General
The discussion and analysis of Quanex Building Products Corporation and its subsidiaries' financial condition and results of operations should be read in conjunction with the July 31, 2009 Consolidated Financial Statements of the Company and the accompanying notes and in conjunction with the Consolidated Financial Statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 2008. References made to the "Company" or "Quanex" include Quanex Building Products Corporation and its subsidiaries and Quanex Corporation (Predecessor to Quanex Building Products Corporation) unless the context indicates otherwise. Private Securities Litigation Reform Act Certain of the statements contained in this document and in documents incorporated by reference herein, including those made under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" are "forward-looking" statements as defined under the Private Securities Litigation Reform Act of 1995. Generally, the words "expect," "believe," "intend," "estimate," "anticipate," "project," "will" and similar expressions identify forward-looking statements, which generally are not historical in nature. All statements which address future operating performance, events or developments that the Company expects or anticipates will occur in the future, including statements relating to volume, sales, operating income and earnings per share, and statements expressing general outlook about future operating results, are forward-looking statements. Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from the Company's historical experience and the present projections or expectations. As and when made, management believes that these forward-looking statements are reasonable. However, caution should be taken not to place undue reliance on any such forward-looking statements since such statements speak only as of the date when made and there can be no assurance that such forward-looking statements will occur. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Factors exist that could cause the Company's actual results to differ materially from the expected results described in or underlying the Company's forward-looking statements. Such factors include domestic and international economic activity, prevailing prices of aluminum scrap and other raw material costs, the rate of change in prices for aluminum scrap, energy costs, interest rates, construction delays, market conditions, particularly in the home building and remodeling markets, any material changes in purchases by the Company's principal customers, labor supply and relations, environmental regulations, changes in estimates of costs for known environmental remediation projects and situations, world-wide political stability and economic growth, the Company's successful implementation of its internal operating plans, acquisition strategies and integration, performance issues with key customers, suppliers and subcontractors, and regulatory changes and legal proceedings. Accordingly, there can be no assurance that the forward-looking statements contained herein will occur or that objectives will be achieved. All written and verbal forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by such factors. For more information, see Part I, Item 1A, "Risk Factors" in the Company's Annual Report on Form 10-K, for the year ended October 31, 2008. Description of Business
On December 12, 2007, Quanex Building Products Corporation was incorporated in the state of Delaware as a subsidiary of Quanex Corporation to facilitate the separation of Quanex Corporation's vehicular products and building products businesses. The separation occurred on April 23, 2008 through the spin-off of Quanex Corporation's building products business to its shareholders immediately followed by the merger of Quanex Corporation (consisting principally of the vehicular products business and all non-building products related corporate accounts) with a wholly-owned subsidiary of Gerdau S.A. (Gerdau). As more fully described in Notes 1 and 3 of the consolidated financial statements in Item 1, on April 23, 2008, notwithstanding the legal form of the transactions, because of the substance of the transactions, Quanex Building Products Corporation was the divesting entity and treated as the "accounting successor," and Quanex Corporation was the "accounting spinnee" for financial reporting purposes in accordance with Emerging Issues Task Force Issue (EITF) No. 02-11, "Accounting for Reverse Spinoffs" (EITF 02-11).
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 July 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 July 31, Nine Months Ended July 31, 2009 2008 Change % 2009 2008 Change %

Net sales $ 164.0 $ 240.3 $ (76.3 ) (31.8 )% $ 390.1 $ 622.6 $ (232.5 ) (37.3 )% Cost of sales1 129.1 200.4 (71.3 ) (35.6 ) 340.1 518.3 (178.2 ) (34.4 ) Selling, general
and
administrative 14.5 17.0 (2.5 ) (14.7 ) 43.2 80.7 (37.5 ) (46.5 ) Impairment of
goodwill and
intangibles - - - - 182.6 - 182.6 100.0 Depreciation and
amortization 8.0 8.5 (0.5 ) (5.9 ) 24.6 26.6 (2.0 ) (7.5 )

Operating income 12.4 14.4 (2.0 ) (13.9 ) (200.4 ) (3.0 ) (197.4 ) **

Operating income
margin 7.6 % 6.0 % 1.6 % (51.4 )% (0.5 )% (50.9 )% Interest expense (0.1 ) (0.1 ) - - (0.3 ) (0.4 ) 0.1 (25.0 ) Other, net - 0.3 (0.3 ) (100.0 ) 0.3 4.9 (4.6 ) (93.9 ) Income tax
expense (4.2 ) (5.8 ) 1.6 (27.6 ) 48.0 (0.6 ) 48.6 (8,100.0 )

Income
(loss) from continuing operations $ 8.1 $ 8.8 $ (0.7 ) (8.0 )% $ (152.4 ) $ 0.9 $ (153.3 ) **

Overview
The Company experienced a seasonal upturn in its fiscal third quarter off an all-time low in underlying demand in the first half of the year. Increased demand within the Company's end markets, which are primarily residential housing starts and remodeling activity, exceeded internal expectations. A return to more typical seasonal patterns suggests that the end markets have bottomed, but it is uncertain as to how long the Company's end markets will remain at today's depressed levels. While underlying demand remains very weak, the Company's efforts to size its operations accordingly are evident in the financial results. United States housing starts declined approximately 42% in the third quarter and 47% in the first nine months of fiscal 2009 compared to the same periods of 2008, while remodeling activity was estimated to be down 15%. Housing permits, housing starts and consumer confidence continue at low levels. Housing inventories of both new and existing homes remain at high levels, though down from the peak levels around this same time last year, and have shown signs of improvement over the past couple of months, another possible indicator of a bottom. As a result of the depressed end markets and lower commodity/aluminum prices, net sales were down 32% for the quarter and 37% for the nine months of fiscal 2009 compared to the same periods of 2008. The Company's net sales steadily improved during the second and third fiscal quarters of 2009. The Company expects to see continued seasonal strength in demand in the fourth quarter, though October results can be impacted by early winter weather. In response to the year-over-year drop in demand, management remains ever diligent on controlling costs and continues to reduce fixed and semi-variable expenses where possible. Additional labor was added during the fiscal third quarter to respond to increased demand, however, total headcount remains 15% below the October 31, 2008 level. The Company expects to continue to size both its business and working capital according to underlying and expected future demand in order to maximize cash generation.

1 Exclusive of items shown separately below.

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

For the nine months ended July 31, 2009, the Company recorded a $182.6 million non-cash impairment charge, of which $170.7 million relates to goodwill and $11.9 million relates to other acquired intangibles. While the portion related to other acquired intangibles was recognized entirely during the first quarter of fiscal 2009, the goodwill portion was estimated in the first quarter and finalized in the second fiscal quarter of 2009. During the first fiscal quarter of 2009, based on a combination of factors, the Company concluded there were sufficient indicators to require it to perform an interim goodwill impairment analysis. As of the January 31, 2009 filing, the Company had 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 at that time, the Company concluded that an impairment loss was probable and could 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. The Company finalized its goodwill impairment analysis during the second quarter of fiscal 2009, at which time it recorded a true-up to its first quarter estimate of $45.3 million in additional non-cash goodwill impairment charge. After recognizing a total goodwill impairment charge of $170.7 million for the nine months ended July 31, 2009, $25.2 million of goodwill remains on the Company's balance sheet as of July 31, 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. Business Segments
Quanex has two reportable segments: Engineered Products and Aluminum Sheet Products. The Engineered Products segment produces finished products, components and systems 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 U.S. 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, is reported as a separate, reportable segment (Aluminum Sheet Products), with 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 and Nine Months Ended July 31, 2009 Compared to Three and Nine Months Ended July 31, 2008
Engineered Products

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

Net sales           $ 93.4      $ 115.3      $ (21.9 )      (19.0 )%    $  223.4      $ 295.0      $  (71.6 )      (24.3 )%
Cost of sales1        67.8         86.1        (18.3 )      (21.3 )        175.6        225.6         (50.0 )      (22.2 )
Selling, general
and
administrative         8.5         10.2         (1.7 )      (16.7 )         24.5         29.8          (5.3 )      (17.8 )
Impairment of
goodwill and
intangibles              -            -            -            -          162.2            -         162.2        100.0
Depreciation and
amortization           5.9          6.4         (0.5 )       (7.8 )         17.7         19.8          (2.1 )      (10.6 )

Operating income    $ 11.2      $  12.6      $  (1.4 )      (11.1 )%    $ (156.6 )    $  19.8      $ (176.4 )         **

1 Exclusive of items shown separately below.

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

Customer demand remains historically depressed; however, demand continued an upward trend of improvement that started in the second quarter and continued through the third fiscal quarter. This trend represents more typical seasonality and thus suggests that housing markets may have at least hit bottom. The U.S. housing market deteriorated approximately 42% in the third quarter and 47% in the first nine months of fiscal 2009 compared to the same periods of 2008, while residential remodeling activity was estimated to be down 15% over prior year. Net sales at Engineered Products were down less than the underlying market at 19% and 24%, respectively, for the three and nine months ended July 31, 2009. The decrease in net sales at the Engineered Products segment is due to reduced volumes attributable to the continued low levels of housing starts and lower expenditures for remodeling and repair of the housing stock. Partially offsetting this reduction was the continued growth of new programs that generally focus on increased energy efficiency, coupled with the benefit of targeted price increases that have occurred over the past year, and the Company believes some key OEM window and door customers picked up market share. While demand improved throughout the third quarter of fiscal 2009 in line with the seasonal nature of the building products' markets, new home inventories remain at high levels when compared to sales and there is no certainty as to when housing starts will begin to show signs of long-term improvement. Net sales less cost of sales were higher at Engineered Products for the three months ended July 31, 2009 compared to the same period last year on 19% less sales directly attributable to right-sizing efforts and target price increases that occurred over the past year coupled with the continued penetration of more energy efficient products that generally receive higher margins. Net sales less cost of sales for the nine months ended July 31, 2009 compared to the prior year were lower primarily as the result of reduced volumes from the depressed building products market as the Company had to catch-up to the larger than anticipated market decline in the first fiscal quarter. The Company has taken the necessary actions to right-size the business by reducing variable and fixed costs and will continue to size the operations to match on-going demand. Net sales less cost of sales as a percent of net sales has increased sequentially from the first quarter to the second quarter and again from the second quarter to the third quarter of fiscal 2009 as a direct result of the Company's right-sizing efforts combined with higher sales.
The segment reduced its Selling, general and administrative costs by $1.7 million during the third quarter of 2009 and by $5.3 million during the nine months of fiscal 2009 compared to the same 2008 periods. This was achieved through various means including reduced headcount, less outside contract services, a continued emphasis on cost control for various programs 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 anticipates demand-driven sizing efforts to remain a focus during the remainder of 2009 and into fiscal 2010. The $162.2 million non-cash impairment charge reflected in the nine months results above represents $11.9 million of impairment on acquired intangible assets and $150.3 million of 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. Depreciation and amortization has declined in 2009 compared to 2008 due to the aforementioned intangible asset impairment (other than goodwill) in the first fiscal quarter of 2009. Aluminum Sheet Products

                             Three Months Ended July 31,                          Nine Months Ended July 31,
                     2009        2008        Change          %           2009         2008         Change          %
                                                               (In millions)

Net sales           $ 74.3      $ 130.5      $ (56.2 )      (43.1 )%    $ 175.4      $ 340.9      $ (165.5 )      (48.5 )%
Cost of sales1        67.1        114.2        (47.1 )      (41.2 )       179.7        300.4        (120.7 )      (40.2 )
Selling, general
and
administrative         1.6          2.1         (0.5 )      (23.8 )         4.8          6.1          (1.3 )      (21.3 )
Impairment of
goodwill and
intangibles              -            -            -            -          20.4            -          20.4        100.0
Depreciation and
amortization           2.1          2.1            -            -           6.8          6.6           0.2          3.0

Operating income    $  3.5      $  12.1      $  (8.6 )      (71.1 )     $ (36.3 )    $  27.8      $  (64.1 )         **

Shipped pounds        65.0         74.2         (9.2 )      (12.4 )%      144.6        204.5         (59.9 )      (29.3 )%

1 Exclusive of items shown separately below.

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

The primary market drivers for the Aluminum Sheet Products segment (Nichols Aluminum) 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 42% in the third quarter and 47% for the first nine months of the fiscal year and remodeling activity is estimated to be down by 15%.
The decrease in net sales at the Aluminum Sheet Products segment for the third quarter and first nine months of fiscal 2009 was primarily the result of a 12% and 29%, respectively, decline in shipped pounds during the quarter and the year compared to the same periods of 2008 due to the depressed end markets. Shipped pounds during the third quarter of 2009 were up approximately 49% from the second quarter 2009 levels; although shipped pounds were 12% below the prior year period, shipments have steadily improved in the second and third quarters and the backlog improved further at the end of the third quarter. The Company believes that its levels of aluminum shipments were above industry demand as the Company was able to capitalize on some short lead time sales opportunities as producers in the market continued to operate with reduced capacity. Additionally, the average selling price during the third quarter and first nine months of fiscal 2009 was approximately 35% and 27%, respectively, below the same periods last year primarily due to lower aluminum prices. The London Metals Exchange (LME) aluminum price fell dramatically during the first quarter of 2009, down approximately 32% to an inflation adjusted record low price of $0.63 per pound. LME aluminum prices continued to fall in the second quarter of 2009 to a new inflation-adjusted low of $0.57 per pound before climbing back to approximately $0.80 per pound by the end of the third quarter. The segment reduced its Selling, general and administrative costs by $0.5 million during the third quarter of 2009 and by $1.3 million during the nine months of fiscal 2009 compared to the same 2008 periods. This was achieved through various means including reduced staffing and reduction in variable pay incentives corresponding to lower levels of earnings. The $20.4 million non-cash impairment charge reflected in the nine months ended July 31, 2009, results 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.
Operating income decreased at the Aluminum Sheet Products segment for the three and nine months ended July 31, 2009, compared to prior year primarily as a result of reduced spreads (sales price less material costs) and lower volumes. Third quarter 2009 spreads, though 26% below prior year, increased 56% sequentially over the second quarter of 2009 as the high-cost aluminum scrap inventories built in the first quarter had been worked off coupled with improved material spreads associated with rising LME aluminum prices. The operating income decline for the nine months ended July 31, 2009 was negatively impacted by the buildup of inventory that took place in the first fiscal quarter of 2009 and as LME aluminum prices continued a sharp decline. The historically low aluminum prices, combined with relatively high cost aluminum scrap inventory negatively impacted the segment's spread through the first half of the year. Corporate and Other

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

Net sales           $ (3.7 )    $  (5.5 )    $   1.8        (32.7 )%    $  (8.7 )    $ (13.3 )    $   4.6        (34.6 )%
Cost of sales1        (5.8 )        0.1         (5.9 )         **         (15.2 )       (7.7 )       (7.5 )       97.4
Selling, general
and
administrative         4.4          4.7         (0.3 )       (6.4 )        13.9         44.8        (30.9 )      (69.0 )
Depreciation and
amortization             -            -            -            -           0.1          0.2         (0.1 )      (50.0 )

Operating income    $ (2.3 )    $ (10.3 )    $   8.0        (77.7 )%    $  (7.5 )    $ (50.6 )    $  43.1        (85.2 )%

1 Exclusive of items shown separately below. ** Percentage change is not meaningful.

Corporate and other, 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. Included in Cost of sales for the three and nine months ended July 31, 2009 was $2.3 million and $6.8 million, respectively, of LIFO income related to the estimated year-end LIFO inventory adjustment. The comparative quarter and year to date 2008 periods include $5.5 million of expense. LIFO related expense/income is derived from management's estimate of year-end inventory volume and pricing. Management is currently estimating that aluminum scrap values held by the Company will be lower at October 31, 2009 compared to October 31, 2008. Accordingly, 75% of the projected 2009 year-end LIFO adjustment was recorded during the nine months ended July 31, 2009. Management updates this estimate each quarter in an effort to determine what amount, if any, should be recorded in the period. The actual adjustment is trued-up in the fourth quarter once the year-end volume levels and pricing are known.
Selling, general and administrative costs were lower during the nine months ended July 31, 2009 compared to the same 2008 period as a direct result of $26.5 million of transaction related expenses in 2008. There were no transaction related expenses during the third quarter 2009 and 2008. Following is the breakdown of transaction-related expenses that contributed to the decreased Selling, general and administrative costs:

                                                                      Nine Months Ended
                                                                          July 31,
                                                                    2009             2008

Quanex Building Product's share of spin-off transaction costs    $      0.1       $      2.9
Stock-based compensation expense - modification impact                    -             22.8
Acceleration of executive incentives and other benefits                   -              0.8
. . .