The spin-off and subsequent merger is hereafter referred to as the "Separation". For purposes of describing the events related to the Separation, as well as other events, transactions and financial results of Quanex Corporation and its subsidiaries related to periods prior to April 23, 2008, the term "the Company" refers to Quanex Building Products Corporation's accounting predecessor, Quanex Corporation.
In accordance with the provisions of the Financial Accounting Standards Board's (FASB) Statement of Financial Accounting Standards (SFAS) No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS 144), effective with the closing of the Separation on April 23, 2008, the results of operations and cash flows related to the Company's vehicular products and non-building products related corporate items are reported as discontinued operations for all periods presented. There were no assets or liabilities of discontinued operations as of January 31, 2009 or October 31, 2008. Unless otherwise noted, all discussion in Management's Discussion and Analysis of Financial Condition and Results of Operations reflect only continuing operations.

Consolidated Results of Operations
Summary Information

Three Months Ended January 31, 2009 2008 Change %

Net sales $ 112.9 $ 174.9 $ (62.0 ) (35.4 )% Cost of sales1 106.6 147.1 (40.5 ) (27.5 ) Selling, general and administrative 15.8 20.0 (4.2 ) (21.0 ) Impairment of goodwill and intangibles 137.3 - 137.3 100.0 Depreciation and amortization 8.7 9.0 (0.3 ) (3.3 )

Operating income (155.5 ) (1.2 ) (154.3 ) **

Interest expense (0.1 ) (0.1 ) - - Other, net 0.1 0.3 (0.2 ) (66.7 ) Income tax (expense) benefit 35.1 0.4 34.7 **

Income from continuing operations $ (120.4 ) $ (0.6 ) $ (119.8 ) **

Overview
The Company experienced significant declines in its end markets during its first fiscal quarter of 2009 and continues to find itself in a difficult housing market coupled with recent steep declines in aluminum prices. The United States housing market deteriorated 48% compared to the first fiscal quarter last year while remodeling activity was estimated to be down approximately 15%. This is believed to be the lowest level of housing starts in the United States since 1945. Housing permits, housing starts and consumer confidence continue to plummet, while housing inventories of both new and existing homes remain at high levels. Results were dismal with net sales for the first quarter of 2009 down 35% compared to the first fiscal quarter of last year. There is little doubt that the size and strength of many of the Company's customers served it well. The Company believes that it is benefiting from longstanding relationships with the leading participants in the markets it serves.
In response to the ongoing drop in demand, management remains focused on controlling costs and continues to reduce fixed and semi-variable expenses, which included taking out additional manpower, both hourly and salary. Total headcount was reduced by 26% from October 31, 2008 through January 31, 2009. The Company does not anticipate any significant increase in demand for the remainder of fiscal 2009, and therefore, expects to continue to size both its business and inventories accordingly to maximize cash generation.
During the three months ended January 31, 2009, the Company recorded a $137.3 million non-cash impairment charge, of which $125.4 million relates to goodwill and $11.9 million relates to other identified intangibles. While the portion related to other identified intangibles has been finalized, the portion related to goodwill is an estimate. During the first fiscal quarter of 2009, based on a combination of factors, including additional declines in housing start projections, falling aluminum prices, further deterioration of the overall market conditions in the building products industry, downward revision of earnings guidance, and the continued gap between the Company's market value of equity and book value of equity, the Company concluded that there were sufficient indicators to require it to perform an interim goodwill impairment analysis. As of this filing, the Company has not completed the goodwill impairment analysis, due to the complexities involved in determining the implied fair value of goodwill. However, based on the work performed to date, the Company has concluded that an impairment loss is probable and can be reasonably estimated. Accordingly, during the three months ended January 31, 2009, the Company recorded a $125.4 million non-cash goodwill impairment charge, representing the low end of the range of the estimated impairment loss. After recognizing this $125.4 million estimated impairment charge, $70.4 million of goodwill is reflected on the Company's balance sheet as of January 31, 2009. The Company expects to finalize its goodwill impairment analysis during the second quarter of fiscal 2009, at which time there could be a material upward adjustment to the goodwill impairment charge estimate. Any adjustment to the Company's preliminary estimates will be recorded in its financial statements for the quarter ending April 30, 2009. For additional details regarding this impairment charge, see Note 4, "Goodwill and Acquired Intangible Assets," in the Notes to Unaudited Consolidated Financial Statements in this Form 10-Q.

1 Exclusive of items shown separately below.

** Percentage
change not
meaningful
due to
impairment
of goodwill
and
intangible
assets

Business Segments
Quanex has two reportable segments: Engineered Products and Aluminum Sheet Products. The Engineered Products segment produces finished products and components serving the window and door industry, while the Aluminum Sheet Products segment produces mill finished and coated aluminum sheet serving the broader building products markets and secondary markets such as recreational vehicles and capital equipment. The main market drivers of both segments are residential housing starts and remodeling expenditures.
For financial reporting purposes three of the Company's four operating divisions, Homeshield, Truseal and Mikron, have been aggregated into the Engineered Products reportable segment. The remaining division, Nichols Aluminum (Aluminum Sheet Products), is reported as a separate, reportable segment with the Corporate & Other comprised of corporate office expenses and certain inter-division eliminations. The sale of products between segments is recognized at market prices. The financial performance of the operations is based upon operating income. The segments follow the accounting principles described in Item 1, Note 1 to the consolidated financial statements of the Company's 2008 Form 10-K. The two reportable segments value inventory on a FIFO or weighted-average basis while the LIFO reserve relating to those operations accounted for under the LIFO method of inventory valuation is computed on a consolidated basis in a single pool and treated as a corporate item. Three Months Ended January 31, 2009 Compared to Three Months Ended January 31,

2008
Engineered Products

                                                    Three Months Ended January 31,
                                               2009        2008       Change         %
                                                        (Dollars in millions)

    Net sales                                $   64.8     $ 87.3     $  (22.5 )     (25.8 )%
    Cost of sales1                               55.2       69.3        (14.1 )     (20.3 )
    Selling, general and administrative           8.3        9.4         (1.1 )     (11.7 )
    Impairment of goodwill and Intangibles      116.9          -        116.9       100.0
    Depreciation and amortization                 6.1        6.7         (0.6 )      (9.0 )

    Operating income                         $ (121.7 )   $  1.9     $ (123.6 )           **

Customer demand fell dramatically at Engineered Products during the first quarter. The U.S housing market deteriorated 48% in the first quarter of 2009 compared to a year ago, while residential remodeling activity was estimated to be down approximately 15% over the same period. Net sales at Engineered Products were down 26%, which put its performance ahead of the overall market as measured by its two primary market drivers. The decrease in net sales at the Engineered Products segment for the three months ended January 31, 2009 is primarily due to reduced volumes attributable to the continued falloff of housing starts and lower expenditures for remodeling and repair of the housing stock. Partially offsetting the market falloff was the nominal growth of new programs and the benefit of targeted price increases.
Operating income and the corresponding margin decreased at Engineered Products for the three months ended January 31, 2009 primarily as the result of reduced volumes from the depressed building products market. With reduced demand, the Company has been and continues to right-size the business by reducing variable and fixed costs. This includes reduction in headcount as well as initiatives to shorten work weeks, reduce shifts and other production cutbacks. Even with these initiatives, margins are negatively impacted by the magnitude of reduced demand as yields and efficiencies in the manufacturing process decline, resulting in higher variable production costs per unit. The $116.9 million non-cash impairment charge reflected above represents $11.9 million of impairment on identifiable intangible assets and $105.0 million of estimated impairment charge on goodwill. For additional information on the impairment charges see Note 4, "Goodwill and Acquired Intangible Assets," in the Notes to Unaudited Consolidated Financial Statements in this Form 10-Q. The Company has reduced its Selling, general and administrative costs during the first quarter of 2009 by $1.0 million since the fourth quarter of fiscal 2008 and by $1.1 million compared to the first quarter of fiscal 2008. This has been achieved through various means including reduced headcount, less outside contract services and reduction in variable pay incentives corresponding to lower levels of earnings. During the first quarter of 2009, the Company completed the consolidation of two fenestration component facilities into a single facility in order to help reduce operating costs and increase operating efficiencies. The Company continues to look at opportunities for additional plant consolidations where they make sense and where they will not negatively impact the Company's ability to meet its customers' stringent delivery and service requirements. The Company anticipates right-sizing efforts to continue during the remainder of 2009.

1 Exclusive of items shown separately below.

** Percentage
change not
meaningful
due to
impairment
of goodwill
and
intangible
assets

Aluminum Sheet Products

Net sales $ 50.8 $ 92.0 $ (41.2 ) (44.8 )% Cost of sales1 54.0 82.2 (28.2 ) (34.3 ) Selling, general and administrative 2.0 2.0 - - Impairment of goodwill and intangibles 20.4 - 20.4 100.0 Depreciation and amortization 2.6 2.2 0.4 18.2

Operating income $ (28.2 ) $ 5.6 $ (33.8 ) **

Shipped pounds 35.9 58.5 (22.6 ) (38.6 )%

The primary market drivers for the Aluminum Sheet Products segment are North American housing starts and residential remodeling activity, which together represent approximately 65% of the segment's sales. As discussed above, the U.S. housing market declined by 48% in the first quarter and remodeling activity is estimated to be down by approximately 15%.
The decrease in net sales at the Aluminum Sheet Products segment for the first quarter of fiscal 2009 was primarily the result of a 39% decline in shipped pounds during the first fiscal quarter of 2009 compared to the same period of 2008 due to the depressed primary and secondary markets. Shipped pounds during the first quarter of 2009 were down approximately 56% from pounds shipped during the fourth quarter 2008. The Company believes that the magnitude of the drop in customer demand that it experienced during the months of December 2008 and January 2009 were unprecedented. Additionally, the average selling price during the first quarter of fiscal 2009 was approximately 10% below the same period last year primarily due to lower ingot value. London Metals Exchange (LME) aluminum ingot pricing fell dramatically during the quarter, down approximately 32% to an inflation adjusted record low price of $0.63 per pound, which in turn compressed the segment's raw material spread during the quarter. Overall spreads (sales price less material cost) were down approximately 30% and 27% from the first quarter 2008 and fourth quarter 2008, respectively. Similar to the Engineered Products segment, operating income and the corresponding margin decreased at the Aluminum Sheet Products segment for the three months ended January 31, 2009 as a direct result of reduced volumes. Additionally, margins were severely impacted by the compression in the segment's raw material spread from the dramatic decline in LME aluminum ingot pricing compared to the lag experienced with raw material costs. With a significant decline in demand and the poor near-term outlook for aluminum sheet demand, the Company is actively pursuing ways to make meaningful financial improvements. Along with additional headcount reductions, recent actions include idling rolling capacity, significantly scaling back paint line operations and reducing operations at the mini-mill to operate with fewer shifts of employees. Even with these initiatives, margins are negatively impacted by the magnitude of reduced demand as yields and efficiencies in the manufacturing process decline, resulting in higher variable production costs per unit. The $20.4 million non-cash impairment charge reflected above represents the write-off of all of the segment's goodwill. For additional information on the goodwill impairment charge see Note 4, "Goodwill and Acquired Intangible Assets," in the Notes to Unaudited Consolidated Financial Statements in this Form 10-Q.

1 Exclusive of items shown separately below.

** Percentage change not meaningful due to impairment of goodwill

Corporate and Other

Net sales $ (2.7 ) $ (4.4 ) $ 1.7 (38.6 )% Cost of sales1 (2.6 ) (4.4 ) 1.8 (40.9 ) Selling, general and administrative 5.5 8.6 (3.1 ) (36.0 ) Depreciation and amortization - 0.1 (0.1 ) (100.0 )

Operating income $ (5.6 ) $ (8.7 ) $ 3.1 (35.6 )%

Corporate and other operating expenses, which are not in the segments mentioned above, include inter-segment eliminations, the consolidated LIFO inventory adjustments (calculated on a combined pool basis), if any, corporate office expenses, and Quanex Building Products Corporation's portion of transaction-related costs. Net sales amounts represent inter-segment eliminations between the Engineered Products segment and the Aluminum Sheet Products segment with an equal and offsetting elimination in Cost of sales. Selling, general and administrative declined during the first quarter 2009 compared to the same 2008 period primarily due to less mark-to-market expense associated with the Company's Deferred Compensation Plan, less transaction related costs, lower variable pay incentive costs corresponding to the Company's lower earnings, and a reduction in miscellaneous professional expenses. Mark-to-market expense associated with the Deferred Compensation Plan declined by $1.4 million period over period. The Company incurred $1.4 million of mark-to-market expense in the first quarter 2008 primarily resulting from the increase in the Company's stock price during that period; there is no similar expense for the first quarter 2009 as the Company's stock price as well as the market value of other investments held by the Deferred Compensation Plan decreased slightly during the three months ended January 31, 2009 as did the overall market. During the three months ended January 31, 2008, the Company incurred $0.8 million of spin-off related transaction costs including attorney fees and external accountant fees compared to $0.1 million in the corresponding period of 2009.
Other items
Other, net includes interest income earned on the Company's cash and equivalents and changes associated with the cash surrender value of life insurance. Interest income decreased during the three months ended January 31, 2009 from significantly lower returns on our cash balances due to falling interest rates. The decrease from interest rates is slightly offset by higher cash balances during 2009.
The Company's estimated annual effective tax rate benefit for the three months ended January 31, 2009 is 22.6% compared to the estimated annual effective tax rate benefit of 38.9% for the three months ended January 31, 2008. This reduction in the tax rate benefit is primarily related to the nondeductible portion of the goodwill impairment charge. For further discussion of the goodwill impairment charge see Note 4, "Goodwill and Acquired Intangible Assets," in Notes to Unaudited Consolidated Financial Statements in this Form 10-Q.
Outlook
A faltering economy, falling consumer confidence, the ongoing bank credit crunch and high residential home inventories has resulted in a more difficult business environment in fiscal 2009 than the Company had previously expected. Because of these issues, the Company cannot predict with any confidence what the actual fiscal 2009 U.S. residential build rate will be. Consequently, Quanex is suspending all specific financial guidance. Once these market issues become clear, the Company will again provide specific financial guidance. The Company does expect to report an operating loss for its second quarter and fiscal year.

1 Exclusive of items shown separately below.

Liquidity and Capital Resources

Sources of Funds
The Company's principal sources of funds are cash on hand, cash flow from operations, and borrowings under its $270.0 million Senior Unsecured Revolving Credit Facility (the Credit Facility). As of January 31, 2009, the Company believes it has a solid liquidity position, comprised of cash and equivalents and sufficient availability under the Company's Credit Facility. The Company has $75.4 million of cash and equivalents, $204.2 million of current availability under the revolving credit facility and minimal debt of $2.5 million as of January 31, 2009.
Beginning in September 2008, the Company's cash has been invested only in Treasury Money Market Funds due to the recent financial market turmoil. The Company believes it is prudent to follow a conservative cash investment strategy at this time, and the Company's current investments are with institutions that the Company believes to be financially sound. The Company had no material losses on its cash and marketable securities investments during fiscal 2009 and 2008. The Credit Facility was executed on April 23, 2008 and has a five-year term. Proceeds from the Credit Facility may be used to provide availability for acquisitions, working capital, capital expenditures, and general corporate purposes. Borrowings under the Credit Facility bear interest at a spread above LIBOR based on a combined leverage and ratings grid. There are certain limitations on additional indebtedness, asset or equity sales, and acquisitions. Dividends and other distributions are permitted so long as after giving effect to such dividend or stock repurchase, there is no event of default. Under the Credit Facility, the Company is obligated to comply with certain financial covenants requiring the Company to maintain a Consolidated Leverage Ratio of no more than 3.25 to 1 and a Consolidated Interest Coverage Ratio of no less than 3.00 to 1. As defined by the Credit Facility's indenture, the Consolidated Leverage Ratio is the ratio of consolidated indebtedness as of such date to consolidated EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) for the previous four fiscal quarters, and the Consolidated Interest Coverage Ratio is the ratio of consolidated EBITDA to consolidated interest expense, in each case for the previous four consecutive fiscal quarters. EBITDA is defined by the indenture to include proforma EBITDA of acquisitions and to exclude certain items like non-cash charges. The availability under the Credit Facility is a function of both the facility amount utilized and meeting covenant requirements. Additionally, the availability of the Credit Facility is dependent upon the financial viability of the Company's lenders. The Credit Facility is funded by a syndicate of nine banks, with three banks comprising over 55% of the commitment. If any of the banks in the syndicate were unable to perform on their commitments to fund the facility, the availability under the Credit Facility could be reduced; however, the Company has no reason to believe that such liquidity will be unavailable or decreased. As of January 31, 2009, the Company had no borrowings under the Credit Facility, and the Company was in compliance with all Credit Facility covenants. Although . . .