The following information should be read in conjunction with the unaudited condensed consolidated financial statements included herein under "Item 1. Financial Statements" and the audited consolidated financial statements and the notes thereto and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K for the year ended November 2, 2008.

OVERVIEW

NCI Building Systems, Inc. (the "Company", "we" or "our") is one of North America's largest integrated manufacturers and marketers of metal products for the nonresidential construction industry. We provide metal coil coating services and design, engineer, manufacture and market metal components and engineered building systems primarily for nonresidential construction use. We manufacture and distribute extensive lines of metal products for the nonresidential construction market under multiple brand names through a nationwide network of plants and distribution centers. We sell our products for both new construction and repair and retrofit applications.

Metal components offers builders, designers, architects and end-users several advantages, including lower long-term costs, longer life, attractive aesthetics and design flexibility. Similarly, engineered building systems offer a number of advantages over traditional construction alternatives, including shorter construction time, more efficient use of materials, lower construction costs, greater ease of expansion and lower maintenance costs.

We assess performance across our business segments by analyzing and evaluating
(i) gross profit, operating income and whether or not each segment has achieved its projected sales goals, and (ii) non-financial efficiency indicators such as revenue per employee, man hours per ton of steel produced and shipped tons per employee. In assessing our overall financial performance, we regard return on adjusted operating assets, as well as growth in earnings per share, as key indicators of shareholder value.

During the second quarter of fiscal 2009, the non-residential construction activity measured in square feet continued to worsen during most of the quarter. McGraw-Hill reported that new construction activity declined 50% for the period of January 2009 through April 2009 compared to the same prior year period, and our traditional commercial and industrial markets declined approximately 60%. The dual effect of an extraordinarily weak economy and the extremely cautious lending posture of the regional banks significantly reduced demand for our products.

These deteriorating market conditions made it clear that we needed to aggressively implement Phase III of our cost reduction program. We completed Phases I and II in February 2009, which should result in a combined annualized savings of approximately $60 million. Once completed, we expect Phase III will result in additional annualized savings of $60 million. This means that we will enter 2010 with approximately 25% fewer plants and approximately 40% fewer employees. We expect to be well-positioned to both sustain a continued depressed non-residential market and benefit from even a modest market improvement in 2010 or 2011.

Steel prices continued to fall during our second quarter of fiscal 2009 reaching levels that we have not seen in four years. Over the longer term, we believe that lower steel prices will positively impact demand for our products. However, in the short term, lower steel prices will negatively affect our revenue and backlog. Steel constitutes 53% of sales. Therefore, the 60% fall in steel prices combined with the depressed level of nonresidential construction activity will weigh heavily on our revenue in our third and fourth quarters of fiscal 2009.

The backlog in our engineered building systems segment at the end of the second quarter of fiscal 2009 was $286 million, which on a steel-price adjusted basis was approximately flat with the $302 million reported at the end of the first quarter of fiscal 2009.

As a result, reduced business activity and the credit crisis have adversely affected our liquidity. As of May 3, 2009, we were not in compliance with the required leverage and senior leverage ratios in our senior secured credit facility, although we were in compliance with the interest coverage covenant. We have obtained a waiver from our senior credit facility lenders, including waiver of our financial maintenance covenants and of restrictions on our ability to enter into an agreement for a substantial equity investment in the Company. The waivers are intended to provide us with sufficient time to address our comprehensive capital structure plans. The waivers will remain in effect through July 15, 2009 and automatically extend to September 15, 2009, upon the signing of a definitive agreement for an equity investment. Please read "Liquidity and Capital Resources" for a more detailed description of the waiver, our upcoming debt maturities and the consequences that would likely result should we fail to restructure our outstanding debt in a timely fashion. If all debt outstanding were to become due, which could occur as early as July 15, 2009, absent the execution of our refinancing strategy this would result in a material adverse effect on our financial condition, operations and debt service capabilities.

Finally, we are making progress on the comprehensive restructuring of our balance sheet. As previously disclosed, we have analyzed the execution of several capital structures that would address not only the likely put of the convertible notes in November 2009 but also our revolving credit facility and term loan, which mature in June 2009 and June 2010, respectively. With the assistance of financial advisors, we followed a process which led to a highly regarded private equity firm emerging as a potential partner.

Industry Conditions

Our sales and earnings are influenced by general economic conditions, interest rates, the price of steel relative to other building materials, the level of nonresidential construction activity, roof repair and retrofit demand and the availability and cost of financing for construction projects.

As widely reported, worldwide financial markets have been experiencing extreme disruption in recent months, including, among other things, extreme volatility in security prices, severely diminished liquidity and credit availability, rating downgrades of certain investments and declining valuations of others. In addition, during the same period, the U.S. economy has been characterized by contraction, as evidenced by reduced demand for a range of goods and services. These economic developments affect our business in a number of ways. The overall decline in economic conditions has reduced demand for our products. In addition, the current tightening of credit in financial markets adversely affects the ability of our customers to obtain financing for construction projects. These factors have resulted in a decrease in or cancellation of orders for our products and have also affected the ability of our customers to make payments. Overall decrease in economic conditions has dampened the demand by the market for our products as the economy has retracted, thereby further negatively impacting our business. Similar factors could cause our suppliers to experience financial distress or bankruptcy, resulting in temporary raw material shortages.

The uncertainty surrounding future economic activity levels and the tightening of credit availability have resulted in significantly decreased activity levels for our business. During the first six months of fiscal 2009, our sales volumes were significantly below our expectations, primarily in our engineered buildings and components segments. The corresponding decrease in our operating results has resulted in us violating certain debt covenants for which we have obtained a waiver from our lenders. See "Liquidity and Capital Resources - Debt." When we began fiscal 2009, McGraw-Hill was predicting a 12% decline in nonresidential construction in 2009. Subsequently, McGraw-Hill revised its forecast further downward and, as of April 2009, is now predicting a 24% decline in nonresidential construction activity in 2009. McGraw-Hill has also reported a 39.3% reduction in low-rise nonresidential (5 stories or less) square-footage starts during the first six months of fiscal 2009 compared with the same period in fiscal 2008.

As a result of the current market downturn, we began a phased process to resize and realign our manufacturing operations. The purpose of these closures is to rationalize our least efficient facilities and to retool certain of these facilities to allow us to better utilize our assets and expand into new markets or better provide products to our customers, such as insulated panel systems. As a result of the restructuring, we expect to realize an annualized cost savings in the amount of approximately $120 million.

In November 2008, we approved the Phase I plan to close three of our engineered building systems manufacturing plants located in Lockeford, California, Mattoon, Illinois and Hernando, Mississippi. In addition, as part of the restructuring, we implemented a general employee reduction program. We expected to incur facility closure costs of approximately $3.6 million related to these Phase I facility closures. Of this amount, $1.1 million relates to employee or severance costs, $0.6 million relates to asset relocation costs, $1.8 million relates to asset impairment costs and $0.1 million relates to other costs.

In February 2009, we approved the Phase II plan to close our Tallapoosa, Georgia facility in a continuing effort to rationalize our least efficient facilities. We expected to incur facility closure costs of $0.9 million related to this facility. Of this amount, $0.4 million relates to employee or severance costs and $0.5 million relates to other costs. Most of these expenses were recorded during the second quarter of fiscal 2009.

In April 2009, we approved the Phase III plan to close or idle our Rocky Mount, North Carolina, Columbus, Mississippi and Mount Pleasant, Iowa manufacturing facilities within the engineered building systems segment and the Big Rapids, Michigan facility within the metal components segment in a continuing effort to rationalize our least efficient facilities. In addition, as part of the restructuring, we added to the general employee reduction program. We expect to incur facility closure costs of $7.0 million related to these facilities. Of this amount, $2.2 million relates to employee or severance costs, $0.7 million relates to asset relocation costs, $3.0 million relates to asset impairment costs and $1.1 million relates to other costs.

One of the primary challenges we face both short and long term is the volatility in the price of steel. Our business is heavily dependent on the price and supply of steel. For the fiscal six months ended May 3, 2009, steel represented approximately 72% of our costs of goods sold. The steel industry is highly cyclical in nature, and steel prices have been volatile in recent years and may remain volatile in the future. Steel prices are influenced by numerous factors beyond our control, including general economic conditions domestically and internationally, competition, labor costs, production costs, import duties and other trade restrictions. See additional discussion of steel prices in "Item 3. Quantitative and Qualitative Disclosures About Market Risk."

Steel prices increased rapidly and steeply during the first half of 2008, and then began a rapid and precipitous decline in the fall of 2008. Steel prices have continued to fall during the first six months of fiscal 2009 due to the overall further deepening of the economic recession, and as expected, customers have continued to hold off making purchasing decisions in anticipation of further reduction in steel prices. The monthly CRU index data for the North American Steel Price Index, published by the CRU Group, has decreased 47.5% from October 2008 to April 2009. As a result, we may not be able to recover all of the cost of the inventory we purchased at higher prices during 2008. Thus, during the first six months of fiscal 2009, we recorded a $40.0 million charge to cost of sales to adjust certain raw material inventory to the lower of cost or market because this inventory exceeded our current estimates of net realizable value less normal profit margins.

We do not have any long-term contracts for the purchase of steel and normally do not maintain an inventory of steel in excess of our current production requirements. However, from time to time, we may purchase steel in advance of announced steel price increases. We can give no assurance that steel will remain available or that prices will not continue to be volatile. While most of our contracts have escalation clauses that allow us, under certain circumstances, to pass along all or a portion of increases in the price of steel after the date of the contract but prior to delivery, we may, for competitive or other reasons, not be able to pass such price increases along. If the available supply of steel declines, we could experience price increases that we are not able to pass on to the end users, a deterioration of service from our suppliers or interruptions or delays that may cause us not to meet delivery schedules to our customers. Any of these problems could adversely affect our results of operations and financial condition. For additional discussion please see "-Liquidity and Capital Resources -Steel Prices" and "Item 3. Quantitative and Qualitative Disclosures About Market Risk -Steel Prices."

In assessing the state of the metal construction market, we rely upon various industry associations, third-party research, and various government reports such as industrial production and capacity utilization. One such industry association is the Metal Building Manufacturers Association ("MBMA"), which provides summary member sales information and promotes the design and construction of metal buildings and metal roofing systems. Another is McGraw-Hill Construction Information Group, which we look to for reports of actual and forecasted growth in various construction related industries, including the overall nonresidential construction market. McGraw-Hill Construction's nonresidential construction forecast for calendar 2009 published in April 2009 indicates an expected reduction of 24% in square footage and a decrease of 19% in dollar value. In 2010, a further decrease of 4% in square footage is expected, with a decrease of 2% in dollar value, before increasing substantially in 2011. Additionally, we review the American Institute of Architects' survey for inquiry and billing activity for the industrial, commercial and institutional sectors.

RESULTS OF OPERATIONS

We have aggregated our operations into three reportable segments based upon similarities in product lines, manufacturing processes, marketing and management of our businesses: metal coil coating; metal components; and engineered building systems. All business segments operate primarily in the nonresidential construction market. Sales and earnings are influenced by general economic conditions, the level of nonresidential construction

activity, metal roof repair and retrofit demand and the availability and terms of financing available for construction. Products of all business segments use similar basic raw materials. The metal coil coating segment consists of cleaning, treating, painting and slitting continuous steel coils before the steel is fabricated for use by construction and industrial users. The metal components segment products include metal roof and wall panels, doors, metal partitions, metal trim and other related accessories. The engineered building systems segment includes the manufacturing of main frames, Long BayŽ Systems and value added engineering and drafting, which are typically not part of metal components or metal coil coating products or services. The reporting segments follow the same accounting policies used for our condensed consolidated financial statements.

We evaluate a segment's performance based primarily upon operating income before corporate expenses. Intersegment sales are recorded based on standard material costs plus a standard markup to cover labor and overhead and consist of:
(i) hot-rolled, light gauge painted, and slit material and other services provided by the metal coil coating segment to both the metal components and engineered building systems segments; (ii) building components provided by the metal components segment to the engineered building systems segment; and
(iii) structural framing provided by the engineered building systems segment to the metal components segment. Segment information is included in Note 6 of our condensed consolidated financial statements.

The following table represents sales, operating income and total assets attributable to these business segments for the periods indicated (in thousands, except percentages):

                                              Fiscal Three Months Ended                       Fiscal Six Months Ended
                                         May 3, 2009           April 27, 2008          May 3, 2009            April 27, 2008
                                                      %                      %                      %                        %
Sales:
Metal coil coating                    $   39,526      18     $   80,171      19     $   81,027      17     $    142,446      18
Metal components                         101,554      44        165,384      40        223,034      46          310,551      40
Engineered building systems              129,233      58        259,653      62        281,642      58          486,052      63
Intersegment sales                       (45,594 )   (20 )      (89,065 )   (21 )     (100,620 )   (21 )       (161,417 )   (21 )

Total sales                           $  224,719     100     $  416,143     100     $  485,083     100     $    777,632     100


Operating income:
Metal coil coating                    $  (42,945 )   N/A     $    6,705       8     $ (106,698 )   N/A     $      9,400       7
Metal components                         (28,095 )   N/A         15,171       9       (156,698 )   N/A           24,693       8
Engineered building systems              (46,565 )   N/A         25,292      10       (398,844 )   N/A           45,730       9
Corporate                                (14,569 )    -         (17,656 )    -         (27,821 )    -           (31,815 )    -

Total operating income (% of sales)   $ (132,174 )   N/A     $   29,512       7     $ (690,061 )   N/A     $     48,008       6
Unallocated other expense                 (3,564 )               (5,237 )               (8,294 )                (11,521 )

Income before income taxes            $ (135,738 )           $   24,275             $ (698,355 )           $     36,487


                                                                                       May 3, 2009           November 2, 2008
                                                                                                    %                        %
Total assets:
Metal coil coating                                                                  $   69,328      11     $    196,615      14
Metal components                                                                       165,845      27          371,464      27
Engineered building systems                                                            254,006      41          716,671      52
Corporate                                                                              131,998      21           95,951       7

Total assets $ 621,177 100 $ 1,380,701 100

Corporate assets consist primarily of cash but also include deferred financing costs, deferred taxes and property, plant and equipment associated with our headquarters in Houston, Texas. These items (and income and expenses related to these items) are not allocated to the segments.

FISCAL THREE MONTHS ENDED MAY 3, 2009 COMPARED TO FISCAL THREE MONTHS ENDED
APRIL 27, 2008

Consolidated sales for the three months ended May 3, 2009 were $224.7 million compared with $416.1 million for the three months ended April 27, 2008. Sales were down 46.0%, or $191.4 million. This decrease resulted from a 46.3% decrease in external tonnage volumes, partially offset by higher relative sales prices in the engineered buildings systems and metal components segments. Lower tonnage volumes in all three segments in the second quarter of fiscal 2009 compared with the same period in 2008 were driven by reduced demand for such products resulting from the 46.7% reduction in low-rise nonresidential (less than 5 stories) square-footage starts as reported by McGraw-Hill.

Consolidated cost of sales decreased by 43.1% for the three months ended May 3, 2009 to $177.6 million compared with $312.2 million for the three months ended April 27, 2008. Gross margins were 13.9% for the three months ended May 3, 2009 compared to 25.0% for the same prior year period. During the second quarter of fiscal 2009, we recorded a $10.6 million lower of cost or market inventory adjustment, which accounted for 4.7% of the reduction in gross margin percentage, to adjust the carrying amount on certain raw material inventory to the lower of cost or market because this inventory exceeded our current estimates of net realizable value less normal profit margins. Although we have taken steps to reduce our variable costs, margins decreased across all three segments due to the effect of fixed costs in relation to substantially reduced sales. In addition, we recorded a $5.3 million asset impairment charge, which accounted for 2.4% of the reduction in gross margin percentage, for certain assets primarily within the engineered building systems segment and at corporate.

Metal coil coating sales decreased $40.6 million to $39.5 million in the three months ended May 3, 2009 from $80.2 million in the prior year's period. Sales to third parties for the three months ended May 3, 2009 decreased $15.1 million to $12.2 million from $27.3 million in the prior year's period primarily as a result of a 27.7% decrease in external tonnage volumes and a shift in product mix from package sales of coated steel products to tolling revenue for coating services. Generally, package sales of coated steel products contribute lower margin dollars per ton compared to toll processing sales, as a percentage of revenue. The dominant component of the price in package sales is steel which only allows for a minimal mark-up. In addition, there was a $25.6 million decrease in intersegment sales for the three months ended May 3, 2009 compared with the prior year's period. Metal coil coating third-party sales accounted for 5.4% of total consolidated third-party sales in the three months ended May 3, 2009 compared to 6.6% in the three months ended April 27, 2008.

Operating income (loss) of the metal coil coating segment decreased in the three months ended May 3, 2009 to a loss of $(42.9) million compared to income of $6.7 million in the prior year's period primarily due to an inventory lower of cost or market adjustment, goodwill and other intangible asset impairments and a $8.2 million decrease in gross profit. During the second quarter of fiscal 2009, we recorded a charge of $2.4 million to adjust certain raw material inventory to the lower of cost or market. The gross margins were lower primarily due to lower relative sales prices than in the prior period. Gross margins were also impacted by a 27.7% decrease in tonnage volumes compared to the prior year's period. We have also recorded a non-cash goodwill and other intangible asset impairment charge of $39.1 million.

Metal components sales decreased $63.8 million to $101.6 million in the three months ended May 3, 2009 compared to $165.4 million in the prior year's period. Sales were down due to a 43.4% decrease in external tons shipped compared to the prior year's period, partially offset by higher sales prices. Sales to third parties for the three months ended May 3, 2009 decreased $52.7 million to $86.7 million from $139.4 million in the prior year's quarter. In addition, there was a $11.2 million decrease in intersegment sales for the three months ended May 3, 2009 compared with the prior year's period. Metal components third-party sales accounted for 38.6% of total consolidated third-party sales in the three months ended May 3, 2009 compared to 33.5% in the three months ended April 27, 2008.

Operating income (loss) of the metal components segment decreased in the three months ended May 3, 2009 to a loss of $(28.1) million compared to income of $15.2 million in the prior year's period. This $43.3 million decrease resulted from charges related to an inventory lower of cost or market adjustment, goodwill and other intangible asset impairments and a $12.1 million decrease in gross profit, partially offset by a $3.3 million decrease in selling and administrative expenses primarily related to a $1.2 million decrease in wages and compensation costs due to lower headcount and decreases in other various expenses. During the second quarter of fiscal 2009, we recorded a charge of $2.7 million to adjust certain raw material inventory to the lower of cost or

market. The gross margins were also lower due to a 43.4% decrease in tonnage volumes compared to the prior year's period. We have also recorded a non-cash goodwill and other intangible asset impairment charge of $31.1 million. The decrease in selling and administrative expenses was primarily due to a decrease in various other expenses.

Engineered building systems sales decreased $130.4 million to $129.2 million in the three months ended May 3, 2009 compared to $259.7 million in the prior year's period. This decrease resulted from a 57.3% decrease in external tons shipped, partially offset by higher sales prices. Sales to third parties for the three months ended May 3, 2009 decreased $123.7 million to $125.8 million from $249.5 million in the prior year's period. In addition, there was a $6.7 million decrease in intersegment sales for the three months ended May 3, 2009. Engineered building systems third-party sales accounted for 56.0% of total consolidated third-party sales in the three months ended May 3, 2009 compared to 60.0% in the three months ended April 27, 2008.

Operating income (loss) of the engineered building systems segment decreased in the three months ended May 3, 2009 to a loss of $(46.6) million compared to income of $25.3 million in the prior year's period. This $71.9 million decrease resulted from charges related to an inventory lower of cost or market adjustment, goodwill and other intangible asset impairments, asset impairment and restructuring charges and a $36.7 million decrease in gross profit, partially offset by a $11.4 million decrease in selling and administrative expenses. The gross margins were lower due to a 57.3% decrease in tonnage volumes. During the second quarter of fiscal 2009, we recorded a charge of $5.5 million to adjust certain raw material inventory to the lower of cost or market. In addition, we recorded a $3.4 million asset impairment charge and a non-cash . . .