quality;

service;

on-time delivery;

ability to provide added value in the design and engineering of buildings;

price; and

speed of construction.

retaining and expanding our customer base with the addition of RCC’s builder network;

consolidating and leveraging our procurement activities for steel, paint and fasteners;

consolidating RCC’s light gauge painting requirements into our light gauge painting lines within our metal coil coating segment;

suspending RCC’s post painting process in favor of our pre-painted process within our metal coil coating segment;

rationalizing product design and specifications in order to incorporate RCC’s plants in our “hub and spoke delivery system;” and

migrating RCC’s engineering systems to our engineered building systems business unit.

restricting the way we can handle or dispose of our waste;

requiring remedial action to mitigate pollutioncertain environmental conditions that may have been caused by our operations or attributable to former operators; and

enjoining the operations of facilities deemed in non-compliance with permits issued pursuant to such environmental laws and regulations.

quality;

service;

on-time delivery;

ability to provide added value in the design and engineering of buildings;

price;

speed of construction in buildings and components; and

personal relationships with customers.

variations in quarterly operating results;

deviations in our earnings from publicly disclosed forward-looking guidance;

changes in earnings estimates by analysts;

our announcements of significant contracts, acquisitions, strategic partnerships or joint ventures;

general conditions in the metal components and engineered building systems industries;

fluctuations in stock market price and volume; and

other general economic conditions.

the risk of incorrect assumptions or estimates regarding the future results of the acquired business or expected cost reductions or other synergies expected to be realized as a result of acquiring the business;

diversion of management’s attention from existing operations;

unexpected losses of key employees, customers and suppliers of the acquired business;

conforming the financial, technological and management standards, processes, procedures and controls of the acquired business with those of our existing operations; and

increasing the scope, geographic diversity and complexity of our operations.

Our ability to obtain additional financing, if necessary, for working capital, capital expenditures, acquisitions or other purposes may be impaired or additional financing may not be available on favorable terms.

We must use a portion of our cash flow to pay the principal and interest on our debt. These payments reduce the funds that would otherwise be available for our operations and future business opportunities.

Index to Financial Statements

If we cannot service our debt, we will be forced to take actions such as reducing or delaying acquisitions and/or capital expenditures, selling assets, restructuring or refinancing our debt or seeking additional equity capital. We can give you no assurance that we can do any of these things on satisfactory terms or at all.

In addition, under the terms of our 2.125% convertible senior subordinated notes due 2024 (“Notes”), the net share settlement provision requires that upon conversion we pay the principal return in cash, provided that we are in compliance with the financial covenants of our existing or future credit facilities. Assuming that we have enough cash to pay the principal return, we may be cash constrained as a result, and this could adversely affect our ability to service our debt, borrow money or conduct our operations. The conversion price of the Notes is $40.14 and the market price condition that triggers holders’ conversion rights is pegged to a stock price of $48.16. The conditions for conversion of the Notes have beenwere met in the calendar quarter ended June 30, 2007, but the conditions were not met in each of the last four fiscal quarters; calendar quarters ended March 31, 2007 and September 30, 2007;

Index to Financial Statements

therefore, our Notes may currentlyno longer be converted by the holders, at their option.option after September 30, 2007 until such time as our stock price again exceeds the conversion threshold for the specified 20 of the last 30 consecutive days of a calendar quarter or beginning on November 15, 2009. For more information regarding our Notes, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Debt”.

Restrictive covenants in our existing senior credit agreement may adversely affect us.

We must comply with operating and financing restrictions in our senior secured credit agreement. We may also have similar restrictions with any future debt. These restrictions affect, and in many respects limit or prohibit our ability to:

We are required to make mandatory payments on our existing senior secured credit agreement upon the occurrence of certain events, including the sale of assets and the issuance of debt or equity securities, in each case subject to certain limitations and conditions set forth in our existing senior secured credit agreement. Our senior secured credit agreement also requires us to achieve specified financial and operating results and satisfy set financial tests relating to our consolidated net worth and our leverage, fixed charge coverage and senior debt ratios. These restrictions could limit our ability to plan for or react to market conditions or meet extraordinary capital needs or otherwise could restrict our activities. In addition, our senior secured credit agreement requires us to pay down our term loan to the extent we generate positive cash flow each fiscal year according to the terms of the agreement. These restrictions could also adversely affect our ability to finance our future operations or capital needs or to engage in other business activities that would be in our interest.

The accounting method for convertible debt securities with net share settlement, like the 2.125% Convertible Senior Subordinated Notes, may be subject to change.

In August 2007, the FASB issued for comment an exposure draft of a proposed FASB Staff Position APB 14-a (“Proposed FSP”) that would change the accounting for certain convertible debt instruments, including our Notes. Under the proposed new rules for convertible debt instruments that may be settled entirely or partially in cash upon conversion, an entity should separately account for the liability and equity components of the instrument in a manner that reflects the issuer’s economic interest cost. The effect of the proposed new rules for our Notes is that the equity component would be included in the paid-in-capital section of stockholders’ equity on our balance sheet and the value of the equity component would be treated as original issue discount for purposes of accounting for the debt component of the Notes. Higher interest expense would result by recognizing the accretion of the discounted carrying value of the Notes to their face amount as interest expense over the term of the Notes using an effective interest rate method of amortization. We believe the FASB plans to issue final guidance in the first half of calendar 2008. This Proposed FSP is expected to be effective as early as our fiscal year ended 2009, would not permit early application and would be applied retrospectively to all periods presented. While this accounting pronouncement does not change the economic substance or cash flow requirement for the Notes, it should be noted that the amount reported as interest expense in our Consolidated Statement of Operations would increase significantly.

Index to Financial Statements

We are currently evaluating the proposed new rules and are evaluating the impact at this time. However, if the proposed FSP is adopted as it is proposed, we expect to have higher interest expense starting in fiscal 2009 due to the interest expense accretion and prior period interest expense associated with the Notes. The Notes would also reflect higher than previously reported interest expense due to retrospective application.

There are no unresolved staff comments outstanding with the Securities and Exchange Commission at this time.

Index to Financial Statements

As of October 29, 2006,28, 2007, we conduct manufacturing operations at the following facilities:

Index to Financial Statements

Index to Financial Statements

We also operate six NCI Metal Depots facilities that sell our products directly to the public. In addition, we lease three facilities that serve as distribution centers for our sectional doors. We also maintain several drafting office facilities in various states. We have short-term leases for these additional facilities. We believe that our present facilities are adequate for our current and projected operations.

Additionally, we own approximately 7.67 acres of land in Houston, Texas and have a 60,000 square foot facility that is used as our principal executive and administrative offices. Approximately 4,897 square feet of this facility is leased to a third party for a term of ten years with approximately threetwo years remaining on the lease term. We also own approximately 5 acres of land at another location in Houston adjacent to one of our manufacturing facilities. We own approximately 15 acres of undeveloped land adjacent to our Garco facility in Spokane, Washington.

During fiscal 2007, we closed our manufacturing facility located in Hamilton, Ontario, and we sold the facility in August 2007. We also sold our Colonial Heights, Virginia facility in August 2007 and built a new, larger facility which was completed in July 2007. This facility is also located in Colonial Heights, Virginia. During fiscal 2003, we closed our manufacturing facility located in Southlake, Texas, which is currently under contract to be sold in November 2007.January 2008. We are also marketing and/or attempting to sellhave a new 31,500 square foot office building under construction in Irving, Texas that will replace our offices in Southlake, Texas. During fiscal 2002, we closed our manufacturing facility located in Chester, South Carolina, whichand we closed during fiscal 2002.sold this facility in January 2007.

On or aboutIn September 15, 2003, Bethlehem Steel Corporation and several of its related entities (collectively, “Bethlehem”) filed a preference-avoidance lawsuit against us and several of our operating subsidiaries in the United States Bankruptcy Court for the Southern District of New York. The lawsuit was filed as part of the Bethlehem consolidated bankruptcy proceedings, seeking reimbursement of allegedly preferential transfers made by the respective debtors in the 90-day period preceding their bankruptcy filings. Bethlehem alleges that it made preferential payments to our subsidiaries of approximately $7.7 million. We have denied the allegations in the Bethlehem lawsuit and are vigorously defending against this claim. We do not believe these legal proceedings will not have a material adverse effect on our business, consolidated financial condition or results of operations.

We have discovered the existence of polychlorinated biphenyls (“PCBs”) and heavy metalstrichloroethylene in the ground water at our Metal Prep Houston site, which is locatedSouthlake, Texas facility. Horizontal delineation concentrations in an industrial area in Houston, Texas. Soil borings were sampled and analyzed to determine the impact on the soil at this site, and the findings indicated that remediationexcess of the site was necessary.applicable residential assessment levels have not been fully identified. We have filed an application with the Texas Commission of Environmental Quality (“TCEQ”) for entry into the Voluntary Cleanup Program. Our Affected Property Assessment Report (“APAR”)voluntary cleanup program. We expect to perform further testing in the first quarter of fiscal 2008. The cost of required remediation, if any, will vary depending on the nature and proposed remediation action plan were filed with and approved byextent of the TCEQ. We began implementation of our remedial action plancontamination which is expected to be determined in the first or second quarter of fiscal 2006. During the excavation process,2008. As of October 28, 2007, we discovered buried drums containing contaminated materials that required remediation. As a result of the buried drums, we incurred significant additional costs associated with excavation, transportation, testing,have accrued $0.1 million to complete site analysis and disposal. The excavation and transportation of the contaminated materials to an approved offsite location was completed in July 2006. Through October 29, 2006,testing. At this time, we spent $3.4 million related to this matter. The remaining accrued amount of $0.1 million as of October 29, 2006 represents the best current-costcan not estimate of the remaining incidentala loss for any potential remediation costs, tobut we do not believe there will be incurred. On November 10, 2006, the TCEQ issued its Voluntary Cleanup Program Final Certificate of Completion, stating that necessary response actions have been completeda material adverse effect on the subject property as of October 30, 2006.

We had a contractual indemnity from the immediate prior owner of the property, which we believe obligated that party to reimburse all or a portion of our response costs with respect to this condition. Suit was brought against the prior owner asserting this indemnity, and that party disputed liability. In addition, we joined in the litigation other potentially responsible parties against whom we sought contribution and/or indemnification. We have entered into settlement agreements with all such parties as a result of such litigation, and such litigation is inConsolidated Financial Statements.

Index to Financial Statements

We have discovered the processexistence of being dismissed with prejudiceunknown debris containing soil and paint materials in the storm-water outfalls at our Rocky Mount, NC facility. Although formal test results are still pending, it appears that surface concentrations of chromium may be present above the North Carolina’s “soil remediation goals.” Additional tests to determine the re-filingnature and extent of same. During the fourthcontamination are expected to take place in the first or second quarter of fiscal 2006,2008. The cost of required remediation, if any, will vary depending on the nature and extent of the contamination. As of October 28, 2007, we recordedhave accrued $0.1 million to complete site analysis and testing. At this time, we can not estimate a receivableloss for any potential remediation costs, but we do not believe there will be a material adverse effect on our Consolidated Financial Statements.

The New York State Department of $1.65Conservation (“DEC”) has notified H.H. Robertson Company of its potential liability for a portion of the cleanup of the former Frontier Chemical waste handling facility in Niagara Falls. The DEC has indicated that remediation of soils and upper bedrock groundwater will cost between approximately $11 million after determining it was probable we wouldand $14 million. Whether deeper bedrock ground water will need to be able to recover that amount fromremediated and the prior owners/operators who are defendants incost of any such litigation. This receivable was paid in full in December of 2006.

We learnedremediation has not been determined. DEC records indicated that over a period of 25 months beginning in March 2003 and ending in April 2005, our engineered building systems segment received shipments of flat bar steel and relatedthousand companies sent waste materials to the Frontier site from a third-party steel mill in Mexico that were below specifications. We have identified a total of 57 projects, out of approximately 20,150 projects that were processed by our engineered building systems segment during1974 to 1992. At this time, period, that will require some levelit can not be determined whether H.H. Robertson sent waste materials to this Frontier site, whether NCI can be construed as a successor to H.H. Robertson, or whether potential liabilities with this site exceed applicable materiality thresholds. Furthermore, any share of repairs. We have incurred expensesalleged potential liability allocable to date of $1.4 million andH.H. Robertson cannot be determined at October 29, 2006, have a remaining accrual in other accrued liabilities of $0.6 million. The ultimate repair cost may change, and is dependent on variables thatthis time, but we do not believe there will be determined through on-site inspections of each building. Beginning in June 2006, we implementeda material adverse effect on our plan to inspect each of these 57 projects to determine the use of the flat bar steel in the buildings and coordinate all necessary repairs. During the fourth quarter of fiscal 2006, we recorded a receivable of $1.37 million after determining it was probable we would be able to recover the repair costs from the related steel mill and the broker. The proposed settlement consists of cash up front of $0.65 million, received in December 2006, and the present value of future rebates totaling $0.72 million.Consolidated Financial Statements.

From time to time, we are involved in various other legal proceedings and contingencies, including environmental matters, considered to be in the ordinary course of business. While we are not able to predict whether we will incur any liability in excess of insurance coverages or to accurately estimate the damages, or the range of damages, if any, we might incur in connection with these legal proceedings, we believe these legal proceedings and claims will not have a material adverse effect on our business, consolidated financial position or results of operations.

Not applicable.

Index to Financial Statements

PART II

PRICE RANGE OF COMMON STOCK

Our common stock is listed on the NYSE under the symbol “NCS.” As of January 8,December 10, 2007, there were 8884 holders of record and 9,800approximately 9,600 beneficial owners of our common stock. The following table sets forth the quarterly high and low sale prices of our common stock, as reported by the NYSE, for the prior two fiscal years. We have never paid dividends on our common stock and the terms of our senior credit facility restrict our ability to do so.

The following table shows our purchases of our common stock during the fourth quarter of fiscal 2006:2007:

ISSUER PURCHASES OF EQUITY SECURITIES

STOCK PERFORMANCE CHART

The following chart compares the yearly percentage change in the cumulative stockholder return on our common stock from November 2, 2002 to the end of the fiscal year ended October 28, 2007 with the cumulative total return on the New York Stock Exchange Index and the Hemscott Industry Group 634—General Building Materials, a peer group. The comparison assumes $100 was invested on November 2, 2002 in our common stock and in each of the foregoing indices and assumes reinvestment of dividends.

Index to Financial Statements

In accordance with the rules and regulations of the SEC, the above stock performance chart shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulations 14A or 14C of the Securities Exchange Act of 1934 or to the liabilities of Section 18 of the Exchange Act and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, notwithstanding any general incorporation by reference of this proxy statement into any other filed document.

The selected financial data for each of the three fiscal years ended October 29, 200628, 2007 and as of October 29, 200528, 2007 and October 29, 2006 has been derived from the audited consolidated financial statementsConsolidated Financial Statements included elsewhere herein. The selected financial data for each of the two fiscal years ended October 30, 2004 and as of October 29, 2005, October 30, 2004 and November 1, 2003 and as of November 2, 2002, November 1, 2003 and October 30, 2004 hashave been derived from audited consolidated financial statementsConsolidated Financial Statements not included herein. The following data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the audited consolidated financial statementsConsolidated Financial Statements and the notes thereto included under “Financial Statements and Supplementary Data.”

Index to Financial Statements

This Annual Report contains forward-looking statements concerning our business and operations. Forward-looking statements involve a number of risk and uncertainties, and our actual performance may differ materially from that projected in such statements. Among the factors that could cause actual results to differ materially are industry cyclicality and seasonality, fluctuations in demand and prices for steel, the financial condition of our raw material suppliers, competitive activity and pricing pressure, ability to execute our acquisition strategy and general economic conditions affecting the construction industry. These and other factors that could affect our financial position and results of operations are described in further detail in Item 1A. Risk Factors. We expressly disclaim any obligations to release publicly any updates or revisions to these forward-looking statements to reflect any changes in our expectations.

OVERVIEW

NCI Building Systems, Inc. (the “Company”, “we” or “our”)The Company is one of North America’s largest integrated manufacturers and marketers of metal products for the non-residentialnonresidential construction industry. We provide metal coil coating services and design, engineer, manufacture and market metal components and engineered building systems and provide metal coil coating services primarily for non-residentialnonresidential construction use. We manufacture and distribute extensive lines of metal products for the non-residentialnonresidential 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 offers 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 use a four-four-five52/53 week calendar each quarteryear with our fiscal year end on the Sunday closest to October 31. On December 22, 2005, our Board of Directors adopted a change in fiscal year end effective for fiscal 2006 from the Saturday closest to October 31 to the Sunday closest to October 31, with each fiscal quarter within the year ending on Sunday. This change, which addsadded one calendar day to fiscal 2006, did not have a material impact on our results of operations.

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 offers 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.

The non-residential market continues to be good. Low-rise non-residential construction, including the rural and agricultural sectors we service, continues to grow. SalesIn planning for fiscal 2006, compared2007, we had expected our market to grow by 2% in line with McGraw-Hill’s forecast for 2007 of increases in new construction starts measured in square feet. However, the low-rise nonresidential market actually declined by 4.4% during our fiscal 2005, were up 39% while net income for the same period increased by 32%year. We expected to ship 10% more steel than 2006. Instead, we shipped 3% less tons but generated revenue growth of 3.4%. When we look at external sales for fiscal 2006,We had an excellent operating performance in our engineered building systems segment was up 73% which was fueled by the acquisition of RCC, metal components was up 18% and metal coil coating was up 6%. Our tons shipped for the fiscal year were up 29% and our plant utilization finished at approximately 75%.

During fiscal 2006, we continued to successfully manage our cash. As a result of aggressively managing our inventory and receivables, we generated cash which enabled us to repurchase 732,000 shares of NCI stock for $36.5 million, fund capital expenditures of $27.1 million and repay $78.5 million of our debt.

Business Strategy

In late 2003, we conducted a comprehensive review of our business and growth strategy, which resulted in a strategic plan that was approved by the Board of Directors in early 2004. Our primary goal under the strategic plan is to materially increase the market value of our Company by increasing our earnings per share over a five-year period beginning in fiscal 2004, utilizing a combination of accretive acquisitions, organic growth and information technology upgrades.

Index to Financial Statements

Acquisitions. Our goal is to increase our existing markets and penetrate new markets through strategic acquisitions. We have a history of successfully completing strategic acquisitions in our industry. Recently, in late 2004, we made an inroad into the potentially growing segment of the non-residential construction market referred to as “rural and agricultural” through our purchase of Heritage and Steelbuilding.com. As a result of this acquisition, we believe we have strengthened our ability to compete in the rural and agricultural sub-segments of our market utilizing our existing manufacturing facilities.

Further, in April 2006, we acquired 100% of the issued and outstanding stock of Robertson-Ceco Corporation (“RCC”) for a purchase price of $371.5 million, including transaction costs. RCC, a manufacturer of engineered building systems, had revenues of approximately $430 million for the year ended December 31, 2005. The RCC acquisition provides expansion of our geographic footprint in the United States and Canada with the addition of seven metal building manufacturing plants. RCC operates the Robertson Building Systems, Ceco Building Systems, and Star Building Systems divisions and is a leader in the metal buildings industry. Furthermore, we have identified between $6.0 and $25.0 million in potential synergies that should enhance the accretive earnings potential from the acquisition. We believe this transaction will create an organization with greater product and geographic diversification, a stronger customer base and a more extensive distribution network than either company had separately.

Organic Growth. In addition to growth through strategic acquisitions, we have identified several potential areas for organic growth. We have initiated several actions to further this goal, including increasing our metal coil coating segment’s sales to third parties, expanding our retail customer sales channels, expanding our builder network and expanding our share of the retrofit and repair markets.

Information Technology.An important component of our growth strategy is the development of Enterprise Resources Platform (“ERP”), engineering systems and web-based order entry system. We have selected Oracle 11i as our ERP system, and have completed its installationgood operating performance in our metal coil coating business. We are continuingsegment but could not overcome a weak result from our metal components segment.

During fiscal 2007, we were pleased with our ability to implement Oracle 11imaintain or improve our profit margins, which enabled us to meet or exceed all our profit margin goals for the fiscal year, inspite of the decline in volumes. This margin performance was the result of the substantial operating margin improvement on third-party sales we produced in fiscal 2007 in our other business unitsengineered building systems and corporate functions,metal coil coating segments versus fiscal 2006, along with the strong improvement in our metal components margin for the second half of fiscal 2007 compared with the first half of fiscal 2007. The operating progress inherent in this accomplishment reflected continued metal components segment commercial discipline and increasing synergies in the metal building systems segment resulting from the RCC acquisition. In addition, we expectexperienced increasing favorable base-loading of our metal coil coating capacity and increased operating margin from increased intersegment sales primarily related to completeRCC.

We spent $42 million in capital expenditures, $15.4 million to acquire Garco and bought back 757,900 shares for $35.2 million. We ended the installation by 2010.fiscal year with $75 million in cash.

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 non-residentialnonresidential construction activity, roof repair and retrofit demand and the availability and cost of financing for construction projects. During fiscal 2007, McGraw-Hill estimated that low-rise new construction starts for buildings less than five stories declined by 4.4% in square feet. However, we were able to improve our consolidated gross margins to 24.8% in fiscal 2007 compared with 24.4% in fiscal 2006.

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 pricesprice and supply of steel, which is the principal raw material used in our products.steel. For the fiscal year ended October 29, 2006,28, 2007, steel

Index to Financial Statements

represented approximately 74%73% 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.

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 our customers, 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 7A. Quantitative and Qualitative Disclosures About Market Risk—Steel Prices.”

Index to Financial Statements

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”),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 non-residentialnonresidential construction market. McGraw-Hill Construction’sMcGraw-Hill’s construction forecast for 2007 expects2008 indicates a total non-residentialnonresidential construction growthreduction of 2%6% in square footage and 6%2% in dollar value. Additionally, we review the American Institute of Architects survey for inquiry and billing activity for the industrial, commercial and institutional sectors.

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.

RESULTS OF OPERATIONS

The following table presents, as a percentage of sales, certain selected consolidated financial data for the periods indicated:

Index to Financial Statements

SUPPLEMENTARY BUSINESS SEGMENT INFORMATION

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 and metal coil coating.systems. All segments operate primarily in the non-residentialnonresidential construction market. Sales and earnings are influenced by general economic conditions, the level of non-residentialnonresidential construction activity, metal roof repair and retrofit demand and the availability and terms of financing available for construction.

Products of all business segments are made from similar basic raw materials. The metal coil coating segment consists of cleaning, treating, painting and slitting continuous steel coils before the steel is fabricated. 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 Bay^® Systems and value added engineering and drafting, which are typically not part of metal components or metal coil coating products or services. RCC is included in the engineered building systems segment due to how we manage it and due to its similar economic characteristics, nature of products and processes and type of

Index to Financial Statements

customers. The metal coil coating segment consists of cleaning, treating, painting and slitting continuous steel coils before the steel is fabricated. The reporting segments follow the same accounting policies used for our consolidated financial statements.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) building components provided by the metal components segment to the engineered building systems segment, (ii) structural framing provided by the engineered building systems segment to the metal components segment, and (iii) 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.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 20 of our consolidated financial statements.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):

Corporate assets consist primarily of cash but also include deferred financing costs 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.

Index to Financial Statements

RESULTS OF OPERATIONS FOR FISCAL 2007 COMPARED TO FISCAL 2006

Consolidated sales for fiscal 2007 increased 3.4%, or $53.8 million, over fiscal 2006. This increase was primarily due to sales of $144.3 million and $26.7 million relating to the RCC and Garco acquisitions, respectively, partially offset by decreased tonnage volumes in the engineered building systems and metal components segments. Lower tonnage volumes in the engineered building systems and metal components segments in fiscal 2007 compared with fiscal 2006 were driven by softer demand for our products resulting from the 4.4% reduction in low-rise nonresidential square footage starts as reported by McGraw Hill.

Consolidated cost of sales increased 2.9% for fiscal 2007 as compared to fiscal 2006. Gross margins were 24.8% for fiscal 2007 compared to 24.4% for the prior year. The increase in the gross margin percentage was a result of increased margins at the engineered building systems and metal coil coating segments, partially offset by decreased margins at the metal components segment. The gross margins in our engineered building systems segment were higher due to increased sales volumes as a result of the RCC and Garco acquisitions and higher material costs which were effectively passed on to our customers. The metal coil coating segment margins were higher due to a change in product mix from package sales of coated steel products to tolling revenue for coating services and increased capacity utilization from increased intersegment sales volume. The lower margins in the metal components segment resulted from higher material costs, primarily steel costs, which were not entirely passed on to customers, particularly in the first half of fiscal 2007, and lower sales volumes produced over a fixed cost base.

Metal coil coatingsales decreased $6.3 million to $272.5 million in fiscal 2007, compared to $278.8 million in the prior fiscal year. Sales to third parties for fiscal 2007 decreased 29.1% to $83.6 million from $117.9 million in the prior fiscal year, partially as a result of a shift in product mix from package sales of coated steel products to tolling revenue for coating services. This decrease was partially offset by an increase of $28.0 million in intersegment sales. Metal coil coating third-party sales accounted for 5.1% of total consolidated third-party sales in fiscal 2007 compared with 7.5% in fiscal 2006.

Operating income of the metal coil coating segment increased by 0.7% to $25.1 million, compared to $24.9 million in the prior fiscal year primarily due to increased gross margins as a result of the shift from package processing to toll processing. Toll processing sales produce higher margin dollars per ton versus package 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. As a percentage of segment sales, operating income in fiscal 2007 was 9.2% compared to 8.9% in fiscal 2006.

Metal componentssales decreased $56.2 million to $715.0 million in fiscal 2007, compared to $771.2 million in the prior year. Sales were down primarily due to a 10.2% decrease in external tons shipped. This reduction was the result of the decrease in low-rise nonresidential construction starts in fiscal 2007 versus fiscal 2006 and particularly weak market conditions in the first half of fiscal 2007. Sales to third parties for fiscal 2007 decreased $57.5 million to $613.3 million from $670.8 million in prior year. This decrease was partially offset by a $1.3 million increase in intersegment sales. Metal components third-party sales accounted for 37.8% of total consolidated third-party sales in fiscal 2007 compared to 42.7% in fiscal 2006.

Operating income of the metal components segment decreased 34.5% in fiscal 2007 to $60.3 million, compared to $92.0 million in the same period of the prior year. This $31.7 million decrease resulted primarily from a $37.2 million decrease in gross profit, partially offset by a $5.5 million decrease in selling and administrative expenses. The decrease in gross profit resulted from the decrease in sales volume and margin compression, particularly in the first half of fiscal 2007, resulting from large amounts of steel inventory oversupply in the marketplace. The decrease in selling and administrative expenses was due to a decrease of $3.7 million in incentive compensation and related costs and decreases of other various expenses.

Engineered building systemssales increased $146.1 million to $969.0 million in fiscal 2007, compared to $823.0 million in the prior year’s period. Of this increase, sales of $144.3 million and $26.7 million were

Index to Financial Statements

attributable to the RCC and Garco acquisitions, respectively, which were partially offset by a 14.7% decrease in external tons shipped. The decrease in volume resulted from the 4.4% decrease in nonresidential construction starts and our effort to improve gross margins by avoiding high volume, low margin projects. Sales to third parties for fiscal 2007 increased $145.6 million to $927.4 million from $781.8 million in the prior fiscal year. The remaining $0.5 million represents an increase in intersegment sales for fiscal 2007. Engineered building systems third-party sales accounted for 57.1% of total consolidated third-party sales in fiscal 2007 compared to 49.8% in fiscal 2006.

Operating income of the engineered building systems segment increased 41.4% in fiscal 2007 to $101.8 million, compared to $72.0 million in the prior fiscal year. This $29.8 million increase resulted from a $56.5 million increase in gross profit, partially offset by a $26.6 million increase in selling and administrative expenses. The recent RCC acquisition accounted for $41.5 million of the increased gross profit and $24.0 million of increased selling and administrative costs. The recent Garco acquisition accounted for $7.3 million of the increased gross profit and $5.2 million of the increased selling and administrative costs. The increase in selling and administrative expenses was partially offset by a decrease in incentive compensation costs of $3.6 million.

Consolidated selling, general and administrative expenses,consisting of engineering, drafting, selling and administrative costs, increased to $271.9 million in fiscal 2007 compared to $246.0 million in the prior fiscal year. Of this $25.8 million increase, $24.0 million and $5.2 million resulted from the recent RCC and Garco acquisitions, respectively. In addition, we experienced increases in consulting and professional costs of $1.7 million and increases of other various expenses. These increases were partially offset by a decrease of $9.6 million in incentive compensation costs. As a percentage of sales, selling, general and administrative expenses were 16.7% for fiscal 2007 as compared to 15.7% for fiscal 2006.

Consolidated interest incomefor fiscal 2007 decreased by 86.4% to $0.7 million, compared to $5.4 million for the prior fiscal year. This decrease was primarily due to excess cash being used for acquisitions and to pay down our borrowings and our purchases of our common stock on the open market.

Consolidated interest expensefor fiscal 2007 increased by 15.7% to $28.8 million, compared to $24.9 million for the prior fiscal year. This increase was primarily due to the increase in borrowings of $200.0 million to complete the RCC acquisition in April of 2006. In addition, during fiscal 2007, we temporarily utilized up to $44.0 million in borrowings on the revolving credit facility as compared to no amounts utilized during the same period in fiscal 2006. During June 2006, we entered into an interest rate swap agreement relating to $160 million of the $400 million Term Loan due June 2010 to manage our risk associated with changing interest rates.

Consolidated provision for income taxes for fiscal 2007 decreased 9.2% to $41.1 million, compared to $45.2 million for the prior fiscal year. The decrease was primarily due to a $14.2 million decrease in pre-tax earnings, partially offset by an increase in the effective tax rate. The effective tax rate for fiscal 2007 was 39.2% compared to 38.0% for the prior fiscal year. The effective tax rate increased primarily due to the new Texas margin tax and the increase in the valuation allowance related to the Canadian net operating loss carryover.

Diluted earnings per sharefor fiscal 2007 decreased 11.3% to $3.06 per diluted share, compared to $3.45 per diluted share for the prior fiscal year. The decrease was primarily due to a $10.1 million decrease in net income, partially offset by a decrease in the number of weighted average shares assumed to be outstanding in the diluted earnings per share calculation. During fiscal 2007, we repurchased 0.8 million shares of common stock which correspondingly reduced the weighted average shares outstanding in the diluted earnings per share calculation. The dilution effect of the Notes was $0.15 per share in fiscal 2007 compared to $0.18 per share in fiscal 2006.

Index to Financial Statements

RESULTS OF OPERATIONS FOR FISCAL 2006 COMPARED TO FISCAL 2005

Consolidated sales for fiscal 2006 were $1.6 billion compared with $1.1 billion for fiscal 2005. Sales were up 39.0%, or $440.4 million. Of this increase, $286.6 million was a result of the RCC acquisition, and the remainder resulted primarily from increased tonnage volumes in all three segments. Higher tonnage volumes were driven by an improving market for non-residentialnonresidential construction.

Consolidated cost of sales increased 39.6% for fiscal 2006 to $1,187.2 million, compared with $850.7 million for fiscal 2005. Gross margins were 24.4% for fiscal 2006 compared to 24.7% for the same prior year

Index to Financial Statements

period. The decrease in gross margin percentage was a result of decreased margins at the engineered building systems segment, partially offset by increased margins at the metal coil coating and metal components segments. The gross margins for engineered building systems were lower due to the presence of large low margin structural projects and a higher number of lower margin higher complexity projects compared to prior periods as well as higher material costs, which were not fully passed on to customers. The higher margins in the metal components segment resulted from higher sales volume driven by higher third-party sales over a fixed manufacturing cost base and increased sales prices. The metal coil coating margins were higher due to a larger increase in sales prices over material costs as well as a change in product mix.

Metal coil coatingsales increased $46.2 million to $278.8 million in fiscal 2006, from $232.6 million in the prior fiscal year. Sales to third parties for fiscal 2006 increased $7.1 million to $117.9 million, from $110.8 million in the prior fiscal year. The remaining increase of $39.1 million represents an increase in intersegment sales to $160.9 million for fiscal 2006 from $121.9 million in the prior fiscal year. Metal coil coating third-party sales accounted for 7.5% of total consolidated third-party sales in fiscal 2006 compared with 9.8% in fiscal 2005.

Operating income of the metal coil coating segment increased by 23.8% to $24.9 million, compared to $20.2 million in the prior fiscal year primarily due to increased gross margin. The increase in gross margin primarily resulted from increased sales prices over material costs as well as a change in product mix. In addition, operating income during the third quarter benefited from a $1.1 million property tax reduction. As a percentage of segment sales, operating income in fiscal 2006 was 8.9% compared to 8.7% in fiscal 2005.

Metal componentssales increased $117.5 million to $771.2 million in fiscal 2006, compared to $653.7 million in the prior year. Sales were up primarily due to a 17.4% increase in external tons shipped. Sales to third

parties for fiscal 2006 increased $103.8 million to $670.8 million from $567.0 million in prior year. The remaining $13.7 million represents an increase in intersegment sales. Metal components third-party sales accounted for 49.1%42.7% of total consolidated third-party sales in fiscal 2006 compared to 57.8%50.2% in fiscal 2005.

Operating income of the metal components segment increased 20.4% in fiscal 2006 to $92.0 million, compared to $76.4 million in the same period of the prior year. This $15.6 million increase resulted primarily from a $24.9 million increase in gross profit, partially offset by a $9.3 million increase in selling and administrative expenses. Of the increased costs, $2.7 million resulted from increased variable selling costs on higher sales activity and $1.8 million resulted from the inclusion of Heritage Building Systems (“Heritage”) and Steelbuilding.com, Inc. (“Steelbuilding.com”) for the full period in 2006 as compared to a partial period in the prior year. The remaining increase resulted from primarily from $1.8 million in higher bonus and incentive expenses over prior fiscal year and an increase of $1.5 million in bad debt expense over prior fiscal year.

Engineered building systemssales increased $348.6 million to $823.0 million in fiscal 2006, compared to $474.4 million in the prior year’s period. Of the increase, $286.6 million was attributable to the RCC acquisition and the remainder resulted primarily from a 10.1% increase in external tons shipped from our legacy operations. Sales to third parties for fiscal 2006 increased $329.5 million to $781.8 million from $452.3 million in the prior fiscal year. The remaining $19.1 million represents an increase in intersegment sales for fiscal 2006. Engineered building systems third-party sales accounted for 52.4%49.8% of total consolidated third-party sales in fiscal 2006 compared to 42.0%40.0% in fiscal 2005.

Index to Financial Statements

Operating income of the engineered building systems segment increased 50.9% in fiscal 2006 to $72.0 million, compared to $47.7 million in the prior fiscal year. This $24.3 million increase resulted from a $75.2 million increase in gross profit, partially offset by a $50.8 million increase in selling and administrative expenses. The recent RCC acquisition accounted for $41.9 million of the increase in selling and administrative costs. The remaining increase in expenses was primarily due to an increase of $5.1 million in variable engineering and selling expenses on higher sales activity, an increase of $1.5 million in 401(k) and health benefit costs, an increase of $1.4 million in bonus expense and a $1.0 million increase due to a prior period benefit of a settlement of a suit against a former employee.

Metal coil coatingsales increased $46.2 million to $278.8 million in fiscal 2006 from $232.6 million in the prior fiscal year. Sales to third parties for fiscal 2006 increased $7.1 million to $117.9 million from $110.8 million in the prior fiscal year. The remaining increase of $39.1 million represents an increase in intersegment sales to $160.9 million for fiscal 2006 from $121.9 million in the prior fiscal year. Metal coil coating accounted for 17.8% of total consolidated sales in fiscal 2006 compared with 20.6% in fiscal 2005.

Operating income of the metal coil coating segment increased by 23.8%, to $24.9 million, compared to $20.2 million in the prior fiscal year primarily due to increased gross margins. The increase in gross margin primarily resulted from increased sales prices over material costs as well as a change in product mix. In addition, operating income during the third quarter benefited from a $1.1 million property tax reduction. As a percentage of segment sales, operating income in fiscal 2006 was 8.9%, compared to 8.7% in fiscal 2005.

Index to Financial Statements

Consolidated selling, general and administrative expenses,consisting of engineering, drafting, selling and administrative costs, increased to $246.0 million in fiscal 2006 compared to $174.9 million in the prior fiscal year. Of this $71.1 million increase, $41.9 million resulted from the recent RCC acquisition, $6.8 million was the result of increased bonus and incentive expense on increased earnings, $5.6 million resulted from increased variable selling costs, $3.9 million resulted from an increase in engineering expenses on increased sales activity and $3.4 million resulted from an increase in share-based compensation expense related primarily to the adoption of SFASStatement of Financial Accounting Standards (“SFAS”) 123(R). The remaining increase was primarily the result of $1.8 million from the inclusion of Heritage and Steelbuilding.com for the full first quarter of 2006 as compared to only part of the corresponding quarter in 2005, $1.7 million higher information technology spending, a $1.6 million increase due to a prior period benefit of a settlement of a suit against a former employee and higher bad debt expense of $1.5 million over an unusually low prior year and was partially offset by a $1.4 million reduction in contract labor related to Sarbanes-Oxley compliance. In addition to these items, we experienced general increases in administrative costs resulting from the on-going implementation of Oracle 11i and the continuing costs of complying with the Sarbanes-Oxley Act of 2002. As a percentage of sales, selling, general and administrative expenses were 15.7% for fiscal 2006 as compared to 15.5% for fiscal 2005.

Consolidated interest expensefor fiscal 2006 increased by 72.3%, to $24.9 million, compared to $14.5 million for the prior fiscal year. This increase was primarily due to the increase in borrowings of $200.0 million to complete the RCC acquisition and substantial increases in interest rates on variable rate borrowings under our senior secured credit facility. During June 2006, we entered into an interest rate swap agreement relating to $160 million of the $400 million Term Loan due June 2010 to manage our risk associated with changing interest rates.

Consolidated provision for income taxes for fiscal 2006 increased 12.4%, to $45.2 million, compared to $40.3 million for the prior fiscal year. The increase was primarily due to a $22.8 million increase in pre-tax earnings, partially offset by a decrease in the effective tax rate from 41.8% for fiscal 2005 to 38.0% for fiscal 2006. The decrease in the effective tax rate was in large part due to non-recurring adjustments made in fiscal 2005 and the effect of the recently enacted production activities deduction which is expected to be approximately $3.1 million for the year. In addition, approximately $0.5 million of non-recurring adjustments were made during fiscal 2006 related to state tax matters, which reduced the effective tax rate for 2006.

Diluted earnings per sharefor fiscal 2006 increased 28.7%, to $3.45 per diluted share, compared to $2.68 per diluted share for the prior fiscal year. The increase was primarily due to a $22.8 million increase in net income, resulting from the factors described above,partially offset by an increase in the number of weighted average shares assumed to be outstanding in the diluted earnings per share calculation. During fiscal 2006, we repurchased 0.8 million shares of common stock which correspondingly reduced the weighted average shares outstanding in the diluted earnings per share calculation. However, these reductions were more than offset by the number of shares assumed to be converted and outstanding as if the holders of our Notes had converted the Notes at the average 2006 share price, which increased the assumed shares outstanding by 1.1 million shares. During the second quarter of 2006,The incremental shares that we would have been required to issue had the Notes became convertible andbeen converted at the average trading price during the period have been since then included in the diluted earnings per share calculation because our average stock trading price had exceeded the $40.14 conversion threshold for the required period.

RESULTS OF OPERATIONS FOR FISCAL 2005 COMPARED TO FISCAL 2004

Consolidated sales for each of fiscal 2005 and 2004 were $1.1 billion. Sales were relatively flat compared to last year due to an increase in selling prices resulting from steel cost increases, partially offset by lower tonnage volumes in all segments. Intersegment sales in fiscal 2005 of $230.7 million represent products and services provided among the three segments for metal components, engineered building systems and metal coil coating of $86.7 million, $22.1 million and $121.9 million, respectively.

Consolidated costs of sales increased from $822.7 million (75.8% of revenue) for fiscal year 2004 to $850.7 million (75.3% of revenue) in fiscal 2005. The $28.0 million increase in cost of sales over the same period of thethreshold.

Index to Financial Statements

prior year resulted from increased steel material costs due to market shortages, partially offset by lower tonnage volumes. Gross margins were 24.7% for fiscal 2005 compared to 24.2% for fiscal 2004. The overall improvement of our gross margin percent by 0.5% was due to our prices to our customers which anticipated the overall increases in steel costs, however the actual costs incurred were slightly less than anticipated.

Metal componentssales for fiscal 2005 increased $44.9 million to $653.7 million from $608.8 million for fiscal 2004. Sales to third parties for fiscal 2005 increased to $567.0 million from $548.0 million for fiscal 2004. Of the $44.9 million increase, $19.0 million represents an increase in third party sales and was primarily attributed to adjusting our prices to compensate for higher steel prices, partially offset by lower tonnage volumes. The remaining $25.9 million represents an increase in intersegment sales.

Operating income of the metal components segment increased 3% in fiscal 2005 to $76.4 million from $74.4 million for fiscal 2004. The $2.0 million increase was primarily attributed to higher gross margins of $8.1 million driven primarily by higher average prices, partially offset by an increase of $6.1 million in selling and administrative expenses. The increase in selling and administrative expenses resulted primarily from 11 months of expense related to Heritage and Steelbuilding.com subsequent to the December 2004 acquisition, partially offset by a decrease of $2.6 million in the provision for doubtful accounts.

Engineered building systemssales for fiscal 2005 increased $38.0 million to $474.4 million from $436.3 million for fiscal 2004. Sales to third parties for fiscal 2005 increased to $452.3 million from $414.1 million for fiscal 2004. Of the $38.0 million increase, $38.2 million represents an increase in third party sales and was primarily attributed to adjusting our prices to compensate for higher steel prices, partially offset by lower tonnage volumes. The remaining $0.2 million decrease in sales represents a decrease in intersegment sales from fiscal 2004 to fiscal 2005.

Operating income of the engineered building systems segment increased 42% in fiscal 2005, to $47.7 million, compared to $33.7 million for the prior year. This $14.0 million increase resulted primarily from a $15.8 million increase in gross profit attributable to adjusting our prices to compensate for higher steel prices, partially offset by a $1.8 million increase in selling and administrative expenses. The increase in selling and administrative expenses was primarily due to increases in engineering expenses of $1.4 million and selling expenses of $3.1 million partially offset by a decrease in administrative expenses of $2.7 million. The decrease in administrative expenses was primarily due to decreases in bonus expense of $1.0 million, health insurance of $1.0 million and general liability insurance of $0.7 million.

Metal coil coatingsales for fiscal 2005 decreased 1%, to $232.6 million from $234.9 million in fiscal 2004. Sales to third parties for fiscal 2005 decreased to $110.8 million from $122.8 million for fiscal 2004. This decrease was primarily attributed to shifting production capacity to internal uses for the metal components and engineered building systems segments and an overall softening in the market. Intersegment sales increased 9%, to $121.9 million in fiscal 2005 compared to $112.1 million for the prior year.

Prior to the third quarter of fiscal 2004, a portion of the revenue for the metal coil coating segment was recognized upon completion of the painting process for consigned coils owned by the customer, which in most cases were steel mills. This accounting treatment met the criteria to be recognized as revenue in accordance with SEC Staff Accounting Bulletin No. 101. In 2004, many steel mills that traditionally had consigned steel coils to us in this manner abandoned that procedure, resulting in purchasing and recognizing steel coils as inventory upon the arrival of such raw materials at our coil coating plants. As a result, during the third quarter of fiscal 2004, we changed our policy to recognize revenue upon shipment of the coils from the coil coating facilities to third parties. The impact of the accounting change during the third quarter of 2004, which was not material, was a reduction to our revenues and operating income of approximately $4.5 million and $0.8 million, respectively. This change would not have had a material effect on any prior periods presented and is not expected to materially affect future results.

Index to Financial Statements

Operating income of the metal coil coating segment decreased 23%, to $20.2 million, compared to $26.4 million for the prior year. The $6.2 million decrease is attributable to lower margins of $6.6 million partially offset by a decrease of $0.4 million in selling and administrative expenses.

Consolidated selling, general and administrative expenses increased to $174.9 million in fiscal 2005 from $165.2 million for the prior year due to an additional $10.0 million of general and administrative expense that resulted from the acquisition of Heritage and Steelbuilding.com, as well as a $3.0 million increase in restricted stock expense, partially offset by a lower provision for doubtful accounts of $2.5 million. As a percent of sales, selling, general and administrative expenses for both fiscal 2005 and fiscal 2004 were 15%.

Consolidated interest expense for fiscal 2005 decreased by 4%, to $14.5 million compared to $15.1 million for the prior year. This decrease was primarily due to the lower interest rate attributable to the refinancing of the senior secured credit facility as compared to that of the 9.25% convertible senior subordinated notes that were redeemed during the third quarter of fiscal 2004.

Consolidated provision for income taxes for fiscal 2005 increased 35%, to $40.3 million compared to $29.8 million for the prior year. Of the increase, approximately $9.0 million is related to the $21.6 million increase in pre-tax earnings. The remaining $1.5 million is attributed to the increase in the effective tax rate in fiscal 2005 to 41.8% compared to 39.9% for the prior year. Included in the effective tax rate were income tax adjustments totaling $1.8 million primarily related to previously unrecognized differences between the book and tax basis differences in fixed assets of $1.5 million. These adjustments were partially offset by a reversal of an accrual for tax contingencies of $1.0 million. Also included in the effective tax rate were several other items that were immaterial individually and in the aggregate to the financial statements in the current or previous periods.

Diluted earnings per share for fiscal 2005 increased 19.6%, to $2.68 per diluted share compared to $2.24 per diluted share for the prior fiscal year. The increase was primarily due to an $11.1 million increase in net income resulting from the factors described above partially offset by an increase in the number of weighted average shares assumed to be outstanding in the diluted earnings per share calculation.

LIQUIDITY AND CAPITAL RESOURCES

General

On October 29, 2006,28, 2007, we had working capital of $132.1$129.6 million compared to $293.1 million at the end of fiscal 2005, a $161.0 million decrease. Similarly, our cash and cash equivalents decreased $175.7 million to $25.0$132.0 million at the end of fiscal 2006, from $200.7a $2.4 million decrease. Our cash and cash equivalents increased $50.0 million to $75.1 million at the end of fiscal 2005.2007 from $25.0 million at October 29, 2006. The decreaseincrease primarily resulted from $393.3$137.6 million of cash provided by operating activities. This increase was partially offset by $56.4 million of cash used in investing activities the majorityand $31.6 million of which was a result of the RCC acquisition, partially offset by cash provided byused in financing activities of $96.0 million due to the issuanceborrowings and repayments on the revolving line of new debt to finance a portion of the RCC acquisition.credit and stock repurchases. The cash provided by operating activities was positively impacted by a $37.4$36.8 million decrease in current assets and a $2.2 million increase in current liabilities partially offset by a $26.7 million increase in current assets from the end of fiscal 2005.2006. The increasedecrease in current assets is related to increasesdecreases in inventory and accounts receivable, prepaids and inventory.receivable. The increase in current liabilities is partially related to the receipt of prepaid vendor rebates.increase in accounts payable, partially offset by a decrease in other current liabilities. The cash used in investing activities was primarily related to $42.0 million used for capital expenditures primarily related to land and building, an equipment lease buyout, computer software and equipment. In addition, we paid $20.1 million in cash related to the Garco and RCC acquisitions.

We invest our excess cash in commercial paper with maturities up to 90 days and with a rating of not less than A-1 or P-1.

Debt

Credit Facility. Our senior secured credit facility includes a $125 million five-year revolving credit facility maturing on June 18, 2009 with a sub-facility for letters of credit of a maximum of $50 million and a $400 million term loan maturing June 18, 2010. The term loan requires principal payments of $1.0 million each quarter and a final payment of $374.7 million at maturity. However, we made additional principal payments during fiscal 2006 and, as a result, will not be required to make any more principal payments until the maturity date except under the mandatory prepayment provisions in our senior secured credit facility. At October 28, 2007 under the mandatory prepayment provisions of our senior secured credit facility, an excess cash flow calculation requires that $21.4 million of our term loan be paid within ninety days after the end of our fiscal year. Therefore, $21.4 million of our term loan has been classified as a current obligation at October 28, 2007. In addition, the credit facility provides for an incremental

Index to Financial Statements

facility of $180 million to fund the payment of the cash portion of the conversion price from any future conversions of our 2.125% convertible senior subordinated notes due 2024. At October 29, 200528, 2007 and October 29, 2006, letters of credit totaling approximately $7.3$14.1 million and $15.9 million, respectively, were outstanding under the revolving credit facilityfacility. At both October 28, 2007 and $193.0 million andOctober 29, 2006, $315.0 million respectively, werewas outstanding under the term loan. In accordance with Emerging Issues Task Force (“EITF”) 96-19,Debtors Accounting for a Modification or Exchange of Debt Instruments, we have accounted for the amendments to our senior secured credit facility as a modification, and we have expensed $0.2 million of legal and other professional fees paid to third-parties in connection with amending the facility.

Loans under the senior secured credit facility bear interest, at our option, as follows: (1) base rate loans at the base rate plus a margin, which for term loans is 0.5% and for revolving loans fluctuates based on our leverage ratio and ranges from 0.25% to 1.25%, and (2) LIBOR loans at LIBOR plus a margin, which for term loans is 1.50% and for revolving loans fluctuates based on our leverage ratio and ranges from 1.25% to 2.25%. Base rate is defined as the higher of the Wachovia Bank, National Association prime rate or the overnight Federal Funds rate and LIBOR is defined as the applicable London interbank offered rate adjusted for reserves. Based on our current leverage ratios, we will pay a margin of 0.75% on base rate loans and 1.75% on LIBOR loans under the revolving credit facility and a margin of 0.50% on base rate loans and 1.50% on LIBOR loans under the term loan facility during the first quarter of fiscal 2007.2008.

The senior secured credit facility is secured by (1) 100% of our accounts receivable, inventory and equipment and related assets such as our software, chattel paper, instruments and contract rights (excluding foreign operations) and (2) 100% of the capital stock and other equity interests in each of our direct and indirect operating domestic subsidiaries and 65% of the capital stock in each of our foreign subsidiaries.

Index to Financial Statements

The senior secured credit facility requires compliance with various covenants and provisions customary for agreements of this nature, including a restricted payments test, minimum ratio of Consolidated EBITDA (as defined in the senior secured credit facility) to interest expense of 4.0 to 1 and maximum ratios of total debt and senior debt to Consolidated EBITDA of 4.0 to 1 and 3.0 to 1, respectively. After May 1, 2008 the senior debt ratio will change to a maximum ratio of 2.75 to 1 and the interest coverage ratio minimum will change to 5.0 to 1. The leverage ratio will remain the same. At October 29, 2005,28, 2007, our interest coverage, leverage, and senior debt ratios were 10.33, 2.706.32, 2.89 and 1.42,1.87, respectively, and we were in compliance with all ratio requirements and covenants in our senior credit facility. At October 29, 2006, our interest coverage, leverage, and senior debt ratios were 8.19, 2.55 and 1.64, respectively, and we were in compliance with all ratio requirements and covenants in our senior credit facility. The senior secured credit facility also restricts our ability to undertake additional debt and/or equity financing.

At October 29, 200528, 2007 and October 29, 2006, we had approximately $117.7$110.9 million and $109.1 million, respectively, in unused borrowing capacity (net of letters of credit outstanding of approximately $7.3$14.1 million and $15.9 million, respectively) under the revolving credit facility, of which a total of $20.0 million and $50.0 million may be utilized for standby letters of credit at both October 29, 200528, 2007 and October 29, 2006, respectively.2006. In addition, we have $180.0 million of borrowing capacity under the incremental facility.

Notes.In November 2004, we completed an offering of $180 million aggregate principal amount of Notes with interest payable semi-annually. Interest on the Notes is not deductible for income tax purposes, which creates a permanent tax difference that is reflected in our effective tax rate. For more information, see Note 1312 to our Consolidated Financial Statements under “Item 8. Financial Statements and Supplementary Data”. The Notes are general unsecured obligations and are subordinated to our present and future senior indebtedness.

We have the right to redeem the Notes, beginning on November 20, 2009, for a price equal to 100% of the principal amount plus accrued and unpaid interest, if any. Each holder has the right to require that we repurchase the Notes after five, 10 and 15 years at 100% of the principal amount plus accrued and unpaid interest, if any, beginning November 15, 2009. Upon the occurrence of certain designated events, holders of the Notes will also have the right to require that we purchase all or some of their Notes at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest, if any, and, in certain circumstances, a make whole premium.

Index to Financial Statements

We must pay the repurchase price of the aggregate principal amount of the Notes in cash unless prohibited by limitations imposed by our existing or future senior credit facilities. The Notes are convertible into cash or, in certain circumstances, a combination of cash and shares of our common stock, at a ratio of 24.9121 shares of common stock per $1,000 principal amount notes, which is equivalent to an initial conversion price of approximately $40.14 per common share. The ratio is subject to adjustments if certain events take place, and holders may convert only if the closing sale price per common share exceeds 120% of the conversion price for at least 20 trading days in the 30 consecutive trading day period ending on the last trading day of the preceding calendar quarter. At both October 29, 200528, 2007 and October 29, 2006, $180 million principal amount of the Notes was outstanding. Our stock price exceeded the conversion threshold of the Notes for at least 20 trading days in each of the 30 consecutive trading day period ended June 30, 2007, but our stock price did not exceed the conversion threshold of the Notes for at least 20 trading days in the 30 consecutive trading day periods ended March 31, 2006, June 30, 20062007 and September 30, 2006; therefore,2007. Therefore, our Notes currently may not be converted until such time as our stock price again exceeds the conversion threshold for the specified 20 of the last 30 consecutive trading days of a calendar quarter or beginning on November 15, 2009.

In August 2007, the FASB issued for comment an exposure draft of a proposed FASB Staff Position APB 14-a (“Proposed FSP”) that would change the accounting for certain convertible debt instruments, including our Notes. Under the proposed new rules, for convertible debt instruments that may be convertedsettled entirely or partially in cash upon conversion, an entity should separately account for the liability and equity components of the instrument in a manner that reflects the issuer’s economic interest cost. The effect of the proposed new rules for our Notes is that the equity component would be included in the paid-in-capital section of stockholders’ equity on our balance sheet and the value of the equity component would be treated as an original issue discount for

Index to Financial Statements

purposes of accounting for the debt component of the Notes. Higher interest expense would result by recognizing the holders,accretion of the discounted carrying value of the Notes to their face amount as interest expense over the term of the Notes using an effective interest rate method of amortization. We believe the FASB plans to issue final guidance in the first half of calendar 2008. This Proposed FSP is expected to be effective as early as our fiscal year ended 2009, would not permit early application and would be applied retrospectively to all periods presented. While this accounting pronouncement does not change the economic substance or cash flow requirements for the Notes, it should be noted that the amount reported as interest expense in our Consolidated Statement of Operations would increase significantly.

We are currently evaluating the proposed new rules and are evaluating the impact at this time. However, if the Proposed FSP is adopted as it is proposed we expect to have higher interest expense starting in fiscal 2009 due to the accretion of the discounted carrying value of the Notes to their option.face amount. The Notes would also reflect higher than previously reported interest expense due to retrospective application.

Interest Rate Swap

On June 15, 2006, we entered into a forward interest rate swap transaction (the “Swap Agreement”) hedging a portion of our $400 million variable rate Term Loan due June 2010 with a notional amount of $160 million beginning October 11, 2006. The notional amount decreased to $145 million on October 11, 2007 and will further decrease on each of October 11, 2007, October 14, 2008 and October 13, 2009 to $145 million, $105 million and $65 million, respectively. The term of the Swap Agreement is four years. Under the Swap Agreement, we will pay a fixed rate of 5.55% on a quarterly basis in exchange for receiving floating rate payments based on the three-month LIBOR rate.

We utilize interest rate swaps to manage our risk associated with changing interest rates and account for them under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, as amended (“SFAS 133”). SFAS 133 requires that all derivatives be marked to market (fair value). We do not purchase or hold any derivative instruments for trading purposes.

Our interest rate swap agreement qualifiesWe designated our Swap Agreement as a cash flow hedge, as defined by SFAS 133. In addition, the interest rate swap agreement qualifies for the “shortcut” method of accounting for hedges, as defined by SFAS 133. Under the “shortcut” method, the hedges are assumed to be perfectly effective, and, thus, there is no ineffectiveness to be recorded in earnings. The fair value of the interest rate swap agreement,Swap Agreement, which is adjusted quarterly, is recorded in other long-term liabilities in the Consolidated Balance Sheet with a corresponding adjustment, net of tax, toand the unrealized loss is recorded in other comprehensive income. Amounts recorded in accumulated other comprehensive income (loss) are amortized as an adjustment to interest expense over the term of the related hedge.

The fair value of the Swap Agreement, excluding accrued interest, at October 28, 2007 and October 29, 2006, was a liability of approximately $3.2 million and $2.3 million.

million, respectively. Fair value estimates presented for the Swap Agreement are based on third-party information and were determined based on the present value of all future cash flows, the fixed rate in the contract and assumptions regarding forward interest rates from a yield curve. The Swap Agreement resulted in $0.3 million additional interest expense during fiscal 2007.

We are exposed to credit loss in the event of nonperformance by the counterparty on the Swap Agreement. If the counterparty fails to meet the terms of the agreement, our exposure is limited to the net amount that would have been received, if any, over the remaining life of the Swap Agreement. We do not anticipate nonperformance as the contract is with a creditworthy counterparty and no material loss would be expected from nonperformance by the counterparty.

Cash Flow

We periodically evaluate our liquidity requirements, capital needs and availability of resources in view of inventory levels, expansion plans, debt service requirements and other operating cash needs. To meet our short- and long-term liquidity requirements, including payment of operating expenses and repaying debt, we rely

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primarily on cash from operations. However, we have recently, as well as in the past, sought to raise additional capital and may do so again in the future.

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We expect that, for the foreseeable future, cash generated from operations, sales of assets no longer needed for efficient operations and the available borrowings under our senior secured credit facility will be sufficient to provide us the ability to fund our operations, provide the increased working capital necessary to support expected growth and fund planned capital expenditures of approximately $60$45 million for fiscal 20072008 and expansion when needed, and pay scheduled interest and principal payments on our indebtedness along with our goal to pay down $100 million in debt during fiscal 2007.needed.

We expect that, to the extent we are unable to pay in full any outstanding balance of the revolving portion of our senior secured credit facility by its maturity date in June 2009, the $374.7$315.0 million finalremaining installment on our term loan by its maturity date in June 2010, or the $180.0 million convertible senior subordinated notes upon conversion or maturity, we will refinance any then outstanding balance by means of a new senior credit facility or other public or private equity or debt financings. There can be no assurance that any of these external sources of funds will be available to us at the time they are needed or that any of those financings can be arranged on acceptable terms, or terms as favorable as those now enjoyed by us under our existing indebtedness.

We have used available funds to repurchase shares of our common stock under our stock repurchase program. During fiscal 2007, we repurchased 757,900 shares for an aggregate cost of $35.2 million.

Our corporate strategy points to the synergistic value of potential acquisitions in our metal coil coating, metal components and engineered building systems and metal coil coating segments. From time to time, we may enter into letters of intent or agreements to acquire assets or companies in these business lines. The consummation of these transactions could require cash payments and/or issuance of additional debt.

On January 8,31, 2007, we signed a definitive assetcompleted the purchase agreement to purchaseof substantially all the assets of Garco Building Systems, Inc. (“Garco”), which designs, manufactures and distributes steel building systems primarily for markets in the northwestern United States and western Canada. Garco is headquartered in Spokane, Washington, where it operates a manufacturing facility for steel building systems for industrial, commercial, institutional and agricultural applications. The aggregate purchase price is $16.5for this acquisition was $17.2 million, comprised of $14.5$15.4 million in cash and $2.0$1.8 million in common stock.

Steel Prices

Our business is heavily dependent on the pricesprice and supply of steel, which is the principal raw material used in our products.steel. Our various products are fabricated from steel produced by mills including bars, plates, structural shapes, sheets, hot rolled coils and galvanized or galvalume-coatedGalvalume-coated coils. 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, the availability of raw materials, competition, labor costs, freight and transportation costs, production costs, import duties and other trade restrictions. In fiscal 2005, steel prices stabilized at high relative volumes from the previous year’s unusually rapid and significant price increases and severe shortages in the steel industry. Steel pricing increases for sheet, hot roll and structural abated during much of fiscal 2005. However, that abatement ended with steel price increases in October 2005. In fiscal 2006, steel prices increased due to the consolidation of steel mills. Overall, our weightedOur average cost of steel, based on the typical mix of products we purchased, increased approximately 11.1% between October 2005 and October 2006.2006 and decreased approximately 3.9% between October 2006 and October 2007. Based on our belief that demand forexpected increases in iron ore, coke, steel scrap and ocean freight costs, steel prices could increase again in fiscal 2008. However, with total nonresidential construction building materials will increasedemand expected to be 6% lower in fiscal 2007 over fiscal 2006, but will be offset by lower demand from other industries such as2008, steel suppliers may have difficulty raising prices in the automotive industry, we expect to see steel prices stabilize during fiscal 2007 to a level in line with our weighted average cost of steel during our third quarter of fiscal 2006.market. Because we have periodically adjusted our contract prices, particularly in the engineered building systems segment, we have generally been able to pass increases in our raw materialsmaterial costs through to our customers.

We do not have fewany 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

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but prior to delivery, we may, for competitive or other reasons, not be able to pass such price increases along. If

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the available supply of steel declines, we could experience price increases that we are not able to pass on to our customers, 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 position.

We rely on a few major suppliers for our supply of steel and may be adversely affected by the bankruptcy, change in control, financial condition or other factors affecting those suppliers. During 2001 and 2002,fiscal 2007, we purchased approximately 26% of our primary steel suppliers, Bethlehem Steel Corporation and National Steel Corporation, respectively, filedrequirements from one vendor. No other vendor accounted for protection under Federal bankruptcy laws. During the third quarter of fiscal 2003, U.S. Steel bought substantially all of the integrated steel-making assets of National Steel, and ISG acquired the assets of Bethlehem Steel. During April 2005, Mittal Steel USA purchased ISG. During fiscal 2006, we purchased over 10% of our steel requirements from each of Mittal Steel USA and Nucor, or approximately 40% in the aggregate.during fiscal 2007. A prolonged labor strike against one of our principal domestic suppliers, or financial or other difficulties of a principal supplier that affects its ability to produce steel, could have a material adverse effect on our operations. Furthermore, if one or more of our current suppliers is unable for financial or any other reason to continue in business or to produce steel sufficient to meet our requirements, essential supply of our primary raw materials could be temporarily interrupted and our business could be adversely affected. Alternative sources, however, including foreign steel, are currently believed to be sufficient to maintain required deliveries. For additional information about the risks of our raw material supply and pricing, see “Item 1A—Risk Factors.”

OFF-BALANCE SHEET ARRANGEMENTS

As part of our ongoing business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities (“SPEs”), which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of October 29, 2006,28, 2007, we were not involved in any unconsolidated SPE transactions.

CONTRACTUAL OBLIGATIONS

The following table shows our known contractual obligations as of October 29, 200628, 2007 (in thousands):

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CONTINGENT LIABILITIES AND COMMITMENTS

We are required to have standby letters of credit as a collateral requirement of our insurance carrier for our projected exposure for worker’s compensation, general liability and auto claims. For all insurance carriers, the total standby letters of credit are approximately $7.3$14.1 million and $15.9 million at October 29, 200528, 2007 and October 29, 2006, respectively. We also have a total of $50 million available for letters of credit under our current senior secured credit facility.

CRITICAL ACCOUNTING POLICIES

Our consolidated financial statementsConsolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the U.S., which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those estimates that may have a significant effect on our financial condition and results of operations. Our significant accounting policies are disclosed in Note 2 to our consolidated financial statements.Consolidated Financial Statements. The following discussion of critical accounting policies addresses those policies that are both important to the portrayal of our financial condition and results of operations and require significant judgment and estimates. We base our estimates and judgment on historical experience and on various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

Revenue recognition. We recognize revenues when all of the following conditions are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and collectibility is reasonably assured. Generally, these criteria are met at the time product is shipped or services are complete. Provisions are made upon the sale for estimated product returns. Costs associated with shipping and handling our products are included in cost of sales.

Insurance accruals.We are self insured for a substantial portion of the cost of employee group health insurance and for the cost of workers’ compensation benefits and general liability and automobile claims. We purchase insurance from third parties that provides individual and aggregate stop loss protection for these costs. Each reporting period, we record the costs of our health insurance plan, including paid claims, an estimate of the change in incurred but not reported (“IBNR”) claims, taxes and administrative fees (collectively the “Plan Costs”) as general and administrative expenses in our consolidated statementsConsolidated Statements of operations.Operations. The estimated IBNR claims are based upon (i) a recent average level of paid claims under the plan, (ii) an estimated lag factor and (iii) an estimated growth factor to provide for those claims that have been incurred but not yet paid. For workers’ compensation costs, we monitor the number of accidents and the severity of such accidents to develop appropriate estimates for expected costs to provide both medical care and benefits during the period an employee is unable to work. These accruals are developed using third party estimates of the expected cost and length of time an employee will be unable to work based on industry statistics for the cost of similar disabilities. For general liability and automobile claims, accruals are developed based on third party estimates of the expected cost to resolve each claim based on industry statistics and the nature and severity of the claim.claim and include

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estimates for IBNR claims, taxes and administrative fees. This statistical information is trended to provide estimates of future expected costs based on factors developed from our experience of actual claims cost compared to original estimates.

We believe that the assumptions and information used to develop these accruals provide the best basis for these estimates each quarter because as a general matter, the accruals have historically proven to be reasonable and accurate. However, significant changes in expected medical and health care costs, negative changes in the severity of previously reported claims or changes in laws that govern the administration of these plans could have an impact on the determination of the amount of these accruals in future periods. We expensed approximately $19 million, $17 million and $24 million for health insurance in fiscal 2004, 2005 and 2006, respectively, $4 million, $3 million and $3 million for workers’ compensation in fiscal 2004, 2005 and fiscal 2006, respectively, and $4 million, $3 million and $4 million for general liability and automotive claims in fiscal 2004, 2005 and fiscal 2006, respectively. The health insurance accrual balance was $3 million and $4 million at October 29, 2005

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and October 29, 2006, respectively, the workers’ compensation accrual balance was $3 million and $4 million at October 29, 2005 and October 29, 2006, respectively, and the general liability and automobile claim reserve balance was $3 million and $5 million at October 29, 2005 and October 29, 2006, respectively. In fiscal 2004 and prior years, we based our health insurance accrual on at least three months for claims submitted. With improvements in technology, claims processing improved with claims being submitted, processed and paid in a much shorter time frame. As such, in fiscal 2005, we changed ourOur methodology on a prospective basis for determining the amount of health insurance accrual to one that considers claims growth and claims lag, which is the length of time between the incurred date and processing date. The change in methodology resulted in a reduction of our health insurance accrual of approximately $3.0 million in fiscal 2005 over fiscal 2004. For the health insurance accrual, a change of 10% in the lag assumption would result in a financial impact of $0.3 million.

Share-Based Compensation. Prior to October 30, 2005, we accounted for stock option plans using the intrinsic value method under Accounting Principles Board Opinion 25, Accounting for Stock Issued to Employees, (“APB 25”) and related interpretations, as permitted by Statement of Financial Accounting StandardsSFAS 123, Accounting for Stock-Based Compensation, (“SFAS 123”) under which no compensation expense was recognized for stock option grants. Accordingly, share-based compensation related to our stock options was included as a pro forma disclosure in the financial statement footnotes and continues to be provided for periodsthe period prior to fiscal 2006. Compensation expense recorded for restricted stock awards under the intrinsic value method is consistent with the expense that would be recorded under the fair value based method described in the following paragraphs.

Effective October 30, 2005, we adopted the fair value recognition provisions of Statement of Financial Accounting Standards 123(Revised), Share-Based Payment, (“SFAS 123(R)”) using the modified-prospective method. Under this transition method, compensation cost recognized in the first year of fiscal 2006 and beyond includes: a) compensation cost for all share-based payments granted through October 29, 2005, but for which the requisite service period had not been completed as of October 29, 2005, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123, and b) compensation cost for all share-based payments granted subsequent to October 29, 2005, based on the grant date fair value estimated in accordance with the provisions of SFAS 123(R). Results for prior periods have not been restated.

As a result of adopting SFAS 123(R) on October 30, 2005, our earnings before income taxes and net earnings for the fiscal year ended October 29, 2006 were $3.4 million and $2.1 million lower, respectively, than if we had continued to account for share-based compensation under APB 25. Basic and diluted earnings per share for the fiscal year ended October 29, 2006 would have been $0.10 higher if we had not adopted SFAS 123(R), compared to reported basic and diluted earnings per share of $3.70 and $3.45, respectively.

The fair value and compensation expense of each option award is estimated as of the date of grant using a Black-Scholes-Merton option pricing formula. Expected volatility is based on historical volatility of our stock over a preceding period commensurate with the expected term of the option. The expected volatility considers factors such as the volatility of our share price, implied volatility of our share price, length of time our shares have been publicly traded, appropriate and regular intervals for price observations and our corporate and capital structure. We utilize the “simplified” method described in SEC Staff Accounting Bulletin No. 107 to determine the expected term of our options. The forfeiture rate in our calculation of stock-basedshare-based compensation expense is based on historical experience and is estimated at 10% for our non-officers and 0% to 10% for our officers. The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Expected dividend yield was not considered in the option pricing formula since we historically have not paid dividends and have no current plans to do so in the future.

The compensation cost related to these share-based awards is recognized over the requisite service period. The requisite service period is generally the period during which an employee is required to provide service in exchange for the award.

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Our option awards and restricted stock awards are subject to graded vesting over a service period, which is typically four years. We recognize compensation cost for these awards on a straight-line basis over the requisite service period for the entire award. In addition, certain of our awards provide for accelerated vesting upon qualified retirement. We recognize compensation cost for such awards over the period from grant date to the date the employee first becomes eligible for retirement.

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Income taxes. The determination of our provision for income taxes requires significant judgment, the use of estimates and the interpretation and application of complex tax laws. Our provision for income taxes reflects a combination of income earned and taxed in the various U.S. federal and state, CanadaCanadian federal and provincial as well as Mexican federal jurisdictions. Jurisdictional tax law changes, increases or decreases in permanent differences between book and tax items, accruals or adjustments of accruals for tax contingencies or valuation allowances, and the change in the mix of earnings from these taxing jurisdictions all affect the overall effective tax rate.

In assessing the realizability of deferred tax assets, we must consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. We consider all available evidence in determining whether a valuation allowance is required. Such evidence includes the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment, and judgment is required in considering the relative weight of negative and positive evidence. At October 29, 2006, we established a full valuation allowance in the amount of $2.8 million on the deferred tax assets of Robertson Building Systems Ltd., our Canadian subsidiary. This valuation allowance was increased to $4.6 million at October 28, 2007 as a result of additional tax losses incurred in fiscal 2007.

Accounting for acquisitions, intangible assets and goodwill. Accounting for the acquisition of a business requires the allocation of the purchase price to the various assets and liabilities of the acquired business. For most assets and liabilities, purchase price allocation is accomplished by recording the asset or liability at its estimated fair value. The most difficult estimations of individual fair values are those involving property, plant and equipment and identifiable intangible assets. We use all available information to make these fair value determinations and, for major business acquisitions such as RCC, typically engage an outside appraisal firm to assist in the fair value determination of the acquired long-lived assets.

In connection with the acquisition of Garco, we recorded intangible assets for trade names, backlog, customer relationships and non-competition agreements in the amount of $0.8 million, $0.7 million, $2.5 million and $1.8 million, respectively. All Garco intangible assets are amortized on a straight-line basis over their expected useful lives. Garco’s trade names are being amortized over 15 years based on our expectation of our use of the trade names. Garco’s backlog is being amortized over one year because items in Garco’s backlog are expected to be delivered within one year. Garco’s customer lists and relationships are being amortized over fifteen years based on a review of the historical length of RCC’s customer retention experience. Garco’s non-competition agreements are being amortized over their agreement terms of five years.

In connection with the acquisition of RCC, we recorded material intangible assets for trade names, backlog and customer relationships in the amount of $24.7 million, $2.3 million and $6.3 million, respectively. Trade names were determined to have indefinite useful lives and so are not amortized. Trade names were determined to have indefinite lives due to the length of time the trade names have been in place, with some having been in place for decades. Our past practice with other acquisitions and our current intentions are to maintain the trade names indefinitely. This judgmental assessment of an indefinite useful life must be continuously evaluated in the future. If, due to changes in facts and circumstances, management determines that these intangible assets then have definite useful lives, amortization will commence at that time on a prospective basis. As long as these intangible assets are judged to have indefinite lives, they will be subject to periodic lower-of-cost-or-marketimpairment tests that require management’s judgment of the estimated fair value of these intangible assets. We plan to annually assess impairment of our non-amortizing intangibles in accordance with SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS 142”). All other intangible assets are amortized on a straight-line basis over their expected useful lives. RCC’s backlog iswas being amortized over one year because items in RCC’s backlog are expected to be delivered within one year. RCC’s customer lists and relationships are being amortized over fifteen years based on a review of the historical length of RCC’s customer retention experience. See Note 3—4—Acquisitions in the Notes to Consolidated Financial Statements, for additional information.

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We have recorded approximately $275.3$277.3 million of goodwill as a result of the RCC acquisition. Goodwill of $240.5$17.0 million, $17.8 million and $17.0$242.5 million havehas been recorded in our engineered building systems,metal coil coating, metal components and coil coatingengineered building systems segments, respectively. We perform a test for impairment of all our goodwill annually, including the goodwill of RCC, as prescribed by SFAS No. 142. The fair value of our reporting units is based on a blend of estimated discounted cash flows, publicly traded company multiples and acquisition

Index to Financial Statements

multiples. Estimated discounted cash flows are based on projected sales and related cost of sales. Publicly traded company multiples and acquisition multiples are derived from information on traded shares and analysis of recent acquisitions in the marketplace, respectively, for companies with operations similar to ours. Changes in assumptions used in the fair value calculation could result in an estimated reporting unit fair value that is below the carrying value, which may give rise to an impairment of goodwill.

In addition to the annual review, we also test for impairment whenever events or changes in circumstances indicate that such carrying values may not be recoverable. Unforeseen events, changes in circumstances and market conditions and material differences in the value of intangible assets due to changes in estimates of future cash flows could negatively affect the fair value of our assets and result in a non-cash impairment charge. Some factors considered important that could trigger an impairment review include the following: significant underperformance relative to expected historical or projected future operating results, significant changes in the manner of our use of the acquired assets or the strategy for our overall business and significant negative industry or economic trends.

Allowance for doubtful accounts. Our allowance for doubtful accounts reflects reserves for customer receivables to reduce receivables to amounts expected to be collected. Management uses significant judgment in estimating uncollectible amounts. In estimating uncollectible amounts,accounts, management considers factors such as current overall economic conditions, industry-specific economic conditions, historical customer performance and anticipated customer performance. While we believe these processes effectively address our exposure for doubtful accounts and credit losses have historically been within expectations, changes in the economy, industry, or specific customer conditions may require adjustments to the allowance for doubtful accounts. During fiscal years 2004,2007, 2006 and 2005, and 2006, we established new reserves for doubtful accounts of $2.8 million, $0.3 million, $2.0 million and $2.0$0.3 million, respectively. Additionally, in each of the three fiscal years ended October 29, 2006,28, 2007, we wrote off uncollectible accounts of $1.7$5.9 million, $1.3$1.9 million and $1.9$1.3 million, respectively, all of which had been previously reserved.

Contingencies. We establish reserves for estimated loss contingencies when we believe a loss is probable and the amount of the loss can be reasonably estimated. Our contingent liability reserves are related primarily to litigation.litigation and environmental matters. Revisions to contingent liability reserves are reflected in income in the period in which there are changes in facts and circumstances change that affect our previous assumptions with respect to the likelihood or amount of loss. Reserves for contingent liabilities are based upon our assumptions and estimates regarding the probable outcome of the matter. We estimate the probable cost by evaluating historical precedent as well as the specific facts relating to each particular contingency (including the opinion of outside advisors, professionals and experts). Should the outcome differ from our assumptions and estimates or other events result in a material adjustment to the accrued estimated reserves, revisions to the estimated reserves for contingent liabilities would be required and would be recognized in the period the new information becomes known.