as filed with the Securities and Exchange Commission (the “Report”), each of the undersigned hereby certifies in his or her capacity as an office of the Company, pursuant to 18 U.S.C. § 1350, as adopted by § 906 of the Sarbanes-Oxley Act of 2002, that to his or her knowledge:
 
  1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
  2. The information contained in the Report fairly presents, in all material respects, the financial condition and the results of operations of the Company.
 
 
NORTH AMERICAN GALVANIZING & COATINGS, INC.
(Registrant)
 
 
 
/s/ Ronald J. Evans             
President and
Chief Executive Officer
(Principal Executive Officer)
 
 
/s/ Beth B. Hood           
Vice President and
Chief Financial Officer
(Principal Financial Officer)
 
 
 
Date:  October 31, 2006
 

EX-99 7 exh99_14667.htm CAUTIONARY STATEMENTS WWW.EXFILE.COM, INC. -- 14667 -- NORTH AMERICAN GALVANIZING AND COATINGS, INC. -- EXHIBIT 99 TO FORM 10-Q
EXHIBIT 99
 
CAUTIONARY STATEMENTS BY THE COMPANY REGARDING
FORWARD LOOKING STATEMENTS
 
 
Certain statements in this Form 10-Q, including information set forth under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, constitute “forward-looking statements” within the meaning of  Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (together, the “Securities Acts”).  The Securities Acts provide certain “safe harbor” provisions for forward-looking statements.  The Company desires to take advantage of the “safe harbor” provisions of the Securities Acts and is including these cautionary statements (“Cautionary Statements”) pursuant to the Provisions of the Securities Acts with the intention of obtaining the benefits of the “safe harbor” provisions.  In order to comply with the terms of the “safe harbor” in the Securities Acts, the Company cautions investors that forward-looking statements included in this Form 10-K, or hereafter included in other publicly available documents filed with the Securities and Exchange Commission, reports to the Company’s stockholders and other publicly available statements issued or released by the Company involve substantial risks, uncertainties, and other factors which could cause the Company’s actual results, performance (financial or operating) or achievements to differ materially from the future results, performance (financial or operating) or achievements expressed or implied by such forward-looking statements.  The Company believes the following important factors could cause such a material difference to occur:
 
1. 
The Company’s ability to grow through the acquisition and development of galvanizing or the acquisition of ancillary businesses.
 
2. 
The Company’s ability to identify suitable acquisition candidates, to consummate or complete construction projects, or to profitably operate or successfully integrate enterprises into the Company’s other operations.
 
3. 
The Company’s ability to secure the capital and the related cost of such capital necessary to fund its future growth through acquisition and development, as well as internal growth.
 
4. 
The level of competition in the Company’s industries and the possible entry of new, well-capitalized competitors into the Company’s markets.
 
5. 
Uncertainties and changes in environmental compliance costs associated with past, present and future operations.
 
6. 
Uncertainties and changes related to federal, state and local regulatory policies, including environmental laws related to the galvanizing.
 
7. 
The Company’s ability to staff its galvanizing operations appropriately with qualified personnel, including in times of shortages of such personnel and to maintain a satisfactory relationship with labor unions.
 
8. 
The pricing and availability of equipment, materials and inventories, including zinc “pigs”, the major component used in the hot dip galvanizing industry.
 
9. 
Uncertainties and changes in general economic conditions.
 
10. 
Uncertainties and changes in several industries to which the company’s businesses are closely tied, such as highway and transportation, communications and energy.
 
11. 
Performance issues with key suppliers and subcontractors.
 
12. 
Uncertainties related to the retention of key customers in each of the Company’s business segments.
 
The words “believe,” “expect,” “anticipate,” “project,” “plan” and similar expressions identify forward-looking statements.  Investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made.
 
The foregoing review of significant factors should not be construed as exhaustive or as an admission regarding the adequacy of disclosures previously made by the Company.                  
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