UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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


		~~QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~
		~~For the quarterly period ended September 30, 2007~~ For the quarterly period ended March 31, 2008

Commission file number 0-52105

KAISER ALUMINUM CORPORATION

(Exact name of registrant as specified in its charter)


Delaware		94-3030279
(State of Incorporation)		(I.R.S. Employer Identification No.)

27422 PORTOLA PARKWAY, SUITE 350, FOOTHILL RANCH, CALIFORNIA ~~(Address of principal executive offices)~~		92610-2831 (Zip Code)
(Address of principal executive offices)

Registrant’s telephone number, including area code:

(949) 614-1740

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a ~~non-accelerated filer.~~smaller reporting company. See ~~definition~~the definitions of “large accelerated filer,” “accelerated ~~filer~~filer” and ~~large accelerated filer”~~“smaller reporting company” inRule 12b-2 of the Exchange Act. (Check one):


Large accelerated filero ~~Accelerated filer~~ o ~~Non-accelerated filer~~ þ		Accelerated filero		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act). Yes o No þ

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes þ No o

As of ~~October 31, 2007,~~April 30, 2008, there were ~~20,581,313~~20,607,051 shares of the Common Stock of the registrant outstanding.

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

PART I — FINANCIAL INFORMATION


Item 1.	*Financial Statements*

CONSOLIDATED BALANCE SHEETS


		September 30,			December 31,				March 31,			December 31,
		2007			2006				2008			2007
		(Unaudited)							(Unaudited)
		(In millions of dollars, except share amounts)							(In millions of dollars, except share amounts)

ASSETS	ASSETS							ASSETS
Current assets:
Cash and cash equivalents		$	101.4		$	50.0			$	47.5		$	68.7
Receivables:
Trade, less allowance for doubtful receivables of $2.0 at both September 30, 2007 and December 31, 2006			112.1			98.4
Trade, less allowance for doubtful receivables of $1.2 and $1.4 at March 31, 2008 and December 31, 2007, respectively										121.2			96.5
Due from affiliate			—			1.3				—			9.5
Other			4.8			6.3				8.8			6.3
Inventories			193.7			188.1				216.7			207.6
Prepaid expenses and other current assets			13.8			40.8				81.8			66.0

Total current assets			425.8			384.9				476.0			454.6
Investment in and advances to unconsolidated affiliate			43.9			18.6
Investments in and advances to unconsolidated affiliate										44.2			41.3
Property, plant, and equipment — net			205.9			170.3				232.9			222.7
Net assets in respect of VEBAs			90.3			40.7				134.7			134.9
Deferred tax assets — net										244.0			268.6
Other assets			39.6			40.9				67.8			43.1

Total		$	805.5		$	655.4			$	1,199.6		$	1,165.2

															LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	65.3		$	73.2			$	79.6		$	70.1
Accrued salaries, wages, and related expenses			34.6			39.4				32.5			40.1
Other accrued liabilities			34.0			47.6				29.7			36.6
Payable to affiliate			19.8			16.2				17.3			18.6

Total current liabilities			153.7			176.4				159.1			165.4
Long-term liabilities			68.2			58.3				60.0			57.0
Long-term debt			50.0			50.0

			271.9			284.7				219.1			222.4
Commitments and contingencies
Stockholders’ equity:
Common stock, par value $.01, 45,000,000 shares authorized; 20,588,477 shares issued and 20,581,313 shares outstanding at September 30, 2007; 20,525,660 shares issued and outstanding at December 31, 2006			.2			.2
Common stock, par value $.01, 45,000,000 shares authorized; 20,620,169 shares issued and outstanding at March 31, 2008; 20,580,815 shares issued and outstanding at December 31, 2007										.2			.2
Additional capital			565.6			487.5				950.2			948.9
Retained earnings			95.4			26.2				151.5			116.1
Common stock owned by Union VEBA subject to transfer restrictions, at reorganization value, 5,472,665 shares and 6,291,945 shares at September 30, 2007 and December 31, 2006, respectively			(131.4	)		(151.1	)
Accumulated other comprehensive income			4.4			7.9
Treasury stock, at cost, 7,164 shares at September 30, 2007			(.6	)		—
Common stock owned by Union VEBA subject to transfer restrictions, at reorganization value, 4,845,465 shares at both March 31, 2008 and December 31, 2007										(116.4	)		(116.4	)
Accumulated other comprehensive income (loss)										(5.0	)		(6.0	)

Total stockholders’ equity			533.6			370.7				980.5			942.8

Total		$	805.5		$	655.4			$	1,199.6		$	1,165.2

The accompanying notes to consolidated financial statements are an integral part of these statements.

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

STATEMENTS OF CONSOLIDATED INCOME


				Three Months Ended September 30, 2006								Nine Months Ended September 30, 2006
				Period from								Period from			Predecessor
				July 1, 2006					Nine Months			July 1, 2006			Period from			Quarter Ended			Quarter Ended
	Quarter Ended			through			Predecessor		Ended			through			January 1,			March 31,			March 31,
	September 30,			September 30,			July 1,		September 30,			September 30,			2006			2008			2007
	2007			2006			2006		2007			2006			to July 1, 2006			(Unaudited)
	(Unaudited)																	(In millions of dollars except share and per share amounts)
	(In millions of dollars, except share and per share amounts)
Net sales	$	366.7		$	331.4		$	—	$	1,144.0		$	331.4		$	689.8		$	399.0		$	392.2

Costs and expenses:
Cost of products sold		303.3			291.8			—		954.4			291.8			596.4
Cost of products sold excluding depreciation																			308.5			337.1
Depreciation and amortization		3.0			2.8			—		8.3			2.8			9.8			3.5			2.6
Selling, administrative, research and development, and general		17.8			18.0			—		56.0			18.0			30.3			18.8			19.0
Other operating (benefits) charges, net		(1.4	)		(2.9	)		—		(13.7	)		(2.9	)		.9
Other operating charges, net																			.1			1.2

Total costs and expenses		322.7			309.7			—		1,005.0			309.7			637.4			330.9			359.9

Operating income		44.0			21.7			—		139.0			21.7			52.4			68.1			32.3
Other income (expense):
Interest expense (excluding unrecorded contractual interest expense of $47.4 for the period from January 1, 2006 to July 1, 2006)		(1.0	)		—			—		(2.2	)		—			(.8	)
Reorganization items		—			—			3,105.3		—			—			3,090.3
Other — net		1.8			.9			—		4.1			.9			1.2
Interest expense																			(.2	)		(.6	)
Other income, net																			.6			1.2

Income before income taxes and discontinued operations		44.8			22.6			3,105.3		140.9			22.6			3,143.1
Income before income taxes																			68.5			32.9
Provision for income taxes		(20.0	)		(8.3	)		—		(64.3	)		(8.3	)		(6.2	)		(29.4	)		(15.8	)

Income from continuing operations		24.8			14.3			3,105.3		76.6			14.3			3,136.9
Income from discontinued operations, net of income taxes		—			—			—		—			—			4.3

Net income	$	24.8		$	14.3		$	3,105.3	$	76.6		$	14.3		$	3,141.2		$	39.1		$	17.1

Earnings per share — Basic:
Income from continuing operations	$	1.24		$	.72		$	38.98	$	3.83		$	.72		$	39.37

Income from discontinued operations	$	—		$	—		$	—	$	—		$	—		$	.05

Net income per share	$	1.24		$	.72		$	38.98	$	3.83		$	.72		$	39.42		$	1.95		$	.86

Earnings per share — Diluted (same as basic for Predecessor):
Income from continuing operations	$	1.22		$	.72				$	3.77		$	.72

Income from discontinued operations	$	—		$	—				$	—		$	—

Earnings per share — Diluted:
Net income per share	$	1.22		$	.72				$	3.77		$	.72					$	1.92		$	.85

Weighted average number of common shares outstanding (000):
Basic		20,026			20,002			79,672		20,010			20,002			79,672			20,032			20,005

Diluted		20,326			20,029			79,672		20,291			20,029			79,672			20,397			20,204

The accompanying notes to consolidated financial statements are an integral part of these statements.

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

STATEMENTS OF CONSOLIDATED STOCKHOLDERS’ EQUITY AND

COMPREHENSIVE INCOME (LOSS)

Common Stock

Owned by

Union VEBA
Accumulated

Retained
Subject to
Other

Common
Additional
Earnings
Transfer
Comprehensive
Treasury

Stock Capital (Deficit) Restrictions Income (Loss) Stock Total
(Unaudited)
(In millions of dollars, except share amounts)

BALANCE, December 31, 2005- Predecessor $ .8 $ 538.0 $ (3,671.2 ) $ — $ (8.8 ) $ (3,141.2 )
Net income (same as Comprehensive income) — Predecessor — — 35.9 — — — 35.9

BALANCE, June 30, 2006-Predecessor .8 538.0 (3,635.3 ) — (8.8 ) — (3,105.3 )
Cancellation of Predecessor common stock (.8 ) .8 — — — — —
Issuance of Successor common stock (20,000,000 shares) to creditors .2 480.2 — — — — 480.4
Common stock owned by Union VEBA subject to transfer restrictions, at reorganization value, 6,291,945 shares — — — (151.1 ) — — (151.1 )
Plan and fresh start adjustments — (538.8 ) 3,635.3 — 8.8 — 3,105.3

BALANCE, July 1, 2006 .2 480.2 — (151.1 ) — — 329.3

Net income — — 26.2 — — — 26.2
Benefit plan adjustments not recognized in earnings — — — — 7.9 — 7.9

Comprehensive income — — — — — — 34.1
Issuance of 4,273 shares of common stock to directors in lieu of annual retainer fees — .2 — — — — .2
Recognition of pre-emergence tax benefits in accordance with fresh start accounting — 3.3 — — — — 3.3
Amortization of unearned equity compensation — 3.8 — — — — 3.8

BALANCE, December 31, 2006 $ .2 $ 487.5 $ 26.2 $ (151.1 ) $ 7.9 $ — $ 370.7
Net income — — 76.6 — — — 76.6
Foreign currency translation adjustment — — — — (3.5 ) — (3.5 )

Comprehensive income 73.1
Removal of transfer restrictions on 819,280 shares of common stock owned by Union VEBA, net of income taxes of $5.0 — 23.0 — 19.7 — — 42.7
Recognition of pre-emergence tax benefits in accordance with fresh start accounting (including tax benefits of $15.9 for the quarter ended September 30, 2007) — 48.1 — — — — 48.1
Equity compensation recognized by an unconsolidated affiliate — .2 — — — — .2
Repurchase of 3,862 shares of common stock from former employee and 3,302 shares of common stock from employees on vesting of restricted stock — — — — — (.6 ) (.6 )
Issuance of 3,877 shares of common stock to directors in lieu of annual retainer fees — .3 — — — — .3
Common stock cash dividends — — (7.4 ) — — — (7.4 )
Amortization of unearned equity compensation (including unearned equity compensation of $2.3 for the quarter ended September 30, 2007) — 6.5 — — — — 6.5

BALANCE, September 30, 2007 $ .2 $ 565.6 $ 95.4 $ (131.4 ) $ 4.4 $ (.6 ) $ 533.6


											Common
											Stock
											Owned by
											Union
											VEBA			Accumulated
											Subject to			Other
	Common		Common		Additional			Retained			Transfer			Comprehensive
	Shares		Stock		Capital			Earnings			Restriction			Income (Loss)			Total
	(Unaudited)
	(In millions of dollars, except for shares)

BALANCE, December 31, 2007		20,580,815	$	.2	$	948.9		$	116.1		$	(116.4	)	$	(6.0	)	$	942.8
Net income				—		—			39.1			—			—			39.1
Foreign currency translation adjustment				—		—			—			—			1.0			1.0

Comprehensive income																		40.1
Equity compensation recognized by an unconsolidated affiliate				—		.1			—			—			—			.1
Capital distribution by unconsolidated affiliate to its parent company				—		(1.3	)		—			—			—			(1.3	)
Issuance of restricted stock to employees		39,354		—		—			—			—			—			—
Cash dividends on common stock				—		—			(3.7	)		—			—			(3.7	)
Amortization of unearned equity compensation				—		2.5			—			—			—			2.5

BALANCE, March 31, 2008		20,620,169	$	.2	$	950.2		$	151.5		$	(116.4	)	$	(5.0	)	$	980.5

The accompanying notes to consolidated financial statements are an integral part of these statements.

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

STATEMENTS OF CONSOLIDATED CASH FLOWS

Nine Months Ended September 30, 2006
Predecessor

Nine Months
Period from
Period from

Ended
July 1, 2006 to
Jan 1, 2006 to

September 30,
September 30,
July 1,

2007 2006 2006
(Unaudited)
(In millions of dollars)
Cash flows from operating activities:
Net income $ 76.6 $ 14.3 $ 3,141.2
Less income from discontinued operations — — 4.3

Income from continuing operations 76.6 14.3 3,136.9
Adjustments to reconcile income from continuing operations to net cash provided (used) by continuing operations:
Recognition of pre-emergence tax benefits in accordance with fresh start accounting 48.1 — —
Depreciation and amortization (including deferred financing costs of $.4, $.1 and $.9, respectively) 8.7 2.9 10.7
Deferred income taxes .1 — (.7 )
Non-cash equity compensation 6.8 2.3 —
Gain on discharge of pre-petition obligations and fresh start adjustments — — (3,110.3 )
Payments pursuant to plan of reorganization — — (25.3 )
Net non-cash (benefits) charges in other operating charges and LIFO charges (benefits) (13.1 ) (3.3 ) 21.7
Gain on sale of real estate — — (1.6 )
Equity in income of unconsolidated affiliate, net of distributions (25.1 ) (2.1 ) (10.1 )
Changes in assets and liabilities:
Decrease (increase) in trade and other receivables (10.9 ) 4.3 (18.3 )
Decrease (increase) in inventories, excluding LIFO adjustments 2.6 (6.0 ) (29.5 )
Decrease (increase) in prepaid expenses and other current assets 26.7 6.0 (14.5 )
(Decrease) increase in accounts payable (8.8 ) 7.3 5.7
(Decrease) increase in other accrued liabilities (15.0 ) (8.6 ) 4.7
(Decrease) increase in payable to affiliate 3.6 (13.6 ) 18.2
(Decrease) increase in accrued income taxes (.5 ) 6.3 .2
Net cash impact of changes in long-term assets and liabilities (10.5 ) (6.9 ) (8.0 )
Net cash provided by discontinued operations — — 8.5
Other .1 — —

Net cash provided (used) by operating activities 89.4 2.9 (11.70 )

Cash flows from investing activities:
Decrease in restricted cash 9.4 — —
Capital expenditures, net of accounts payable of $.9 in 2007 and $1.6 in both the period from July 1, 2006 to September 30, 2006 and the period from January 1, 2006 to July 1, 2006 (43.1 ) (11.6 ) (28.1 )
Net proceeds from sale of real estate — — 1.0

Net cash used by investing activities (33.7 ) (11.6 ) (27.1 )

Cash flows from financing activities:
Borrowings under Term Loan Facility — 50.0 —
Financing costs — (.6 ) (.2 )
Repurchase of common stock (.6 ) — —
Cash dividend paid to shareholders (3.7 ) — —
Other — — 1.5

Net cash (used) provided by financing activities (4.3 ) 49.4 1.3

Net increase (decrease) in cash and cash equivalents during the period 51.4 40.7 (37.5 )
Cash and cash equivalents at beginning of period 50.0 12.0 49.5

Cash and cash equivalents at end of period $ 101.4 $ 52.7 $ 12.0

Supplemental disclosure of cash flow information:
Interest paid, net of capitalized interest of $2.4, $.6 and $1.0, respectively $ 2.3 $ — $ —

Income taxes paid $ 2.2 $ .4 $ 1.2

Supplemental disclosure of non-cash transactions:
Removal of transfer restrictions on common stock owned by Union VEBA (Note 9) $ 47.7 $ — $ —

Cash dividend declared and unpaid (Note 13) $ 3.7 $ — $ —


	Quarter Ended			Quarter Ended
	March 31,			March 31,
	2008			2007
	(Unaudited)
	(In millions of dollars)

Cash flows from operating activities:
Net income	$	39.1		$	17.1
Adjustments to reconcile net income to net cash provided (used) by operating activities:
Recognition of pre-emergence tax benefits in accordance with fresh start accounting		—			11.0
Depreciation and amortization (including deferred financing costs of zero and $.1, respectively)		3.5			2.7
Deferred income taxes		24.6			—
Non-cash equity compensation		2.5			2.0
LIFO charges net of non-cash benefit in Other operating charges, net		14.4			7.3
Non-cash unrealized (gains) losses on derivative positions		(32.9	)		1.4
Other non-cash changes in assets and liabilities		.1			—
Equity in income of unconsolidated affiliate		(4.1	)		(10.3	)
Changes in assets and liabilities:
Increase in trade and other receivables		(17.7	)		(16.0	)
Increase in inventories, excluding LIFO charges		(23.5	)		(.7	)
Decrease (increase) in prepaid expenses and other current assets		(.1	)		4.3
(Decrease) increase in accounts payable		10.8			(14.9	)
Decrease in other accrued liabilities		(18.4	)		(.5	)
(Decrease) increase in payable to affiliate		(1.3	)		3.1
(Decrease) increase in accrued income taxes		.9			.2
Net cash impact of changes in long-term assets and liabilities		(.4	)		1.7

Net cash provided (used) by operating activities		(2.5	)		8.4

Cash flows from investing activities:
Capital expenditures, net of change in accounts payable of $(1.3) and $4.4, respectively		(15.0	)		(7.4	)
Decrease in restricted cash		—			.8

Net cash used by investing activities		(15.0	)		(6.6	)

Cash flows from financing activities:
Cash dividend paid to stockholders		(3.7	)		—

Net cash used by financing activities		(3.7	)		—

Net increase (decrease) in cash and cash equivalents during the period		(21.2	)		1.8
Cash and cash equivalents at beginning of period		68.7			50.0

Cash and cash equivalents at end of period	$	47.5		$	51.8

The accompanying notes to consolidated financial statements are an integral part of these statements.

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(In millions of dollars, except share and per share amounts)
(Unaudited)

The accompanying financial statements include the financial statements of Kaiser Aluminum Corporation(the “Company” or “Kaiser”) both before (the “Predecessor”) and after (the “Successor”) its emergence from chapter 11 bankruptcy in July 2006. Financial information related to the Company after emergence is generally referred to throughout this Report as “Successor” information. Information of the Company before emergence is generally referred to as “Predecessor” information. The financial information of the Successor is not comparable to that of the Predecessor given the impacts of the Plan (as defined below), implementation of fresh start reporting and other factors as more fully described below.

The Notes to Interim Consolidated Financial Statements are grouped into two categories: (1) those primarily affecting the Successor (Notes 1 through 14) and (2) those primarily affecting the Predecessor (Notes 15 through 18).

~~SUCCESSOR~~


1.	Summary of Significant Accounting Policies

This Report should be read in conjunction with the Company’s Annual Report onForm 10-K for the year ended December 31, ~~2006.~~2007.

Principles of Consolidation and Basis of Presentation. The consolidated financial statements include the statements of the Company and its wholly owned subsidiaries. Investments in 50%-or-less-owned entities are accounted for primarily by the equity method. The only such ~~affiliate~~entity for the periods covered by this ~~report~~Report was Anglesey Aluminium Limited (“Anglesey”). Intercompany balances and transactions are eliminated.

The Company’s emergence from chapter 11 and adoption of fresh start accounting resulted in a new reporting entity for accounting purposes. Although the Company emerged from chapter 11 bankruptcy on July 6, 2006 (“Effective Date”), the Company adopted “fresh start” accounting as required by the American Institute of Certified Professional Accountants Statement of Position~~90-7(“SOP 90-7”),~~~~Financial Reporting by Entities in Reorganization Under the Bankruptcy Code~~, effective as of the beginning of business on July 1, 2006. As such, it was assumed that the emergence was completed instantaneously at the beginning of business on July 1, 2006 such that all operating activities during the period from July 1, 2006 through December 31, 2006 are reported as applying to the Successor. The Company believes that this is a reasonable presentation as there were no material transactions between July 1, 2006 and July 6, 2006 that were not related to Kaiser’s Second Amended Plan of Reorganization (the “Plan”). Due to the implementation of the Plan, the application of fresh start accounting and changes in accounting policies and procedures, the financial statements of the Successor are not comparable to those of the Predecessor.

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission. Accordingly, these financial statements do not include all of the disclosures required by GAAP for complete financial statements. In the opinion of management, the unaudited interim consolidated financial statements furnished herein include all adjustments, all of which are of a normal recurring nature unless otherwise noted, necessary for a fair statement of the results for the interim periods presented.

Use of Estimates and Assumptions. The preparation of financial statements in accordance with GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and the reported amounts of revenues and expenses during the reporting period. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of the Company’s consolidated financial statements; accordingly, it is possible that the actual results could differ from these estimates and assumptions, which could have a material effect on the reported amounts of the Company’s consolidated financial position and results of operation.

~~KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES~~

~~NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

Operating results for the ~~nine months~~quarter ended ~~September 30, 2007~~March 31, 2008 are not necessarily indicative of the results that may be expected for the year ended December 31, ~~2007.~~2008.

Recognition of sales. Sales are recognized when title, ownership and risk of loss pass to the buyer and collectibility is reasonably assured. From time to time, in the ordinary course of business, the Company may enter into agreements with customers requiring the Company to allocate certain amounts of its annual capacity in return for a fee. Such fees are recognized as revenue ratably over the life of the agreement which may be in excess of one year in length.

In certain circumstances, based on the terms of certain sales contracts which provide for periodic, such as quarterly or annually, billing throughout the contract, the Company may recognize revenue prior to billing the customer. At March 31, 2008 and December 31, 2007, the Company had $6.2 and $1.9 of unbilled receivables respectively, which is included within Trade receivables on the Company’s Consolidated Balance Sheets. A provision for estimated sales returns from and allowances to customers is made in the same period as the related revenues are recognized, based on historical experience or the specific identification of an event necessitating a reserve.

Earnings per Share. Basic earnings per share is computed by dividing earnings by the weighted average number of common shares outstanding during the applicable period. The shares owned by a voluntary employee beneficiary association (“VEBA”) for the benefit of certain union retirees, their surviving spouses and eligible dependents (the “Union VEBA”) that are subject to transfer restrictions, while treated in the Consolidated Balance Sheets as being similar to treasury stock (i.e., as a reduction in Stockholders’ equity), are included in the computation of basic shares outstanding in the ~~Statement~~Statements of Consolidated Income because such shares were irrevocably issued and have full dividend and voting rights.

Diluted earnings per share is computed by dividing earnings by the sum of (a) the weighted average number of common shares outstanding during the period and (b) the dilutive effect of potential common share equivalents consisting of non-vested common shares, restricted stock units, performance shares and stock options (see Note ~~13)~~14).

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Restricted Cash. The Company is required to keep certain amounts on deposit relating to workers’ compensation, collateral for certain letters of credit and other agreements totaling ~~$15.8 and $25.2~~$15.9 at ~~September 30, 2007~~both March 31, 2008 and December 31, 2006, respectively. On July 17, 2007, the State of Washington reduced the amount the Company is required to have on deposit with the State by approximately $9.5. The remaining $7.7 on deposit with the State of Washington represents the deposit required to fund existing workers’ compensation claims.2007. Of the restricted cash balance, $1.5 were considered short term and were included in Prepaid expenses and other current assets on the Consolidated Balance Sheets at ~~September 30, 2007~~both March 31, 2008 and December 31, ~~2006,~~2007; $14.4 ~~and $23.5, respectively, is~~were considered long term and iswere included in Other assets on the ~~balance sheet.~~Consolidated Balance Sheets at both March 31, 2008 and December 31, 2007(see Note 6).

~~New~~Stock-Based Employee Compensation. In March 2008, the Company granted performance shares to executive officers and other key employees under a long term incentive program for 2008 through 2010 (the “2008 — 2010 LTI Program”). These awards are subject to performance requirements pertaining to the Company’s economic value added (“EVA”) performance measured over a three year period. The EVA is a measure of the excess of the Company’s pretax operating income for a particular year over a pre-determined percentage of the net assets of the immediately preceding year, as defined in the 2008 — 2010 LTI Program. The number of performance shares that will ultimately vest and result in the issuance of common shares in 2011 will depend on the average annual EVA achieved for the three year performance period. The Company accounts for these awards at fair value in accordance with Statement of Accounting ~~Pronouncements.~~Standards No. 123 (revised 2004),Share-based Payments (“SFAS No. 123R”). The fair value is measured based on the most probable outcome of the performance condition which is estimated quarterly using the Company’s plan and actual results. The Company expenses the fair value, after assuming an estimated forfeiture rate, over the three year performance period on a ratable basis. During the quarter ended March 31, 2008, $.2 was recognized in connection with the performance shares (see Note 10).

Realization of excess tax benefits. Beginning on January 1, 2008, the Company made an accounting policy election to follow the tax law ordering approach in assessing the realization of excess tax benefits upon vesting of non-vested share awards and performance shares, exercising of stock options and payment of dividend on non-vested share awards and performance shares expected to vest. Under the tax law ordering approach, realization of excess tax benefits is determined based on the ordering provisions of the tax law. Current year deductions, which include the tax benefits from current year equity award activities, are used first before using the Company’s net operating loss (“NOL”) carryforwards from prior years. Under this method, Additional capital would be credited when an excess tax benefit is realized, creating an additional paid in capital (“APIC”) pool, to absorb potential future tax deficiencies resulting from vesting of non-vested share awards and exercising of stock options.

Adoption of Emerging Issues Task Force Issue06-11, Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards,(“EITF Issue06-11”). Beginning January 1, 2008, the Company adopted EITF Issue06-11. In accordance with the EITF Issue, the Company records a credit to Additional capital for tax deductions resulting from a dividend payment on non-vested share awards the Company expects to vest. The adoption of EITF Issue06-11 did not have any impact on the Company’s consolidated financial statement during the quarter ended March 31, 2008.

Adoption of Statement of Financial Accounting Standards ~~No. 157,~~~~Fair Value Measurements~~(“SFAS No. 157”) was issued in September 2006 to increase consistency and comparability in fair value measurements and to expand their disclosures. The new standard includes a definition of fair value as well as a framework for measuring fair value. The provisions of this standard apply to other accounting pronouncements that require or permit fair value measurements. The standard is effective for fiscal periods beginning after November 15, 2007 and should be applied prospectively, except for certain financial instruments where it must be applied retrospectively as a cumulative-effect adjustment to the balance of opening retained earnings in the year of adoption. The Company is still evaluating SFAS No. 157 but does not currently anticipate that the adoption of this standard will have a material impact on its financial statements.

~~Statement of Financial Accounting Standards~~(SFAS) No. 159,The Fair Value Option for Financial Assets and Financial Liabilities — including an amendment of FASB Statement No. 115,(“SFAS No. 159”) ~~was issued in February 2007 and will become effective for~~.On January 1, 2008, the Company ~~on January 1, 2008.~~adopted SFAS ~~No.~~ 159 which permits entities ~~the option~~to choose to measure many financial instruments and certain other ~~items at fair value. Unrealized gains and losses in respect of~~ assets and liabilities at fair value on aninstrument-by-instrument basis (the fair value option) with changes in fair value reported in earnings. The Company already records derivative contracts at fair value in accordance with Statement of Financial Accounting Standards No. 133,Accounting for ~~which~~Derivative Instruments and Hedging Activities, as amended (“SFAS No. 133”). The adoption of SFAS No. 159 had no impact on the consolidated financial statements as management did not elect the fair value option ~~has been elected will be reported in earnings. Selection~~for any other financial instruments or certain other assets and liabilities.

Fair Value Measurements. On January 1, 2008, the Company adopted Statement of ~~the~~Accounting Standards No. 157,Fair Value Measurements, (“SFAS No. 157”). SFAS No. 157 defines fair value, ~~option is irrevocable~~establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (GAAP), and can be applied on a partial basis, i.e., to some but not all similar financial assets or liabilities. The Company is currently evaluating what impact, if any, this pronouncement will have on its consolidated financial statements.

~~Significant accounting policies of the Predecessor are discussed in Note 15.~~


2.	~~Inventories~~

~~Inventories are stated at the lower of cost or market value. Finished products, work in process and raw material inventories are stated on thelast-in,~~ first-out (“LIFO”) basis. Other inventories, principally operating supplies and repair and maintenance parts, are stated at average cost. Inventory costs consist of material, labor and manufacturing overhead, including depreciation. Abnormal costs, such as idle facility expenses, freight, handling costs and spoilage, are accounted for as current period charges.

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

expands disclosures about fair value measurements. The provisions of this standard apply to other accounting pronouncements that require or permit fair value measurements and are to be applied prospectively with limited exceptions.

SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This standard is now the single source in GAAP for the definition of fair value, except for the fair value of leased property as defined in Statement of Accounting Standards No. 13,Accounting for Leases. SFAS No. 157 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under SFAS No. 157 are described below:


	•	Level 1 — Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

	•	Level 2 — Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

	•	Level 3 — Inputs that are both significant to the fair value measurement and unobservable.

The Company’s derivative contracts are valued at fair value using significant other observable and unobservable inputs. Such financial instruments consist of primary aluminum, natural gas, and foreign currency contracts. The fair values of these derivative contracts are based upon trades in liquid markets, such as aluminum options. Valuation model inputs can generally be verified and valuation techniques do not involve significant judgment. The fair values of such financial instruments are generally classified within Level 2 of the fair value hierarchy.

The Company has other derivative contracts that do not have observable market quotes. For these financial instruments, management uses significant other observable inputs (i.e., information concerning regional premiums for swaps). Where appropriate, valuations are adjusted for various factors such as bid/offer spreads.

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table presents the Company’s assets and liabilities that are measured and recognized at fair value on a recurring basis classified under the appropriate level of the fair value hierarchy as of March 31, 2008:

Level 1 Level 2 Level 3 Total

Derivative assets:
Aluminum swap contracts $ — $ 46.1 $ — $ 46.1
Aluminum option contracts — 21.5 — 21.5
Pound Sterling forward contract — .7 — .7
Euro dollar forward contracts — .6 — .6
Midwest premium swap contracts — — .1 .1
Natural gas swap contracts — .7 — .7

Total $ — $ 69.6 $ .1 $ 69.7

Derivative liabilities:
Aluminum swap contracts $ — $ (15.1 ) — $ (15.1 )
Aluminum option contracts — (.4 ) — (.4 )
Pound Sterling forward contract — (.3 ) — (.3 )
Midwest premium swap contracts — — (.3 ) (.3 )

Total $ — $ (15.8 ) $ (.3 ) $ (16.1 )

Financial instruments classified as Level 3 in the fair value hierarchy represent derivative contracts in which management has used at least one significant unobservable input in the valuation model. The following table presents a reconciliation of activity for such derivative contracts on a net basis:
Level 3
Balance at January 1, 2008: $ —
Total realized/unrealized gains (losses) included in:
Cost of goods sold excluding depreciation expense (.2 )
Purchases, sales, issuances and settlements —
Transfers in and (or) out of Level 3 —
Balance at March 31, 2008 $ (.2 )
Total gains (losses) included in earnings attributable to the change in unrealized gains (losses) relating to derivative contracts still held at March 31, 2008: $ (.2 )
New Accounting Pronouncements. Statement of Accounting Standards No. 141 (revised 2007),Business Combinations(“SFAS No. 141R”) was issued in December 2007. SFAS No. 141R establishes principles and requirements for how the acquiror of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. SFAS No. 141R also provides guidance on how the acquiror should recognize and measure the goodwill acquired in the business combination and determine what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141R is effective for the Company in its fiscal year beginning January 1, 2009. Most of the requirements of SFAS No. 141R are only to be applied prospectively to business combinations entered into on or after January 1, 2009.
Statement of Accounting Standards No. 160,Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51(“SFAS No. 160”) was issued in December 2007. SFAS No. 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies

9

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS No. 160 is effective for the Company in its fiscal year beginning January 1, 2009. The adoption of SFAS No. 160 is not currently expected to have a material impact on the Company’s consolidated financial statements.

Statement of Accounting Standards No. 161,Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement 133(’SFAS No. 161”) was issued in March 2008. SFAS No. 161 enhances required disclosures regarding derivatives and hedging activities, including enhanced disclosures regarding how: (a) an entity uses derivative instruments; (b) derivative instruments and related hedged items are accounted for under FASB Statement No. 133,Accounting for Derivative Instruments and Hedging Activities;and (c) derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS No. 161 is effective for fiscal years and interim periods beginning after November 15, 2008. The Company is currently evaluating the impact, if any, SFAS No. 161 will have on its consolidated financial statements.


2.	Inventories

Inventories are stated at the lower of cost or market value. For the Fabricated Products segment, finished products, work in process and raw material inventories are stated on thelast-in, first-out (“LIFO”) basis and other inventories, principally operating supplies and repair and maintenance parts, are stated at average cost. All inventories in the Primary Aluminum segment are stated on thefirst-in, first-out (“FIFO”) basis. Inventory costs consist of material, labor and manufacturing overhead, including depreciation. Abnormal costs, such as idle facility expenses, freight, handling costs and spoilage, are accounted for as current period charges.

Inventories consist of the following:


	September 30,		December 31,		March 31,		December 31,
	2007		2006		2008		2007

Fabricated products —
Fabricated Products segment —
Finished products	$	60.1	$	61.1	$	69.1	$	68.6
Work in process		79.6		72.8		75.3		76.9
Raw materials		41.2		42.0		57.2		49.5
Operating supplies and repairs and maintenance parts		12.7		12.1		12.4		12.5

		193.6		188.0		214.0		207.5
Commodities — Primary aluminum		.1		.1
Primary Aluminum segment —
Primary aluminum						2.7		.1

	$	193.7	$	188.1	$	216.7	$	207.6

As stated above, the Company determines cost for substantially all of its product inventories on a LIFO basis. All Predecessor LIFO layers were eliminated in connection with the application of fresh start accounting. The Successor applies LIFO differently than the Predecessor in that the Successor views each quarter on a standalone year to date basis for computing LIFO, whereas the Predecessor recorded LIFO amounts with a view to the entire fiscal year which, with certain exceptions, tended to result in LIFO charges being recorded in the fourth quarter or the second half of the year. The Company recorded a net non-cash LIFO ~~benefit~~charges of approximately ~~$10.2~~$14.4 and ~~$8.2~~$8.0 during the ~~quarter~~quarters ended March 31, 2008 and ~~nine month periods ended September 30,~~ 2007, respectively. The Company recorded a non-cash LIFO benefit (charge) of approximately $(21.7) for the period from January 1, 2006 to July 1, 2006 and $3.3 for the period from July 1, 2006 through September 30, 2006. These amounts are primarily a result of changes in metal prices and ~~in 2007,~~ changes in inventory volumes.

~~Pursuant to fresh start accounting, as more fully discussed in Note 2 of Notes to Consolidated Financial Statements included in the Company’s Annual Report onForm 10-K~~ for the year ended December 31, 2006, all inventory amounts at the Effective Date were stated at fair market value. Raw materials and Operating supplies and repairs and maintenance parts were recorded at published market prices including any location premiums. Finished products and Work in process (“WIP”) were recorded at selling price less cost to sell, cost to complete and a reasonable apportionment of the profit margin associated with the selling and conversion efforts. As a result, as reported in Note 2 of Notes to Consolidated Financial Statements included in the Company’s Annual Report on~~Form 10-K~~ ~~for the year ended December 31, 2006, inventories were increased by approximately $48.9 at the Effective Date.~~

~~Given the recent strength in demand for many types of fabricated aluminum products and primary aluminum, the~~The Company has a larger volume of raw materials, ~~WIP~~work in process and finished ~~goods~~products than is its long-term historical average, and the price for such goods ~~that was~~ reflected in the opening inventory balance at the ~~Effective Date,~~Company’s emergence from chapter 11 bankruptcy on July 6, 2006, given the application of fresh start accounting, is higher than long term historical averages. As such, with the inevitable ebb and flow of business cycles, non-cash LIFO charges and potential lower of cost and market adjustments will result when inventory levels dropand/or margins compress. Such adjustments could be material to results in future periods.

~~KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES~~

~~NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

successful in this regard. In addition, given the potential for future shutdown and related costs, Anglesey temporarily suspended dividends during the last half of 2006 and the first half of 2007 while it studied future cash requirements. Based on a review of cash anticipated to be available for future cash requirements, Anglesey removed the temporary suspension of dividends ~~and declared a dividend~~ in ~~August~~ 2007. ~~The dividend~~Dividends in respect of the Company’s ownership ~~interests~~interest totaled $14.3 in ~~the amount of $4.4 was received in August~~ 2007 resulting in a reduction of the Investment in unconsolidated affiliate. Dividends over the past five years have fluctuated substantially depending on various operational and market factors. During the last five years, cash dividends received were as follows: 2007— $14.3, 2006 — $11.8, 2005 — $9.0, 2004 — $4.5 and 2003 — ~~$4.3 and 2002 — $6.0.~~$4.3. During April 2008, Anglesey declared an additional dividend totaling $8.0, of which $3.9 was received on April 18, 2008 in respect of the Company’s ownership interest. No assurance can be given that Anglesey will not suspend dividends again in the future.

The following table shows a summary of Anglesey’s selected operating results for the ~~quarter~~quarters ended March 31, 2008 and ~~nine months ended September 30, 2007 and 2006:~~2007:


							Nine Months Ended September 30,
							Period from		Predecessor
							July 1,		Period from
							2006		January 1,		Quarter Ended		Quarter Ended
	Quarter Ended				Nine Months Ended		through		2006		March 31,		March 31,
	September 30,				September 30,		September 30,		to July 1,		2008		2007
	2007		2006		2007		2006		2006
Net sales	$	108.5	$	103.1	$	314.7	$	103.1	$	170.1	$	89.5	$	100.7

Gross profit	$	23.7	$	30.5	$	73.9	$	30.5	$	38.0	$	10.6	$	27.5

Net income	$	17.1	$	21.5	$	52.8	$	21.5	$	26.8	$	7.1	$	19.4

Company’s equity income(1)	$	9.7	$	13.0	$	29.7	$	13.0	$	11.0	$	3.3	$	5.2


(1)		The Company’s equity income differs from 49% of the summary net income due to equity method accounting adjustments and applying GAAP.

At ~~September 30, 2007~~March 31, 2008 and December 31, ~~2006,~~2007, the receivables from Anglesey were ~~none~~zero and ~~$1.3,~~$9.5, respectively.

As a result of fresh start accounting, the Company decreased its investment in Anglesey ~~at the Effective Date by $11.6~~upon emergence from chapter 11 bankruptcy on July 6, 2006 (see Note 2 of Consolidated Financial Statements included in the Company’s Annual Report onForm 10-K for the year ended December 31, ~~2006)~~2007). The $11.6 difference between the Company’s share of Anglesey’s equity and the investment amount reflected in the Company’s balance sheet is being amortized (included in Cost of products sold) over the period from July 2006 to September 2009, the end of the current power contract. The non-cash amortization was approximately $.9 ~~and $2.7~~ for the ~~quarter~~quarters ended March 31, 2008 and ~~nine month periods ended September 30, 2007, respectively.~~2007. At ~~September 30, 2007,~~March 31, 2008, the remaining unamortized amount was ~~$7.1.~~$5.4.

In the ~~nine months~~quarter ended ~~September 30, 2007,~~March 31, 2008, the Company recorded a ~~$.2~~$.1 charge for share-based equity compensation for employees of Anglesey who participate in the employee share savings plan of its parent (“Rio Tinto”). The ~~$.2~~$.1 has been recognized as a reduction in the equity in earnings of Anglesey for the ~~nine months~~quarter ended ~~September 30, 2007.~~March 31, 2008. In accordance with Accounting Principles Board Opinion No. 18,The Equity Method of Accounting for Investments in Common Stock(“APB No. 18”), this transaction has been accounted for as a capital transaction of Anglesey. As a

~~KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES~~

~~NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

and disposal of asbestos (all of which is believed to be fully contained and encapsulated within walls, floors, ceilings or piping) at certain of the older plants if such plants were to undergo major renovation or be demolished. No plans currently exist for any such renovation or demolition of such facilities and the Company’s current assessment is that the most probable scenarios are that no such CARO would be triggered for 20 or more years, if at all. ~~Nonetheless, the retroactive application of FASB Interpretation No. 47 (“FIN 47”),~~~~Accounting for Conditional Assets Retirement Obligations, an interpretation of FASB Statement No. 143~~~~(“SFAS No. 143”) resulted in the Company recognizing, a Long-term liability of approximately $2.5 at December 31, 2005.~~

The Company’s estimates and judgments that affect the probability weighted estimated future contingent cost amounts did not change during the ~~nine months~~quarter ended ~~September 30, 2007.~~March 31, 2008. The Company’s results for the ~~nine month periods~~quarters ended ~~September 30,~~March 31, 2008 and 2007 ~~and September 30, 2006,~~both included an incremental accretion of the estimated liability of ~~$.2 and~~ $.1 ~~respectively~~ (recorded in Cost of products sold). The estimated fair value of the ~~CARO~~CAROs at ~~September 30, 2007~~March 31, 2008 was ~~$3.0.~~$3.1.

Anglesey (see Note 3) also recorded CARO liabilities of approximately ~~$15.0 and $9.0~~$24.0 in its financial statements as of ~~December 31, 2005 and~~ March 31, ~~2007, respectively.~~2007. The United Kingdom generally accepted accounting principles treatment applied by Anglesey was not consistent with the principles of ~~SFAS~~Statement of Accounting Standards No. 143,Accounting for Asset Retirement Obligationsor ~~FIN 47.~~Financial Accounting Standards Board Interpretation No. 47,Accounting for Conditional Asset Retirement Obligations. Accordingly, the Company adjusted Anglesey’s recording of the CARO to comply with GAAP treatment. The Company adjusted its equity in earnings for Anglesey for the quarters ended ~~September 30,~~March 31, 2008 and 2007 ~~and September 30, 2006~~ by $.3 and ~~$.1, respectively, and for the nine month period ended September 30, 2007, periods from January 1, 2006 to July 1, 2006 and from July 1, 2006 through September 30, 2006 by $1.0, $.3 and $.1,~~$.2, respectively, to reflect the impact of applying GAAP with respect to the Anglesey CARO liability.

For purposes of the Company’s fair value estimates with respect to the CARO liabilities, a credit adjusted risk free rate of 7.5% was used.

~~5. Property, Plant and Equipment~~


5.	Property, Plant, and Equipment

The major classes of property, plant, and equipment are as follows:


	September 30,			December 31,			March 31,			December 31,
	2007			2006			2008			2007

Land and improvements	$	12.8		$	12.8		$	12.9		$	12.9
Buildings		20.1			18.6			25.5			25.2
Machinery and equipment		140.9			92.3			171.9			168.7
Construction in progress		45.7			51.9			43.2			33.0

		219.5			175.6			253.5			239.8
Accumulated depreciation		(13.6	)		(5.3	)		(20.6	)		(17.1	)

Property, plant, and equipment, net	$	205.9		$	170.3		$	232.9		$	222.7

~~Approximately $37.2 of the Construction in progress at September 30, 2007, relates to the Company’s Spokane, Washington facility (see Note 10).~~

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

At March 31, 2008 the major components of Construction in progress were as follows (see Note 11):

March 31,

2008

Heat treat expansion project (Spokane, Washington facility) $ 16.3
Rod, bar and tube value stream investments, including new facility in Kalamazoo, Michigan 11.0
Other 15.9

Total Construction in progress $ 43.2

For the quarters ended March 31, 2008 and 2007, the Company recorded depreciation expense of $3.5 and $2.6, respectively, relating to the Company’s operating facilities in its Fabricated Products segment. An immaterial amount of depreciation expense was also recorded in the Company’s Corporate segment for both periods.
6.   Supplemental Balance Sheet Information
Trade Receivables.  Trade receivables were comprised of the following:

March 31,
December 31,

2008 2007

Billed trade receivables $ 116.2 $ 96.0
Unbilled trade receivables 6.2 1.9

122.4 97.9
Allowance for doubtful receivables (1.2 ) (1.4 )

$ 121.2 $ 96.5

Prepaid Expenses and Other Current Assets.  Prepaid expenses and other current assets were comprised of the following:

March 31,
December 31,

2008 2007

Current derivative assets (Note 12) $ 17.2 $ 1.5
Current deferred tax assets 59.2 59.2
Short term restricted cash 1.5 1.5
Prepaid expenses 3.9 3.8

Total $ 81.8 $ 66.0

Other Assets.  Other assets were comprised of the following:

March 31,
December 31,

2008 2007

Derivative assets (Note 12) $ 52.5 $ 27.6
Restricted cash 14.4 14.4
Other .9 1.1

Total $ 67.8 $ 43.1

13

~~Long-term Liabilities~~KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Other Accrued Liabilities. Other accrued liabilities were comprised of the following:

March 31,
December 31,

2008 2007

Current derivative liabilities (Note 12) $ 10.0 $ 6.6
Accrued income taxes and other taxes payable 4.6 2.2
Accrued bank overdraft — see below 1.8 5.4
Dividend payable 3.7 3.7
Accrued annual VEBA contribution — 8.8
Other 9.6 9.9

Total $ 29.7 $ 36.6

The accrued bank overdraft balance at March 31, 2008 and December 31, 2007 represents uncleared cash disbursements.
Long-term Liabilities.Long-term liabilities were comprised of the following:

September 30,
December 31,
March 31,
December 31,

2007 2006 2008 2007

Deferred tax and FIN 48 liabilities $ 35.0 $ 17.1
Financial Accounting Standards Board Interpretation No. 48 (“FIN 48”) liabilities $ 26.2 $ 26.5
Workers’ compensation accruals 17.1 17.4 16.5 17.2
Environmental accruals 5.8 6.7 5.7 6.0
Derivative liabilities (Note 11) 3.4 5.4
Derivative liabilities (Note 12) 6.1 1.9
Asset retirement obligations 3.0 2.9 3.1 3.0
Other long term liabilities 3.9 8.8 2.4 2.4

Total $ 68.2 $ 58.3 $ 60.0 $ 57.0

7. Secured Debt and Credit Facilities

~~Long-term debt consisted of the following:~~

September 30,
December 31,

2007 2006

Revolving Credit Facility $ — $ —
Term Loan Facility 50.0 50.0

Total $ 50.0 $ 50.0

~~On the Effective Date,~~Upon emergence from chapter 11 bankruptcy on July 6, 2006, the Company and certain subsidiaries of the Company entered into a ~~new~~ Senior Secured Revolving Credit Agreement with a group of lenders providing for a $200.0 revolving credit facility (the “Revolving Credit Facility”), of which up to a maximum of $60.0 may be utilized for letters of credit. Under the Revolving Credit Facility, the Company is able to borrow (or obtain letters of credit) from time to time in an aggregate amount equal to the lesser of a stated amount, initially $200.0, and a borrowing base comprised of eligible accounts receivable, eligible inventory and certain eligible machinery, equipment and real estate, reduced by certain reserves, all as specified in the Revolving Credit Facility. The Revolving Credit Facility ~~has a five-year term and~~ matures in July 2011, at which time all principal amounts outstanding thereunder will be due and payable. Borrowings under the Revolving Credit Facility bear interest at a rate equal to either a base prime rate or LIBOR, at the Company’s option, plus a specified variable percentage determined by reference to the then remaining borrowing availability under the Revolving Credit Facility. The Revolving Credit Facility may, subject to certain conditions and the agreement of lenders thereunder, be increased up to $275.0 at the request of the Company.
~~Concurrent with~~ During the ~~execution~~fourth quarter of 2007, certain conditions were met and the Company and the lenders amended the Revolving Credit Facility, effective December 10, 2007, to increase the ~~Company also entered into a Term Loan and Guaranty Agreement with a group~~stated amount of ~~lenders (the “Term Loan Facility”). The Term Loan Facility provides for a $50.0 term loan and is guaranteed by~~ the Company and certain of its domestic operating subsidiaries. The Term Loan Facility was fully drawn on August 4, 2006. The Term Loan Facility has a five-year term and matures in July 2011, at which time all principal amounts outstanding thereunder will be due and payable. Borrowings under the Term Loan Facility bear interest at a rate equalcredit facility from $200.0 to ~~either a premium over a base prime rate or LIBOR, at the Company’s option. At September 30, 2007, the average interest rate applicable to borrowings under the Term Loan Facility was 9.7%.~~$265.0.

Amounts owed under ~~each of~~ the Revolving Credit ~~Facility and the Term Loan~~ Facility may be accelerated upon the occurrence of various events of default set forth in ~~each such~~the agreement, including, without limitation, the failure to make principal or interest payments when due, and breaches of covenants, representations and warranties. The Revolving Credit Facility is secured by a first priority lien on substantially all of the assets of the Company and certain of its U.S. operating subsidiaries that

1214

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

~~The Revolving Credit Facility is secured by a first priority lien on substantially all of the assets of the Company and certain of its US operating subsidiaries that~~ are also borrowers thereunder. The ~~Term Loan~~Revolving Credit Facility ~~is secured by a second lien on substantially all of the assets of the Company and the Company’s US operating subsidiaries that are the borrowers or guarantors thereof.~~

~~Both credit facilities place~~places restrictions on the ability of the Company and certain of its subsidiaries to, among other things, incur debt, create liens, make investments, pay dividends, sell assets, undertake transactions with affiliates and enter into unrelated lines of business. At March 31, 2008, the Company was in full compliance with all covenants related to the Revolving Credit Facility.

At ~~September 30, 2007, there were no borrowings outstanding~~March 31, 2008, $262.8 was available for borrowing and letters of credit under the Revolving Credit Facility, ~~there~~no borrowings were outstanding, and approximately ~~$15.5 outstanding~~$12.6 of letters of credit ~~and there was $50.0 outstanding under the Term Loan Facility.~~were outstanding.


8.	Income Tax Matters

Tax Provision. The ~~(provision) benefit~~provision for income taxes for the quarters ended March 31, 2008 and ~~nine month periods ended September 30,~~ 2007 ~~and 2006~~ consisted of:

~~Quarters ended September 30, 2007 and 2006:~~

Three Months Ended

September 30, 2006
Period from

July 1, 2006

Quarter Ended
through
Predecessor

September 30,
September 30,
July 1,

2007 2006 2006
Domestic $ ( 15.0 ) $ (2.7 ) $ —
Foreign (5.0 ) (5.6 ) —

Total $ (20.0 ) $ (8.3 ) $ —

~~Nine months ended September 30, 2007 and 2006:~~

Nine Months Ended

September 30, 2006
Predecessor

Period from
Period from

July 1,
January 1,

2006
2006
Quarter Ended
Quarter Ended

Nine Months Ended
through
through
March 31,
March 31,

September 30,
September 30,
July 1,
2008 2007
2007 2006 2006
Domestic $ ( 48.5 ) $ (2.7 ) $ .8 $ 26.2 $ 11.2
Foreign (15.8 ) (5.6 ) (7.0 ) 3.2 4.6

Total $ (64.3 ) $ (8.3 ) $ (6.2 ) $ 29.4 $ 15.8

The income tax provision for the ~~nine month period~~quarter ended ~~September 30, 2007~~March 31, 2008 was ~~$64.3,~~$29.4, with an effective tax rate of ~~45.6%~~43.0%. The effective tax rate of ~~45.6%~~43.0% was impacted by several factors including:

• The Company’s equity in income before income taxes of Anglesey is treated as a reduction (increase) in Cost of products ~~sold.~~sold excluding depreciation. The income tax effects of the Company’s equity in income are included in the tax provision. This resulted in ~~$11.5~~$1.6 being included in the income tax provision, increasing the effective tax rate by approximately 8%2.3%.

• Benefits associated with any reduction of the valuation allowance are first utilized to reduce intangible assets, with any excess being recorded as an adjustment to Stockholders’ equity. This resulted in $48.4 being included in the income tax provision, increasing the effective tax rate by approximately 34%.

13

~~KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES~~

~~NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~


	•	The impact on unrecognized tax benefits, including interest and penalties, increased the income tax provision by ~~$2.7~~$.8 and the effective tax rate by approximately 2%1%.

	•	The foreign currency impact on unrecognized tax benefits, interest and penalties resulted in a ~~$3.5~~$1.0 currency translation adjustment that was recorded in Accumulated other comprehensive ~~income.~~income (loss).

	•	~~There was a favorable~~The geographical distribution of ~~income.~~income and changes in the United Kingdom and Canadian income tax rates.

Deferred Income Taxes. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company had not yet completed the determination of the net operating loss (“NOL”) carryforwards related to its emergence from chapter 11 bankruptcy and was only able to estimate its NOL carryforwards at December 31, 2006 due to the complexity of the tax analyses. During the quarter ended September 30, 2007, the Company completed its remaining tax analyses for its 2006 federal tax return and ultimately determined that the NOL carryforwards at December 31, 2006 were $890.9. See Note 6 of Notes to Consolidated Financial Statements included in the Company’s Annual report on~~Form 10-K~~ ~~for the year ended December 31, 2006.~~

Although the Company had approximately $981 of tax attributes, including the NOL carryforwards ~~discussed above,~~ available at December 31, 2006 to offset the impact of future income taxes, the Company ~~does~~did not meet the “more likely than not” criteria for recognition of such attributes primarily because the Company ~~does~~did not have sufficient history of paying taxes. As such, the Company recorded a full valuation allowance against the amount of tax attributes available and no deferred tax asset was recognized. The benefit associated with any reduction of the valuation allowance iswas first utilized to reduce intangible assets with any excess being recorded as an adjustment to Stockholders’ equity rather than as a reduction of income tax expense. ~~Therefore, despite the existence of such tax attributes,~~In order to assess whether a valuation allowance was still required at December 31, 2007, the Company ~~expects to record~~executed a ~~full statutory tax provision in future periods and, accordingly,~~process for determining the ~~benefit~~need for a valuation allowance. At the conclusion of ~~any tax attributes realized will only affect future balance sheets and statements of cash flows. If~~this process, the Company ~~ultimately determines~~concluded that it ~~meets~~had met the “more likely than not” criteria for recognition of its deferred tax assets and thus released the vast majority of the valuation allowance at December 31, 2007. In accordance with fresh start accounting, the release of the valuation allowance was taken as an adjustment to Stockholders’ equity rather than through the income statement. The Company maintains a valuation allowance on deferred tax assets that did not meet the “more likely than not” recognition criteria and these assets are primarily state NOL carryforwards that the ~~amount~~Company believes will likely expire unused.

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

At December 31, 2007, the Company had $897.5 of net operating loss carryforwards available to reduce future cash payments for income taxes in the United States. Of the $897.5 of NOL carryforwards, $1.0 relates to the excess tax benefits from employee restricted stock. Equity will be increased by $1.0 if and when such excess tax benefits are ultimately realized. Such NOL carryforwards expire periodically through 2027. The Company also had $90.1 of other tax attributes, including $88.4 of gross alternative minimum tax credit carryforwards with an indefinite life, available to offset regular federal income tax requirements. The remainder consists of general business credits that will expire periodically through 2011.

In assessing the realizability of deferred tax assets, ~~would~~management considers whether it is “more likely than not” that some portion or all of the deferred tax assets will not be ~~recorded on~~realized. The ultimate realization of deferred tax assets is dependent upon the ~~balance sheet~~generation of future taxable income during the periods in which those temporary differences become deductible. Management considers taxable income in carryback years, the scheduled reversal of deferred tax liabilities, tax planning strategies and ~~would~~projected future taxable income in making this assessment. As of December 31, 2007, due to uncertainties surrounding the realization of some of the Company’s deferred tax assets, including state NOLs sustained during the prior years and expiring tax benefits, the Company had a valuation allowance of $24.8 against its deferred tax assets. When recognized, the tax benefits relating to any reversal of the valuation allowance will be recorded as an adjustment to Stockholders’ ~~equity.~~equity rather than as a reduction of income tax expense. Valuation allowance adjustments related to post emergence events will flow through the tax provision.

Foreign taxes primarily represent Canadian income taxes in respect of the Company’s facility in London, Ontario and United Kingdom income taxes in respect of the Company’s ownership in Anglesey. The provision for income tax is based on an assumed effective rate for each applicable period.

Other. The Company and its subsidiaries file income tax returns in the US federal jurisdiction and various states and foreign jurisdictions. The audit of the Company’s federal income tax return for the 2004 tax year ~~is currently under examination by the Internal Revenue Service.~~was completed in April of 2008. The ~~Company does not expect that the~~ results of this examination ~~will~~did not have a material effect on ~~its~~the Company’s financial condition or results of operations. The Canada Revenue Agency audited and issued assessment notices for 1998 ~~and 1999~~through 2001 for which Notices of Objection have been filed. The ~~2000~~2002 to 2004 tax years are currently under audit by the Canada Revenue Agency. The Company ~~currently~~ does not expect that the results of these examinations to have a material effect on its financial condition or results of operations. Certain past years are still subject to examination by taxing authorities and the use of NOL carryforwards in future periods could trigger a review of attributes and other tax matters in years that are not otherwise subject to examination.

No US federal or state liability has been recorded for the undistributed earnings of the Company’s Canadian ~~subsidiaries~~subsidiary at ~~September 30, 2007.~~March 31, 2008. These undistributed earnings are considered to be indefinitely reinvested. Accordingly, no provision for US federal and state income taxes or foreign withholding taxes has been provided on such undistributed earnings. Determination of the potential amount of unrecognized deferred US income tax liability and foreign withholding taxes is not practicable because of the complexities associated with its hypothetical calculation.

The Company ~~has~~had gross unrecognized tax benefits of ~~$17.1~~$19.2 and ~~$14.6~~$19.7 at ~~September 30, 2007~~March 31, 2008 and December 31, ~~2006,~~2007, respectively. The change induring the ~~nine month period~~quarter ended ~~September 30, 2007~~March 31, 2008 was primarily due to currency fluctuations and a change in tax positions. The Company recognizes interest and penalties related to these unrecognized tax benefits in the income tax provision. During the quarter ended March 31, 2008, the Company recognized approximately $.6 in interest and penalties. During the first quarter of 2008, the foreign currency impact on gross unrecognized tax benefits, interest and penalties resulted in a $1.0 currency translation adjustment that was recorded in Accumulated other comprehensive income (loss), of which $.6 related to gross unrecognized tax benefits and $.4 related to accrued interest and penalties. Additionally, the Company had approximately $10.9 and $10.7 accrued at March 31, 2008 and December 31, 2007, respectively, for interest and penalties which were included in Long-term liabilities in the balance sheet. Due to the resolution of the US federal audit of the 2004 tax year, the Company’s gross unrecognized tax benefits will change within the next twelve months by $2.4.

1416

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

~~fluctuations. The Company recognizes interest and penalties related~~A summary of activities with respect to ~~these unrecognized tax benefits in~~ the income tax provision. During the quarter and nine month periods ended September 30, 2007, the Company recognized approximately $.7 and $2.4, respectively, in interest and penalties. The foreign currency impact on unrecognized tax benefits, interest and penalties resulted in a $3.5 currency translation adjustment that was recorded in Accumulated other comprehensive income. Additionally, the Company had approximately $8.2 and $4.7 accrued at September 30, 2007 and December 31, 2006, respectively, for interest and penalties. The Company does not anticipate that it will have a change ingross unrecognized tax benefits for the ~~next twelve months that would have a material impact on the Company’s earnings.~~quarter ended March 31, 2008 is as follows:

Gross unrecognized tax benefits at December 31, 2007(1) $ 19.7
Gross increases for tax positions of prior years .2
Gross decreases for tax positions of current years (.1 )
Settlements —
Foreign currency translation (.6 )

Gross unrecognized tax benefits at March 31, 2008(2) $ 19.2

In connection with the sale of the Company’s interests in and related to Queensland Alumina Limited (“QAL”), the Company made payments totaling approximately $8.5 for alternative minimum tax (“AMT”) in the United States (approximately $8.0 of Federal AMT and approximately $.5 of state AMT). Such payments were made in the fourth quarter of 2005. Upon completion of the Company’s 2005 federal income tax return, the Company determined that approximately $1.0 of AMT was overpaid and was refundable. The Company applied for the refund in the 2005 federal income tax return filed in September 2006 and received the refund in October 2006. The Company believed that the remainder of the United States AMT amounts paid in respect of the sale of interests should, in accordance with the Intercompany Settlement Agreement entered into in connection with the Company’s chapter 11 bankruptcy, be reimbursed to the Company from the funds held by the liquidating trustee for the plan of liquidation of two former subsidiaries of the Company (Kaiser Alumina Australia Corporation and Kaiser Finance Corporation). A claim for reimbursement of $7.2 was made in January 2007. In May 2007, the liquidating trust approved the claim and the Company received the $7.2 reimbursement, which amount was recorded as a benefit in Other operating benefits (charges), net in the second quarter of 2007 (see Note 12).
(1) Of the $19.7, $15.8 was recorded as a FIN 48 liability on the balance sheet in Long-term liabilities and $3.9 is offset by NOL carryforwards and indirect tax benefits. If and when the $19.7 ultimately is recognized, $15.8 will go through the Company’s income tax provision and thus affect the effective tax rate in future periods.
(2) Of the $19.2, $15.3 was recorded as a FIN 48 liability on the balance sheet in Long-term liabilities and $3.9 is offset by NOL carryforwards and indirect tax benefits. If and when the $19.2 ultimately is recognized, $15.3 will go through the Company’s income tax provision and thus affect the effective tax rate in future periods.

9.   Employee ~~Benefit and Incentive Plans~~Benefits

Pension and Similar Plans.  Pensions and similar plans include:
• Monthly contributions of one dollar per hour worked by each bargaining unit employee to the appropriate multi-employer pension plans sponsored by the United Steelworkers and International Association of Machinists and certain other unions at six of our production facilities. This obligation came into existence in December 2006 for four of our production facilities upon the termination of four defined benefit plans. The arrangement for the other two locations came into existence during the first quarter of 2005. The Company currently estimates that contributions will range from $1 to $3 per year.
• A defined contribution 401(k) savings plan for hourly bargaining unit employees at five of the Company’s production facilities. The Company is required to make contributions to this plan for active bargaining unit employees at these production facilities ranging from (in whole dollars) $800 to $2,400 per employee per year, depending on the employee’s ageand/or years of service. This arrangement came into existence in December 2004 for two production facilities upon the termination of one defined benefit plan. The arrangement for the other three locations came into existence during December 2006. The Company currently estimates that contributions to such plans will range from $1 to $3 per year.
• A defined benefit plan for our salaried employees at the Company’s facility in London, Ontario with annual contributions based on each salaried employee’s age and years of service.
• A defined contribution savings plan for salaried and non-bargaining unit hourly employees (which we refer to as the “Salaried DC Plan”) providing for a match of certain contributions made by employees plus a contribution of between 2% and 10% of their compensation depending on their age and years of service. All new hires after January 1, 2004 receive a fixed 2% contribution. The Company currently estimates that contributions to such plans will range from $1 to $3 per year.
• A non-qualified defined contribution plan for key employees who would otherwise suffer a loss of benefits under the Company’s defined contribution plan as a result of the limitations by the Internal Revenue Code.
VEBA Update.  The Union VEBA had rights to receive 11,439,900 common shares upon the Company’s emergence from chapter 11 bankruptcy. However, prior to the Company’s emergence, the Union VEBA sold its rights to approximately 2,630,000 shares and received net proceeds of approximately $81.

17

• ~~Equity Based Compensation~~KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

During the first quarter of 2007, 6,281,180 common shares were sold to the public by existing stockholders pursuant to a registered offering. The Company did not sell any shares in, and did not receive any proceeds from, the offering. The Union VEBA was one of the selling stockholders and, after the offering, owned approximately 26.7% of the outstanding common shares as of March 31, 2007. Of the 3,337,235 shares sold by the Union VEBA in the offering, 819,280 common shares were unable to be sold without the approval of the Company’s Board of Directors under an agreement restricting the Union VEBA’s ability to sell or otherwise transfer its common shares. However, during the first quarter of 2007, the Union VEBA received approval from the Company’s Board of Directors to include such shares in the offering.

The 819,280 previously restricted shares were treated as a reduction of Stockholders’ equity (at the $24.02 per share reorganization value) in the December 31, 2006 balance sheet. As a result of the relief of the restrictions, during the first quarter of 2007: (i) the value of the 819,280 shares previously restricted was added to VEBA assets at the approximate $58.19 per share price realized by the Union VEBA in the offering (totaling $47.7); (ii) approximately $19.7 of the December 31, 2006 reduction in Stockholders’ equity associated with the restricted shares (common shares owned by Union VEBA subject to restrictions) was reversed; and (iii) the difference between the two amounts (approximately $23, net of income taxes of $5) was credited to Additional capital.

During the fourth quarter of 2007, the Union VEBA sold an additional 627,200 shares following receipt of approval of the Company’s Board of Directors. The 627,200 shares sold resulted in (i) an increase of $45.1 in VEBA assets at an approximate $72.03 weighted average per share price realized by the Union VEBA, (ii) a reduction of $15.1 in common stock owned by the Union VEBA (at the $24.02 per share reorganization value), and (iii) the difference between the two amounts (approximately $25.2, net of income taxes of $4.9) was credited to Additional capital. After the sale, the Union VEBA owned approximately 23.5% of the outstanding common stock as of March 31, 2008.

As of the date of filing of this Report, the Company’s only obligation to the Union VEBA and the Salaried VEBA is an annual variable cash contribution. The amount to be contributed to the VEBAs is 10% of the first $20.0 of annual cash flow (as defined; in general terms, the principal elements of cash flow are earnings before interest expense, provision for income taxes and depreciation and amortization less cash payments for, among other things, interest, income taxes and capital expenditures), plus 20% of annual cash flow, as defined, in excess of $20.0. Such annual payments may not exceed $20.0 and are also limited (with no carryover to future years) to the extent that the payments would cause the Company’s liquidity to be less than $50.0. Such amounts are determined on an annual basis and payable upon the earlier of (a) 120 days following the end of fiscal year, or within 15 days following the date on which the Company files its Annual Report onForm 10-K with the Securities and Exchange Commission (“SEC”) (or, if no such report is required to be filed, within 15 days of the delivery of the independent auditor’s opinion of the Company’s annual financial statements). At December 31, 2007, the Company had preliminarily determined that $8.8 was owed to the VEBAs under this arrangement which was recorded in Other accrued liabilities in the Company’s consolidated balance sheet and a corresponding increase in Net assets in respect of VEBAs. In March 2008, $8.4 was paid to the VEBAs based on the final calculation of the amount owed under the agreement and the remaining $.4 of the accrual at the end of December 31, 2007 was released with a corresponding reduction in Net assets in respect of VEBAs.

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Components of Net Periodic Benefit Cost and Cash Flow and Charges. The following tables present the components of net periodic pension benefits cost for the quarters ended March 31, 2008 and 2007:

Quarter Ended
Quarter Ended

March 31,
March 31,

2008 2007

VEBAs:
Service cost $ .4 $ .4
Interest cost 4.3 3.9
Expected return on plan assets (5.2 ) (4.9 )
Amortization of prior service cost .2 —
Amortization of net loss .1 —

(.2 ) (.6 )
Defined contributions plans 3.2 2.9

$ 3.0 $ 2.3

The following tables present the allocation of these charges:

Quarter Ended
Quarter Ended

March 31,
March 31,

2008 2007

Fabricated Products segment $ 2.7 $ 1.9
Corporate and Other segment .3 .4

$ 3.0 $ 2.3

For all periods presented, substantially all of the Fabricated Products segment’s related charges are in Cost of products sold excluding depreciation with the balance being in Selling, administrative, research and development and general expense.
See Note 10 of Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form10-K for the year ended December 31, 2007 for key assumptions with respect to the Company’s pension plans and key assumptions made in computing the net obligations of each VEBA.
10. Employee Incentive Plans

General. Upon the Company’s emergence from chapter 11 bankruptcy, the 2006 Equity and Performance Incentive Plan ~~(the~~(as amended, the “Equity Incentive Plan”) became effective. Officers and other key employees of the Company or one or more of its subsidiaries, as well as directors of the Company, are eligible to participate in the Equity Incentive Plan. The Equity Incentive Plan permits the granting of awards in the form of options to purchase common shares, stock appreciation rights, shares of non-vested and vested stock, restricted stock units, performance shares, performance units and other awards. The Equity Incentive Plan will expire on July 6, 2016. No grants will be made after that date, but all grants made on or prior to that date will continue in effect thereafter subject to the terms thereof and of the Equity Incentive Plan. The Company’s Board of Directors may, in its discretion, terminate the Equity Incentive Plan at any time. The termination of the Equity Incentive Plan will not affect the rights of participants or their successors under any awards outstanding and not exercised in full on the date of termination.

Subject to certain adjustments that may be required from time to time to prevent dilution or enlargement of the rights of participants under the Equity Incentive Plan, upon its effectiveness 2,222,222 common shares were reserved for issuance under the Equity Incentive Plan.
Compensation charges related to the Equity Incentive Plan for the quarter ended September 30, 2007, were $2.3, of which $2.2 related to vested and non-vested common shares and restricted stock units and $.1 related to stock options. During the nine month period ended September 30, 2007, compensation charges related to the Equity Incentive Plan were $6.8, of which $6.6 related to vested and non-vested common shares and restricted stock units and $.2 related to stock options. Compensation charges related to the Equity Incentive Plan for the quarter and nine month period ended September 30, 2006, were $2.3 all of which related to vested and non-vested common shares. The total charges for all periods were included in Selling, administrative, research and development and general expense.

1519

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Compensation charges, all of which are included in Selling, administrative, research and development and general expenses, related to the Equity Incentive Plan for the quarters ended March 31, 2008 and 2007 were as follows:

Quarter Ended
Quarter Ended

March 31,
March 31,

2008 2007

Service-based non-vested common shares and restricted stock units $ 2.2 $ 2.0
Performance shares .2 —
Service-based stock options .1 —

Total compensation charge $ 2.5 $ 2.0

At ~~September 30, 2007, 1,603,649~~March 31, 2008, 1,467,661 common shares were available for additional awards under the Equity Incentive Plan.

Non-vested Common Shares, ~~and~~ Restricted Stock ~~Units.~~Units and Performance Shares. In ~~April 2007,~~March 2008, the Company ~~issued 54,381~~granted 39,354 non-vested common shares, ~~and granted 1,260~~702 restricted stock units and 96,480 performance shares to executive officers and other key ~~employees.~~ employees under the 2008 — 2010 LTI Program.
The non-vested common shares ~~and the restricted stock units~~ are subject to a three year vesting requirement that lapses on ~~April~~March 3, ~~2010.~~2011. The total fair value of the shares issued, after assuming a 5% forfeiture rate, of ~~$4.1~~$2.8 is being amortized to expense over a three year period on a ratable basis.
The restricted stock units have rights similar to the rights of non-vested common shares and the employee will receive one common share for each restricted stock unit upon the vesting of the restricted stock unit. The restricted stock units vest one third on the first anniversary of the grant date and one third on each of the second and third anniversaries of the date of issuance. The fair value of the restricted stock units issued, after assuming a 5% forfeiture rate, ~~of $.1~~ is being amortized to expense over the vesting period on a ratable basis.

~~In June 2007, the Company granted 7,281 non-vested common shares to its non-employee directors.~~ The performance shares are subject to performance requirements pertaining to the Company’s average annual EVA measured over a ~~one~~three year ~~vesting requirement~~period, 2008 through 2010. EVA is a measure of the Company’s pretax operating income for a particular year over a pre-determined percentage of net assets of the immediately preceding year, as defined in the 2008 — 2010 LTI Program. The number of performance shares, if any, that ~~lapses~~will ultimately vest and result in the issuance of common shares in 2011 will depend on ~~June 6, 2008.~~the average annual EVA achieved for the three year performance period. The Company accounts for these awards at fair value in accordance with SFAS No. 123R. The total fair value to be recognized as compensation expense has been estimated based on the most probable outcome of the ~~shares granted~~performance condition which is evaluated quarterly using the Company’s plan and actual results. Based on the Company’s best estimate, the total fair value to be recognized as compensation expense, after assuming an estimated forfeiture rate of ~~$.5~~5%, of $6.9 is being amortized to expense over ~~a one year~~the requisite service period of three years on a ratable basis. ~~An additional 3,877 common shares~~
No awards were ~~issued to non-employee directors electing to receive common shares in lieu~~granted under the Equity Incentive Plan during the quarter ended March 31, 2007. There was no vesting of ~~all or a portion of their annual retainer fee. The fair value of~~any awards during the ~~shares of $.3, based on the fair value of the shares at date of issuance, was recognized in earnings in the nine months~~quarter ended ~~September 30, 2007 as a period expense.~~March 31, 2007.

20

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The fair value of the non-vested common shares, ~~and~~ restricted stock units isand performance shares was determined based on the closing trading price of the common shares on the grant date. A summary of the activity with respect to non-vested common shares and restricted stock units for the quarter ~~and nine month periods~~ ended ~~September 30, 2007~~March 31, 2008 is as follows:


	Non-Vested					Restricted				Non-Vested				Restricted
	Common Shares					Stock Units				Common Shares				Stock Units
				Weighted-				Weighed-				Weighted-				Weighed-
				Average				Average				Average				Average
				Grant-Date				Grant-Date				Grant-Date				Grant-Date
	Shares			Fair Value		Units		Fair Value				Fair Value				Fair Value
	Shares			per Share		Units		per Unit
Quarter —
Outstanding at July 1, 2007		569,841		$	46.21		4,959	$	66.58

Outstanding at January 1, 2008											549,071	$	46.36		3,727	$	68.09
Granted		—			—		—		—		39,354		74.82		702		74.82
Vested		(16,641	)		42.32		—		—		—		—		—		—
Forfeited		(1,966	)		57.30		—		—		—		—		—		—

Outstanding at September 30, 2007		551,234		$	46.29		4,959	$	66.58
Outstanding at March 31, 2008											588,425	$	48.26		4,429	$	69.16

Nine Month Period —
Outstanding at January 1, 2007		521,387		$	42.20		3,699	$	62.00
Granted		61,662			79.31		1,260		80.01
Vested		(29,093	)		42.26		—		—
Forfeited		(2,722	)		53.10		—		—

Outstanding at September 30, 2007		551,234		$	46.29		4,959	$	66.58

A summary of the activity with respect to the performance shares for the quarter ended March 31, 2008 is as follows:

Performance Shares
Weighted-

Average

Grant-Date

Fair Value

Shares per Share

Outstanding at January 1, 2008 — $ —
Granted 96,480 74.82
Vested — —
Forfeited — —

Outstanding at March 31, 2008 96,480 $ 74.82

Under the Equity Incentive Plan, the Company allows participants to elect to have the Company withhold common shares to satisfy ~~minimum~~ statutory tax withholding obligations arising ~~on the vesting of~~in connection with non-vested shares, restricted stock units, stock options and ~~stock options.~~performance shares. When the Company withholds the shares, it is required to remit to the appropriate taxing authorities the fair value of the shares ~~withheld.~~withheld and such shares are cancelled immediately. During the quarter ~~and nine months~~ ended ~~September 30, 2007, 3,302 and 7,164 shares, respectively, (which are included in vested shares in the above tables)~~March 31, 2008, there were ~~withheld upon the vesting of common shares. The fair value of the~~no common shares withheld ~~of $.3 and $.6 have~~

16

~~KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES~~

~~NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~been charged to Treasury stock in the quarter and nine months ended September 30, 2007, respectively, as such shares were purchased by the Company and not cancelled at September 30, 2007.~~for statutory tax withholding.

As of ~~September 30, 2007,~~March 31, 2008, there was ~~$15.7~~$14.6 of unrecognized compensation cost related to the non-vested common shares and the restricted stock ~~units. That~~units and $6.7 of unrecognized compensation cost related to the performance shares. The cost related to the non-vested common shares and the restricted stock units is expected to be recognized over a weighted-average period of ~~1.8~~1.7 years and the cost related to the performance shares is expected to be recognized over a weighted-average period of 2.9 years.

Stock Options. OnAs of March 31, 2008, the Company had 25,137 outstanding options, which were granted on April 3, 2007, ~~the Company granted options to purchase 25,137 of its common shares to executive officers~~for executives and other key employees to purchase its common shares with a contractual life of ten years. The weighted average fair value of the options granted was $39.90. No new options were granted during the quarter ended March 31, 2008.

The fair value of each of the Company’s stock option awards iswas estimated on the date of grant using aBlack-Scholes option-pricing model that uses the assumptions noted in the table below. The fair value of the Company’s stock option awards, which are subject to graded vesting, is expensed on a straight line basis over the

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

vesting period of the stock options. Due to the Company’s short trading history for its common shares ~~since~~following emergence from chapter 11 bankruptcy on July 6, 2006, expected volatility could not be reliably calculated based on the historical volatility of the common shares. As such, the Company ~~has~~ determined volatility for use in the Black-Sholes option-pricing model using the volatility of the stock of a number of similar public companies over a period equal to the expected option life of six years. The risk-free rate for periods within the contractual life of the stock option award is based on the yield curve of a zero-coupon US Treasury bond on the date the stock option is awarded. The Company uses historical data to estimate employee terminations and the simplified method to estimate the expected option life within the valuation model.

The significant weighted average assumptions used in determining the grant date fair value of the option awards granted on April 3, 2007 were as follows:


Dividend yield	—	%
Volatility rate	45	%
Risk-free interest rate	4.59	%
Expected option life (years)	6.0

~~Prior to April 3, 2007, the Company had no outstanding options to purchase common shares.~~ A summary of the Company’s stock option activity for the ~~nine months~~quarter ended ~~September 30, 2007~~March 31, 2008 is as follows:

Weighted-

Average

Weighted-
Remaining
Aggregate

Average
Contractual
Intrinsic

Number of
Exercise
Life
Value

Shares Price (In years) (In millions)

Outstanding at April 1, 2007 — $ —
Grants 25,137 80.01
Forfeited — —
Exercise — —

Outstanding at September 30, 2007 25,137 $ 80.01 9.50 $ —

Expected to vest at September 30, 2007 (assuming a 5% forfeiture rate) 23,880 $ 80.01 9.50 $ —

Exercisable at September 30, 2007 — $ — — $ —

Weighted-
Weighted-

Average
Average

Exercise
Remaining
Aggregate

Number of
Price per
Contractual
Intrinsic

Options Share Life Value
(In years) (In millions)

Outstanding at January 1, 2008 25,137 $ 80.01
Grants — —
Forfeited — —
Exercise — —

Outstanding at March 31, 2008 25,137 $ 80.01 9.00 $ —

Expected to vest at March 31, 2008 (assuming a 5% forfeiture rate) 23,880 $ 80.01 9.00 $ —

Exercisable at March 31, 2008 — $ — — $ —

~~The weighted average fair value of the options granted during the nine months ended September 30, 2007 was $39.90.~~ At ~~September 30, 2007,~~March 31, 2008, there was ~~$0.8~~$.6 of unrecognized compensation expense related to stock options. The expense is expected to be recognized over a weighted-average period of ~~2.5~~2.0 years.

17

~~KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES~~

~~NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~


	•	~~VEBA Update~~

Under the Plan, the Union VEBA had rights to receive 11,439,900 common shares upon the Company’s emergence from chapter 11 bankruptcy. However, prior to the Company’s emergence, the Union VEBA sold its rights to approximately 2,630,000 shares and received net proceeds of approximately $81.

During the first quarter of 2007, 6,281,180 common shares were sold to the public by existing stockholders pursuant to a registered offering. The Company did not sell any shares in, and did not receive any proceeds from, the offering. The Union VEBA was one of the selling stockholders and, after the offering, now owns approximately 26.6% of the outstanding common shares as of September 30, 2007. Of the 3,337,235 shares sold by the Union VEBA in the offering, 819,280 common shares were unable to be sold without the Company’s approval under an agreement restricting the Union VEBA’s ability to sell or otherwise transfer its common shares. However, during the first quarter of 2007, the Union VEBA received approval from the Company to include such shares in the offering.

The 819,280 previously restricted shares were treated as a reduction of Stockholders’ equity (at the $24.02 per share reorganization value) in the December 31, 2006 balance sheet. As a result of the relief of the restrictions, during the first quarter of 2007: (i) the value of the 819,280 shares previously restricted was added to VEBA assets at the approximate $58.19 per share price realized by the Union VEBA in the offering (totaling $47.7); (ii) approximately $19.7 of the December 31, 2006 reduction in Stockholders’ equity associated with the restricted shares (common shares owned by Union VEBA subject to restrictions) was reversed and (iii) the difference between the two amounts (approximately $23, net of income taxes of $5) was credited to Additional capital.

In September 2007, the Board of Directors approved a request by the Union VEBA to sell up to an additional 627,200 restricted shares subject to certain conditions which were fulfilled in October 2007. As such, during October 2007 the restrictions on the 627,200 shares were relieved and the Company will account for this in the fourth quarter in a manner consistent with the treatment of the 819,280 previously restricted shares discussed above.

The Company’s VEBA obligation is an annual variable cash contribution. The annual contribution to the Union VEBA and another VEBA for the benefit of salaried retirees (collectively, the “VEBAs”) will be 10% of the first $20.0 of annual cash flow (as defined; in general terms, the principal elements of cash flow are earnings before interest expense, provision for income taxes and depreciation and amortization less cash payments for, among other things, interest, income taxes and capital expenditures), plus 20% of annual cash flow, as defined, in excess of $20.0. Such annual payments may not exceed $20.0 and are limited (with no carryover to future years) to the extent that the payments would cause the Company’s liquidity to be less than $50.0. Such amounts are determined on an annual basis and payable no later than 15 days following the date of filing of the Company’s Annual Report on~~Form 10-K.~~ During the reorganization process, $49.7 of contributions were made to the VEBAs, of which $12.7 was available at December 31, 2006 to reduce post emergence payments that become due pursuant to the annual variable cash contribution obligation. The $12.7 carryforward amount was reduced by $1.9, the amount of contribution obligation for the period from July 1, 2006 to December 31, 2006, leaving approximately $10.8 available at September 30, 2007 to reduce future annual variable cash payments.

Future payments of annual variable contributions will first be applied to reduce any individual VEBA obligations recorded in the Company’s balance sheet at that time. Any remaining amount of annual variable contributions in excess of recorded obligations will be recorded as a VEBA asset in the balance sheet. No accounting recognition has been accorded at this time to the $10.8 of remaining excess pre-emergence VEBA contributions available at September 30, 2007 to reduce future annual variable cash payments.

~~KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES~~

~~NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~The following tables present the allocation of these charges:~~

Quarter Ended

September 30,

2006
Period from

July 1,

2006

through
Predecessor

Quarter Ended
September 30,
July 1,

September 30, 2007 2006 2006
Fabricated Products segment $ 2.1 $ 1.8 $ —
Corporate and Other segment (.4 ) .4 —

$ 1.7 $ 2.2 $ —

Nine Months Ended

September 30,

2006
Period from
Predecessor

July 1,
Period from

2006
January 1,

through
2006

Nine Months Ended
September 30,
to July 1,

September 30, 2007 2006 2006
Fabricated Products segment $ 6.7 $ 1.8 $ 4.5
Corporate and Other segment (1.2 ) .4 .4

$ 5.5 $ 2.2 $ 4.9

For all periods presented, substantially all of the Fabricated Products segment’s related charges are in Cost of products sold with the balance being in Selling, administrative, research and development and general expense.
~~See Note 7 of Notes to Consolidated Financial Statements included in the Company’s Annual Report onForm 10-K~~ ~~for the year ended December 31, 2006 for key assumptions with respect to the Company’s pension plans and key assumptions made in computing the net obligations of each VEBA.~~

~~10.~~11.   Commitments and Contingencies

Commitments.  The Company and its subsidiaries have a variety of financial commitments, including purchase agreements, forward foreign exchange and forward sales contracts (see Note ~~11)~~12), letters of credit and guarantees. ~~They~~The Company and its subsidiaries also have agreements to supply alumina to and to purchase aluminum from Anglesey (see Note 3). ~~During the third quarter of 2005, August 2006 and June 2007, orders were placed for certain equipmentand/or~~ services intended to augment the heat treat and aerospace capabilities at the Company’s Trentwood facility in Spokane, Washington. The Company expects the total costs for such equipment and services to be approximately $139. Approximately $100.6 of such costs were incurred from inception of the Trentwood project through the end of third quarter of 2007. The balance is expected to be incurred primarily during the remainder of 2007 and 2008.

Minimum rental commitments under operating leases at December 31, ~~2006, were~~2007, are as follows: years ending December 31, ~~2007 — $3.0;~~ 2008 — ~~$2.4;~~$3.8; 2009 — ~~$2.1;~~$3.5; 2010 — ~~$1.0;~~$2.0; 2011 — ~~$.7;~~$.9 and 2012 and thereafter — ~~$.1.~~$.5.

Environmental Contingencies.  The Company and its subsidiaries are subject to a number of environmental laws, to fines or penalties assessed for alleged breaches of the environmental laws, and to claims based upon such laws.

A substantial portion of the Company’s pre-emergence obligations, primarily in respect of non-owned locations, was resolved by the chapter 11 proceedings. Based on the Company’s evaluation of the remaining ~~environmental matters, the Company has environmental accruals totaling $7.9 at September 30, 2007. Such~~

2022

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

environmental matters, the Company had environmental accruals totaling $7.7 at March 31, 2008. Such amounts are primarily related to potential solid waste disposal and soil and groundwater remediation matters. These environmental accruals represent the Company’s estimate of costs reasonably expected to be incurred based on presently enacted laws and regulations, currently available facts, existing technology, and the Company’s assessment of the likely remediation action to be taken. The Company expects that these remediation actions will be taken over the next several years and estimates that expenditures to be charged to these environmental accruals will be approximately ~~$.6 in the last quarter of 2007, $2.0~~$1.7 in 2008, ~~$1.7~~$1.3 in 2009, ~~$2.5~~$1.0 in 2010 ~~and $1.1~~, $.9 in 2011 and $2.9 in 2012 and thereafter.

As additional facts are developed and definitive remediation plans and necessary regulatory approvals for implementation of remediation are established or alternative technologies are developed, changes in these and other factors may result in actual costs exceeding the current environmental accruals. The Company believes that it is reasonably possible that costs associated with these environmental matters may exceed current accruals by amounts that could be, in the aggregate, up to an estimated ~~$15.8.~~$15.6. As the resolution of these matters is subject to further regulatory review and approval, no specific assurance can be given as to when the factors upon which a substantial portion of this estimate is based can be expected to be resolved. However, the Company is currently working to resolve certain of these matters.

Other Contingencies. The Company and its subsidiaries are involved in various other claims, lawsuits, and proceedings relating to a wide variety of matters related to past or present operations. While uncertainties are inherent in the final outcome of such matters and it is presently impossible to determine the actual costs that ultimately may be incurred, management currently believes that the resolution of such uncertainties and the incurrence of such costs should not have a material adverse effect on the Company’s consolidated financial position, results of operations, or liquidity.

~~Commitment and contingencies of the Predecessor are discussed in Note 18.~~


~~11.~~12.	Derivative Financial Instruments and Related Hedging Programs

In conducting its business, the Company uses various instruments, including forward contracts and options, to manage the risks arising from fluctuations in aluminum prices, energy prices and exchange rates. The Company has historically entered into derivative transactions from time to time to limit its economic (i.e. cash) exposure resulting from (1) its anticipated sales of primary aluminum and fabricated aluminum products, net of expected purchase costs for items that fluctuate with aluminum prices, (2) the energy price risk from fluctuating prices for natural gas used in its production process, and (3) foreign currency requirements with respect to its cash commitments for equipment purchases and with foreign subsidiaries and its affiliate. As the Company’s hedging activities are generally designed to lock-in a specified price or range of prices, realized gains or losses on the derivative contracts utilized in the hedging activities (excluding the impact of mark-to-market fluctuations on those contracts discussed below) generally offset at least a portion of any losses or gains, respectively, on the transactions being ~~hedged.~~hedged at the time the transaction occurs. However, due to mark-to-market accounting, during the life of the derivative contract, significant unrealized, non-cash, gains and losses may be recorded in the income statement as a reduction or increase in Cost of products sold excluding depreciation.

The Company’s share of primary aluminum production from Anglesey is approximately ~~150,000,000~~150 million pounds annually. Because the Company purchases alumina for Anglesey at prices linked to primary aluminum prices, only a portion of the Company’s net revenues associated with Anglesey are exposed to price risk. The Company estimates the net portion of its share of Anglesey production exposed to primary aluminum price risk to be approximately ~~100,000,000~~100 million pounds annually (before considering income tax effects).

The Company’s pricing of fabricated aluminum products is generally intended to lock-in a conversion margin (representing the value added from the fabrication process(es)) and to pass metal price risk on to its customers. However, in certain instances the Company does enter into firm price arrangements. In such instances, the Company does have price risk on its anticipated primary aluminum purchase in respect of the customer’s order. Total fabricated products shipments during the ~~nine months~~quarters ended ~~September 30,~~March 31, 2008 and 2007 ~~the period from January 1, 2006 to July 1, 2006 and the period from July 1, 2006 through September 30, 2006~~ that contained fixed price terms were (in millions of pounds) ~~155.1, 103.9~~60.4 and ~~49.1,~~49.2, respectively.

2123

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

During the last three years, the volume of fabricated products shipments with underlying primary aluminum price risk were at least as much as the Company’s net exposure to primary aluminum price risk at Anglesey. As such, the Company considers its access to Anglesey production overall to be a “natural” hedge against fabricated products firm metal-price risks. However, since the volume of fabricated products shipped under firm prices may not match up on a month-to-month basis with expected Anglesey-related primary aluminum shipments and to the extent that firm price contracts from the Company’s Fabricated Products segment exceed the Anglesey related primary aluminum shipments, the Company may use third party hedging instruments to eliminate any net remaining primary aluminum price exposure existing at any time.

At ~~September 30, 2007,~~March 31, 2008, the ~~fabricated products~~Fabricated Products business held contracts for the delivery of fabricated aluminum products that have the effect of creating price risk on anticipated purchases of primary aluminum during the last ~~quarter~~three quarters of ~~2007~~2008 and for the period ~~2008~~2009 through ~~2011~~2012 totaling approximately (in millions of pounds): ~~2007 — 88,~~ 2008 — ~~139,~~161.2, 2009 — ~~88,~~90.8, 2010 — ~~86 and~~87.5, 2011 — ~~77.~~78.3 and 2012 — 8.9.

The following table summarizes the Company’s material derivative positions at ~~September 30, 2007:~~March 31, 2008:

Notional

Amount of

Carrying/

Amount of

Contracts

Market

Contracts

Fair

Commodity

Period

(mmlbs)

Value

Period

(mmlbs)

Value

Aluminum —

Option purchase contracts

1/11 through 12/11

48.9

9.4

1/2011 through 12/2011

48.9

21.1

Fixed priced purchase contracts

10/07 through 12/12

191.4

8.6

4/2008 through 12/2012

180.6

44.3

Fixed priced sales contracts

10/07 through 12/09

78.0

(4.0

)

4/2008 through 12/2009

136.4

(13.3

)

Regional premium swap contracts(a)

4/2008 through 12/2011

291.0

(.2

)

Notional

Amount of

Carrying/

Amount of

Contracts

Market

Contracts

Fair

Foreign Currency

Period

(mm)

Value

Period

(mm)

Value

Pounds Sterling —

Option sales contracts

10/07 through 12/07

10.5

—

Fixed priced purchase contracts

10/07 through 12/07

10.5

3.1

4/2008 through 9/2009

£ 63

Euro Dollars —

Fixed priced purchase contracts

10/07 through 1/08

€

3.9

4/2008 through 7/2009

€ 7

Notional

Amount of

Carrying/

Amount of

Contracts

Market

Contracts

Fair

Energy

Period

(mmbtu)

Value

Period

(mmbtu)

Value

Natural gas —

Fixed priced purchase contracts~~(a)~~(b)

10/07 through 3/08

1,340,000

(.7

)

4/2008 through 3/2009

790,000


(a)		Regional premiums represent the premium over the London Metal Exchange price for primary aluminum which are incurred on the Company’s purchases of primary aluminum.

(b)		As of ~~September 30, 2007,~~March 31, 2008, the Company’s exposure to increases in natural gas prices had been substantially limited for approximately ~~81%~~41% of the natural gas purchases for April 2008 through June 2008, approximately 16% of the natural gas purchases for July 2008 through September 2008, approximately 12% of natural gas purchases for October ~~2007~~2008 through December ~~2007~~2008 and approximately ~~46%~~6% of natural gas purchases for January ~~2008~~2009 through March ~~2008.~~2009.

The Company currently reflects changes in the market value of its derivative instruments in Net income (rather than deferring such gains/losses to the date of the underlying transactions to which the related hedges occur). Included in Net income for the quarter ~~and nine month periods~~ ended ~~September 30, 2007~~March 31, 2008 were realized ~~losses~~gains of ~~$2.8 and $1.1, respectively,~~$2.4 and unrealized gains of $4.7 and $5.2, respectively. Included in Net income for the period from July 1, 2006 to September 30, 2006 and the nine month period ended September 30, 2006 were realized losses of $3.1 and $.1, respectively, and unrealized gains (losses) of $(.6) and $5.5, respectively.

~~KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES~~

~~NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~


~~12.~~	~~Other Operating Benefits (Charges), Net~~

~~Other operating benefits (charges), net, for the quarter and nine month periods ended September 30, 2007 and 2006, was as follows:~~

Quarter Ended

September 30,

2006
Period from

July 1,

2006

Quarter Ended
through
Predecessor

September 30,
September 30,
July 1,

2007 2006 2006
Resolution of contingencies relating to sale of property prior to emergence — Corporate (see below) $ 1.6 $ — $ —
Resolution of a “pre-emergence” contingency — Corporate (see below) — 3.0 —
Post-emergencechapter 11- related items — Corporate (see below)
(.5 ) — —
Other .3 (.1 ) —

$ 1.4 $ 2.9 $ —

Nine Months Ended

September 30,

2006
Period from
Predecessor

July 1,
Period from

2006
January 1,

through
2006

Nine Months Ended
September 30,
to July 1,

September 30, 2007 2006 2006
Reimbursement of amounts paid in connection with sale of Company’s interests in and related to QAL-Corporate:
AMT (Note 8) $ 7.2 $ — $ —
Professional fees 1.1 — —
Resolution of a “pre-emergence” contingency — Corporate — 3.0 —
Pension Benefit Guaranty Corporation (“PBGC”) settlement — Corporate (see below) 1.3 — —
Non-cash benefit resulting from settlement of a $5 claim by the purchaser of the Gramercy, Louisiana alumina refinery and Kaiser Jamaica Bauxite Company for payment of $.1 — Corporate 4.9 — —
Resolution of contingencies relating to sale of property prior to emergence — Corporate (see below) 1.6 — —
Post-emergencechapter 11- related items — Corporate (see below)
(2.5 ) — —
Other .1 (.1 ) (.9 )

$ 13.7 $ 2.9 $ (.9 )

23

~~KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES~~

~~NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

During the quarter ended September 30, 2007, certain contingencies related to the sale of the Predecessor’s interest in a smelter in Tacoma, Washington were resolved with the buyer. As a result, approximately $1.6 of the sale proceeds which had been placed into escrow at the time of sale, were released to the Company. At the Effective Date, no value had been ascribed to the funds in escrow as they were deemed to be contingent assets at that time.

The PBGC proceeds consist of a payment related to a settlement agreement entered into with the PBGC in connection with the Company’s chapter 11 reorganization (see Note 8 of Notes to Consolidated Financial Statements included in the Company’s Annual Report on~~Form 10-K~~ ~~for the year ended December 31, 2006 for additional information regarding the PBGC agreement).~~

~~Post-emergencechapter 11-related~~ ~~items include primarily professional fees and expenses incurred after emergence which related directly to the Company’s reorganization.~~


~~13.~~	~~Earnings Per Share~~

~~Basic and diluted earnings per share for the quarters ended September 30, 2007 and 2006 and nine month period ended September 30, 2007 were calculated as follows:~~

Nine Months

Ended

Quarter Ended September 30, September 30,

2007 2006 2007

Numerator:
Net Income $ 24.8 $ 14.3 $ 76.6

Denominator:
Weighted average common shares outstanding 20,026 20,002 20,010
Effect of dilutive securities:
Non-vested common shares and restricted stock units 300 27 281

Weighted average common shares outstanding, assuming full dilution 20,326 20,029 20,291

Earnings per share:
Basic $ 1.24 $ .72 $ 3.83
Diluted $ 1.22 $ .72 $ 3.77
Options to purchase 25,137 common shares at an average exercise price of $80.01 were outstanding at September 30, 2007. At September 30, 2007, 556,193 non-vested common shares and restricted stock units were outstanding. Diluted income per share reflects the potential dilutive effect of options to purchase common shares and non-vested common shares and restricted stock units using the treasury stock method. Options to purchase 25,137 common shares for the quarter and nine month periods ended September 30, 2007 were excluded from the weighted average diluted shares computation because their inclusion would have been anti-dilutive. Additionally, for the quarters ended September 30, 2007 and 2006 and the nine month period ended September 30, 2007, 256,147, 495,016 and 274,990 non-vested common shares and restricted stock units were excluded from the average share computation, respectively, because their inclusion would be anti-dilutive.
On June 27, 2007, the Company’s Board of Directors declared an initial quarterly cash dividend of $.18 per share. The dividend (approximately $3.7) was paid in August to stockholders of record at the close of business on July 27, 2007.
On September 12, 2007, the Company’s Board of Directors declared a second quarterly cash dividend of $.18 per share. The dividend (approximately $3.7) will be payable on November 16, 2007 to stockholders of record at the close of business on October 26, 2007.

24

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

$32.9. Included in Net income for the quarter ended March 31, 2007 were realized losses of $1.9 and unrealized losses of $1.4.

13. Other Operating Charges, Net

Other operating charges, net, for the quarters ended March 31, 2008 and 2007, were as follows:

Quarter Ended
Quarter Ended

March 31,
March 31,

2008 2007

Non-cash benefit resulting from settlement of a $5.0 claim by purchaser of the Gramercy, Louisiana alumina refinery and the Company’s interest in Kaiser Jamaica Bauxite Company for payment of $.1 — Corporate $ — $ (4.9 )
Post-emergencechapter 11-related items — Corporate (see below)
.1 1.8
Non-cash charge resulting from Anglesey’s adjustment to increase CARO liability — Primary Aluminum (Note 4) — 2.8
Non-cash charge related to additional share based compensation recorded by Anglesey — Primary Aluminum (Note 3) — 1.7
Other — (.2 )

$ .1 $ 1.2

Post-emergencechapter 11-related items include primarily professional fees and expenses incurred after emergence which related directly to the Company’s reorganization.
14. Earnings Per Share
Basic and diluted earnings per share for the quarters ended March 31, 2008 and 2007 were calculated as follows:

Quarter Ended
Quarter Ended

March 31,
March 31,

2008 2007

Numerator:
Net Income $ 39.1 $ 17.1

Denominator:
Weighted average common shares outstanding 20,032 20,005
Effect of dilutive securities:
Non-vested common shares and restricted stock units 365 199

Weighted average common shares outstanding, assuming full dilution 20,397 20,204

Earnings per share:
Basic $ 1.95 $ .86
Diluted $ 1.92 $ .85
Options to purchase 25,137 common shares at an average exercise price per share of $80.01 were outstanding at March 31, 2008. 592,854 and 523,968 non-vested common shares and restricted stock units were outstanding at March 31, 2008 and 2007, respectively. 96,480 performance shares were outstanding at March 31, 2008. Diluted income per share reflects the potential dilutive effect of options to purchase common shares, non-vested common shares, restricted stock units and performance shares using the treasury stock method.

25

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following were excluded from the weighted average diluted shares computation for the quarters ended March 31, 2008 and 2007 as their inclusion would have been anti-dilutive:

Quarter Ended
Quarter Ended

March 31,
March 31,

2008 2007

Options to purchase common shares(1) 25,137 —
Non-vested common shares and restricted stock units 227,765 324,284

Total excluded 252,902 324,284

(1) No options were outstanding at March 31, 2007.
Also excluded from the weighted average diluted shares computation for the quarter ended March 31, 2008 were 96,480 performance shares as the performance shares were contingently issuable based on the Company’s performance over a three year period ending December 31, 2010 and the contingency was not met as of March 31, 2008.
On March 11, 2008, the Company’s Board of Directors declared a dividend of $3.7, or $.18 per common share, to stockholders of record at the close of business on April 25, 2008, which is payable on May 16, 2008. In addition, holders of restricted stock units as of April 25, 2008 have the right to receive a dividend equivalent of $.18 per underlying common share and the holders of performance shares as of April 25, 2008 have the right to received a dividend equivalent of $.18 per underlying common share with respect to one half of the performance shares.
15. Segment and Geographical Area Information

The Company’s primary line of business is the production of fabricated aluminum products. In addition, the Company owns a 49% interest in Anglesey (see Note 3).

The Company’s continuing operations are organized and managed by product type and include two operating segments of the aluminum industry and the ~~corporate~~Corporate segment. The aluminum industry segments include: Fabricated Products and Primary Aluminum. The Fabricated Products segment sells value-added products such as heat treat aluminum sheet and plate, extrusions and forgings which are used in a wide range of industrial applications, including for automotive, aerospace and general engineering end-use applications. The Primary Aluminum segment produces, through its investment in Anglesey, commodity grade products as well as value-added products such as ingot and billet, for which the Company receives a premium over normal commodity market prices and conducts hedging activities in respect of the Company’s exposure to primary aluminum price risk. The accounting policies of the segments are the same as those described in Note 1 of Notes to Consolidated Financial Statements included in the Company’s Annual Report onForm 10-K for the year ended December 31, ~~2006. Business unit~~2007. Segment results are evaluated internally by management before any allocation of corporate overhead and without any charge for income taxes, interest expense or Other operating ~~benefits (charges),~~charges, net.
~~Financial information by operating segment, excluding discontinued operations, for the quarters and nine month periods ended September 30, 2007 and 2006 is as follows:~~

Three Months Ended September 30, Nine Months Ended September 30,
Period from
Period from
Predecessor

July 1,
July 1,
Period from

Quarter
2006
Nine Months
2006
January 1,

Ended
through
Predecessor
Ended
through
2006

September 30,
September 30,
Period July 1,
September 30,
September 30,
to July 1,

2007 2006 2006 2007 2006 2006
Net Sales:
Fabricated Products $ 316.2 $ 281.6 $ — $ 985.3 $ 281.6 $ 590.9
Primary Aluminum 50.5 49.8 — 158.7 49.8 98.9

$ 366.7 $ 331.4 $ — $ 1,144.0 $ 331.4 $ 689.8

Segment Operating Income (Loss):
Fabricated Products(1) $ 39.8 $ 29.1 $ — $ 129.3 $ 29.1 $ 61.2
Primary Aluminum 13.4 2.8 — 31.8 2.8 12.4
Corporate and Other (10.6 ) (13.1 ) — (35.8 ) (13.1 ) (20.3 )
Other operating benefits (charges), net —
Note 12 1.4 2.9 — 13.7 2.9 (.9 )

$ 44.0 $ 21.7 $ — $ 139.0 $ 21.7 $ 52.4

~~(1)~~ Operating results for the quarter and nine month periods ended September 30, 2007 include a LIFO inventory benefit of $10.2 and $8.2, respectively. Operating results for period from July 1, 2006 to September 30, 2006 and the nine month period ended September 30, 2006 include a LIFO inventory benefit (charge) of $3.3 and ($18.4).

25

~~KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES~~

~~NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

Three Months Ended September 30, Nine Months Ended September 30,
Period from
Period from
Predecessor

July 1,
July 1,
Period from

Quarter
2006
Predecessor
Nine Months
2006
January 1,

Ended
through
Period
Ended
through
2006

September 30,
September 30,
July 1,
September 30,
September 30,
to July 1,

2007 2006 2006 2007 2006 2006
Depreciation and Amortization:
Fabricated Products $ 3.0 $ 2.7 $ — $ 8.2 $ 2.7 $ 9.7
Corporate and Other — .1 — .1 .1 .1

$ 3.0 $ 2.8 $ — $ 8.3 $ 2.8 $ 9.8

Three Months Ended September 30, Nine Months Ended September 30,
Period from
Period from
Predecessor

July 1,
July 1,
Period from

Quarter
2006
Nine Months
2006
January 1,

Ended
through
Predecessor
Ended
through
2006

September 30,
September 30,
Period July 1,
September 30,
September 30,
to July 1,

2007 2006 2006 2007 2006 2006
Income Taxes Paid:
Fabricated Products —
United States $ — $ — $ — $ (.1 ) $ — $ .2
Canada 1.0 .4 — 2.3 .4 1.0

$ 1.0 $ .4 $ — $ 2.2 $ .4 $ 1.2

September 30,
December 31,

2007 2006

Segment assets
Fabricated Products $ 478.9 $ 434.4
Primary Aluminum 94.7 87.8
Corporate and Other (including Cash and cash equivalents and Net assets in respect of VEBAs) 231.9 133.2

$ 805.5 $ 655.4

~~PREDECESSOR~~
~~15.~~ ~~Summary of Significant Accounting Policies~~
~~The accompanying consolidated financial statements of the Predecessor were prepared on a “going concern” basis in accordance withSOP 90-7,~~ and do not include the impacts of the Plan such as adjustments relating to recorded asset amounts, the resolution of liabilities subject to compromise, and the cancellation of the interests of the Company’s pre-emergence stockholders.
In most instances, but not all, the accounting policies of the Predecessor were the same or similar to those of the Successor. Where accounting policies differed or the Predecessor applied methodologies differently to its financial statement information than that which is used in preparing and presenting Successor financial statement information, discussion has been added to this Report in the appropriate section of the Successor notes.
26

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


~~16.~~	~~Reorganization Proceedings~~

~~Kaiser and 25 of its subsidiaries filed separate voluntary petitions in the United States Bankruptcy Court~~Financial information by operating segment for the ~~District of Delaware (the “Bankruptcy Court”) for reorganization under chapter 11 of the United States Bankruptcy Code; the Company~~quarters ended March 31, 2008 and 16 of its subsidiaries (the “Original Debtors”) filed in the first quarter of 2002 and nine additional subsidiaries (the “Additional Debtors”) filed in the first quarter of 2003. While in chapter 11, the Company and its subsidiaries continued to manage their businesses in the ordinary course as~~debtors-in-possession~~ subject to the control and administration of the Bankruptcy Court. The Original Debtors and the Additional Debtors are collectively referred to herein as the “Debtors.” For purposes of this Report, the term “Filing Date” means with respect to any Debtor, the date on which such Debtor filed its chapter 11 proceeding.

On February 6, 2006, the Bankruptcy Court entered an order (the “Confirmation Order”) confirming the Plan. On May 11, 2006, the United States District Court for the District of Delaware entered an order affirming the Confirmation Order and adopting the Bankruptcy Court’s findings of fact and conclusions of law regarding confirmation of the Plan. On July 6, 2006, the Plan became effective and was substantially consummated, whereupon the Company emerged from chapter 11.

~~See Notes 2 and 14 of Notes to Consolidated Financial Statements included in the Company’s Annual Report onForm 10-K~~ ~~for the year ended December 31, 2006 for additional information regarding reorganization proceedings.~~

Reorganization items are expense or income items that were incurred or realized by the Company because it was in reorganization. These items include, but are not limited to, professional fees and similar types of expenses incurred directly related to the reorganization proceedings, loss accruals or gains or losses resulting from activities of the reorganization process, and interest earned on cash accumulated by the Debtors because they were not paying their pre-Filing Date liabilities. For the year ended December 31, 2006, reorganization items were2007 is as follows:

Predecessor
July 1, 2006
Quarter
Quarter

through
Ended
Ended

December 31,
July 1,
June 30,
March 31,

2006 2006 2006 2006

Gain on plan implementation and fresh start $ — $ (3,110.3 ) $ — $ —
Professional fees — 5.0 9.2 7.0
Interest income — — (.7 ) (.7 )
Other — — .1 .1

$ — $ (3,105.3 ) $ 8.6 $ 6.4

Quarter Ended
Quarter Ended

March 31,
March 31,

2008 2007

Net Sales:
Fabricated Products $ 349.2 $ 338.0
Primary Aluminum 49.8 54.2

$ 399.0 $ 392.2

Segment Operating Income (Loss):
Fabricated Products(1) $ 40.0 $ 41.4
Primary Aluminum 40.6 4.2
Corporate and Other (12.4 ) (12.1 )
Other Operating Charges, Net — Note 13 (.1 ) (1.2 )

$ 68.1 $ 32.3

~~17.~~ (1) ~~Discontinued Operations~~ Operating results for the quarters ended March 31, 2008 and 2007 include LIFO inventory charges of $14.4 and $8.0, respectively.

Quarter Ended
Quarter Ended

March 31,
March 31,

2008 2007

Depreciation and Amortization:
Fabricated Products $ 3.5 $ 2.6

Capital expenditures, net of change in accounts payable:
Fabricated Products $ 15.0 $ 7.4
Corporate and Other — —

$ 15.0 $ 7.4

As part of the Company’s plan to divest certain of its commodity assets, as more fully discussed in Note 14 of Notes to Consolidated Financial Statements included in the Company’s Annual Report on~~Form 10-K~~ for the year ended December 31, 2006, the Company sold its interests in and related to Alumina Partners of Jamaica, the Company’s Gramercy, Louisiana alumina refinery (“Gramercy”), Kaiser Jamaica Bauxite Company, Volta Aluminium Company Limited, and the Company’s Mead, Washington aluminum smelter and certain related property in 2004 and QAL in April 2005. All of the foregoing commodity assets are collectively referred to as the “Commodity Interests”. In accordance with Statement of Financial Accounting Standards No. 144,~~Accounting for the Impairment or Disposal of Long-Lived Assets~~(“SFAS No. 144”), the assets, liabilities, operating results and gains from sale of the Commodity Interests have been reported as discontinued operations in the accompanying financial statements.

March 31,
December 31,

2008 2007

Investments in and advances to unconsolidated affiliate:
Primary Aluminum $ 44.2 $ 41.3

Segment assets:
Fabricated Products $ 524.8 $ 486.3
Primary Aluminum(1) 137.8 99.1
Corporate and Other(2) 537.0 579.8

$ 1,199.6 $ 1,165.2

(1) Primary Aluminum includes the Company’s 49% interest in Anglesey and the Company’s derivative assets.
(2) Corporate and Other includes all of the Company’s Cash and cash equivalents, Net assets in respect of VEBAs and net deferred income tax assets.

27

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Quarter Ended
Quarter Ended

March 31,
March 31,

2008 2007

Income Taxes Paid:
Fabricated Products —
United States $ .1 $ —
Canada 1.2 .3

$ 1.3 $ .3

During the second quarter of 2006, the Company recorded a $5.0 charge as a result of an agreement between the Company and the Bonneville Power Administration (“BPA”) related to a rejected electric power contract (see Note 18). This amount is included in Discontinued operations in the period from January 1, 2006 to July 1, 2006.
During the first quarter of 2006, the Company received a $7.5 payment from an insurer in settlement of certain residual claims the Company had in respect of a 2000 incident at Gramercy (which was sold in 2004). This amount is included in Discontinued operations in the period from January 1, 2006 to July 1, 2006.

~~18.~~16.   ~~Commitments and Contingencies~~Supplemental cash flow information

Quarter Ended
Quarter Ended

March 31,
March 31,

2008 2007

Supplemental disclosure of cash flow information:
Interest paid, net of capitalized interest of zero and $.8, respectively $ .2 $ 1.0

Income taxes paid $ 1.3 $ .3

Supplemental disclosure of non-cash transactions:
Removal of transfer restrictions on common shares owned by Union VEBA (Note 9) $ — $ 47.7

Dividend declared and unpaid $ 3.7 $ —

~~Impact of Reorganization Proceedings.~~  During the chapter 11 proceedings, substantially all pending litigation, except certain environmental claims and litigation, against the Debtors was stayed. Generally, claims against a Debtor arising from actions or omissions prior to its Filing Date were resolved pursuant to the Plan.
~~Pacific Northwest Power Matters.~~  As a part of the reorganization process, the Company rejected a contract with the BPA that provided power to fully operate the Company’s Trentwood facility in Spokane, Washington, as well as approximately 40% of the combined capacity of the Company’s former aluminum smelting operations in Mead and Tacoma, Washington, which had been curtailed since the last half of 2000. The BPA filed a proof of claim for approximately $75.0 in connection with the contract rejection. In June 2006, the Bankruptcy Court approved an agreement between the Company and the BPA that resolved the claim by granting the BPA an unsecured pre-petition claim totaling approximately $6.1 (i.e., $5.0 in addition to $1.1 of previously accrued pre-petition accounts payable). The Company recorded a non-cash charge for the incremental $5.0 amount in Discontinued operations in the second quarter of 2006 (see Note 17). This claim was resolved as a part of the Plan and has no impact on the Successor.

28


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

This Item should be read in conjunction with Part I, Item 1, of this Report.

This Report contains statements which constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements appear in a number of places in this Report and can be identified by the use of forward-looking terminology such as “believes,” “expects,” “may,” “estimates,” “will,” “should,” “plans” or “anticipates” or comparable terminology, or by discussions of strategy. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties, and that actual results may vary materially from those in the forward-looking statements as a result of various factors. These factors include: the effectiveness of management’s strategies and decisions; general economic and business conditions; developments in technology; new or modified statutory or regulatory requirements; and changing prices and market conditions. This Item and Part I, Item 1A. “Risk Factors” included in our Annual Report onForm 10-K for the year ended December 31, ~~2006,~~2007, each identify other factors that could cause actual results to vary. No assurance can be given that these are all of the factors that could cause actual results to vary materially from the forward-looking statements.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. Our MD&A is presented in six sections:


	•	Overview

	•	Results of Operations

	•	Liquidity and Capital Resources

	•	Contractual Obligations, Commercial Commitments and Off-Balance-Sheet and Other Arrangements

	•	Critical Accounting Estimates

	•	New Accounting Pronouncements

We believe our MD&A should be read in conjunction with the Consolidated Financial Statements and related Notes included in Part II, Item 8. “Financial Statements and Supplementary Data,” of our Annual Report onForm 10-K for year ended December 31, 2007.

Unless otherwise noted, this MD&A relates only to results from continuing operations. In the discussion of operating results below, certain items are referred to as non-run-rate items. For purposes of such discussion, non-run-rate items are items that, while they may recur from period to period, are ~~(1)~~(i) particularly material to results, ~~(2)~~(ii) affect costs primarily as a result of external market factors, and ~~(3)~~(iii) may not recur in future periods if the same level of underlying performance were to occur. Non-run-rate items are part of our business and operating environment but are worthy of being highlighted for the benefit of the users of the financial statements. Our intent is to allow users of the financial statements to consider our results both in light of and separately from ~~non-run-rate items.~~items such as fluctuations in underlying metal prices, natural gas prices and currency exchange rates.

~~Emergence from Reorganization Proceedings~~Overview

~~From the first quarter~~We are a leading producer of ~~2002 to June 30, 2006, Kaiser Aluminum Corporation (“Kaiser,” the “Company,” “we” or “us”)~~fabricated aluminum products for aerospace / high strength, general engineering and 25 of its subsidiaries operated under chapter 11 of the United States Bankruptcy Code under the supervision of the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). Pursuant to a confirmed plan of reorganization (the “Plan”), Kaisercustom automotive and ~~its subsidiaries, which owned all of our core fabricated products facilities and operations and~~industrial applications. In addition, we own a 49% interest in Anglesey Aluminium Limited (“Anglesey”) ~~(which, in turn, owned a~~, which owns and operates an aluminum smelter in ~~the United Kingdom), emerged from chapter 11 on July 6, 2006 (hereinafter referred to as the “Effective Date”). Pursuant to the Plan, all material pre-petition debt, pension~~Holyhead, Wales.

We have two reportable operating segments, Fabricated Products and ~~post-retirement medical obligations~~Primary Aluminum, and ~~asbestos and other tort liabilities, along with other pre-petition claims (which in total aggregated at June 30, 2006 approximately $4.4 billion) were addressed and resolved. Pursuant to the Plan,~~our Corporate segment. The Fabricated Products segment is comprised of all of the ~~equity interests~~operations within the fabricated aluminum products industry including our eleven fabrication facilities in North America at the end of ~~Kaiser’s pre-emergence stockholders were cancelled without consideration. Equity~~March 31, 2008. The Fabricated Products segment sells value-added products such as heat treat aluminum sheet and plate, extrusions and forgings which are used in a wide range of ~~the newly emerged Kaiser was issued~~industrial applications, including aerospace, defense, automotive and ~~delivered to a third-party disbursing agent for distribution to claimholders pursuant to the Plan. See Notes 2 and 14 of Notes to Consolidated Financial Statements included in our Annual Report onForm 10-K~~ ~~for the year ended December 31, 2006 for additional information on Kaiser’s reorganization process and the Plan.~~

All financial statement information before July 1, 2006 relates to Kaiser before emergence from chapter 11 (sometimes referred to herein as the “Predecessor”). Kaiser after emergence is sometimes referred to herein as the “Successor.” As more fully discussed below, there will be a number of differences between the financial statements before and after emergence that will make comparisons of future and past financial information difficult and may make it more difficult to assess our future prospects based on historical performance.

We also made changes to our accounting policies and procedures as part of the application of “fresh start” accounting as required by the American Institute of Certified Professional Accountants Statement of Position~~90-7(“SOP 90-7”),~~~~Financial Reporting by Entities in Reorganization Under the Bankruptcy Code~~~~and the emergence process. In~~ general our accounting policies are the same as or similar to those historically used to prepare our financial statements. In certain cases, however, we adopted different accounting principles for, or applied methodologies differently to, our post emergence financial statement information. For instance, we changed our accounting methodologies with respect to inventory accounting. While we still account for inventories on a~~last-in,~~ ~~first-out (“LIFO”) basis after emergence, the Successor is applying LIFO differently than the Predecessor~~engineering end-use applications.

~~did~~The Primary Aluminum segment produces commodity grade products as well as value-added products such as ingot and billet, for which we receive a premium over normal commodity market prices, and conducts hedging activities in respect of our exposure to primary aluminum price risk.

Changes in global, regional, or country-specific economic conditions can have a significant impact on overall demand for aluminum-intensive fabricated products in the ~~past. Specifically,~~markets in which we ~~now view~~participate. Such changes in demand can directly affect our earnings by impacting the overall volume and mix of such products sold. During 2007 and the first quarter of 2008, the markets for aerospace and high strength products in which we participate were strong, resulting in higher shipments and improved margins.

Changes in primary aluminum prices also affect our Primary Aluminum segment and expected earnings under any firm price fabricated products contracts. However, the impacts of such changes are generally offset by each ~~quarter on~~other or by primary aluminum hedges. Our operating results are also, albeit to a ~~standalone basis~~lesser degree, sensitive to changes in prices for ~~computing LIFO;~~power and natural gas and changes in ~~the past, the Predecessor recorded LIFO amounts with a view to the entire fiscal year, which, with~~ certain ~~exceptions, tended to result in LIFO charges being recorded in the fourth quarter or second half~~foreign exchange rates. All of the ~~year.~~foregoing have been subject to significant price fluctuations over recent years. For a discussion of our sensitivity to changes in market conditions, see Item 3. “Quantitative and Qualitative Disclosures About Market Risks.”

During the quarter ended March 31, 2008, the average London Metal Exchange, or LME, transaction price per pound of primary aluminum was $1.24. During the quarter ended March 31, 2007, the average LME price per pound for primary aluminum was $1.27. At April 30, 2008, the LME price was approximately $1.31 per pound.

Management Review of the Quarter Ended March 31, 2008

Highlights:


	•	Record Fabricated Products segment shipments of 152 million pounds, and Fabricated Products operating income of $40 million, with Fabricated Products net sales growth over the first quarter of 2007 of 3%;

	•	Consolidated net income of $39.1 million, or $1.92 per diluted share, including a number of non-run-rate items that had approximately a net $30 million favorable impact on operating income for the quarter as more fully explained in the sections below;

	•	Declaration of a dividend of $3.7 million, or $.18 per common share, on March 11, 2008 to stockholders of record at the close of business on April 25, 2008, which will be paid on May 16, 2008;

	•	Announcement of the location of our new Midwestern extrusion facility in Kalamazoo, Michigan; and

	•	Announcement of a $14 million program that will enhance Kaiser Select^® capabilities in our Tulsa, Oklahoma and Sherman, Texas extrusion plants and significantly reduce energy consumption at one of our casting units in our Trentwood facility in Spokane, Washington.

Results of Operations

~~Our main line of business is the production~~Consolidated Selected Operational and ~~sale of fabricated aluminum products. In addition, we own a 49% interest in Anglesey, which owns and operates an aluminum smelter in Holyhead, Wales.~~Financial Information

~~Our emergence from chapter 11 and adoption of fresh start accounting resulted in a new reporting entity for accounting purposes.~~ The table below provides selected operational and financial information on a consolidated basis ~~(unaudited — in~~(in millions of dollars, except shipments and average sales prices). The selected operational and financial information after the Effective Date is that of the Successor and is not comparable to that of the Predecessor. However, for purposes of this discussion (in the table below), the Successor’s results for the period from July 1, 2006 through September

30 2006 have been combined with the Predecessor’s results for July 1, 2006 and are compared to the Successor’s results for the quarter ended September 30, 2007. In addition, the Successor’s results for the period from July 1, 2006 through September 30, 2006 have been combined with the Predecessor’s results for the period from January 1, 2006 to July 1, 2006, together comprising the nine months ended September 30, 2006, and are compared to the Successor’s results for the nine months ended September 30, 2007. Differences between periods due to fresh start accounting are explained when material.


(1)		Average realized prices for ~~our~~the Company’s Fabricated Products segment are subject to fluctuations due to changes in product mix ~~and value-added pricing~~ as well as underlying primary aluminum prices and are not necessarily indicative of changes in underlying profitability. See Part I, Item 1. “Business” included in our Annual Report onForm 10-K for the year ended December 31, ~~2006.~~2007.

(2)		Average realized prices for ~~our~~the Company’s Primary Aluminum segment ~~(also referred to herein as the “Primary Products” segment)~~ exclude hedging revenues.

(3)		Fabricated Products segment operating results for the quarter ~~and nine month periods~~ ended ~~September 30, 2007~~March 31, 2008 include a non-cash LIFO inventory ~~benefit~~charge of approximately $10.2 million and $8.2 million, respectively, and metal losses of approximately $9.7 million and $6.5 million, respectively. Operating results for the quarter and nine month periods ended September 30, 2006 include a non-cash LIFO inventory benefit (charge) of $3.3 million and $(18.4) million, metal loss of approximately $2.7$14.4 million and metal gains of approximately ~~$13.9~~$11.4 million. Fabricated products segment operating results for the quarter ended March 31, 2007 include a non-cash last in, first-out (“LIFO”) inventory charge of $8.0 million ~~respectively.~~and metal gains of approximately $5.2 million.

(4)		Fabricated Products segment ~~operating results include~~includes non-cash mark-to-market gains ~~(losses)~~ on natural gas and foreign currency hedging activities totaling ~~$.4~~$1.8 million and ~~$(1.6)~~$2.7 million in the quarters ended ~~September 30,~~March 31, 2008 and 2007, ~~and 2006, respectively, and $1.7 million and $(2.6) million in the nine month periods ended September 30, 2007 and 2006,~~ respectively. For further discussion regarding mark-to-market matters, see Note 1112 of Notes to Interim Consolidated Financial ~~Statements.~~Statements included in Part I, Item 1 of this Report.

(5)		Primary Aluminum segment ~~operating results for the quarters ended September 30, 2007 and 2006 include~~includes non-cash mark-to-market gains (losses) on primary aluminum hedging activities ~~of $6.4~~totaling $30.5 million and ~~$.5~~$(2.2) million ~~respectively,~~ and on foreign currency derivatives ~~of $(2.1)~~totaling $.6 million and ~~$.6~~$(1.8) million ~~respectively. Primary Aluminum segment operating results~~ for the ~~nine month periods~~quarters ended ~~September 30,~~March 31, 2008 and 2007, and 2006 include non-cash mark-to-market gains (losses) on primary aluminum hedging activities of $8.7 million and $(.3) million, respectively, and on foreign currency derivatives of $(5.2) million and $8.4 million, respectively. For further discussion regarding mark-to-market matters, see Note 1112 of Notes to Interim Consolidated Financial ~~Statements.~~Statements included in Part I, Item 1 of this Report.

(6)		See Note 1213 of Notes to Interim Consolidated Financial Statements included in Part I, Item 1 of this Report for a discussion of the components of Other operating ~~benefits (charges),~~charges, net and the ~~business~~ segment to which the items relate.

~~Overview~~

Changes in global, regional, or country-specific economic conditions can have a significant impact on overall demand for aluminum-intensive fabricated products in the markets in which we participate. Such changes in demand can directly affect our earnings by impacting the overall volume and mix of such products sold. During 2006 and the first nine months of 2007, the demand for our products for aerospace and defense applications was strong, resulting in higher shipments and improved margins. However, automotive and other ground transportation build rates and overall US industrial demand softened in the second half of 2006 and the first nine months of 2007, and this contributed to softer demand for our products serving ground transportation and other industrial applications.

Changes in primary aluminum prices also affect our Primary Aluminum segment and expected earnings under any firm price fabricated products contracts. However, the impacts of such changes are generally offset by each other or by primary aluminum hedges. Our operating results are also, albeit to a lesser degree, sensitive to changes in prices for power and natural gas and changes in certain foreign exchange rates. All of the foregoing have been subject to significant price fluctuations over recent years. For a discussion of the possible impacts of the reorganization on our sensitivity to changes in market conditions, see Part I, Item 3, “Quantitative and Qualitative Disclosures About Market Risks, Sensitivity.”

During the nine months ended September 30, 2007, the average London Metal Exchange, or LME, transaction price per pound of primary aluminum was $1.23. During the nine months ended September 30, 2006, the average LME price per pound for primary aluminum was $1.14. The average LME price for the quarters ended September 30, 2007 and September 30, 2006 were $1.16 and $1.13, respectively. At October 31, 2007, the LME price was approximately $1.13 per pound.

~~Quarter and Nine Months Ended September 30, 2007 Compared to Quarter and Nine Months Ended September 30, 2006~~

Summary. We reported net income of ~~$24.8~~$39.1 million for the quarter ended ~~September 30, 2007,~~March 31, 2008 compared to a net income of ~~$3,119.6~~$17.1 million for the quarter ended September 30, 2006. For the nine months ended September 30, 2007, we reported net income of $76.6 million compared to net income of $3,155.5 million for the same period in 2006. Net income for the quarter and nine month period ended September 30, 2006 includes a non-cash gain of $3,110.3 million related to the Plan implementation and application of fresh start accounting. Additionally, both the quarter and year-to-date periods in 2007 and 2006March 31, 2007. Both quarters include a number of ~~other~~ non-run-rate items that are more fully explained in the sections below.

Our operating income for the quarter ended March 31, 2008 increased by 111% to $68.1 million compared to the quarter ended March 31, 2007. Included in the operating income for the quarter ended March 31, 2008 was $30.5 million of unrealized gains on our derivative metal positions as a result of the increase in metal price during the quarter.

Net Sales. We reported Net sales in the quarter ended ~~September 30, 2007 totaled $366.7~~March 31, 2008 of $399.0 million compared to ~~$331.4~~$392.2 million in the quarter ended ~~September 30, 2006. Net sales for the nine month period ended September 30, 2007 totaled $1,144.0 million compared to $1,021.2 million for the nine month period ended September 30, 2006.~~March 31, 2007. As more fully discussed below, the increase in revenues in 2008 is primarily the result of an 8% increase in shipments from our Fabricated Products segment offset by (a) a 5% reduction in average realized price from our Fabricated Products segment, (b) a 5% reduction in Primary Aluminum segment shipments, and (c) a 3% reduction in Primary Aluminum segment pricing. Increases or decreases in primary aluminum market prices do not necessarily directly translate to increased or decreased profitability because (a) a substantial portion of the business conducted by the Fabricated Products segment passes primary aluminum price changes directly onto customers and (b) our hedging activities limit our risk of losses as well as gains from primary metal price changes.

Cost of Products Sold Excluding Depreciation. Cost of products sold excluding depreciation for the ~~nine month period~~quarter ended March 31, 2008 totaled $308.5 million compared to $337.1 million in the quarter ended March 31, 2007 or 77% and 86% of net sales respectively. The reduction in Cost of products sold as a percentage of net sales in 2008 was primarily the result of $30.5 million of unrealized gains on derivative metal positions during the quarter ended March 31, 2008.

Depreciation and Amortization. Depreciation and amortization for the quarter ended March 31, 2008 was $3.5 million compared to $2.6 million for the quarter ended March 31, 2007. Higher depreciation expense was the result of Construction in progress being placed into production throughout 2007 primarily in relation to the expansion of our Trentwood facility.

Selling, Administrative, Research and Development, and General. Selling, administrative, research and development, and general expense totaled $18.8 million in the quarter ended March 31, 2008 compared to $19.0 million in the quarter ended March 31, 2007.

Other Operating Charges, Net. Included within Other operating charges, net (in millions of dollars) for the quarters ended March 31, 2008, and 2007 were the following:

Interest Expense. Interest expense was $.2 million in the quarter ended March 31, 2008 compared with $.6 million in the quarter ended March 31, 2007. The decrease is primarily the result of the ~~increase in~~repayment of our term loan during the ~~market price for primary aluminum, which generally increases our cost~~fourth quarter of products sold, and therefore does not necessarily lead to increased profitability. Further, our hedging activities, while limiting our risk of losses, may limit our ability to participate in price increases. In addition to higher underlying metal prices, the increase in revenues is partly due to increased shipments, favorable product mix and value-added pricing in fabricated products for both the quarter and nine month period ended September 30, 2007.

~~Fabricated Products.~~Other Income, Net. ~~Net sales of fabricated products increased by 12%~~Other income, net was $.6 million in the quarter ended March 31, 2008 compared to ~~$316.2~~$1.2 million in the quarter ended March 31, 2007. The decrease is primarily related to the fluctuation in the Canadian currency exchange rate.

Provision for Income Taxes. The income tax provision for the ~~third~~ quarter ended March 31, 2008 was $29.4 million, with an effective tax rate of 43.0%. The effective tax rate for the quarter ended March 31, 2007 was approximately 48%. The reduction in the effective tax rate from the quarter ended March 31, 2007 to the quarter ended March 31, 2008 is primarily the result of a reduction in the statutory tax rate for 2008 in the United Kingdom, a reduction in the statutory tax rate in Canada, and a favorable geographical distribution of income in 2008 as compared to the same period in 2006, primarily due to a 5% increase in average realized prices and a 7% increase in shipments. For the nine month period ended September 30, 2007, net sales of fabricated products increased by 13% to $985.3 million as compared to the same period in 2006 due to a 10% increase in average realized prices and a 3% increase in shipments. The increase in the average realized prices primarily reflects the pass-through to customers of higher underlying primary aluminum prices, a favorable product mix, and improved value-added pricing. Shipments of products for aerospace and defense applications were higher in the quarter and nine months ended September 30, 2007 as compared to the same periods of 2006, reflecting continued strong demand for such products as well as incremental capacity from two new heat treat plate furnaces at our Trentwood facility in Spokane, Washington which were fully operational in the first three quarters of 2007 (see Note 10 of Notes to Interim Consolidated Financial Statements). This was partially offset by lower shipments of products for ground transportation and other industrial applications as compared to the same period of 2006.2007.

~~Operating income for the third quarter~~The effective tax rate of ~~2007 of $39.8 million~~43.0% was approximately $10.7 million higher than the same period in the prior year. Operating income for the third quarter of 2007 included favorable impacts from heat treat plate of approximately $9 million from higher shipments and stronger value added pricing compared to the prior year. Additionally, cost performance in the third quarter was favorable to the comparable quarter of 2006. This was largely offsetimpacted by ~~higher major maintenance expense and other costs.~~

Non-run-rate items, which are listed below, had a combined approximately $.9 million positive impact on the third quarter of 2007, which is approximately $1.9 million better than the impact of such items on the third quarter of 2006:several factors including:


	•	~~Metal losses~~The Company’s equity in ~~2007 (before considering LIFO implications)~~income before income taxes of Anglesey is treated as a reduction (increase) in Cost of products sold excluding depreciation. The income tax effects of the Company’s equity in income are included in the tax provision. This resulted in $1.6 million being included in the income tax provision, increasing the effective tax rate by approximately ~~$9.7 million, compared to approximately $2.7 million in 2006.~~2.3%.

	•	~~A non-cash LIFO inventory benefit of~~The impact on unrecognized tax benefits, including interest and penalties, increased the income tax provision by $.8 million and the effective tax rate by approximately ~~$10.2 million in 2007 compared to approximately $3.3 million in 2006.~~1%.

	•	~~Mark-to-market gain on energy and~~The foreign currency ~~hedging~~impact on unrecognized tax benefits, interest and penalties resulted in ~~2007 were approximately $.4~~a $1.0 million ~~compared to an approximately $1.6 mark-to-market loss~~currency translation adjustment that was recorded in ~~2006.~~Accumulated other comprehensive income.

	•	The geographical distribution of income and changes in the United Kingdom and Canadian income tax rates.

Derivatives

In conducting our business, we use various instruments, including forward contracts and options, to manage the risks arising from fluctuations in aluminum prices, energy prices and exchange rates. We have historically entered into derivative transactions from time to time to limit our economic (i.e. cash) exposure resulting from (1) our anticipated sales of primary aluminum and fabricated aluminum products, net of expected purchase costs for items that fluctuate with aluminum prices, (2) the energy price risk from fluctuating prices for natural gas used in our production process, and (3) foreign currency requirements with respect to our cash commitments for equipment purchases and with foreign subsidiaries and our affiliate. As our hedging activities are generally designed to lock-in a specified price or range of prices, realized gains or losses on the derivative contracts utilized in the hedging activities generally offset at least a portion of any losses or gains, respectively, on the transactions being hedged at the time the transaction occurs. However, due to mark-to-market accounting, during the life of the derivative contract, significant unrealized, non-cash, gains and losses may be recorded in the income statement as a reduction or increase in Cost of products sold excluding depreciation.

We use hedging transactions (derivative instruments) to lock-in a specified price or range of prices for certain products which we sell or consume in our production process, such as primary aluminum and natural gas, and to mitigate our exposure to changes in foreign currency exchange rates. The fair value of our derivatives recorded on the consolidated balance sheet at March 31, 2008 and December 31, 2007 was a net asset of $53.6 million and $20.6 million, respectively. The primary reason for the significant increase in the net asset was an increase in primary aluminum prices. This increase resulted in the recognition of $30.5 million of unrealized mark-to market gains on metal derivatives for the quarter ended March 31, 2008, which we consider to be a non-run-rate item (see Note 12 of Notes to Interim Consolidated Financial Statements included in Part I, Item 1 of this Report).

Segment Information

Our continuing operations are organized and managed by product type and include two operating segments and a Corporate segment. The accounting policies of the segments are the same as those described in Note 1 of

Notes to Consolidated Financial Statements included in our Annual Report onForm 10-K for the year ended December 31, 2007. Segment results are evaluated internally by us before any allocation of Corporate overhead and without any charge for income taxes, interest expense, or Other operating charges, net.

Fabricated Products

The table below provides selected operational and financial information (in millions of dollars except shipments and average sales prices) for our Fabricated Products segment:

Quarter Ended
Quarter Ended

March 31,
March 31,

2008 2007

Shipments (mm pounds) 151.8 140.0
Average realized third party sales price (per pound) $ 2.30 $ 2.41
Net sales $ 349.2 $ 338.0
Segment operating income $ 40.0 $ 41.4
Net sales of fabricated products increased by 3% to $349.2 million for the quarter ended March 31, 2008 as compared to the quarter ended March 31, 2007, primarily due to an 8% increase in shipments offset by a 5% decrease in average realized prices. Shipments of products for aerospace, high-strength and defense applications were higher in the first quarter of 2008 as compared to the prior-year quarter, reflecting continued strong demand for such products. In addition, shipments for other industrial applications were also higher as compared to the first quarter of 2007. The decrease in the average realized prices reflects a higher proportion of lower-priced products within the mix of products shipped in the first quarter of 2008 as well as the pass through to customers of slightly lower underlying metal prices.
Incremental capacity from the second phase of the heat treat expansion became operational at the beginning of 2008. However, heat treat plate production and shipments in the first quarter of 2008 were only slightly higher than the prior-year quarter due to one-time, unplanned equipment outages as well as a production mix that was more heavily weighted toward light-gauge plate. First quarter 2008 heat treat plate production exceeded shipments as we began to build inventory in preparation for the third and final capacity expansion phase. This final phase requires a planned production interruption beginning in the second quarter of 2008 on one of the three new heat treat furnaces to expand its capacity.
We believe the mix of fabricated products shipments in 2008 will benefit from increased heat treat plate shipments made possible by incremental capacity from the second and third (and final) phase of the heat treat plate project at our Trentwood facility. The second phase was operational at the beginning of 2008, and the third (and final) phase is scheduled to be fully operational by the end of 2008.
Recent trends in other parts of our business that could affect the rest of 2008 include continued strong aerospace and defense demand for hard alloy products (in addition to plate), a potential weakening of industrial demand, and reduced vehicle builds in 2008. Our participation in new automotive programs and selected export opportunities should offset potential weakness in ground transportation demand.
Operating income for the quarter ended March 31, 2008 of $40.0 million was $1.4 million lower than the first quarter of 2007. Operating income for the quarter ended March 31, 2008 included a $6.5 million net favorable impact from shipments, value-added price and mix. The favorable impact was offset by higher planned major maintenance expense, higher energy costs, and unfavorable currency exchange rates. Depreciation and amortization during the first quarter of 2008 was approximately $0.9 million higher than the first quarter of 2007, primarily due to new assets being placed into production throughout 2007. Approximately $0.9 million of the lower operating income was due to less favorable unrealized mark-to-market gains on natural gas and currency positions (which we consider to be non-run-rate).
Operating income for the quarters ended March 31, 2008 and 2007 includes non-run-rate items. Non-run-rate items to us are items that, while they may recur from period to period, are (1) particularly material to results, (2) affect costs primarily as a result of external market factors, and (3) may not recur in future periods if the same level of underlying performance were to occur. Non-run-rate items are part of our business and operating

34

Operating income for the nine months ended September 30, 2007 of $129.3 million was approximately $39.0 million higher than for the same period in the prior year. Operating income for the first nine months of 2007 included favorable impacts from heat treat plate of approximately $37 million from higher shipments and stronger value-added pricing compared to the prior year. The impact of shipments and value-added pricing for ground transportation and other industrial applications was an unfavorable $6$9.9 million and cost performance was unfavorable due to an inability to flex costs in the early part of the year with lower volume for ground transportation and other industrial applications. The results of the first nine months of 2007 also reflect higher major maintenance expense and other costs, including research and development, and energy, as compared to the same period in 2006. Depreciation and amortization in the first nine months of 2007 was approximately $4$10.3 million, ~~lower than in the first nine months of 2006, primarily as a result of the adoption of fresh start accounting.~~

Non-run-rate items, which are listed below, had $3.4 positive impact on the first nine months of 2007, which is approximately $10.5 million better than the impact of such items on the first nine months of 2006:


	•	~~Metal loss in 2007 (before considering LIFO implications) of approximately $6.5 million, compared to approximately $13.9 million of metal gains in 2006.~~

	•	~~A non-cash LIFO inventory benefit in 2007 of approximately $8.2 million compared to an approximately $18.4 million LIFO charge in 2006.~~

	•	~~Mark-to-market gain on energy and foreign currency hedging in 2007 were approximately $1.7 million compared to an approximately $2.6 mark-to-market loss in 2006.~~

Segment operating results for the first nine months of 2007 and 2006 include gains on intercompany hedging activities with the Primary Aluminum segment totaling $20.0 million for 2007 and $31.5 million for 2006.respectively. These amounts eliminate in consolidation.

Primary ~~Aluminum.~~Aluminum

The table below provides selected operational and financial information (in millions of dollars except shipments and average sales prices) for our Primary Aluminum segment:

Quarter Ended
Quarter Ended

March 31,
March 31,

2008 2007

Shipments (mm pounds) 37.0 39.1
Average realized third party sales price (per pound) $ 1.35 $ 1.39
Net Sales 49.8 54.2
Segment operating income 40.6 4.2
During the quarter ~~and nine month periods~~ ended ~~September 30, 2007,~~March 31, 2008, third party net sales of primary aluminum ~~increased 1% and 7%, respectively,~~decreased 8% compared to the ~~same periods~~quarter ended March 31, 2007. The decrease in ~~2006. For the quarter, the increase was~~net sales is primarily due to a ~~1% increase~~5% decrease in ~~third party~~shipments and a 3% decrease in average realized sales prices. ~~For the nine month period, the increase was due to an 6% increase in third party~~The net sales and average realized sales prices ~~and a 1% increase in shipments. The increases in~~do not consider the ~~average realized prices was primarily due to increases in primary aluminum market prices.~~impact of hedging transactions.

The following table recaps ~~(in millions of dollars)~~ the major components of segment operating results for the current ~~periods as compared to the~~and prior year periods ~~as well as~~(in millions of dollars) and the discussion following the table addresses the primary factors leading to ~~such~~the differences. Many of ~~such~~these factors indicated are subject to significant fluctuation from period to period and are largely impacted by items outside management’s control. See Part I, Item 1A. “Risk Factors” included in our Annual Report onForm 10-K for the year ended December 31, ~~2006.~~2007.

Year-to-Date

3Q 2007 vs 3Q 2006 2007 vs 2006
Operating
Better
Operating
Better

Component
Income (Worse) Income (Worse)
Primary Factor

Sales of production from Anglesey $ 13 $ 2 $ 47 $ 9 Market price for primary aluminum (year to date only); alumina pricing; offset by the impact of foreign currency translation
Internal hedging with Fabricated Products (2 ) 5 (20 ) 12 Eliminates in consolidation
Derivative settlements (2 ) — 1 — Impacted by positions and market prices
Mark-to-market on derivative instruments 4 3 4 (4 ) Impacted by positions and market prices

$ 13 $ 10 $ 32 $ 17

Quarter Ended
Quarter Ended

March 31,
March 31,

2008 2007

Anglesey operations-related(1) $ 16.4 $ 16.5
Internal hedging with Fabricated Products(2) (9.9 ) (10.3 )
Derivative settlements — Pounds Sterling(3) .2 2.1
Derivative settlements — External metal hedging(3) 2.8 (.1 )
Mark-to-market gains (losses) on derivative instruments(3) 31.1 (4.0 )

$ 40.6 $ 4.2

The improvement in Anglesey-related results in the third quarter of 2007 over the comparable 2006 was driven primarily by favorable contractual pricing for alumina, partially offset by an adverse impact, before considering the
(1) Operating income from sales of production from Anglesey is impacted by the market price for primary aluminum and alumina pricing, offset by the impact of foreign currency translation.
(2) Eliminates in consolidation.
(3) Impacted by positions and market prices.

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~~effect of~~

Primary segment operating results for the quarter ended March 31, 2008 reflected non-cash unrealizedmark-to-market gains for metal and currency hedging, of changes in the foreign currency exchange rate (Pound Sterling). The improvement in Anglesey-related results in the nine month period of 2007 over the comparable 2006 period was driven primarily by increases in primary aluminum market prices and favorable contractual pricing for alumina partially offset by an adverse impact, before considering the effect of currency hedging, of unfavorable changes in the foreign currency exchange rate. Realized hedging gains from Pound Sterling derivative transactions ~~(included in “Derivative settlements” above) were $3~~of $31.1 million ~~and $7~~compared to an unrealized mark-to-market loss of $4.0 million for the quarter ~~and nine month periods~~ ended ~~September 30, 2007,~~March 31, 2007. The quarter ended March 31, 2008 was also favorably impacted approximately $2.7 million by improved realized pricing (after considering the impact of hedging transactions), the components of which ~~was $2~~were (a) $2.9 million ~~and $8~~of favorable impact from the higher realized gains on external metal derivative transactions, (b) $0.4 million ~~more favorable than the third quarter and first nine months~~ of ~~2006, respectively. The Company currently has no derivative positions in place for periods after December 2007 to hedge its Pound Sterling currency exchange rate exposure.~~

~~Segment operating results for the 2007 periods also reflect~~ lower losses onin intercompany hedging activities with the Fabricated Products segment (these intercompany hedge amounts are eliminated in consolidation), and (c) a $.6 million unfavorable impact from the changes in the LME price for primary aluminum on the operations of Anglesey (included in “Anglesey operations-related” in the table above). Additionally, segment results for the quarter ended March 31, 2008 reflected a $3.4 million favorable impact from better contractual pricing for alumina. This was offset by an unfavorable impact of approximately $3.3 million (including hedging effects) due to foreign currency exchange rate, comprised of (a) $1.4 million realized within the “Anglesey operations-related” results and (b) $1.9 million of less favorable gains on the settlement of foreign currency derivative transactions.

In the remainder of 2008, we anticipate that the Primary Aluminum segment will be adversely impacted by approximately by $7 million as compared to the comparable ~~2006 periods. These amounts are eliminated~~periods of 2007 due to the impact of Pound Sterling exchange rates, reflecting derivative transactions that set a higher effective exchange rate in ~~consolidation.~~

~~Approximately two-thirds~~2008 than those in place for 2007. Additionally, management believes ocean freight cost increases will continue to have an adverse impact of ~~the cost of the Anglesey-related operations is alumina and power. Contractual pricing for alumina improved~~ approximately ~~20%~~$6 million in the ~~second and third quarter~~remainder of ~~2007~~2008 as compared to the ~~same~~comparable periods ~~in 2006, and this relative improvement is expected to continue for the fourth quarter~~ of 2007.

The nuclear plant that supplies Anglesey its power is currently slated for decommissioning in ~~late~~ 2010. For Anglesey to be able to ~~operate~~continue aluminum reduction past September 2009 when its current power contract expires, Anglesey will have to secure a new or alternative power contract at prices that ~~makes~~make its ~~operation~~aluminum reduction operations viable. No assurance can be provided that Anglesey will be successful in this regard.

~~In addition, given~~Given the potential for future shutdown and related costs, Anglesey temporarily suspended dividends during the last half of 2006 and the first half of 2007 while it studied future cash requirements. Based on a review of cash anticipated to be available for future cash requirements, Anglesey removed the temporary suspension of dividends and declared ~~a dividend~~and paid dividends in August and December of 2007. We received ~~a dividend~~total dividends of ~~$4.4~~$14.3 million in respect of our 49% ownership interest in ~~August~~ 2007. Dividends over the past five years have fluctuated substantially depending on various operational and market factors. During the last five years, cash dividends received were as ~~follows (in millions of dollars):~~follows: 2007 — $14.3, 2006 — $11.8, 2005 — ~~$9,~~$9.0, 2004 — $4.5 and 2003 — ~~$4.3 and 2002 — $6.~~$4.3. During April 2008, Anglesey declared an additional dividend of $8.0, of which $3.9 was received on April 18, 2008 in respect of the Company’s ownership interest. No assurance can be given that Anglesey will not suspend dividends again in the future.

Corporate and ~~Other.~~Other

Corporate operating expenses represent corporate general and administrative expenses that are not allocated to our business segments. Corporate operating expenses exclude Other operating charges, net discussed above.

Corporate operating expenses for the ~~third~~ quarter ~~of 2007~~ended March 31, 2008 were ~~approximately $2.5~~$.3 million ~~lower than for~~higher compared to the ~~same period in 2006.~~quarter ended March 31, 2007. The ~~reduction was~~increase is primarily related to ~~lower retiree medical expenses~~a reduction in voluntary employee beneficiary association (“VEBA”) net periodic benefit income of $.4 million, which we consider to be a non-run-rate item, partially offset by a decrease in workers’ compensation expense as ~~well as lower tax service fees compared to the third quarter~~a result of ~~2006. Tax fees were higher~~a decrease in the ~~prior year due to continued work on emergence related tax items~~outstanding claims.

Liquidity and ~~stub period returns for~~Capital Resources

Summary

Cash and cash equivalents were $47.5 million as of March 31, 2008, down from $68.7 million as of December 31, 2007. Working capital, the ~~entities which were liquidated at emergence.~~excess of current assets over current liabilities, was $316.9 million as of March 31, 2008, up from $289.2 million as of December 31, 2007. The ~~decrease was~~increase in working capital is primarily driven by increases in accounts receivables, inventories and current derivative assets partially offset by an increase in ~~incentive compensation accrual~~accounts payable and current derivative liabilities primarily as a result of better operating results in 2007 and an increase in service costs relating to the voluntary employee beneficiary association for the benefit of certain retirees, their surviving spouses and eligible dependents (“VEBAs”).

Corporate operating expenses for the first nine months of 2007 were approximately $2.4 million higher than for the first nine months of 2006. Of this increase, salary and incentive compensation expense were approximately $8.2 million higher in the first nine months of 2007 compared to the same period in 2006, including an increase of $4.5 million of non-cash charges associated with equity compensation (see Note 9 of Notes to Interim Consolidated Financial Statements). This increase was partially offset by lower retiree medical expense and tax service fees discussed above, a reduction in computer upgrade costs and lower preparation costs related to the Sarbanes-Oxley Act of 2002.

Corporate operating results for the third quarter of 2007, discussed above, exclude the $1.6 million benefit related to the resolution of pre-emergence contingencies relating to sale of property and $.3 million other operating benefits, offset by $.5 million of post emergence chapter 11 related items (see Note 12 of Notes to the Interim Consolidated Statements).

Corporate operating results for the first nine months of 2007 exclude the $1.6 million benefit discussed above, an $8.3 million benefit related to the reimbursement of amounts paid in connection with the sale of our interests inchanging underlying metal prices.

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Cash equivalents consist primarily of money market accounts and ~~related to Queensland Alumina Limited (“QAL”), a $1.3 million benefit related to the settlement~~other highly liquid investments with an original maturity of ~~an agreement with the Pension Benefit Guaranty Corporation (“PBGC”) and a non-cash benefit of approximately $4.9 million resulting from the settlement of a claim~~three months or less when purchased. Our liquidity is affected by ~~the purchaser of our former Gramercy, Louisiana alumina refinery and our interests in Kaiser Jamaica Bauxite Company, offset by approximately $2.5 million of post emergencechapter 11-related~~ ~~items (see Note 12 of Notes to Interim Consolidated Financial Statements).~~

~~Discontinued Operations.~~ ~~Operating results from discontinued operations for the nine months ended September 30, 2006 consist of a $7.5 million payment from an insurer~~restricted cash that is pledged as collateral for certain ~~residual claims we had~~letters of credit or restricted to use for workers’ compensation requirements and other agreements. Short term restricted cash, included in ~~respect~~Prepaid expenses and other current assets, totaled $1.5 million as of ~~the 2000 incident at our former Gramercy, Louisiana alumina refinery,~~March 31, 2008 and December 31, 2007. Long term restricted cash, which was ~~sold~~included in ~~2004,~~Other Assets, was $14.4 million as of March 31, 2008 and a $1.1 million surcharge refund related to certain energy surcharges, which had been pending for a number of years offset, in part, by a $5 million charge resulting from an agreement between the Company and the Bonneville Power Administration (“BPA”) for a rejected electric power contract (see Note 17 and 18 of Notes to Interim Consolidated Financial Statements).

~~Reorganization Items.~~ Reorganization items in the three and nine months ended September 30, 2006 consist of the non-cash gain on the implementation of the Plan and application of fresh start accounting of approximately $3,110.3 in the third quarter of 2006. See Notes 16 of Notes to Interim Consolidated Financial Statements.December 31, 2007.

~~Liquidity and Capital Resources~~Cash Flows

~~As a result~~The following table summarizes our cash flow from operating, investing and financing activities for the quarters ended March 31, 2008 and 2007 (in millions of the filing of the chapter 11 bankruptcy proceedings, claims against us and our subsidiaries that filed such proceedings for principal and accrued interest on secured and unsecured indebtedness existing on the filing dates were stayed while we continued business operations as~~debtors-in-possession,~~ ~~subject to the control and supervision of the Bankruptcy Court. See Note 16 of Notes to Interim Consolidated Financial Statements for additional discussion of the chapter 11 bankruptcy proceedings.~~dollars):

Quarter Ended
Quarter Ended

March 31,
March 31,

2008 2007

Total cash provided by (used in):
Operating activities:
Fabricated Products $ 15.1 $ 19.4
Primary Aluminum 9.3 5.7
Corporate and Other (26.9 ) (16.7 )

$ (2.5 ) $ 8.4

Investing activities:
Fabricated Products (15.0 ) (7.4 )
Corporate and Other — .8

$ (15.0 ) $ (6.6 )

Financing activities:
Corporate and Other (3.7 ) —

$ (3.7 ) $ —

Operating ~~Activities.~~Activities  In
Fabricated Products —During the ~~first nine months of 2007, Successor~~quarter ended March 31, 2008, Fabricated Products operating activities provided ~~approximately $101~~$15.1 million of cash. This amount compares with the ~~first nine months of 2006~~quarter ended March 31, 2007 when ~~Successor~~ Fabricated Products operating activities provided ~~approximately $29 million of cash and Predecessor Fabricated Products operating activities provided approximately $13~~$19.4 million of cash. Cash provided in the ~~first nine months of~~quarters ended March 31, 2008 and 2007 was primarily due to ~~improved~~ operating ~~results~~income offset in part by increased working capital. The increase in working capital in the ~~first nine months~~quarter ended March 31, 2008 was primarily the result of an increase in inventories and accounts receivable. The increase in working capital in the quarter ended March 31, 2007 iswas primarily due to ~~an increase in trade receivables, partially offset by~~ a decrease in inventory, before considering the effect of LIFO adjustments, and prepaid expenses and other current assets. Cash provided in the first nine months of 2006 was also primarily due to improved operating results offset by increased working capital.accounts payable.

InPrimary Aluminum —During the ~~first nine months of 2007, Successor~~quarter ended March 31, 2008, operating activities ~~provided approximately $17 million of cash~~ attributable to our interest in and related to ~~Anglesey.~~Anglesey provided approximately $9.3 million in cash. This compares to the ~~first nine months of 2006~~quarter ended March 31, 2007, when ~~Successor~~ operating activities provided approximately ~~$14 million of cash and Predecessor operating activities provided approximately $36~~$5.7 million of cash attributable to our interest in and related to Anglesey.

Corporate and Other ~~Operating Activities.~~—  ~~Successor~~ Corporate and Other operating activities used ~~approximately $28~~$26.9 million of cash during the ~~first nine months of 2007. Successor Corporate and Other operating activities (including all of~~quarter ended March 31, 2008. This compares to the ~~Company’s “legacy” costs) used approximately $12 million of cash and Predecessor~~quarter ended March 31, 2007, when Corporate and Other operating activities used ~~approximately $70~~$16.7 million ~~in cash in the first nine months~~ of ~~2006.~~cash. Cash outflows from Corporate and Other operating activities in the ~~first nine months of 2007 and 2006 included: (1) approximately $3~~quarter ended March 31, 2008 primarily included $8.4 million ~~and $12 million, respectively,~~ in ~~respect of former employee and retiree medical obligations, through funding of~~relation to payments made to the VEBAs, ~~(2)~~ payments ~~for reorganization costs~~ of ~~approximately $7~~$8.0 million in relation to our short term incentive program and ~~$16 million, respectively, and (3)~~ payments in respect of general and administrative costs totaling ~~approximately $33 million and $30 million, respectively.~~$12.4 million. Cash outflows ~~for the first nine months of 2007 were offset by approximately $9 million of proceeds~~ from ~~Other operating (benefits) charges, net. Cash outflows for~~ Corporate and Other operating activities ~~for 2006 also~~in the quarter ended March 31, 2007 primarily included payments ~~pursuant to the Plan~~ of ~~approximately $25~~$7.0 million for reorganization costs and payments in respect of general and administrative costs totaling $12.1 million.
~~Discontinued Operations Activities.~~  ~~In the first nine months of 2006, Predecessor discontinued operating activities provided approximately $9 million of cash which consisted of the proceeds of an approximately $8 million~~

3537

~~payment from an insurer, and an approximately $1 million refund related to energy surcharges, both of which are discussed above.~~Investing Activities

~~Investing Activities.~~ ~~Total capital expenditures for Successor~~ Fabricated Products ~~were $43 million and $39 million for the nine month periods ended September 30, 2007 and 2006, respectively. Total capital expenditures~~—Cash used in investing activities for Fabricated Products ~~are currently expected to be~~was $15.0 million in the ~~$80~~quarter ended March 31, 2008. This compares to the quarter ended March 31, 2007 when Fabricated Products investing activities used $7.4 million ~~to $90~~in cash. See “Capital Expenditures” below for additional information.

Corporate and Other —Cash provided in investing activities for Corporate and Other was $.8 million ~~range for the full year 2007 and~~ in the ~~$80 million to $90 million range for 2008 and are expected to be funded using~~quarter ended March 31, 2007. The increase in cash ~~from operations.~~

~~Of the capital expenditures in 2007, we expect between $40 million and $50 million will be~~was related to the ~~$139 million heat treat plate expansion project at our Trentwood facility~~release of restrictions on the Company’s restricted cash balance.

Financing Activities

Corporate and Other —Cash used in ~~Spokane, Washington. This project will significantly increase our heat treat plate production capacity. Additionally, it will augment our product offering by increasing~~ the ~~thickness of heat treat stretched plate we can produce for aerospace and defense and general engineering applications. Approximately $65 million of spending on this project~~quarter ended March 31, 2008 was ~~incurred in 2005 and 2006. Much of the capital spending~~primarily related to ~~the last phase of the heat treat plate project, a $34~~$3.7 million ~~follow-on investment announced~~ in ~~June 2007, is expected~~cash dividends paid to ~~carry over to 2008.~~shareholders.

~~Capital spending in 2007 in addition to~~Sources of Liquidity

Our most significant sources of liquidity are funds generated by operating activities and available cash and cash equivalents. We believe funds generated from the ~~heat treat plate project is~~ expected ~~to include between $15 million~~results of operations, together with available cash and $25 million related to the $91 million investment program in a new Midwestern facility as well as improvements at three existing extrusion and drawing facilities. This investment program is expected to significantly improve the capabilities and efficiencies of our rod and bar and seamless extruded and drawn tube operations and enhance the market position of such products. The new Midwestern facilitycash equivalents, will be ~~equipped with two extrusion presses~~sufficient to finance anticipated expansion plans and ~~a remelt operation. Completion of these investments~~strategic initiatives for at least the next fiscal year. In addition, our revolving credit facility is ~~expected~~available for additional working capital needs or investment opportunities. There can be no assurance, however, that we will continue to ~~occur by late 2009.~~

~~The remainder of the 2007 capital spending~~generate cash flows at or above current levels or that we will be ~~spread among all manufacturing locations on projects expected~~able to ~~reduce operation costs, improve product quality or increase capacity.~~

Capital expenditures in 2008 will primarily be comprised of (a) the remainder of the follow-on heat treat plate investment noted above and (b) additional spending related to the $91 million investment program discussed above. The remainder of the 2008 capital spending will be spread among all manufacturing locations on projects expected to reduce operating costs, improve product quality, increase capacity or enhance operational security.

~~The level of capital expenditures may be adjusted from time to time depending on our business plans, price outlook for metal and other products,~~maintain our ability to ~~maintain adequate liquidity and other factors. No assurances can be provided as to the timing or success of any such expenditures.~~borrow under our revolving credit facility.

~~Financing activities.~~ ~~Financing Facilities~~At March 31, 2008, we could borrow and ~~Liquidity — On~~issue letters of credit of approximately $262.8 million in the ~~Effective Date, we entered into a new senior secured~~aggregate under our revolving credit ~~agreement with a group of lenders providing for a $200 million revolving credit facility of which up to a maximum of $60 million may be utilized for letters of credit.~~facility. Under the revolving credit facility, we are able to borrow (or obtain letters of credit) from time to time in an aggregate amount equal to the lesser of ~~$200~~$265 million and a borrowing base comprised of eligible accounts receivable, eligible inventory and certain eligible machinery, equipment and real estate, reduced by certain reserves, all as specified in the revolving credit facility. Of the aggregate amount available under the revolving credit facility, a maximum of $60 million may be be utilized for letters of credit. The revolving credit facility ~~has a five-year term and~~ matures in July 2011, at which time all principal amounts outstanding thereunder will be due and payable. Borrowings under the revolving credit facility bear interest at a rate equal to either a base prime rate or LIBOR, at our option, plus a specified variable percentage determined by reference to the then remaining borrowing availability under the revolving credit facility. The revolving credit facility may, subject to certain conditions and the agreement of lenders thereunder, be increased up to $275 million.

~~Concurrent with the execution of~~Amounts owed under the revolving credit facility, we entered into a term loan facility with a group of lenders that provides for a $50 million term loan and is guaranteed by certain of our domestic operating subsidiaries. The term loan facility was fully drawn on August 4, 2006. The term loan facility has a five-year term and matures in July 2011, at which time all principal amounts outstanding thereunder will be due and payable. Borrowings under the term loan facility bear interest at a rate equal to either a premium over a base prime rate or LIBOR, at our option.

~~Amounts owed under each of the revolving credit facility and the term loan~~ facility may be accelerated upon the occurrence of various events of default set forth in ~~each such~~the agreement, including, without limitation, the

failure to make ~~principal or~~ interest payments when due and breaches of covenants, representations and warranties set forth in ~~each~~the agreement.

The revolving credit facility is secured by a first priority lien on substantially all of our assets and the assets of our US operating subsidiaries that are also borrowers thereunder. The ~~term loan~~revolving credit facility ~~is secured by a second lien on substantially all of our assets and the assets of our US operating subsidiaries that are the borrowers or guarantors thereof.~~

~~Both credit facilities place~~places restrictions on our ability to, among other things, incur debt, create liens, make investments, pay dividends, sell assets, undertake transactions with affiliates and enter into unrelated lines of business.

We currently believe that the cash and cash equivalents, cash flows from operations and cash available under the revolving credit facility will provide sufficient working capital to allow us to meet our obligations for at least the next twelve months. At ~~October 31, 2007,~~April 30, 2008, there were no borrowings outstanding ~~under the revolving credit facility,~~and there were approximately ~~$15.5~~$12.6 million of outstanding letters of credit under the revolving credit ~~facility and there was $50 million outstanding under the term loan~~ facility.

Capital Expenditures

A component of our long-term strategy is our capital expenditure program including our organic growth initiatives.

We continue to fund our $139 million heat treat plate expansion project at our Trentwood facility in Spokane, Washington, the majority of which is now fully operational. This project significantly increases our heat treat plate production capacity and augments our product offering by increasing the thickness of heat treat stretched plate we can produce for aerospace and defense and general engineering applications. Approximately $118 million of

spending on this project was incurred through March 31, 2008. Capital spending related to the last phase of the heat treat plate project, a $34 million follow-on investment announced in June 2007, will continue throughout 2008.

In 2007, we announced a $91 million investment program in our rod, bar and tube value stream including a facility to be located in Kalamazoo, Michigan as well as improvements at three existing extrusion and drawing facilities. This investment program is expected to significantly improve the capabilities and efficiencies of our rod and bar and seamless extruded and drawn tube operations and enhance the market position of such products. We expect the facility in Kalamazoo, Michigan to be equipped with two extrusion presses and a remelt operation. Completion of these investments is expected to occur by late 2009. Approximately $12 million of spending on these projects was incurred through March 31, 2008. We estimate that an additional $30 million to $35 million will be incurred in the remainder of 2008 with the balance being incurred in 2009.

In February 2008, we announced $14 million of additional programs that will enhance Kaiser Select^® capabilities in our Tulsa, Oklahoma and Sherman, Texas extrusion plants and significantly reduce energy consumption at one of the casting units in our Trentwood facility. We expect the majority of these additional programs to be completed during 2008. Approximately $1 million of spending on these projects was incurred through March 31, 2008.

The remainder of our capital spending in the quarter ended March 31, 2008 was spread among all manufacturing locations on projects expected to reduce operating costs, improve product quality or increase capacity.

The following table presents our capital expenditures, net of accounts payable, for the quarters ended March 31, 2008 and 2007 (in millions of dollars):


	Quarter Ended		Quarter Ended
	March 31,		March 31,
	2008		2007

Heat treat expansion project	$	4.3	$	9.2
Rod, bar and tube value stream investment		4.4		—
Other		5.0		2.6
Capital expenditures in accounts payable		1.3		(4.4	)

Total capital expenditures, net of change in accounts payable	$	15.0	$	7.4

Total capital expenditures for Fabricated Products are currently expected to be in the $80 million to $90 million range for all of 2008 and are expected to be funded using cash from operations. Capital expenditures in 2008 will primarily be comprised of (a) the remainder of the follow-on heat treat plate investment noted above, (b) additional spending related to the $91 million rod, bar and tube value stream investment program discussed above, and (c) the $14 million of investment programs also noted above. We anticipate other 2008 capital spending will be spread among all manufacturing locations on projects expected to reduce operating costs, improve product quality, increase capacity or enhance operational security. We anticipate capital spending in 2009 on currently approved capital projects and maintenance activities to be in the $60 million to $70 million range.

The level of anticipated capital expenditures for future periods may be adjusted from time to time depending on our business plans, price outlook for fabricated aluminum products, our ability to maintain adequate liquidity and other factors. No assurances can be provided as to the timing or success of any such expenditures.

Dividends —

On ~~August 17,~~December 11, 2007, ~~the Company paid~~our Board of Directors declared a cash dividend of $3.7 million, or $.18 per common share, to stockholders of record at the close of business on ~~July 27, 2007. Additionally, the Company has~~January 25, 2008, which was paid on February 15, 2008. On March 11, 2008, our Board of Directors declared a dividend of $3.7 million, or $.18 per common share, to stockholders of record at the close of business on ~~October 26, 2007, with a payment date of November~~April 25, 2008, payable on May 16, ~~2007.~~2008.

Environmental Commitments and ~~Contingencies.~~Contingencies

We are subject to a number of environmental laws, to fines or penalties assessed for alleged breaches of the environmental laws, and to claims and litigation based upon such laws. Based on our evaluation of ~~the remaining~~ these and other

environmental matters, we have established environmental accruals of ~~$7.9~~$7.7 million at ~~September 30, 2007.~~March 31, 2008. However, we believe that it is reasonably possible that changes in various factors could cause costs associated with these environmental matters to exceed current accruals by amounts that could be, in the aggregate, up to an estimated ~~$15.8 million.~~

~~We have been~~$15.6 million primarily in connection with our ongoing efforts to address the historical use of oils containing polychlorinated biphenyls, or PCBs, at the Trentwood facility where we are working with regulatory authorities and performing studies and remediation pursuant to several consent orders with the State of ~~Washington relating to the historical use of oils containing polychlorinated biphenyls, or PCBs, at the Trentwood facility.~~Washington.

~~Capital Structure~~Contractual Obligations, Commercial Commitments and Off-Balance Sheet and Other Arrangements

~~Successor.~~On March 11, 2008, our Board of Directors declared a dividend of $3.7 million, or $.18 per common share, to stockholders of record at the ~~Effective Date, pursuant~~close of business on April 25, 2008, which is payable on May 16, 2008. The declared and unpaid dividend is included in the Consolidated Balance Sheets as Other accrued liabilities as of March 31, 2008.

On March 3, 2008, we granted additional stock-based awards to certain members of management under our stock-based long term incentive plan (see Note 10 of Notes to Interim Consolidated Financial Statements included in Part I, Item 1 of this Report). Additional awards are expected to be made in future years.

With the ~~Plan, all equity interests~~exception of the stock-based awards granted and the dividend declared in ~~Kaiser outstanding immediately prior to such date were cancelled without consideration~~the quarter ended March 31, 2008, there has been no material change in our contractual obligations other than in the ordinary course of business since the end of fiscal 2007. See Item 7, “Management’s Discussion and ~~20,000,000 new common shares were issued to a third-party disbursing agent~~Analysis of Financial Condition and Results of Operations” of our Annual Report onForm 10-K for ~~distribution~~the fiscal year ended December 31, 2007, for additional information regarding our contractual obligations, commercial commitments and off-balance-sheet and other arrangements.

Critical Accounting Estimates

Our consolidated financial statements are prepared in accordance with United States generally accepted accounting principles (“GAAP”). In connection with the ~~Plan. As~~preparation of our financial statements, we are required to make assumptions and estimates about future events, and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

Our significant accounting policies are discussed in Note 61 of Notes to Consolidated Financial Statements included in our Annual Report onForm 10-K for the year ended December 31, ~~2006, there are restrictions on the transfer~~2007. We discuss our critical accounting estimates in Part II, Item 7, “Management’s Discussion and Analysis of ~~common shares. In addition, under the revolving credit facility~~Financial Condition and ~~the term loan facility, there are restrictions on our ability to repurchase our common shares and our ability to pay dividends.~~

~~Predecessor.~~ ~~Prior to the Effective Date, MAXXAM Inc. and one~~Results of ~~its wholly owned subsidiaries collectively owned approximately 63%~~Operations” of ~~our common stock, with the remaining approximately 37% being publicly held. However, as discussed in Note 14 of Notes to Consolidated Financial Statements included in~~ our Annual Report onForm 10-K for the year ended December 31, ~~2006, pursuant to~~2007. With the ~~Plan, all~~exception of the ~~pre-emergence equity interests~~item discussed below, there has been no material change in ~~Kaiser were cancelled without consideration on July 6, 2006, upon~~ our ~~emergence from chapter 11 bankruptcy.~~critical accounting estimates since the end of fiscal 2007.


		Potential Effect if Actual Results
Description	Judgments and Uncertainties	Differ from Assumptions

Stock-based compensation.
We have a stock-based compensation plan, which includes non-vested share awards, non-qualified stock options and performance share awards. See Note 10 of Notes to Interim Consolidated Financial Statements included in Part I, Item I of this report and Note 11 of Notes to Consolidated Financial Statements included in our Annual Report onForm 10-K for the year ended December 31, 2007, for a complete discussion of our stock-based compensation programs. We determine the fair value of our non-vested share awards and performance shares awards based on the closing market price of our stock on the date of grant. We determine the fair value of our non-qualified stock option awards at the date of grant using option-pricing models. Non-qualified stock option awards granted in April 2007 were valued using a Black-Scholes model. Management reviews its assumptions and the valuations provided by independent third-party valuation advisors, when necessary, to determine the fair value of stock-based compensation awards.	Non-vested share awards require management to make assumptions regarding future employee turnover. Performance share awards require management to make assumptions regarding the likelihood of achieving company performance goals and future employee turnover. Option-pricing models and generally accepted valuation techniques require management to make assumptions and to apply judgment to determine the fair value of our awards. These assumptions and judgments include estimating the future volatility of our stock price, expected dividend yield, future employee turnover rates and future employee stock option exercise behaviors. Changes in these assumptions can materially affect the fair value estimate.	We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to determine stock-based compensation expense. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to changes in stock-based compensation expense that could be material. If actual results are not consistent with the assumptions used, the stock-based compensation expense reported in our financial statements may not be representative of the actual economic cost of the stock-based compensation. A 10% change in our stock-based compensation expense for the quarter ended March 31, 2008, would have affected net earnings by approximately $0.3 million.

~~Other Matters~~

~~Income Tax Matters.~~ Although we had $981 million of tax attributes available at December 31, 2006 to offset the impact of future income taxes, we do not yet meet the “more likely than not” criteria for recognition of such attributes primarily because we do not have sufficient history of paying taxes. As such, we have recorded a full valuation allowance against the amount of tax attributes available and no deferred tax assets are recognized in our balance sheet. See Note 6 of Notes to Consolidated Financial Statements included in our Annual Report on

Accounting Standards No. 13,Accounting for Leases. SFAS 157 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under SFAS 157 are described below:


	•	Level 1 — Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

	•	Level 2 — Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

	•	Level 3 — Inputs that are both significant to the fair value measurement and unobservable.

Our derivative contracts are valued at fair value using significant other observable and unobservable inputs. Such financial instruments consist of primary aluminum, natural gas, and foreign currency contracts. These fair values of these derivative contracts are based upon trades in liquid markets, such as aluminum options. Valuation model inputs can generally be verified and valuation techniques do not involve significant judgment. The fair values of such financial instruments are generally classified within Level 2 of the fair value hierarchy.

We have other derivative contracts that do not have observable market quotes. For these financial instruments, management uses significant other observable inputs (i.e., information concerning regional premiums for swaps). Where appropriate, valuations are adjusted for various factors such as bid/offer spreads.

The following table presents our assets and liabilities that are measured and recognized at fair value on a recurring basis classified under the appropriate level of the fair value hierarchy as of March 31, 2008:


	Level 1		Level 2			Level 3			Total

Derivative assets:
Aluminum swap contracts	$	—	$	46.1		$	—		$	46.1
Aluminum option contracts		—		21.5			—			21.5
Pound Sterling forward contract		—		.7			—			.7
Euro dollar forward contracts		—		.6			—			.6
Midwest premium swap contracts		—		—			.1			.1
Natural gas swap contracts		—		.7			—			.7

Total	$	—	$	69.6		$	.1		$	69.7

Derivative liabilities:
Aluminum swap contracts	$	—	$	(15.1	)		—		$	(15.1	)
Aluminum option contracts		—		(.4	)		—			(.4	)
Pound Sterling forward contract		—		(.3	)		—			(.3	)
Midwest premium swap contracts		—		—			(.3	)		(.3	)

Total	$	—	$	(15.8	)	$	(.3	)	$	(16.1	)

Financial instruments classified as Level 3 in the fair value hierarchy represent derivative contracts in which management has used at least one significant unobservable input in the valuation model. The following table presents a reconciliation of activity for such derivative contracts on a net basis:


	Level 3

Balance at January 1, 2008:	$	—
Total realized/unrealized gains (losses) included in:
Cost of goods sold excluding depreciation expense		(.2	)
Purchases, sales, issuances and settlements		—
Transfers in and (or) out of Level 3		—

Balance at March 31, 2008	$	(.2	)

Total gains (losses) included in earnings attributable to the change in unrealized gains (losses) relating to derivative contracts still held at March 31, 2008:	$	(.2	)

For all other recently issued and recently adopted accounting pronouncements, see the section “New Accounting Pronouncements” from Note 1 of Notes to Interim Consolidated Financial Statements ~~is incorporated herein by reference.~~included in Part I, Item I of this Report.

~~Critical Accounting Policies~~

Critical accounting policies fall into two broad categories. The first type of critical accounting policies includes those that are relatively straightforward in their application, but which can have a significant impact on the reported balances and operating results (such as revenue recognition policies, inventory accounting methods, etc.). The first type of critical accounting policies is outlined in Note 1 of Notes to Consolidated Financial Statements included in our Annual Report on~~Form 10-K~~ for the year ended December 31, 2006 and is not addressed below. The second type of critical accounting policies includes those that are both very important to the portrayal of our financial condition and results, and require management’s most difficult, subjective~~and/or~~ ~~complex judgments. Typically, the circumstances that make these judgments difficult, subjectiveand/or~~ complex have to do with the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting policies after emergence from chapter 11 bankruptcy are, in some cases, different from those before emergence (as many of the significant judgments affecting the financial statements related to matters or items directly a result of the chapter 11 bankruptcy or related to liabilities that were resolved pursuant to the Plan). See the Notes to Interim Consolidated Financial Statements for discussions of these differences.

While we believe that all aspects of our financial statements should be studied and understood in assessing our current (and expected future) financial condition and results, we believe that the accounting policies that warrant additional attention include:

~~1. Application of fresh start accounting.~~

~~Upon emergence from chapter 11 bankruptcy, we applied “fresh start” accounting to our consolidated financial statements as required bySOP 90-7.~~ As such, in July 2006, we adjusted Stockholders’ equity to equal the reorganization value of the entity at emergence. Additionally, items such as accumulated depreciation, accumulated deficit and accumulated other comprehensive income (loss) were reset to zero. We allocated the reorganization value to our individual assets and liabilities based on their estimated fair value at the Effective Date based, in part, on information from a third party appraiser. Such items as current liabilities, accounts receivable and cash reflected values similar to those reported prior to emergence. Items such as inventory, property, plant and equipment, long-term assets and long-term liabilities were significantly adjusted from amounts previously reported. Because fresh start accounting was adopted at emergence and because of the significance of liabilities subject to compromise that were relieved upon emergence, meaningful comparisons between the historical financial statements and the financial statements from and after emergence are difficult to make.

~~2. Our judgments and estimates with respect to commitments and contingencies.~~

Valuation of legal and other contingent claims is subject to a great deal of judgment and substantial uncertainty. Under accounting principles generally accepted in the United States of America (“GAAP”) , companies are required to accrue for contingent matters in their financial statements only if the amount of any potential loss is both “probable” and the amount (or a range) of possible loss is “estimatable.” In reaching a determination of the probability of an adverse ruling in respect of a matter, we typically consult outside experts. However, any such judgments reached regarding probability are subject to significant uncertainty. We may, in fact, obtain an adverse ruling in a matter that we did not consider a “probable” loss and which, therefore, was not accrued for in our financial statements. Additionally, facts and circumstances in respect of a matter can change causing key assumptions that were used in previous assessments of a matter to change. It is possible that amounts at risk in respect of one matter may be “traded off” against amounts under negotiations in a separate matter. Further, in estimating the amount of any loss, in many instances a single estimation of the loss may not be possible. Rather, we

may only be able to estimate a range for possible losses. In such event, GAAP requires that a liability be established for at least the minimum end of the range assuming that there is no other amount which is more likely to occur.

~~3. Our judgments and estimates in respect of the VEBAs.~~

The VEBA obligations included in our consolidated financial statements are based on assumptions that are subject to variation from year-to-year. Such variations could cause our estimate of such obligations to vary significantly.

The most significant assumptions used in determining the estimated year-end obligations were the assumed discount rate, long-term rate of return (“LTRR”) and the assumptions regarding future medical cost increases. Since recorded obligations represent the present value of expected postretirement benefit payments over the life of the plans, decreases in the discount rate (used to compute the present value of the payments) would cause the estimated obligations to increase. Conversely, an increase in the discount rate would cause the estimated present value of the obligations to decline. The LTRR on plan assets reflects an assumption regarding what the amount of earnings would be on existing plan assets (before considering any future contributions to the plans). Increases in the assumed LTRR would cause the projected value of plan assets available to satisfy postretirement obligations to increase, yielding a reduced net expense in respect of these obligations. A reduction in the LTRR would reduce the amount of projected net assets available to satisfy postretirement obligations and, thus, cause the net expense in respect of these obligations to increase. As the assumed rate of increase in medical costs rises, so does the net projected obligation. Conversely, if the rate of increase is assumed to be smaller, the projected obligation declines.

~~4. Our judgments and estimates in respect of environmental commitments and contingencies.~~

We are subject to a number of environmental laws, to fines or penalties assessed for alleged breaches of such laws and to claims based upon such laws. Based on our evaluation of environmental matters, we have established environmental accruals, primarily related to potential solid waste disposal and soil and groundwater remediation matters. These environmental accruals represent our estimate of costs reasonably expected to be incurred on a going concern basis in the ordinary course of business based on presently enacted laws and regulations, currently available facts, existing technology and our assessment of the likely remediation action to be taken. However, making estimates of possible environmental remediation costs is subject to inherent uncertainties. As additional facts are developed and definitive remediation plans and necessary regulatory approvals for implementation of remediation are established or alternative technologies are developed, changes in these and other factors may result in actual costs exceeding the current environmental accruals.

~~See Note 10 of Notes to Interim Consolidated Financial Statements for additional information in respect of environmental contingencies.~~

~~5. Our judgments and estimates in respect of conditional asset retirement obligations.~~

Companies are required to estimate incremental costs for special handling, removal and disposal costs of materials that may or will give rise to conditional asset retirement obligations (“CAROs”) and then discount the expected costs back to the current year using a credit adjusted risk free rate. Under current accounting guidelines, liabilities and costs for CAROs must be recognized in a company’s financial statements even if it is unclear when or if the CARO will be triggered. If it is unclear when or if a CARO will be triggered, companies are required to use probability weighting for possible timing scenarios to determine the probability weighted amounts that should be recognized in the company’s financial statements. As more fully discussed in Note 1 of Notes to Consolidated Financial Statements included in our Annual Report on~~Form 10-K~~ for the year ended December 31, 2006, we have evaluated our exposures to CAROs and determined that we have CAROs at several of our facilities. The vast majority of such CAROs consist of incremental costs that would be associated with the removal and disposal of asbestos (all of which is believed to be fully contained and encapsulated within walls, floors, ceilings or piping) of certain of the older facilities if such facilities were to undergo major renovation or be demolished. No plans currently exist for any such renovation or demolition of such facilities and the Company’s current assessment is that the most probable scenarios are that no such CARO would be triggered for 20 or more years, if at all. Nonetheless, we recorded an estimated CARO liability at December 31, 2005 and such amount will increase substantially over time.

The estimation of CAROs is subject to a number of inherent uncertainties including: (1) the timing of when any such CARO may be incurred, (2) the ability to accurately identify all materials that may require special handling or treatment, (3) the ability to reasonably estimate the total incremental special handling and other costs, (4) the ability to assess the relative probability of different scenarios which could give rise to a CARO, and (5) other factors outside the Company’s control including changes in regulations, costs and interest rates. As such, actual costs and the timing of such costs may vary significantly from the estimates, judgments and probable scenarios we considered, which could, in turn, have a material impact on our future financial statements. For example, the Company recorded an additional CARO for Anglesey in the first quarter of 2007 as a result of new environmental regulations and a change in Anglesey’s assessment of its obligations.

~~6. Recoverability of recorded asset values.~~

Under GAAP, assets to be held and used are evaluated for recoverability differently than assets to be sold or disposed of. Assets to be held and used are evaluated based on their expected undiscounted future net cash flows. So long as we reasonably expect that such undiscounted future net cash flows for each asset will exceed the recorded value of the asset being evaluated, no impairment is required. However, if plans to sell or dispose of an asset or group of assets meet a number of specific criteria, then, under GAAP, such assets should be considered held for sale or disposition and their recoverability should be evaluated, based on expected consideration to be received upon sale or disposition. Sales or dispositions at a particular time will be affected by, among other things, the existing industry and general economic circumstances as well as our own circumstances, including whether or not assets will (or must) be sold on an accelerated or more extended timetable. Such circumstances may cause the expected value in a sale or disposition scenario to differ materially from the realizable value over the normal operating life of assets, which would likely be evaluated on long-term industry trends.

Given the potential for future shutdown and related costs, Anglesey temporarily suspended dividends in the last half of 2006 and the first half of 2007 while it studied future cash requirements. Based on a review of cash available for future cash requirements, Anglesey removed the temporary suspension of dividends and declared a dividend in August 2007. Approximately $4.4 million was paid to us in respect of our ownership interests in August. We expect Anglesey to make future dividend decisions in the context of maintaining adequate cash for potential shutdown and related costs, and there can be no assurance regarding future Anglesey dividends. Should dividends from Anglesey be suspended in the future for a prolonged period or permanently, we will have to consider whether it is appropriate to continue to recognize our equity share in Anglesey’s earnings~~and/or~~ ~~whether the value of our investment in Anglesey has been impaired.~~

~~7. Income Tax Provision.~~

Although we have substantial tax attributes available to offset the impact of future income taxes, we do not meet the “more likely than not” criteria for recognition of such attributes primarily because we do not have sufficient history of paying taxes. As such, we recorded a full valuation allowance against the amount of tax attributes available and no deferred tax asset was recognized. The benefit associated with any reduction of the valuation allowance is first utilized to reduce intangible assets with any excess being recorded as an adjustment to stockholders’ equity rather than as a reduction of income tax expense. Therefore, despite the existence of such tax attributes, we expect to record a full statutory tax provision in future periods and, therefore, the benefit of any tax attributes realized will only affect future balance sheets and statements of cash flows. If we ultimately determine that we meet the “more likely than not” recognition criteria, the amount of net operating loss carryforwards and other deferred tax assets would be recorded on the balance sheet and would be recorded as an adjustment to Stockholders’ equity.

In accordance with GAAP, financial statements for interim periods include an income tax provision based on the effective tax rate expected to be incurred in the current year. Accordingly, estimates and judgments are made (by taxable jurisdiction) as to the amount of taxable income that may be generated, the availability of deductions and credits expected and the availability of net operating loss carry forwards or other tax attributes to offset taxable income. Making such estimates and judgments is subject to inherent uncertainties given the difficulty predicting such factors as future market conditions, customer requirements, the cost for key inputs such as energy and primary aluminum, overall operating efficiency and many other items. However, if among other things, (1) actual results vary from our forecasts due to one or more of the factors cited above or elsewhere in this Report, (2) income is

distributed differently than expected among tax jurisdictions, (3) one or more material events or transactions occur which were not contemplated, (4) other uncontemplated transactions occur, or (5) certain expected deductions, credits or carryforwards are not available, it is possible that the effective tax rate for a year could vary materially from the assessments used to prepare the interim consolidated financial statements. See Note 8 of Notes to Interim Consolidated Financial Statements for additional discussion of these matters.

~~Contractual Obligations and Commercial Commitments~~

~~The following summarizes our significant contractual obligations at December 31, 2006 (dollars in millions):~~

Payments Due by Period
Less than
2-3
4-5
More than

Contractual Obligations
Total 1 Year Years Years 5 Years

Long-term debt $ 50.0 $ — $ — $ 50.0 $ —
Operating leases 9.3 3.0 4.5 1.7 .1

Total cash contractual obligations(1)(2) $ 59.3 $ 3.0 $ 4.5 $ 51.7 $ .1


~~(1)~~		Total contractual obligations exclude future annual variable cash contributions to the VEBAs, which cannot be determined at this time. See “— Off Balance Sheet and Other Arrangements” below for a summary of possible annual variable cash contribution amounts at various levels of earnings and cash expenditures.

~~(2)~~		~~At September 30, 2007, we had uncertain tax positions which ultimately could result in a tax payment (see Note 8 of Notes to Interim Consolidated Financial Statements).~~

~~Off-Balance Sheet and Other Arrangements~~

As of September 30, 2007, outstanding letters of credit under our revolving credit facility were approximately $15.5 million, substantially all of which expire within approximately twelve months. The letters of credit relate primarily to insurance, environmental and other activities.

~~We have agreements to supply alumina to and to purchase aluminum from Anglesey. Both the alumina sales agreement and primary aluminum purchase agreement are tied to primary aluminum prices.~~

~~Our employee benefit plans include the following:~~


	•	We are obligated to make monthly contributions of one dollar per hour worked by each bargaining unit employee to the appropriate multi-employer pension plans sponsored by the United Steelworkers and International Association of Machinists and certain other unions at six of our production facilities. This obligation came into existence in December 2006 for four of our production facilities upon the termination of four defined benefit plans. The arrangement for the other two locations came into existence during the first quarter of 2005. We currently estimate that contributions will range from $1 million to $3 million per year.

	•	We have a defined contribution 401(k) savings plan for hourly bargaining unit employees at five of our production facilities. We will be required to make contributions to this plan for active bargaining unit employees at these production facilities that will range from $800 to $2,400 per employee per year, depending on the employee’s age~~and/or~~ service. This arrangement came into existence in December 2004 for two production facilities upon the termination of one defined benefit plan. The arrangement for the other three locations came into existence during December 2006. We currently estimate that contributions to such plans will range from $1 million to $3 million per year.

	•	~~We have a defined benefit plan for our salaried employees at our production facility in London, Ontario with annual contributions based on each salaried employee’s age and years of service.~~

	•	We have a defined contribution 401(k) savings plan for salaried and non-bargaining unit hourly employees providing for a match of certain contributions dollar for dollar on the first four percent of compensation made by employees plus an annual contribution of between 2% and 10% of their compensation depending on their age and years of service. All new hires after January 1, 2004 receive a fixed 2% contribution. We currently estimate that contributions to such plan will range from $1 million to $3 million per year.


	•	We have a non-qualified defined contribution restoration plan for key employees who would otherwise suffer a loss of benefits under our defined contribution 401(k) savings plan as a result of the limitations by the Internal Revenue Code.

	•	We have an annual variable cash contribution to the VEBAs. The amount to be contributed to the VEBAs will be 10% of the first $20 million of annual cash flow (as defined; but generally, earnings before interest, taxes and depreciation and amortization less cash payments for, among other things, interest, income taxes and capital expenditures), plus 20% of annual cash flow, as defined, in excess of $20 million. Such annual payments may not exceed $20 million and are also limited (with no carryover to future years) to the extent that the payments would cause our liquidity to be less than $50 million. Such amounts are determined on an annual basis and payable no later than 15 days following the date of filing of our Annual Report on~~Form 10-K.~~ However, at September 30, 2007, we have the ability to offset amounts that would otherwise be due to the VEBAs with approximately $10.8 million of excess contributions remaining at September 30, 2007 which were made to the VEBAs prior to the July 6, 2006 Effective Date of the Plan.

The following table shows (in millions of dollars) the estimated amount of variable VEBA payments that would occur at differing levels of earnings before depreciation, interest, income taxes (“EBITDA”) and cash payments in respect of, among other items, interest, income taxes and capital expenditures. The table below does not consider the liquidity limitation, the $10.8 million of remaining advances available at September 30, 2007 to offset VEBA obligations as they become due and certain other factors that could impact the amount of variable VEBA payments due and, therefore, should be considered only for illustrative purposes.

Cash Payments for

Capital Expenditures, Income Taxes,

Interest Expense, etc.
EBITDA
$25.0 $50.0 $75.0 $100.0

$20.0 $ — $ — $ — $ —
40.0 1.5 — — —
60.0 5.0 1.0 — —
80.0 9.0 4.0 .5 —
100.0 13.0 8.0 3.0 —
120.0 17.0 12.0 7.0 2.0
140.0 20.0 16.0 11.0 6.0
160.0 20.0 20.0 15.0 10.0
180.0 20.0 20.0 19.0 14.0
200.0 20.0 20.0 20.0 18.0


	•	We have a short term incentive compensation plan for certain members of management payable in cash which is based primarily on earnings, adjusted for certain safety and performance factors. Most of our production facilities have similar programs for both hourly and salaried employees.

	•	We have a stock-based long-term incentive plan for certain members of management and our directors. As more fully discussed in Note 7 of Notes to Consolidated Financial Statements included in the Company’s Annual report on~~Form 10-K~~ for the year ended December 31, 2006, an initial, emergence-related award was made under this program in the second half of 2006. Awards were also made in April and June 2007 and additional awards are expected to be made in future years.

~~During the third quarter of 2005, August 2006 and June 2007, we placed orders for certain equipmentand/or~~ services intended to augment our heat treat and aerospace capabilities at our Trentwood facility in Spokane, Washington. We expect the total costs related to these orders to be approximately $139 million. Of such amount, approximately $101 million was incurred from inception of the Trentwood project through the third quarter of 2007. The balance is expected to be incurred primarily during the remainder of 2007 and 2008.


Item 3.	*Quantitative and Qualitative Disclosures About Market Risk*

Our operating results are sensitive to changes in the prices of alumina, primary aluminum and fabricated aluminum products, and also depend to a significant degree upon the volume and mix of all products sold. As discussed more fully in Note 1113 of Notes to Interim Consolidated Financial Statements included in Part I, Item I of this Report, we historically have utilized hedging transactions to lock-in a specified price or range of prices for certain products which we sell or consume in our production process and to mitigate our exposure to changes in foreign currency exchange ~~rates.~~

~~Sensitivity~~rates and energy prices.

Primary Aluminum. Our share of primary aluminum production from Anglesey is approximately 150 million pounds annually. Because we purchase alumina for Anglesey at prices linked to primary aluminum prices, only a portion of our net revenues associated with Anglesey is exposed to price risk. We estimate the net portion of our share of Anglesey production exposed to primary aluminum price risk to be approximately 100 million pounds annually (before considering income tax effects).

Our pricing of fabricated aluminum products is generally intended to lock-in a conversion margin (representing the value added from the fabrication process(es)) and to pass metal price risk on to customers. However, in certain instances, we do enter into firm price arrangements. In such instances, we do have price risk on anticipated primary aluminum purchases in respect of the customer orders. Total fabricated products shipments during the ~~nine months~~quarters ended ~~September 30,~~March 31, 2008 and 2007 ~~the period from January 1, 2006 to July 1, 2006 and the period from July 1, 2006 to September 30, 2006~~ for which we had price risk were (in millions of pounds) ~~155.1, 103.9~~60.4 and ~~49.1,~~49.2, respectively.

During the last three years, the volume of fabricated products shipments with underlying primary aluminum price risk was at least as much as our net exposure to primary aluminum price risk at Anglesey. As such, we consider our access to Anglesey production overall to be a “natural” hedge against fabricated products firm metal-price risks. However, since the volume of fabricated products shipped under firm prices may not match up on a month-to-month basis with expected Anglesey-related primary aluminum shipments weand to the extent that firm price contracts from our Fabricated Products segment exceed the Anglesey-related primary aluminum shipments, the Company may use third party hedging instruments to eliminate any net remaining primary aluminum price exposure existing at any time.

At ~~September 30, 2007,~~March 31, 2008, the Fabricated Products segment held contracts for the delivery of fabricated aluminum products that have the effect of creating price risk on anticipated primary aluminum purchases for the ~~last two quarters of 2007 and for the~~ period 2008 through ~~2011~~2012 totaling approximately (in millions of pounds): ~~2007~~2008 — 161; 2009 — 91; 2010 — 88; ~~2008 — 139; 2009 — 88; 2010 — 86; and~~ 2011 — ~~77.~~78 and 2012 — 9.

~~Item 4T.~~ ~~Controls and Procedures~~


Item 4.	*Controls and Procedures*

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934 is processed, recorded, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to management, including the principal executive officer and principal financial officer, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Evaluation of Disclosure Controls and Procedures. An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures was performed as of the end of the period covered by this Report under the supervision of and with the participation of our management, including the principal executive officer and principal financial officer. Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective.

Changes in Internal ~~Controls~~Control Over Financial Reporting. We had no changes in our internal ~~controls~~control over financial reporting during the period covered by this Report that have materially affected, or are reasonably likely to affect, our internal control over financial reporting.

In April 2008, Joseph P. Bellino, the Company’s then Chief Financial Officer, left the Company to pursue other interests. Concurrently, Daniel J. Rinkenberger, the Company’s Treasurer was named Chief Financial Officer. We do not believe that this change had any material impact on the Company’s internal controls over financial reporting.

PART II — OTHER INFORMATION


Item 1.	*Legal Proceedings*

Reference is made to Part I, Item 3. “Legal Proceedings” included in our Annual Report onForm 10-K for the year ended December 31, ~~2006~~2007 for information concerning material legal proceedings with respect to the Company. There ~~has~~have been no material developments since December 31, ~~2006.~~2007.

~~Effects of Section 382.~~ Section 382 of the Code affects a corporation’s ability to use its federal income tax attributes, including its net operating loss carry-forwards, following a more than 50% change in ownership during any period of 36 consecutive months, all as determined under the Code (an “ownership change”). Under Section 382(l)(5) of the code, if we were to have an ownership change prior to July 6, 2008 (~~i.e.~~, within the two-year period following our emergence from chapter 11 bankruptcy on July 6, 2006), our ability to use our federal income tax attributes would be eliminated. However, if we were to have an ownership change on or after July 6, 2008, our ability to use our federal income tax attributes would be limited, but not eliminated. In such circumstances, the amount of post-ownership change annual taxable income that could be offset by pre-ownership change tax attributes would be limited to an amount equal to the product of (a) the aggregate value of our outstanding common shares immediately prior to the ownership change and (b) the applicable federal long-term tax exempt rate in effect on the date of the ownership change.None.

~~Transfer Restrictions.~~ In order to reduce the risk that any change in our ownership would jeopardize the preservation of our federal income tax attributes existing upon our emergence from chapter 11 bankruptcy, our certificate of incorporation prohibits certain transfers of our equity securities. More specifically, subject to certain exceptions for transactions that would not impair our federal income tax attributes, our certificate of incorporation prohibits a transfer of our equity securities without the prior approval of our Board of Directors if either (a) the transferor holds 5% or more of the total fair market value of all of our issued and outstanding equity securities (such person, a “5% shareholder”) or (b) as a result of such transfer, either (i) any person or group of persons would become a 5% shareholder or (ii) the percentage stock ownership of any 5% shareholder would be increased (any such transfer, a “5% transaction”).

In addition, we entered into a stock transfer restriction agreement with the trustee of the voluntary employee beneficiary association for the benefit of certain union retirees, their surviving spouses and eligible dependents (the “Union VEBA”), which was our only 5% shareholder upon our emergence from chapter 11 bankruptcy. Under the stock transfer restriction agreement, until the restriction release date, subject to exceptions for certain transactions that would not impair our federal income tax attributes, the Union VEBA is prohibited from transferring or otherwise disposing of more than 15% of the total common shares issued to the Union VEBA pursuant to our plan of reorganization during any~~12-month~~ period without the prior approval of our Board of Directors. Under our plan of reorganization, the Union VEBA had rights to receive 11,439,900 common shares upon our emergence from chapter 11 bankruptcy; however, prior to emergence, the Union VEBA sold its right to 2,630,000 of such shares. Under the terms of the stock transfer restriction agreement, the Union VEBA was treated as if it received the full 11,439,900 shares at emergence and sold 2,630,000 of such shares immediately thereafter. As a result of this treatment, under the stock transfer restriction agreement, upon our emergence the Union VEBA was generally limited to selling 1,715,985 common shares during any~~12-month~~ period and was prohibited from making any additional sales of common shares until June 6, 2007, except as otherwise permitted by the terms of the stock transfer restriction agreement. As a result of an additional sale of common shares by the Union VEBA that was made on January 31, 2007 in accordance with the terms of the stock transfer restriction agreement pursuant to an underwritten secondary offering involving the Union VEBA and certain other selling stockholders, the Union VEBA was prohibited from making any additional sales of common shares until June 6, 2009 without the prior consent of our Board of Directors.

~~Effects of the IRS Ruling.~~ The stock transfer restriction agreement contemplated that a ruling would be sought from the IRS that, for purposes of Section 382 of the Code, we could treat the Union VEBA as having received 8,809,900 rather than 11,439,900 common shares pursuant to our plan of reorganization. On May 2, 2007, we received the IRS ruling, which was to that effect. As a result of the IRS ruling, under the stock transfer restriction agreement, the number of common shares that generally may be sold by the Union VEBA during any~~12-month~~ period is reduced from 1,715,985 to 1,321,485 and the next date on which the Union VEBA may sell common shares without the prior consent of our Board of Directors is January 31, 2009 rather than June 6, 2009. At the September 2007 meeting of our Board of Directors, the Board approved a resolution granting its consent to the sale by the Union VEBA of up to 627,200 common shares.

Preserving our federal income tax attributes affects our ability to issue new common shares because such issuances must be considered in determining whether an ownership change has occurred under Section 382 of the Code. The IRS ruling increased the number of common shares that we can currently issue without potentially impairing our ability to use our federal income tax attributes. Immediately following the completion of the


Item 6.	*Exhibits*


*31	.1	~~Certification of Jack A. Hockema pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~
*31	.2	~~Certification of Joseph P. Bellino pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~
*32	.1	~~Certification of Jack A. Hockema pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~
*32	.2	~~Certification of Joseph P. Bellino pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~


10	.1	Summary of the Kaiser Aluminum Fabricated Products 2008 Short-Term Incentive Plan for Key Managers (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed by the Company on March 4, 2008, File No. 000-52105).
10	.2	2008 Form of Executive Officer Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K, filed by the Company on March 4, 2008, File No. 000-52105).
10	.3	2008 Form of Executive Officer Performance Shares Award Agreement (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K, filed by the Company on March 4, 2008, File No. 000-52105).
10	.4	Kaiser Aluminum Corporation 2008 - 2010 Long-Term Incentive Program Summary of Management Objectives and Formula for Determining Performance Shares Earned (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K, filed by the Company on March 4, 2008, File No. 000-52105).
*31	.1	Certification of Jack A. Hockema pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*31	.2	Certification of Daniel J. Rinkenberger pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*32	.1	Certification of Jack A. Hockema pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*32	.2	Certification of Daniel J. Rinkenberger pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


*		Filed herewith.

4745

INDEX TO EXHIBITS


~~Exhibit~~
~~Number~~			~~Description~~

	*31	.1	~~Certification of Jack A. Hockema pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~
	*31	.2	~~Certification of Joseph P. Bellino pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~
	*32	.1	~~Certification of Jack A. Hockema pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~
	*32	.2	~~Certification of Joseph P. Bellino pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~


Exhibit
Number			Description

	10	.1	Summary of the Kaiser Aluminum Fabricated Products 2008 Short-Term Incentive Plan for Key Managers (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed by the Company on March 4, 2008, File No. 000-52105).
	10	.2	2008 Form of Executive Officer Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K, filed by the Company on March 4, 2008, File No. 000-52105).
	10	.3	2008 Form of Executive Officer Performance Shares Award Agreement (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K, filed by the Company on March 4, 2008, File No. 000-52105).
	10	.4	Kaiser Aluminum Corporation 2008 - 2010 Long-Term Incentive Program Summary of Management Objectives and Formula for Determining Performance Shares Earned (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K, filed by the Company on March 4, 2008, File No. 000-52105).
	*31	.1	Certification of Jack A. Hockema pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	*31	.2	Certification of Daniel J. Rinkenberger pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	*32	.1	Certification of Jack A. Hockema pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	*32	.2	Certification of Daniel J. Rinkenberger pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


*		Filed herewith.

4947


										Common Stock
										Owned by
										Union VEBA			Accumulated
							Retained			Subject to			Other
	Common			Additional			Earnings			Transfer			Comprehensive			Treasury
	Stock			Capital			(Deficit)			Restrictions			Income (Loss)			Stock			Total
	(Unaudited)
	(In millions of dollars, except share amounts)

BALANCE, December 31, 2005- Predecessor	$	.8		$	538.0		$	(3,671.2	)	$	—		$	(8.8	)	$				(3,141.2	)
Net income (same as Comprehensive income) — Predecessor		—			—			35.9			—			—			—			35.9

BALANCE, June 30, 2006-Predecessor		.8			538.0			(3,635.3	)		—			(8.8	)		—			(3,105.3	)
Cancellation of Predecessor common stock		(.8	)		.8			—			—			—			—			—
Issuance of Successor common stock (20,000,000 shares) to creditors		.2			480.2			—			—			—			—			480.4
Common stock owned by Union VEBA subject to transfer restrictions, at reorganization value, 6,291,945 shares		—			—			—			(151.1	)		—			—			(151.1	)
Plan and fresh start adjustments		—			(538.8	)		3,635.3			—			8.8			—			3,105.3

BALANCE, July 1, 2006		.2			480.2			—			(151.1	)		—			—			329.3


Net income		—			—			26.2			—			—			—			26.2
Benefit plan adjustments not recognized in earnings		—			—			—			—			7.9			—			7.9

Comprehensive income		—			—			—			—			—			—			34.1
Issuance of 4,273 shares of common stock to directors in lieu of annual retainer fees		—			.2			—			—			—			—			.2
Recognition of pre-emergence tax benefits in accordance with fresh start accounting		—			3.3			—			—			—			—			3.3
Amortization of unearned equity compensation		—			3.8			—			—			—			—			3.8

BALANCE, December 31, 2006	$	.2		$	487.5		$	26.2		$	(151.1	)	$	7.9		$	—		$	370.7
Net income		—			—			76.6			—			—			—			76.6
Foreign currency translation adjustment		—			—			—			—			(3.5	)		—			(3.5	)

Comprehensive income																				73.1
Removal of transfer restrictions on 819,280 shares of common stock owned by Union VEBA, net of income taxes of $5.0		—			23.0			—			19.7			—			—			42.7
Recognition of pre-emergence tax benefits in accordance with fresh start accounting (including tax benefits of $15.9 for the quarter ended September 30, 2007)		—			48.1			—			—			—			—			48.1
Equity compensation recognized by an unconsolidated affiliate		—			.2			—			—			—			—			.2
Repurchase of 3,862 shares of common stock from former employee and 3,302 shares of common stock from employees on vesting of restricted stock		—			—			—			—			—			(.6	)		(.6	)
Issuance of 3,877 shares of common stock to directors in lieu of annual retainer fees		—			.3			—			—			—			—			.3
Common stock cash dividends		—			—			(7.4	)		—			—			—			(7.4	)
Amortization of unearned equity compensation (including unearned equity compensation of $2.3 for the quarter ended September 30, 2007)		—			6.5			—			—			—			—			6.5

BALANCE, September 30, 2007	$	.2		$	565.6		$	95.4		$	(131.4	)	$	4.4		$	(.6	)	$	533.6


3.	Investment In and Advances To Unconsolidated Affiliate


	March 31,
	2008

Heat treat expansion project (Spokane, Washington facility)	$	16.3
Rod, bar and tube value stream investments, including new facility in Kalamazoo, Michigan		11.0
Other		15.9

Total Construction in progress	$	43.2


				Three Months Ended
				September 30, 2006
				Period from
				July 1, 2006
	Quarter Ended			through			Predecessor
	September 30,			September 30,			July 1,
	2007			2006			2006
Domestic	$	( 15.0	)	$	(2.7	)	$	—
Foreign		(5.0	)		(5.6	)		—

Total	$	(20.0	)	$	(8.3	)	$	—


	•	The Company’s equity in income before income taxes of Anglesey is treated as a reduction (increase) in Cost of products ~~sold.~~sold excluding depreciation. The income tax effects of the Company’s equity in income are included in the tax provision. This resulted in ~~$11.5~~$1.6 being included in the income tax provision, increasing the effective tax rate by approximately 8%2.3%.

	•	Benefits associated with any reduction of the valuation allowance are first utilized to reduce intangible assets, with any excess being recorded as an adjustment to Stockholders’ equity. This resulted in $48.4 being included in the income tax provision, increasing the effective tax rate by approximately 34%.


Gross unrecognized tax benefits at December 31, 2007(1)	$	19.7
Gross increases for tax positions of prior years		.2
Gross decreases for tax positions of current years		(.1	)
Settlements		—
Foreign currency translation		(.6	)

Gross unrecognized tax benefits at March 31, 2008(2)	$	19.2


(1)		Of the $19.7, $15.8 was recorded as a FIN 48 liability on the balance sheet in Long-term liabilities and $3.9 is offset by NOL carryforwards and indirect tax benefits. If and when the $19.7 ultimately is recognized, $15.8 will go through the Company’s income tax provision and thus affect the effective tax rate in future periods.

(2)		Of the $19.2, $15.3 was recorded as a FIN 48 liability on the balance sheet in Long-term liabilities and $3.9 is offset by NOL carryforwards and indirect tax benefits. If and when the $19.2 ultimately is recognized, $15.3 will go through the Company’s income tax provision and thus affect the effective tax rate in future periods.


	•	Monthly contributions of one dollar per hour worked by each bargaining unit employee to the appropriate multi-employer pension plans sponsored by the United Steelworkers and International Association of Machinists and certain other unions at six of our production facilities. This obligation came into existence in December 2006 for four of our production facilities upon the termination of four defined benefit plans. The arrangement for the other two locations came into existence during the first quarter of 2005. The Company currently estimates that contributions will range from $1 to $3 per year.

	•	A defined contribution 401(k) savings plan for hourly bargaining unit employees at five of the Company’s production facilities. The Company is required to make contributions to this plan for active bargaining unit employees at these production facilities ranging from (in whole dollars) $800 to $2,400 per employee per year, depending on the employee’s ageand/or years of service. This arrangement came into existence in December 2004 for two production facilities upon the termination of one defined benefit plan. The arrangement for the other three locations came into existence during December 2006. The Company currently estimates that contributions to such plans will range from $1 to $3 per year.

	•	A defined benefit plan for our salaried employees at the Company’s facility in London, Ontario with annual contributions based on each salaried employee’s age and years of service.

	•	A defined contribution savings plan for salaried and non-bargaining unit hourly employees (which we refer to as the “Salaried DC Plan”) providing for a match of certain contributions made by employees plus a contribution of between 2% and 10% of their compensation depending on their age and years of service. All new hires after January 1, 2004 receive a fixed 2% contribution. The Company currently estimates that contributions to such plans will range from $1 to $3 per year.

	•	A non-qualified defined contribution plan for key employees who would otherwise suffer a loss of benefits under the Company’s defined contribution plan as a result of the limitations by the Internal Revenue Code.


	Performance Shares
			Weighted-
			Average
			Grant-Date
			Fair Value
	Shares		per Share

Outstanding at January 1, 2008		—	$	—
Granted		96,480		74.82
Vested		—		—
Forfeited		—		—

Outstanding at March 31, 2008		96,480	$	74.82


	•	~~Components of Net Periodic Benefit Cost and Cash Flow and Charges~~


6.	~~Supplemental Balance Sheet Information~~


					Nine Months
					Ended
	Quarter Ended September 30,				September 30,
	2007		2006		2007

Numerator:
Net Income	$	24.8	$	14.3	$	76.6

Denominator:
Weighted average common shares outstanding		20,026		20,002		20,010
Effect of dilutive securities:
Non-vested common shares and restricted stock units		300		27		281

Weighted average common shares outstanding, assuming full dilution		20,326		20,029		20,291

Earnings per share:
Basic	$	1.24	$	.72	$	3.83
Diluted	$	1.22	$	.72	$	3.77


				Three Months Ended September 30,								Nine Months Ended September 30,
				Period from								Period from			Predecessor
				July 1,								July 1,			Period from
	Quarter			2006					Nine Months			2006			January 1,
	Ended			through			Predecessor		Ended			through			2006
	September 30,			September 30,			Period July 1,		September 30,			September 30,			to July 1,
	2007			2006			2006		2007			2006			2006
Net Sales:
Fabricated Products	$	316.2		$	281.6		$	—	$	985.3		$	281.6		$	590.9
Primary Aluminum		50.5			49.8			—		158.7			49.8			98.9

	$	366.7		$	331.4		$	—	$	1,144.0		$	331.4		$	689.8

Segment Operating Income (Loss):
Fabricated Products(1)	$	39.8		$	29.1		$	—	$	129.3		$	29.1		$	61.2
Primary Aluminum		13.4			2.8			—		31.8			2.8			12.4
Corporate and Other		(10.6	)		(13.1	)		—		(35.8	)		(13.1	)		(20.3	)
Other operating benefits (charges), net —
Note 12		1.4			2.9			—		13.7			2.9			(.9	)

	$	44.0		$	21.7		$	—	$	139.0		$	21.7		$	52.4


~~(1)~~		Operating results for the quarter and nine month periods ended September 30, 2007 include a LIFO inventory benefit of $10.2 and $8.2, respectively. Operating results for period from July 1, 2006 to September 30, 2006 and the nine month period ended September 30, 2006 include a LIFO inventory benefit (charge) of $3.3 and ($18.4).


~~15.~~	~~Summary of Significant Accounting Policies~~


			Predecessor
	July 1, 2006					Quarter			Quarter
	through					Ended			Ended
	December 31,		July 1,			June 30,			March 31,
	2006		2006			2006			2006

Gain on plan implementation and fresh start	$	—	$	(3,110.3	)	$	—		$	—
Professional fees		—		5.0			9.2			7.0
Interest income		—		—			(.7	)		(.7	)
Other		—		—			.1			.1

	$	—	$	(3,105.3	)	$	8.6		$	6.4


~~17.~~ (1)	~~Discontinued Operations~~	Operating results for the quarters ended March 31, 2008 and 2007 include LIFO inventory charges of $14.4 and $8.0, respectively.


(1)		Primary Aluminum includes the Company’s 49% interest in Anglesey and the Company’s derivative assets.

(2)		Corporate and Other includes all of the Company’s Cash and cash equivalents, Net assets in respect of VEBAs and net deferred income tax assets.


~~18.~~16.	~~Commitments and Contingencies~~Supplemental cash flow information


(1)		Post-emergencechapter 11-related items include primarily professional fees and expenses incurred after emergence which related directly to the Company’s reorganization.


						Year-to-Date
	3Q 2007 vs 3Q 2006					2007 vs 2006
	Operating			Better		Operating			Better
Component	Income			(Worse)		Income			(Worse)			Primary Factor

Sales of production from Anglesey	$	13		$	2	$	47		$	9		Market price for primary aluminum (year to date only); alumina pricing; offset by the impact of foreign currency translation
Internal hedging with Fabricated Products		(2	)		5		(20	)		12		Eliminates in consolidation
Derivative settlements		(2	)		—		1			—		Impacted by positions and market prices
Mark-to-market on derivative instruments		4			3		4			(4	)	Impacted by positions and market prices

	$	13		$	10	$	32		$	17


(1)		Operating income from sales of production from Anglesey is impacted by the market price for primary aluminum and alumina pricing, offset by the impact of foreign currency translation.

(2)		Eliminates in consolidation.

(3)		Impacted by positions and market prices.


	Payments Due by Period
			Less than		2-3		4-5		More than
Contractual Obligations	Total		1 Year		Years		Years		5 Years

Long-term debt	$	50.0	$	—	$	—	$	50.0	$	—
Operating leases		9.3		3.0		4.5		1.7		.1

Total cash contractual obligations(1)(2)	$	59.3	$	3.0	$	4.5	$	51.7	$	.1


	Cash Payments for
	Capital Expenditures, Income Taxes,
	Interest Expense, etc.
EBITDA	$25.0		$50.0		$75.0		$100.0

$20.0	$	—	$	—	$	—	$	—
40.0		1.5		—		—		—
60.0		5.0		1.0		—		—
80.0		9.0		4.0		.5		—
100.0		13.0		8.0		3.0		—
120.0		17.0		12.0		7.0		2.0
140.0		20.0		16.0		11.0		6.0
160.0		20.0		20.0		15.0		10.0
180.0		20.0		20.0		19.0		14.0
200.0		20.0		20.0		20.0		18.0


Item 2.	*Unregistered Sales of Equity Securities and Use of Proceeds.*


Item 4.	*Submission of Matters to a Vote of Security Holders.*