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

For the quarterly period ended ~~September 30, 2010~~March 31, 2011

Commission file number 0-52105

KAISER ALUMINUM CORPORATION

(Exact name of registrant as specified in its charter)


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

27422 PORTOLA PARKWAY, SUITE 200,
FOOTHILL RANCH, CALIFORNIA		~~92610-2831~~
(Address of principal executive offices)		92610-2831 (Zip Code)

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. Yesþ Noo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesþ Noo

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


Large accelerated filerþ	Accelerated filero	Non-accelerated filero		Smaller reporting companyo
		(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 in Rule 12b-2 of the Exchange Act). Yeso Noþ

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. Yesþ Noo

As of ~~October 22, 2010,~~April 21, 2011, there were ~~19,216,196~~19,268,791 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,
	2010			2009				2011			2010
	(Unaudited)						(Unaudited)
	(In millions of dollars, except share							(In millions of dollars, except share and
	and per share amounts)							per share amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	143.7		$	30.3			$	55.9		$	135.6
Receivables:
Trade, less allowance for doubtful receivables of $0.6 at September 30, 2010 and $0.8 at December 31, 2009, respectively		90.2			83.7
Due from affiliate		—			0.2
Trade, less allowance for doubtful receivables of $0.6 at March 31, 2011 and $0.6 at December 31, 2010									114.0			83.0
Other		5.2			2.2				3.3			5.2
Inventories		153.3			125.2				169.6			167.5
Prepaid expenses and other current assets		63.4			59.1				90.3			80.1

Total current assets		455.8			300.7				433.1			471.4
Property, plant, and equipment — net		356.9			338.9				358.1			354.1
Net asset in respect of VEBA		179.6			127.5
Net asset in respect of VEBAs									208.6			195.7
Deferred tax assets — net		250.1			277.2				221.0			231.1
Intangible assets, net		4.2			—
Intangible assets — net									38.8			4.0
Goodwill		3.1			—				37.2			3.1
Other assets		76.0			41.2				74.0			83.0

Total	$	1,325.7		$	1,085.5			$	1,370.8		$	1,342.4

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	48.7		$	49.0			$	63.7		$	50.8
Accrued salaries, wages, and related expenses		29.3			33.1				29.5			31.1
Other accrued liabilities		39.4			32.1				42.5			42.0
Payable to affiliate		20.0			9.0				23.9			17.1
Long-term debt-current portion		1.3			—
Current portion of secured debt and credit facilities									4.8			1.3

Total current liabilities		138.7			123.2				164.4			142.3
Net liability in respect of VEBA		1.2			0.3
Long-term liabilities		126.1			53.7				130.1			134.7
Cash convertible senior notes		139.9			—				143.0			141.4
Other long-term debt		12.1			7.1
Long-term secured debt and credit facilities									7.9			11.8

		418.0			184.3
Commitments and contingencies — Note 14

Total liabilities									445.4			430.2
Commitments and contingencies — Note 10
Stockholders’ equity:
Common stock, par value $0.01, 90,000,000 shares authorized at both September 30, 2010 and at December 31, 2009; 19,216,901 shares issued and outstanding at September 30, 2010 and 20,276,571 shares issued and outstanding at December 31, 2009		0.2			0.2
Common stock, par value $0.01, 90,000,000 shares authorized at both March 31, 2011 and at December 31, 2010; 19,268,791 shares issued and outstanding at March 31, 2011 and 19,214,451 shares issued and outstanding at December 31, 2010									0.2			0.2
Additional capital		986.6			967.8				988.8			987.1
Retained earnings		85.1			85.0				86.7			80.1
Common stock owned by Union VEBA subject to transfer restrictions, at reorganization value, 3,523,980 at September 30, 2010 and 4,845,465 shares at December 31, 2009		(84.6	)		(116.4	)
Treasury stock, at cost, 1,724,606 shares at September 30, 2010 and 572,706 shares at December 31, 2009		(72.3	)		(28.1	)
Accumulated other comprehensive loss		(7.3	)		(7.3	)
Common stock owned by Union VEBA subject to transfer restrictions, at reorganization value, 3,306,938 shares at March 31, 2011 and 3,523,980 shares at December 31, 2010									(79.4	)		(84.6	)
Treasury stock, at cost, 1,724,606 shares at March 31, 2011 and 1,724,606 shares at December 31, 2010									(72.3	)		(72.3	)
Accumulated other comprehensive income									1.4			1.7

Total stockholders’ equity		907.7			901.2				925.4			912.2

Total	$	1,325.7		$	1,085.5			$	1,370.8		$	1,342.4

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

STATEMENTS OF CONSOLIDATED INCOME


	Quarter Ended						Nine Months Ended						Quarter Ended March 31,
	September 30,						September 30,						2011			2010
	2010			2009			2010			2009			(Unaudited)
	(Unaudited)												(In millions of dollars, except
	(In millions of dollars, except share and per share amounts)												share and per share amounts)
Net sales	$	263.4		$	252.0		$	813.3		$	750.0		$	322.6		$	267.5
Costs and expenses:
Cost of products sold:
Cost of products sold, excluding depreciation, amortization and other items		229.3			188.3			717.2			584.2			280.9			232.0
Lower of cost or market inventory write-down		—			—			—			9.3
Impairment of investment in Anglesey		—			—			—			1.8
Restructuring costs and other (benefits) charges		(0.4	)		0.1			(0.9	)		6.4
Restructuring costs and other benefits														—			(0.6	)
Depreciation and amortization		4.8			3.9			13.8			12.3			6.3			4.0
Selling, administrative, research and development, and general		16.5			17.1			49.2			52.1			14.9			17.3
Other operating charges (benefits), net		—			—			2.0			(0.9	)

Total costs and expenses		250.2			209.4			781.3			665.2			302.1			252.7

Operating income		13.2			42.6			32.0			84.8			20.5			14.8
Other (expense) income:
Interest expense		(3.7	)		(0.2	)		(7.2	)		(0.6	)		(4.5	)		—
Other (expense) income, net		(3.6	)		0.1			(2.7	)		—
Other income, net														1.7			0.2

Income before income taxes		5.9			42.5			22.1			84.2			17.7			15.0
Income tax provision		(0.4	)		(19.5	)		(7.7	)		(37.8	)		(6.4	)		(6.2	)

Net income	$	5.5		$	23.0		$	14.4		$	46.4		$	11.3		$	8.8

Earnings per share, Basic — Notes 1 and 15
Earnings per share, Basic — Note 1, 13
Net income per share	$	0.29		$	1.14		$	0.74		$	2.31		$	0.59		$	0.44

Earnings per share, Diluted — Notes 1 and 15
Earnings per share, Diluted — Note 1, 13
Net income per share	$	0.29		$	1.14		$	0.74		$	2.31		$	0.59		$	0.44

Weighted-average number of common shares outstanding (000):
Basic		18,941			19,982			19,499			19,568			18,950			20,020

Diluted		18,941			19,982			19,499			19,568			18,950			20,020

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

STATEMENTS OF CONSOLIDATED STOCKHOLDERS’ EQUITY AND

COMPREHENSIVE ~~(LOSS)~~ INCOME

Common
Stock
Owned by
Union
VEBA Accumulated
Common Subject to Other
Shares Common Additional Retained Transfer Treasury Comprehensive
Outstanding Stock Capital Earnings Restrictions Stock (Loss) Income Total
(In millions of dollars, except for shares)
BALANCE, December 31, 2009 20,276,571 $ 0.2 $ 967.8 $ 85.0 $ (116.4 ) $ (28.1 ) $ (7.3 ) $ 901.2

Net income — — — 14.4 — — — 14.4

Unrealized gain on available for sale securities — — — — — — 0.2 0.2

Foreign currency translation adjustment, net of tax of $0 — — — — — — (0.2 ) (0.2 )

Comprehensive income — — — — 14.4
Sale of Union VEBA shares by the Union VEBA, net of tax of $19.6 — — 0.7 — 31.8 — — 32.5

Issuance of warrants — — 14.3 — — — — 14.3

Issuance of non-vested shares to employees 97,931 — — — — — — —

Issuance of common shares to directors 4,612 — 0.2 — — — — 0.2

Issuance of common shares to employees upon vesting of restricted stock units and performance shares 1,295 — — — — — — —

Cancellation of employee non-vested shares (1,624 ) — — — — — — —

Cancellation of shares to cover employees’ tax withholdings upon vesting of non-vested shares (9,984 ) — (0.3 ) — — — — (0.3 )
Repurchase of common stock (1,151,900 ) — — — — (44.2 ) — (44.2 )

Cash dividends on common stock ($0.72 per share) — — — (14.3 ) — — — (14.3 )

Amortization of unearned equity compensation — — 3.9 — — — — 3.9

BALANCE, September 30, 2010 19,216,901 $ 0.2 $ 986.6 $ 85.1 $ (84.6 ) $ (72.3 ) $ (7.3 ) $ 907.7


												Common
												Stock
												Owned by
												Union
												VEBA						Accumulated
	Common											Subject to						Other
	Shares			Common		Additional			Retained			Transfer			Treasury			Comprehensive
	Outstanding			Stock		Capital			Earnings			Restriction			Stock			Income (Loss)			Total
	(Unaudited)
	(In millions of dollars, except for shares)
BALANCE, December 31, 2010		19,214,451		$	0.2	$	987.1		$	80.1		$	(84.6	)	$	(72.3	)	$	1.7		$	912.2

Net income		—			—		—			11.3			—			—			—			11.3

Foreign currency translation adjustment, net of tax of $0		—			—		—			—			—			—			(0.3	)		(0.3	)


Comprehensive income					—		—			—			—									11.0

Sale of Union VEBA shares by the Union VEBA, net of tax of $4.0		—			—		1.4			—			5.2			—			—			6.6

Issuance of non-vested shares to employees		63,303			—		—			—			—			—			—			—

Issuance of common shares to employees upon vesting of restricted stock units and performance shares		13,899			—		—			—			—			—			—			—

Cancellation of shares to cover employees’ tax withholdings upon vesting of non-vested shares		(22,862	)		—		(1.1	)		—			—			—			—			(1.1	)

Cash dividends on common stock ($0.24 per share)		—			—		—			(4.7	)		—			—			—			(4.7	)

Amortization of unearned equity compensation		—			—		1.4			—			—			—			—			1.4

BALANCE, March 31, 2011		19,268,791		$	0.2	$	988.8		$	86.7		$	(79.4	)	$	(72.3	)	$	1.4		$	925.4

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

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

STATEMENT OF CONSOLIDATED CASH FLOWS


	Nine Months Ended
	September 30,
	2010			2009			Quarter Ended March 31,
	(Unaudited)						2011			2010
	(In millions of dollars)						(In millions of dollars)
Cash flows from operating activities:
Net income	$	14.4		$	46.4		$	11.3		$	8.8
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization (including amortization of note discount of $3 for the nine months ended September 30, 2010 and deferred financing costs of $0.5 for the nine months ended September 30, 2009)		16.9			12.8

Depreciation of property, plant and equipment								5.7			4.0
Amortization of definite-lived intangible assets								0.6			—
Amortization of debt discount and debt issuance costs								1.9			—
Deferred income taxes		7.5			35.3			6.1			5.1
Excess tax deficiency upon vesting of non-vested shares and dividend payment on unvested shares expected to vest		—			0.1
Excess tax benefit upon vesting of non-vested shares and dividend payment on unvested shares expected to vest								—			(0.1	)
Non-cash equity compensation		4.1			8.3			1.4			1.6
Net non-cash LIFO charges and lower of cost or market inventory write-down		6.2			3.0
Non-cash unrealized losses (gains) on derivative positions		6.9			(49.4	)
Amortization of option premiums		1.2			2.6
Non-cash impairment charges		1.9			2.1
Equity in income of unconsolidated affiliate, net of distributions		—			(1.9	)
Loss on disposition of property, plant and equipment		0.1			0.1
Net non-cash LIFO charges								14.9			9.2
Non-cash unrealized gains on derivative positions								(6.0	)		(0.2	)
Amortization of option premiums (received) / paid, net								(0.3	)		0.2
Losses on disposition of property, plant and equipment								0.1			0.1
Other non-cash changes in assets and liabilities		0.4			4.1			(2.2	)		0.5
Changes in operating assets and liabilities, net of effect of acquisition:
Trade and other receivables		(8.4	)		31.9			(25.5	)		(14.1	)
Receivable from affiliate		0.2			11.8			—			0.2
Inventories (excluding LIFO charges/benefits and lower of cost or market write-down)		(31.8	)		43.7
Inventories (excluding LIFO charges)								(10.4	)		(15.4	)
Prepaid expenses and other current assets		2.6			2.9			(0.7	)		(0.6	)
Accounts payable		3.2			0.6			13.6			8.0
Accrued liabilities		1.5			(31.2	)		(1.1	)		(9.0	)
Payable to affiliate		11.0			(6.0	)		6.8			7.7
Accrued income taxes		—			0.5
Long-term assets and liabilities, net		27.4			1.5			(0.4	)		16.5

Net cash provided by operating activities		65.3			119.2			15.8			22.5

Cash flows from investing activities:
Capital expenditures, net of change in accounts payable of $4.7 and $3.2 for the nine month periods ended September 30, 2010 and September 30, 2009, respectively		(34.9	)		(51.0	)
Capital expenditures								(6.2	)		(13.9	)
Purchase of available for sale securities		(4.4	)		—			—			(3.9	)
Net proceeds from disposal of manufacturing facility and related assets		4.8			—
Cash payment for acquisition of manufacturing facility and related assets		(9.0	)		—
Change in restricted cash		1.1			18.1
Cash payment for acquisition of manufacturing facility and related assets (net of $4.9 of cash received in the acquisition)								(83.2	)		—

Net cash used in investing activities		(42.4	)		(32.9	)		(89.4	)		(17.8	)

Cash flows from financing activities:
Proceeds from issuance of cash convertible senior notes		175.0			—			—			175.0
Cash paid for financing costs in connection with issuance of cash convertible senior notes		(5.9	)		—			—			(5.8	)
Purchase of call option in connection with issuance of cash convertible senior notes		(31.4	)		—			—			(31.4	)
Proceeds from issuance of warrants		14.3			—			—			14.3
Repayment of promissory note — current portion		(0.3	)		—			(0.3	)		—
Borrowings under the revolving credit facility		—			99.8
Repayment of borrowings under the revolving credit facility		—			(135.8	)
Cash paid for financing costs in connection with the revolving credit facility		(2.7	)		(1.1	)		—			(2.6	)
Excess tax deficiency upon vesting of non-vested shares and dividend payment on unvested shares expected to vest		—			(0.1	)
Excess tax benefit upon vesting of non-vested shares and dividend payment on unvested shares expected to vest								—			0.1
Retirement of common stock								(1.1	)		—
Repurchase of common stock		(44.2	)		—			—			(44.2	)
Cash dividend paid to stockholders		(14.3	)		(14.7	)		(4.7	)		(4.9	)

Net cash provided by (used in) financing activities		90.5			(51.9	)
Net cash (used in) provided by financing activities								(6.1	)		100.5

Net increase in cash and cash equivalents during the period		113.4			34.4
Net (decrease) increase in cash and cash equivalents during the period								(79.7	)		105.2
Cash and cash equivalents at beginning of period		30.3			0.2			135.6			30.3

Cash and cash equivalents at end of period	$	143.7		$	34.6		$	55.9		$	135.5


See Note 16 for supplemental cash flow information.

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

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

1. Summary of Significant Accounting Policies

This ~~Report~~report should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2009.~~2010.

Organization and Nature of Operations.Kaiser Aluminum Corporation (together with its subsidiaries, unless the context otherwise requires, the “Company”) specializes in the production of semi-fabricated specialty aluminum products, with its operations consisting of one reportable segment in the aluminum industry, referred to herein as Fabricated Products. The Company also owns a 49% non-controlling interest in Anglesey Aluminium Limited (“Anglesey”), which owns and operates a secondary aluminum remelt and casting facility in Holyhead, Wales. See Note 14 for additional information regarding the Company’s reportable segment and its other business units.

Recent acquisitions.On August 9, 2010, the Company acquired the manufacturing facility and related assets of Nichols Wire, Incorporated (“Nichols”) in Florence, Alabama (the “Florence, Alabama facility”). The Florence, Alabama facility manufactures bare mechanical alloy wire products, nails and aluminum rod and expands the Company’s offerings of small diameter rod, bar and wire products to the Company’s core end market segments for aerospace, general engineering and automotive applications (see Note 5).

Effective January 1, 2011, the Company acquired the manufacturing facility and related assets of Alexco, L.L.C. (“Alexco”) in Chandler, Arizona (the “Chandler, Arizona (Extrusion) facility”). The Chandler, Arizona (Extrusion) facility manufactures hard alloy extrusions for the aerospace industry and is a well-established supplier of aerospace extrusions. The acquisition positions the Company in a significant market segment that provides a natural complement to its product offerings for aerospace application (see Note 5).

Principles of Consolidation and Basis of Presentation.The consolidated financial statements include the ~~statements~~accounts of the Company and its wholly owned ~~subsidiaries. Intercompany balances~~subsidiaries, and ~~transactions~~ are ~~eliminated. See Note 3 for a description of the Company’s accounting for its 49%, non-controlling ownership interest in Anglesey Aluminium Limited (“Anglesey”).~~

In the fourth quarter of 2009, the Company reorganized its business segments as a result of changes in the operations of Anglesey. The segment data for periods prior to this change have been retrospectively adjusted for consistency with current period classification. See Note 16 for a description of the Company’s business segments.

~~The accompanying unaudited interim consolidated financial statements have been~~ prepared in accordance with United States generally accepted accounting principles ~~generally accepted in the United States of America~~ (“US GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, these financial statements do not include all of the disclosures required by US GAAP for complete financial statements. In the opinion of management, the unaudited interim consolidated financial statements furnished herein include all adjustments ~~all~~(all of which are of a normal recurring nature unless otherwise ~~noted,~~noted) necessary ~~for a fair statement of~~to present fairly the results for the interim periods presented. Intercompany balances and transactions are eliminated. The consolidated financial statements include the results of companies acquired by the Company from the effective date of each acquisition.

As disclosed in Note 3 of Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, the Company suspended the use of the equity method of accounting with respect to its ownership in Anglesey commencing in the quarter ended September 30, 2009. As a result, the Company did not record equity in income from Anglesey for the quarters ended March 31, 2011 and March 31, 2010. The carrying amount of the Company’s investment in Anglesey was zero at both March 31, 2011 and December 31, 2010. The Company does not anticipate resuming the use of the equity method of accounting with respect to its investment in Anglesey during the next 12 months.

Use of Estimates ~~and Assumptions.~~in the Preparation of Financial Statements.The preparation of financial statements in accordance with US 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 operations.

~~Operating results for the nine months ended September 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010.~~

Recognition of Sales.Sales are generally recognized on a gross basis when title, ownership and risk of loss pass to the buyer and collectability is reasonably assured. In connection with Anglesey’s remelt operations, which commenced in the fourth quarter of 2009, the Company substantially reduced or eliminated its risks with respect to inventory loss and fluctuations in metal prices and foreign currency exchange rates. Because the Company is, in substance, acting as an agent in connection with the sales of the secondary aluminum products produced by Anglesey’s remelt operations, the Company’s sales of such products are presented on a net of cost of sales basis.

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.

From ~~time-to-time,~~time to time, in the ordinary course of business, the Company may enter into agreements with customers in which the Company, in return for a fee, agrees to reserve certain amounts of its existing production capacity to the customer, defer an existing customer purchase commitment into future periods and reserve certain amounts of its expected production capacity in those periods to the customer, or cancel or reduce existing commitments under existing contracts. These agreements may have terms or impact periods exceeding one year.

Certain of the capacity reservation and commitment deferral agreements provide for periodic, such as quarterly or annual, billing for the duration of the contract. For capacity reservation agreements, the Company recognizes revenue ratably over the period of the

~~KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES~~
~~NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS~~
~~(In millions of dollars, except share and per share amounts and as otherwise indicated)~~
~~(Unaudited)~~

~~$15.5, respectively, relating to these agreements. Such deferred revenue is~~Any unearned fees are included within Other accrued liabilities or Long-term liabilities, as appropriate, on the Company’s Consolidated Balance Sheets ~~(Note 6)~~(see Note 2).

~~Earnings per Share.~~~~Accounting Standards Codification (“ASC”) Topic 260,~~~~Earnings Per Share~~~~, defines unvested share-based payment awards that contain nonforfeitable rights~~In connection with Anglesey’s remelt operations, the Company purchases secondary aluminum products from Anglesey in proportion to ~~dividends or dividend equivalents (whether paid or unpaid)~~its ownership interest at prices tied to the market price of primary aluminum. The Company in turn sells the secondary aluminum products to a third party and receives a portion of a premium over normal commodity market prices. The transactions are structured to largely eliminate metal price and currency exchange rate risks with respect to income and cash flow. As the Company, in substance, acts as ~~participating securities and requires inclusion~~an agent in connection with sales of secondary aluminum produced by Anglesey, the Company’s sales of such ~~securities in~~secondary aluminum are presented net of cost of sales. For the ~~computation~~quarters ended March 31, 2011 and March 31, 2010, the Company reported no net sales from the sale of ~~earnings per share pursuant~~secondary aluminum produced by Anglesey. Any amounts payable to Anglesey are reflected on the ~~two-class method.~~

Basic earnings per share is computed by dividing distributed and undistributed earnings allocable to common shares by the weighted-average number of common shares outstanding during the applicable period. The basic weighted-average number of common shares outstanding during the period excludes unvested share-based payment awards. 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 theCompany’s Consolidated Balance Sheets as ~~being similar~~Payable to treasury stock (i.e., as a reduction in Stockholders’ equity), are included in the computation of basic weighted-average number of common shares outstanding because such shares were irrevocably issued and have full dividend and voting rights. Diluted earnings per share is calculated as the more dilutive result of computing earnings per share under: (i) the treasury stock method or (ii) the two-class method (Note 15).affiliate.

Stock-Based Compensation.~~Stock based~~Stock-based compensation is provided to certain employees, directors and a director emeritus, and is accounted for at fair ~~value, pursuant to the requirements of ASC Topic 718,~~~~Compensation – Stock Compensation~~.value. The Company measures the cost of services received in exchange for an award of equity instruments based on the grant-date fair value of the award and the number of awards expected to ultimately vest. The fair value of awards provided to the director emeritus is not material. The cost of an award is recognized as an expense over the requisite service period of the award on a ~~ratable~~straight-line basis. The Company has elected to amortize compensation expense for equity awards with graded vesting using the straight-line method. The Company recognized compensation expense for the quarters ended September 30, 2010 and September 30, 2009 of $0.8 and $2.0, respectively, and for the nine month periods ended September 30, 2010 and September 30, 2009 of $2.9 and $7.3, respectively, in connection with vested awards and non-vested stock, restricted stock units and stock options (Note 12)method (see Note 9).

The Company also grants performance shares to executive officers and other key employees. These awards are subject to performance requirements pertaining to the Company’s economic value added (“EVA”) performance, measured over ~~a three year~~specified three-year performance ~~period.~~periods. The EVA is a measure of the excess of the Company’s adjusted ~~pretax~~pre-tax operating income for a particular year over a pre-determined percentage of the adjusted net assets of the immediately preceding year, as defined in the ~~2008-2010, 2009-2011 and 2010-2012 Long-Term Incentive~~Company’s annual long-term incentive (“LTI”) programs. The number of performance shares, if any, that will ultimately vest and result in the issuance of common shares depends on the average annual EVA achieved for the specified ~~three year~~three-year performance periods. The fair value of performance-based awards is measured based on the most probable outcome of the performance condition, which is estimated quarterly using the Company’s forecast and actual results. The Company expenses the fair value, after assuming an estimated forfeiture rate, over the specified ~~three year~~three-year performance periods on a ratable basis (see Note 9).

Inventories.Inventories are stated at the lower of cost or market value. Finished products, work-in-process and raw material inventories are stated on the last-in, first-out (“LIFO”) basis. The Company ~~recognized compensation expense for~~recorded net non-cash LIFO charges of approximately $14.9 and $9.2 during the quarters ended ~~September 30,~~March 31, 2011 and March 31, 2010, respectively. These amounts are primarily a result of changes in metal prices and ~~September 30, 2009~~changes in inventory volumes. 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. All of the Company’s inventories at March 31, 2011 and December 31, 2010 were included in the Fabricated Products segment. See Note 2 for the components of inventories at March 31, 2011 and December 31, 2010.

Property, plant, and equipment — net.Property, plant and equipment are recorded at cost (see Note 2). Construction in progress is included within Property, Plant, and equipment — net in the Consolidated Balance Sheets. Interest related to the construction of qualifying assets is capitalized as part of the construction costs. The aggregate amount of interest capitalized is limited to the interest expense incurred in the period. The amount of interest expense capitalized as construction in progress was $0.2 and ~~$0.2,~~$0.9 during the quarters ended March 31, 2011 and March 31, 2010, respectively.

Depreciation is computed using the straight-line method at rates based on the estimated useful lives of the various classes of assets. Depreciation expense is not included in Cost of products sold, excluding depreciation, amortization and other items, but is included in Depreciation and amortization on the Statements of Consolidated Income. For the quarters ended March 31, 2011 and March 31, 2010, the Company recorded depreciation expense of $5.6, and $4.0, 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 and Other for both periods.

Property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the ~~nine month periods ended September 30, 2010~~carrying amount of the asset or group of assets may not be recoverable. The Company regularly assesses whether events and ~~September 30, 2009~~circumstances with the potential to trigger impairment have occurred and relies on a number of ~~$1.0~~factors, including operating results,

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(In millions of dollars, except share and ~~$1.0, respectively,~~per share amounts and as otherwise indicated)

business plans, economic projections, and anticipated future cash flow, to make such assessments. The Company uses an estimate of the future undiscounted cash flows of the related asset or asset group over the estimated remaining life of such asset(s) in measuring whether the asset(s) are recoverable. Measurement of the amount of impairment, if any, is based on the difference between the carrying value of the asset(s) and the estimated fair value of such asset(s). Fair value is determined through a series of standard valuation techniques. SeeFair Values of Non-Financial Assets and Liabilitiessection of Note 12 for additional information regarding fair value assessments relating to certain property, plant and equipment.

Property, plant and equipment held for future development are presented as idled assets. Such assets are evaluated for impairment on a held-and-used basis. Depreciation expense is not adjusted when assets are temporarily idled.

Available for Sale Securities.Included in Other assets are certain marketable debt and equity securities, classified as available for sale securities (see Note 2). Such securities are invested in various investment funds and managed by a third-party trust in connection with the ~~performance shares.~~Company’s deferred compensation program (see Note 8). Such securities are recorded at fair value (seeOthersection of Note 12,), with net unrealized gains and losses, net of income taxes, reflected in other comprehensive earnings as a component of Stockholders’ equity.

~~Acquisition,~~ Goodwill and Intangible Assets.~~Acquisitions are accounted for in accordance with ASC Topic 805,~~~~Business Combinations~~(“ASC 805”). The Company recognizes assets acquired and liabilities assumed, including assets acquired and liabilities assumed arising from contractual contingencies at the acquisition date, at their respective estimated fair values. The Company recognizes goodwill as of the acquisition date as a residual over the fair values of the identifiable net assets acquired. Acquisition related costs are expensed directly in the period in which they are incurred and are included in Selling, administrative, research and development, and general in the Statements of Consolidated Income.

Goodwill is tested for impairment on an annual basis during the third quarter, as well as on an interim basis, as warranted, at the time of relevant events and changes in circumstances. Intangible assets with definite lives are initially recognized at fair value and ~~will be~~subsequently amortized over the estimated useful lives to reflect the pattern in which the economic benefits of the intangible assets are consumed. In the event the pattern cannot be reliably determined, the Company uses a straight-line amortization method. Whenever events or changes in circumstances indicate that the carrying amount of the intangible assets may not be recoverable, the intangible assets ~~will be~~are reviewed for impairment. ~~The weighted average estimated useful life of the Company’s intangible assets is 18 years (Note 9).~~

The judgments made in determining the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can significantly impact the Company’s results of operations. Fair values and useful lives are determined based on, among other factors, the expected future period of benefit of the asset, the various characteristics of the asset and projected cash

flows. As the determination of an asset’s fair value and useful life involves management making certain estimates and because these estimates form the basis for the determination of whether an impairment charge should be recorded, these estimates are considered to be critical accounting estimates. The Company will continue to assess the carrying value of its goodwill and intangible assets in accordance with applicable accounting guidance.

~~Environmental Contingencies.~~With respect to environmental loss contingencies, the Company records a loss contingency whenever such contingency is probable and reasonably estimable. Accruals for estimated losses from environmental remediation obligations are generally recognized no later than completion of the remedial feasibility study. Such accruals are adjusted as further information develops or circumstances change. Costs of future expenditures for environmental remediation obligations are not discounted to their present value. Environmental expense relating to continuing operations is included in Cost of products sold, excluding depreciation, amortization and other items in the Statement of Consolidated Income. Environmental expense relating to discontinued operations is included in Selling, administrative, research and development, and general in the Statement of Consolidated Income.

~~Restructuring Costs and Other Charges.~~Restructuring costs and other charges include employee severance and benefit costs, impairment of owned equipment to be disposed of, and other costs associated with exit and disposal activities. The Company applies the provisions of ASC Topic 420,~~Exit or Disposal Cost Obligations~~, to account for obligations arising from such activities. Severance and benefit costs incurred in connection with exit activities are recognized when the Company’s management with the proper level of authority has committed to a restructuring plan and communicated those actions to employees. For owned facilities and equipment, impairment losses recognized are based on the fair value less costs to sell, with fair value estimated based on existing market prices for similar assets. Other exit costs include costs to consolidate facilities or close facilities, terminate contractual commitments and relocate employees. A liability for such costs is recorded at its fair value in the period in which the liability is incurred. At each reporting date, the Company evaluates its accruals for exit costs and employee separation costs to ensure the accruals are still appropriate (see Note 17 for further information regarding the Company’s restructuring initiatives).

~~Restricted Cash.~~The Company is required to keep certain amounts on deposit relating to workers’ compensation, letters of credit and other agreements. Such amounts totaled $17.2 and $18.3 at September 30, 2010 and December 31, 2009, respectively. Of the restricted cash balance, $0.9 and $0.9 were considered short-term and included in Prepaid expenses and other current assets on the Consolidated Balance Sheets at September 30, 2010 and December 31, 2009, respectively, and $16.3 and $17.4 were considered long-term and included in Other assets on the Consolidated Balance Sheets at September 30, 2010 and December 31, 2009, respectively.

~~Trade Receivables and Allowance for Doubtful Accounts.~~Trade receivables primarily consist of amounts billed to customers for products sold. Accounts receivable are generally due within 30 days. For the majority of its receivables, the Company establishes an allowance for doubtful accounts based upon collection experience and other factors. On certain other receivables where the Company is aware of a specific customer’s inability or reluctance to pay, an allowance for doubtful accounts is established against amounts due, to reduce the net receivable balance to the amount the Company reasonably expects to collect. However, if circumstances change, the Company’s estimate of the recoverability of accounts receivable could be different. Circumstances that could affect the Company’s estimates include, but are not limited to, customer credit issues and general economic conditions. Accounts are written off once deemed to be uncollectible. Any subsequent cash collections relating to accounts that have been previously written off are typically recorded as a reduction to total bad debt expense in the period of payment.

~~Inventories.~~Inventories are stated at the lower of cost or market value. Finished products, work in process and raw material inventories are stated on the last-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.

Derivative Financial Instruments.Hedging transactions using derivative financial instruments are primarily designed to mitigate the Company’s exposure to changes in prices for certain of the products which the Company sells and consumes and, to a lesser extent, to mitigate the Company’s exposure to changes in foreign currency exchange rates. From time-to-time, the Company also enters into hedging arrangements in connection with financing transactions to mitigate financial risks.

The Company does not utilize derivative financial instruments for trading or other speculative purposes. The Company’s derivative activities are initiated within guidelines established by management and approved by the Company’s Board of Directors.

Hedging transactions are executed centrally on behalf of all of the Company’s business units to minimize transaction costs, monitor consolidated net exposures and allow for increased responsiveness to changes in market factors.

On March 29, 2010, the Company issued $175.0 aggregate principal amount of 4.5% cash convertible senior notes due 2015 (the “Notes”). The Notes may be settled only in cash. The cash conversion feature of the Notes requires bifurcation from the Notes according to ASC Topic 815,~~Derivatives and Hedging~~(“ASC 815”). The Company accounts for such cash conversion feature (“Bifurcated Conversion Feature”) as a derivative liability. In connection with the issuance of the Notes, the Company purchased cash-settled call options relating to its common stock (the “Call Options”) to hedge against potential cash payments that could result from the conversion of the Notes. The Call Options are accounted for as derivative assets, as they meet the definition of a derivative under ASC 815 (Notes 7 and 14).

The Company recognizes all derivative instruments as assets or liabilities in its ~~balance sheet~~Consolidated Balance Sheets and measures these instruments at fair value by “marking-to-market” all of its hedging positions at each period-end ~~(Note 14). The~~(see Note 12), as the Company does not meet the documentation requirements for hedge (deferral) ~~accounting under ASC 815.~~accounting. Unrealized and realized gains and losses associated with hedges of operational risks are reflected as a reduction or increase in Cost of products sold, excluding depreciation, amortization and other items. Unrealized and realized gains and losses relating to hedges of financing transactions are reflected as a component of Other income (expense) (see Note 17). See Note 11 for additional information about realized and unrealized gains and losses relating to the Company’s derivative financial instruments.

Environmental Contingencies.With respect to environmental loss contingencies, the Company records a loss contingency whenever a contingency is probable and reasonably estimable. Accruals for estimated losses from environmental remediation obligations are generally recognized at no later than the completion of the remedial feasibility study. Such accruals are adjusted as further information develops or circumstances change. Costs of future expenditures for environmental remediation obligations are not discounted to their present value. Accruals for expected environmental costs are included in Other accrued liabilities or Long-term liabilities, as appropriate (see Note 2). Environmental expense relating to continuing operations is included in Cost of products sold, excluding depreciation, amortization and other items in the Statement of Consolidated Income. Environmental expense relating to discontinued operations is included in Selling, administrative, research and development, and general in the Statement of Consolidated Income.

Self Insurance of Employee Health and Worker’s Compensation Liabilities. The Company ~~recorded $3.8~~is primarily self-insured for group health insurance and ~~$3.0~~workers compensation benefits provided to employees. The Company purchases stop-loss insurance to protect against annual health insurance claims per individual and at an aggregate level. Self insurance liabilities are estimated for claims incurred-but-not-paid based on judgment, using the Company’s historical claim data and information and analysis provided by actuarial and claim advisors, our insurance carriers and other professionals. The accrued liability for health insurance and worker compensation claims is included in Other accrued liabilities or Long-term liabilities, as appropriate (See Note 2).

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(In millions of ~~net unrealized loss related to the Call Options~~dollars, except share and ~~the Bifurcated Conversion Feature~~per share amounts and as ~~a component of Other income (expense) during the quarter and nine months ended September 30, 2010.~~otherwise indicated)

Concentration of Credit Risk.Financial arrangements which potentially subject the Company to concentrations of credit risk consist of metal, currency, electricity and natural gas derivative contracts, certain cash-settled call options that the ~~Call Options,~~Company purchased in March 2010 (the “Call Options”) (see Note 3), and arrangements related to ~~its~~the Company’s cash equivalents. If the market value of the Company’s net commodity and currency derivative positions with certain counterparties exceeds ~~a specified~~the applicable threshold, if any, the counterparty is required to transfer cash collateral in excess of the threshold to the Company. Conversely, if the market value of these net derivative positions falls below a specified threshold, the Company is required to transfer cash collateral below the threshold to certain counterparties. At both ~~September 30, 2010~~March 31, 2011 and December 31, ~~2009,~~2010, the Company had no margin deposits with or from its counterparties.

The Company is exposed to credit loss in the event of nonperformance by counterparties on derivative contracts used in hedging activities as well as failure of counterparties to return cash collateral previously transferred to the counterparties. The counterparties to the Company’s derivative contracts are major financial institutions, and the Company does not expect ~~to experience~~ nonperformance by any of its counterparties.

The Company places its cash in bank deposits and money market funds with high credit quality financial institutions which invest primarily in commercial paper and time deposits of prime quality, short-term repurchase agreements, and U.S. government agency notes. The Company has not experienced losses on its temporary cash investments.

~~Fair Value Measurement.~~New Accounting Pronouncements.~~The Company applies~~In December 2010, the ~~provisions~~Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2010-28,Intangibles — Goodwill and Other, When to Perform Step 2 of ~~ASC Topic 820,~~~~Fair Value Measurements and Disclosures~~ the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts(“~~ASC 820”~~ASU 2010-28”)~~, in measuring~~. ASU 2010-28 amends Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any events or circumstances that would more likely than not reduce the fair value of a reporting unit below its ~~derivative contracts (Note 14)~~carrying amount. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Early adoption was not permitted. The adoption of ASU 2010-28 in the quarter ending March 31, 2011 did not have an impact on the Company’s consolidated financial statements.

ASU No. 2010-29,Business Combinations, Disclosure of Supplementary Pro Forma Information for Business Combinations(“ASU 2010-29”), ~~plan assets invested by certain~~was issued in December 2010 to provide clarification regarding pro forma revenue and earnings disclosure requirements for business combinations. ASU 2010-29 specifies that if a public entity presents comparative financial statements, the entity should disclose only revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period. This ASU also expands the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. ASU 2010-29 is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption was permitted. The Company adopted ASU 2010-29 during the first interim reporting period of 2011 as it relates to pro forma disclosure of the Company’s ~~employee benefit plans (Note 11) and its Notes (Note 7)~~acquisition of the Chandler, Arizona (Extrusion) facility, effective January 1, 2011 (see Note 5).

Fair value is defined 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. ASC 820 establishes a fair value hierarchy that distinguishes between (i) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (ii) 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 are described below:2. Supplemental Balance Sheet Information

~~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 and 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


	March 31,			December 31,
	2011			2010
Trade Receivables.
Billed trade receivables	$	111.3		$	82.5
Unbilled trade receivables — Note 1		3.3			1.1

Trade receivables, gross		114.6			83.6
Allowance for doubtful receivables		(0.6	)		(0.6	)

Trade receivables, net	$	114.0		$	83.0


Inventories.
Finished products	$	54.1		$	53.8
Work in process		52.0			49.6
Raw materials		50.2			50.9
Operating supplies and repairs and maintenance parts		13.3			13.2

Total	$	169.6		$	167.5

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(In millions of dollars, except share and per share amounts and as otherwise indicated)
~~(Unaudited)~~

			~~(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.~~

~~New Accounting Pronouncements~~~~. Accounting Standards Update (“ASU”) No. 2010-06,~~~~Fair Value Measurements and Disclosures (Topic 820) — Improving Disclosures about Fair Value Measurements~~~~(“ASU 2010-06”) was issued in January 2010. This ASU amends ASC Subtopic 820-10,~~~~Fair Value Measurements and Disclosures—Overall~~, to require new disclosures regarding transfers in and out of Level 1 and Level 2, as well as activity in Level 3 fair value measurements. ASU 2010-06 became effective for financial statements issued by the Company for interim and annual periods beginning after December 15, 2009, except for disclosures about purchases, sales, issuances, and settlements in the roll-forward of activity in Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010. The Company adopted the applicable provisions of ASU 2010-06 for the nine month period ending September 30, 2010, which did not have a material impact on the disclosures in its consolidated financial statements. The Company does not expect the adoption of the remaining provisions of ASU 2010-06 relating to increased disclosure of activity in Level 3 fair value measurements to have a material impact on the disclosures in its consolidated financial statements.

~~ASU No. 2010-20,~~~~Receivables (Topic 310) – Disclosure about the Credit Quality of Financing Receivables and the Allowance for Credit Losses~~(“ASU 2010-20”) was issued in July 2010. This ASU amends existing disclosure requirements and requires additional disclosure regarding financing receivables (other than short term trade receivables or receivables measured at fair value or lower of cost or fair value), including: (i) credit quality indicators of financing receivables at the end of the reporting period by class of financing receivables; (ii) the aging of past due financing receivables at the end of the reporting period by class of financing receivables; and (iii) the nature and extent of troubled debt restructurings that occurred during the period by class of financing receivables and their effect on the allowance for credit losses. For public entities, the disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activities that occur during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. The Company does not expect the adoption of the provisions of ASU 2010-20 relating to increased disclosure of financing receivables to have a material impact on the disclosures in its consolidated financial statements.

~~2. Inventories~~

~~Inventories consist of the following:~~

September 30, December 31,
2010 2009
Fabricated Products segment —
Finished products $ 40.5 $ 40.4
Work in process 51.1 44.9
Raw materials 49.3 27.1
Operating supplies and repairs and maintenance parts 12.4 12.8

$ 153.3 $ 125.2

The Company recorded net non-cash LIFO benefits (charges) of approximately $2.0 and $(6.2) during the quarter and nine months ended September 30, 2010, respectively. The Company recorded net non-cash LIFO (charges) benefits of approximately $(6.9) and $6.3 during the quarter and nine months ended September 30, 2009, respectively. These amounts are primarily a result of changes in metal prices and changes in inventory volumes.

With the inevitable ebb and flow of business cycles, non-cash LIFO benefits (charges) will result when inventory levels and metal prices fluctuate. Further, potential lower of cost or market adjustments can occur when metal prices decline and margins compress. During the first quarter of 2009, due to a decline in the London Metal Exchange (“LME”) price of primary aluminum, the Company recorded a $9.3 lower of cost or market inventory write-down, pursuant to ASC Topic 330,~~Inventory~~~~, under which the market value of inventory is determined based on the current replacement cost, by purchase or by reproduction, except that it does not exceed the~~


Prepaid Expenses and Other Current Assets.
Current derivative assets — Note 11	$	26.0		$	22.1
Current deferred tax assets		46.8			46.8
Current portion of option premiums paid — Note11		4.3			5.6
Short-term restricted cash		7.8			0.9
Prepaid taxes		1.1			1.3
Prepaid expenses		4.3			3.4

Total	$	90.3		$	80.1


Property, Plant and Equipment
Land and improvements	$	23.3		$	23.3
Buildings		44.8			43.5
Machinery and equipment		344.8			338.0
Construction in progress		9.3			7.7

Active property, plant and equipment, gross		422.2			412.5
Accumulated depreciation		(69.6	)		(63.9	)

Active property, plant and equipment, net		352.6			348.6
Idled equipment		5.5			5.5

Property, plant, and equipment, net	$	358.1		$	354.1


Other Assets.
Derivative assets — Note 11	$	49.1		$	50.8
Option premiums paid — Note 11		0.5			0.6
Restricted cash		9.4			16.3
Long-term income tax receivable		3.0			2.9
Deferred financing costs		7.2			7.7
Available for sale securities		4.7			4.6
Other		0.1			0.1

Total	$	74.0		$	83.0


Other Accrued Liabilities.
Current derivative liabilities — Note 11	$	9.6		$	8.9
Current portion of option premiums received — Note 11		5.3			7.0
Current portion of income tax liabilities		1.2			1.1
Accrued income taxes and taxes payable		2.8			1.8
Accrued annual VEBA contribution		—			2.1
Accrued freight		2.1			1.9
Short-term environmental accrual — Note 10		1.0			1.1
Accrued interest		4.1			2.1
Short-term deferred revenue — Note 1		10.6			10.8
Other		5.8			5.2

Total	$	42.5		$	42.0


Long-term Liabilities.
Derivative liabilities — Note 11	$	57.8		$	62.2
Option premiums received — Note 11		0.2			0.3
Income tax liabilities		13.5			12.9
Workers’ compensation accruals		16.6			15.9
Long-term environmental accrual — Note 10		19.0			19.1
Long-term asset retirement obligations		3.7			3.8
Long-term deferred revenue — Note 1		11.3			13.2
Deferred compensation liability		5.2			4.9
Other long-term liabilities		2.8			2.4

Total	$	130.1		$	134.7

net realizable value and it is not less than net realizable value reduced by an approximate normal profit margin. There were no lower of cost or market inventory write-downs during the nine months ended September 30, 2010.

3. ~~Investment In and Advances To Unconsolidated Affiliate~~

The Company has a 49%, non-controlling ownership interest in Anglesey, which operated as an aluminum smelter until September 30, 2009. In the fourth quarter of 2009, Anglesey commenced a remelt and casting operation to produce secondary aluminum. Anglesey purchases its own material for the remelt and casting operations and sells 49% of its output to the Company in transactions structured to largely eliminate metal price and currency exchange rate risks with respect to income and cash flow.

At December 31, 2008, the Company fully impaired its investment in Anglesey. For the six months ended June 30, 2009, the Company recorded $1.8 in equity in income of Anglesey, which amounts were impaired in such periods to maintain the Company’s investment balance at zero. For the quarter ended September 30, 2009, Anglesey incurred a significant net loss, primarily as the result of employee redundancy costs incurred in connection with the cessation of its smelting operations. As a result of such loss, and as the Company did not, and was not obligated to, (i) advance any funds to Anglesey, (ii) guarantee any obligations of Anglesey, or (iii) make any commitments to provide any financial support for Anglesey, the Company suspended the use of the equity method of accounting with respect to its ownership in Anglesey, commencing in the quarter ended September 30, 2009, and continuing through the quarter ended September 30, 2010. Accordingly, the Company did not recognize its share of Anglesey’s operating results for such periods, pursuant to ASC Topic 323,~~Investments~~—~~Equity Method and Joint Ventures~~. The Company does not anticipate resuming the use of the equity method of accounting with respect to its investment in Anglesey unless and until (i) its share of any future net income of Anglesey equals or is greater than the Company’s share of net losses not recognized during periods for which the equity method was suspended and (ii) future dividends can be expected. The Company does not anticipate the occurrence of such events during the next 12 months.

At December 31, 2009, receivables from Anglesey were $0.2, all of which were received during the first quarter of 2010. No amounts were due from Anglesey at September 30, 2010. At September 30, 2010 and December 31, 2009, payables to Anglesey were $20.0 and $9.0, respectively. Transactions giving rise to payables to or receivables from Anglesey result from the Company’s ongoing trading activities with Anglesey relating to its remelt operations. Any amounts due from/to Anglesey are reflected on the Company’s Consolidated Balance Sheets as Due from affiliate or Payable to affiliate, respectively.

~~4. Conditional Asset Retirement Obligations~~

The Company has conditional asset retirement obligations (“CARO”) at several of its fabricated products 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, roofs, ceilings or piping) at certain of the older facilities if such facilities were to undergo major renovation or be demolished. There are currently plans for such renovation or demolition at one facility and management’s current assessment is that certain immaterial CAROs may be triggered during the next seven years. For locations where there are no current plans for renovations or demolitions, the most probable scenario is that such CAROs would not be triggered for 20 or more years, if at all.

During the quarter ended September 30, 2010, the Company re-assessed and revised its estimates relating to the timing and future costs of various asbestos removal projects at one facility. Both upward and downward revisions relating to cost estimates were made. The downward revisions in cost estimates resulted in a $1.3 decrease in CARO liabilities and cumulative adjustments reducing Cost of products sold, excluding depreciation, amortization and other items, and Depreciation and amortization by approximately $1.1 and $0.1, respectively. The total of such adjustments increased both basic and diluted earnings per share by approximately $0.06 per share. The upward revisions in costs estimates resulted in a $1.3 increase in both CARO liabilities and CARO assets. The Company used a credit adjusted risk free rate of 10.8% in estimating the fair value with respect to the CARO liability associated with the upward cost adjustment. Accretion and depreciation expense over the next 20 years is expected to increase as a result of the revisions. Revisions to timing of CARO settlement did not have a material impact on the Company’s financial statements.

In addition to the foregoing cumulative adjustments, for each of the nine month periods ended September 30, 2010 and September 30, 2009, the Company recorded an accretion expense of $0.2 relating to the original CARO liability (recorded in Cost of products sold).

~~The estimated fair value of CARO liabilities at September 30, 2010 and December 31, 2009 was $3.7 and $3.5, respectively.~~

~~For purposes of the Company’s fair value estimates with respect to the CARO liabilities prior to the quarter ended September 30, 2010, a credit adjusted risk free rate of 7.5% was used.~~

~~5. Property, Plant and Equipment~~

~~Property, plant and equipment are recorded at cost. The major classes of property, plant, and equipment are as follows:~~

September 30, December 31,
2010 2009
Land and improvements $ 23.3 $ 23.6
Buildings 39.6 31.9
Machinery and equipment 307.0 246.2
Construction in progress 45.3 83.4

415.2 385.1
Accumulated depreciation (58.3 ) (46.2 )

Property, plant, and equipment, net $ 356.9 $ 338.9

Majority of the Construction in progress is related to the Company’s Kalamazoo, Michigan facility. The facility is equipped with two extrusion presses and a remelt operation. This investment program is expected to be substantially completed in late 2010. The decrease in the Construction in progress balance from December 31, 2009 to September 30, 2010 reflects principally the commissioning of certain equipment during that period, the cost of which is reflected above in Machinery and equipment as of September 30, 2010.

~~The amount of interest expense capitalized as construction in progress was $2.7 and $1.5 during the nine month periods ended September 30, 2010 and September 30, 2009, respectively.~~

For the quarter and nine months ended September 30, 2010, the Company recorded depreciation expense of $4.7 and $13.6, respectively, relating to the Company’s operating facilities in its Fabricated Products segment. For the quarter and nine months ended September 30, 2009, the Company recorded depreciation expense of $3.9 and $12.2, 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 all such periods.

~~6. Supplemental Balance Sheet Information~~

~~Trade Receivables.~~

~~Trade receivables were comprised of the following:~~

September 30, December 31,
2010 2009
Billed trade receivables $ 84.4 $ 84.2

Unbilled trade receivables — Note 1 6.4 0.3

90.8 84.5
Allowance for doubtful receivables (0.6 ) (0.8 )

$ 90.2 $ 83.7

Prepaid Expenses and Other Current Assets.

~~Prepaid expenses and other current assets were comprised of the following:~~

September 30, December 31,
2010 2009
Current derivative assets — Note 14 $ 14.8 $ 7.2
Current deferred tax assets 40.5 40.6
Option premiums paid 3.3 3.1
Short-term restricted cash 0.9 0.9
Prepaid taxes 0.7 4.2
Prepaid expenses 3.2 3.1

Total $ 63.4 $ 59.1

~~Other Assets.~~

~~Other assets were comprised of the following:~~

September 30, December 31,
2010 2009
Derivative assets — Note 14 $ 42.9 $ 18.2
Option premiums paid 1.2 1.6
Restricted cash 16.3 17.4
Long-term income tax receivable 2.8 2.8
Deferred financing costs 8.3 1.1
Available for sale securities¹
4.5 —
Other — 0.1

Total $ 76.0 $ 41.2


¹		Available for sale securities represent investments related to the Company’s deferred compensation plan, in various investment funds measured at fair value based on the net asset values of the investment funds which we consider to be a level 2 input (Note 11). The fair value of these securities approximate amortized cost.

~~Other Accrued Liabilities.~~

~~Other accrued liabilities were comprised of the following:~~

September 30, December 31,
2010 2009
Current derivative liabilities — Note 14 $ 6.8 $ 5.1
Option premiums received 5.7 1.6
Current portion of income tax liabilities 1.1 1.1
Accrued income taxes and taxes payable 2.8 2.0
Accrued book overdraft (uncleared cash disbursements) — 3.4
Accrued annual VEBA contribution — 2.4
Accrued freight 1.8 2.1
Environmental accrual — Note 13 1.2 3.9
Accrued interest 4.1 0.1
Deferred revenue 10.9 6.8
Other 5.0 3.6

Total $ 39.4 $ 32.1

~~Long-term Liabilities.~~

~~Long-term liabilities were comprised of the following:~~

September 30, December 31,
2010 2009
Derivative liabilities — Note 14 $ 50.5 $ 5.3
Option premiums received 1.8 1.6
Income tax liabilities 12.5 13.4
Workers’ compensation accruals 16.3 14.1
Environmental accrual — Note 13 19.4 5.8
Asset retirement obligations 3.7 3.5
Deferred revenue 15.4 8.7
Deferred compensation liability 4.7 —
Other long-term liabilities 1.8 1.3

Total $ 126.1 $ 53.7

7. Cash Convertible Senior Notes and Related Transactions

Indenture. On March 29, 2010, the Company issued ~~$175.0~~cash convertible senior notes (the “Notes”) in the aggregate principal amount of ~~the Notes~~$175.0 pursuant to an indenture by and between the Company and Wells Fargo Bank, National Association, as trustee (the “Indenture”). Net proceeds from this transaction were approximately $169.2, after deducting the initial purchasers’ discounts and transaction fees and expenses. The Notes bear a stated interest rate of 4.50% per ~~year. As described in Note 1, the~~annum. The Company accounts for the ~~Bifurcated Conversion Feature~~cash conversion feature of the Notes (the “Bifurcated Conversion Feature”) as a separate derivative instrument. The fair value of the Bifurcated Conversion Feature on the issuance date of the Notes was recorded as the original issue discount for purposes of accounting for the debt component of the Notes. ~~Therefore,~~At issuance, the original issue discount relating to the Notes was $38.1, which will be amortized based on the effective interest method over the term of the Notes. Interest expense greater than the interest rate of 4.50% will be recognized over the term of the Notes, primarily due to the accretion of the discounted carrying value of the Notes to their face amount. The initial purchasers’ discounts and transaction fees and expenses totaling $5.8 were capitalized as deferred financing costs and will be amortized over the term of the Notes using the effective interest method. The effective interest rate of the Notes is approximately 11% per annum. Interest is payable semi-annually in arrears on April 1 and October 1 of each ~~year, beginning on October 1, 2010.~~year. The Notes will mature on April 1, 2015, subject to earlier repurchase or conversion upon the occurrence of certain events. Holders may convert their Notes before January 1, 2015, only in certain circumstances determined by (i) the market price of the Company’s common stock, (ii) the trading price of the Notes or (iii) the occurrence of specified corporate events. The Notes can be converted by the holders at any time on or after January 1, 2015 until the close of business on the second scheduled trading date immediately preceding the maturity date of the Notes. The Notes are subject to repurchase by the Company at the option of the holders following a fundamental change, as defined in the Indenture, ~~including,~~at a price equal to 100% of the principal amount of the Notes plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date. Fundamental changes include, but are not limited to, (i) certain ownership changes, (ii) certain recapitalizations, mergers and dispositions, (iii) shareholders’ approval of any plan or proposal for the liquidation, or dissolution of ~~our company,~~the Company, and (iv) ~~our~~the failure of the Company’s common stock ~~ceasing~~ to be listed on ~~any of The~~the New York Stock Exchange, ~~The~~the NASDAQ Global Select Market or ~~The~~the NASDAQ Global ~~Market, at a price equal to 100% of the principal amount of the Notes plus accrued and unpaid interest up to the fundamental change repurchase date.~~Market. The Notes have an initial conversion rate of 20.6949 shares of common stock per (in whole dollars) $1,000 principal amount of the Notes (equivalent to an initial conversion price of approximately $48.32 per share, representing a 26% conversion premium over the closing price of $38.35 per share of the Company’s common stock on March 23, 2010), subject to adjustment, based on the occurrence of certain events, including, but not limited to, (i) the issuance of certain dividends on ~~our~~the Company’s common stock, (ii) the issuance of certain rights, options or warrants, (iii) the effectuation of share splits or combinations, (iv) certain distributions of property, and (v) certain issuer tender or exchange offers as described in the Indenture, with the amount due on conversion payable in cash. The Notes are not convertible into the Company’s common stock or any other securities under any ~~circumstances.~~circumstances, but instead will be settled in cash.

The following provides additional information regarding the Notes:


	March 31,			December 31,
	2011			2010
Principal amount	$	175.0		$	175.0
Less: unamortized issuance discount		(32.0	)		(33.6	)

Carrying amount, net of discount	$	143.0		$	141.4


	Quarter ended
	March 31,
	2011		2010
Contractual coupon interest	$	2.0	$	0.1
Amortization of discount and deferred financing costs		1.9		—

Total interest expense¹	$	3.9	$	0.1


¹		A portion of the interest relating to the Notes is capitalized as Construction in progress.

See Other section of Note 12 for information relating to the estimated fair value of the Notes.

Convertible Note Hedge Transactions. On March 23 and March 26, 2010, the Company purchased the Call Options from several financial institutions (the “Option Counterparties”). The Call Options have an exercise price equal to the conversion price of the

The Call Options are expected to generally reduce the Company’s exposure to potential cash payments in excess of the principal amount of the Notes that it may be required to make upon the conversion of the Notes. If the market price per share of the Company’s common stock at the time of cash conversion of any Notes is above the strike price of the Call Options (which ~~strike price is~~ initially ~~equal~~equals to the initial conversion price of the Notes of approximately $48.32 per share of the Company’s common stock), the ~~Call Options will entitle the~~ Company is entitled to receive from the Option Counterparties in ~~the~~an aggregate amount equaling the ~~same~~ amount of cash ~~as it~~that the Company would be required to deliver to the holder of the converted Notes, ~~in excess of~~less the principal amount thereof.

~~Warrant Transactions~~. On March 23 and March 26, 2010, the Company also entered into warrant transactions pursuant to which the Company sold to the Option Counterparties net-share-settled warrants (the “Warrants”) relating to approximately 3.6 million shares of the Company’s common stock. The warrants expire on July 1, 2015. The Option Counterparties paid an aggregate amount of approximately $14.3 to the Company for the Warrants.

If the market price per share of the Company’s common stock, as measured under the terms of the Warrants, exceeds the strike price of the Warrants, which is initially ~~equal to~~equals $61.36 per share (representing a 60% premium over the closing price of $38.35 per share of the Company’s common stock on March 23, 2010), the Company will be obligated to issue to the Option Counterparties shares of the Company’s common stock having a value equal to such excess, as measured under the terms of the Warrants. The Warrants may not be exercised prior to the expiration date.

~~Other~~.The Warrants meet the definition of derivatives; however, because the Warrants are indexed to the Company’s common stock and have been determined to meet the requirement to be classified as equity instruments, they are not subject to fair value accounting.

The Call Options and Warrant transactions are separate transactions entered into by the Company with the Option Counterparties, and are not part of the terms of the Notes and do not affect the rights of holders under the Notes.

As described in Note 1, the Bifurcated Conversion Feature of the Notes meets the definition of a derivative under ASC 815 and requires bifurcation from the Notes for accounting purposes. The Call Options also meet the definition of derivatives under ASC 815. As such, the Company accounts for both instruments as derivatives and marks to market both instruments at the end of each reporting period. At September 30, 2010, the Bifurcated Conversion Feature had a fair value of $45.7 and was recorded as a long-term derivative liability, and the Call Options had a fair value of $36.1 and were recorded as long-term derivative assets (Note 6).

The Warrants meet the definition of derivatives under ASC 815; however, because the Warrants have been determined to be indexed to the Company’s common stock and to have met the requirement to be classified as equity instruments, they are not subject to the fair value provisions of ASC 815 (Note 14).

At September 30, 2010, the carrying value of the Notes was $139.9, which consists of $175.0 face amount net of $35.1 of debt discount. The fair value of the Notes was $195.0. The fair value of the Notes was based on the closing price of the Notes on September 30, 2010 which was a Level 1 input in the fair value hierarchy in which the fair value measurement fell. Total interest expense related to the Notes for the quarter and nine months ended September 30, 2010 were $3.8 and $7.5, respectively, a portion of which was capitalized as Construction in progress.

8.4. Secured Debt and Credit Facilities

Secured debt and credit ~~facility and long-term debt~~facilities consisted of the following:

September 30, December 31,
2010 2009
Revolving Credit Facility $ — $ —
Other 13.4 7.1

Total 13.4 7.1
Less — Current portion (1.3 ) —

Long-term secured debt $ 12.1 $ 7.1


	March 31,			December 31,
	2011			2010
Revolving credit facility	$	—		$	—
Other notes payable		12.7			13.1

Total		12.7			13.1
Less — current portion of secured debt and credit facilities		(4.8	)		(1.3	)

Long-term secured debt and credit facilities	$	7.9		$	11.8

Revolving Credit Facility.On March 23, 2010, the Company and certain of its subsidiaries entered into a $200.0 revolving credit facility with a group of lenders (the “Revolving Credit Facility”), of which up to a maximum of $60.0 may be utilized for letters of credit. ~~The Revolving Credit Facility amended and restated the Company’s then existing $265.0 revolving credit facility. In~~

connection with the amendment and restatement, the Company expensed $0.4 of unamortized deferred financing costs relating to the $265.0 revolving credit facility, resulting in a residual balance of $0.7 of unamortized deferred financing costs related to such financing arrangement. Also, in connection with the amendment and restatement, the Company incurred $2.7 of additional financing costs, which were capitalized. Accordingly, a total of $3.4 of capitalized financing costs will be amortized over the term of the Revolving Credit Facility on a straight-line basis. At September 30, 2010, $2.9 of deferred financing costs remained on the Consolidated Balance Sheets.

Under the Revolving Credit Facility, the Company is able to borrow from ~~time-to-time~~time to time an aggregate amount equal to the lesser of $200.0 or a borrowing base comprised of ~~certain percentages~~approximately 85% of eligible accounts receivable and approximately 65% of eligible inventory, reduced by certain reserves, all as specified in the Revolving Credit Facility. The Revolving Credit Facility matures in March 2014, at which time all amounts outstanding under the Revolving Credit Facility 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, in each case, 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 ~~there under,~~thereunder, be increased up to $250.0.

Amounts owed under the Revolving Credit Facility may be accelerated ~~for payment~~ upon the occurrence of various events of default including, without limitation, the failure to make principal or interest payments when due and breaches of covenants, representations and warranties set forth in the Revolving Credit Facility. The Revolving Credit Facility places limitations on the ability of the Company and certain of its subsidiaries to, among other things, grant liens, engage in mergers, sell assets, incur debt, make investments, undertake transactions with affiliates, pay dividends and repurchase shares. In addition, the Company is required to maintain a fixed

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(In millions of dollars, except share and per share amounts and as otherwise indicated)

charge coverage ratio on a consolidated basis at or above 1.1 to 1.0 if borrowing availability under the Revolving Credit Facility is less than $30.

The Revolving Credit Facility is secured by a first priority lien on substantially all of the accounts receivable, inventory and certain other related assets and proceeds ~~relating thereto~~ of the Company and its domestic operating subsidiaries. At ~~September 30, 2010,~~March 31, 2011, the Company was in compliance with all covenants contained in the Revolving Credit Facility.

The Company capitalized $3.4 of financing costs in connection with the Revolving Credit Facility which are amortized over the term of the Revolving Credit Facility on a straight-line basis. At ~~September 30, 2010,~~March 31, 2011, $2.5 of deferred financing costs remained on the Consolidated Balance Sheets.

At March 31, 2011, based on the borrowing base determination in effect as of that date, the Company had ~~$167.1 available~~ under the Revolving Credit Facility borrowing availability of $200.0, of which ~~$9.9~~$9.8 was being used to support outstanding letters of credit, leaving ~~$157.2~~$190.2 of availability. There were no borrowings under the Revolving Credit Facility at ~~September 30, 2010,~~March 31, 2011, but the interest rate applicable to any borrowings under the Revolving Credit Facility would have been 5.25% at ~~September 30, 2010~~March 31, 2011 for overnight borrowings.

~~Other.~~Other Notes Payable.In connection with the Company’s acquisition of the ~~manufacturing facility and related assets of Nichols Wire, Incorporated (“Nichols”) in~~ Florence, Alabama facility on August 9, 2010 (Note 9)5), a promissory note in the amount of $6.7 (the “Nichols Promissory Note”) was issued to Nichols as a part of the consideration paid. The Nichols Promissory Note bears interest at a rate of 7.5% per annum. Accrued but unpaid interest is due quarterly through maturity of the ~~note~~Nichols Promissory Note on August 9, ~~2015, with the first payment having been made on September 30, 2010.~~2015. The Company has the option to repay all or a portion of the Nichols Promissory Note at any time prior to the maturity date. Principal payments on the ~~note~~Nichols Promissory Note are due in equal quarterly ~~installments, with the first payment having been made on September 30, 2010.~~installments. The Nichols Promissory Note is secured by certain real property and equipment included in the assets acquired from Nichols in the acquisition. At March 31, 2011, the outstanding principal balance under the Nichols Promissory Note was $5.7, of which $1.3 was payable within 12 months. For the ~~nine month periods~~quarter ended ~~September 30, 2010,~~March 31, 2011, the Company recorded $0.1 of interest expense related to the Nichols Promissory Note.

As of ~~September 30, 2010,~~March 31, 2011, the Company also had a $7.0 outstanding promissory note (the “LA Promissory Note”) in connection with the Company’s purchase of the previously leased land and buildings associated with its Los Angeles, California facility in December 2008. Interest is payable on the unpaid principal balance of the LA Promissory Note monthly in arrears at the prime rate, as defined in the LA Promissory Note, plus 1.5%, in no event exceeding 10% per annum. A principal payment of $3.5 will be due on January 1, 2012, and the remaining $3.5 will be due on January 1, 2013. The LA Promissory Note is secured by a deed of trust on the property. For both ~~the nine month periods~~quarters ended ~~September 30,~~March 31, 2011 and March 31, 2010, ~~and September 30, 2009,~~ the Company incurred ~~$0.3~~$0.1 of interest expense relating to the LA Promissory Note. The interest rate applicable to the LA Promissory Note was 4.75% at ~~September 30, 2010.~~March 31, 2011.

~~9. Acquisition~~5. Acquisitions

~~On August 9, 2010,~~Alexco.Effective January 1, 2011, the Company completed the acquisition of substantially all of the ~~manufacturing facility and related~~ assets of ~~Nichols, located~~Alexco, a manufacturer of hard alloy extrusions for the aerospace industry, based in ~~Florence, Alabama,~~Chandler, Arizona.

The Company paid net cash consideration of $83.2 (net of $4.9 of cash received in the acquisition) on January 3, 2011, with existing cash on hand, and assumed certain liabilities totaling approximately $1.0. Total acquisition related expenses were $0.5, of which ~~manufactures bare mechanical alloy wire products, nails~~$0.1 was included in the Company’s consolidated results of operations for the quarter ended March 31, 2011. Such expenses are included within Selling, administrative, research and ~~aluminum rod for aerospace,~~development, and general ~~engineering, and automotive applications.~~expenses.

The ~~acquired assets have been integrated into and complement~~following table summarizes the ~~existing assets~~estimated fair values of the ~~Company’s Fabricated Products segment. In connection with~~assets acquired and liabilities assumed at the ~~purchase,~~effective date of the ~~Company hired approximately 100 personnel who were~~acquisition:


Allocation of purchase price:
Cash	$	4.9
Accounts receivable, net		3.6
Inventories		6.6
Property, plant and equipment		4.5
Definite-lived intangible assets:
Customer relationships		34.7
Order backlog		0.3
Trademark and trade name		0.4
Goodwill		34.1
Accounts payable and other current liabilities		(1.0	)

Cash consideration paid	$	88.1

1512

~~formerly employees~~ Goodwill arising from this transaction reflects (i) the expected synergistic benefits to the Company, as the products manufactured by the acquired operation are expected to complement the Company’s other offerings of ~~Nichols. The majority of such employees are members~~sheet, plate, cold finish and drawn tube products for aerospace applications and (ii) the calculation of the ~~United Steel, Paper~~fair value of the other assets acquired and ~~Foresting, rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union, AFL-CIO, CLC (the “USW”).~~

~~Consideration for the purchase consisted of (i) $9.0~~liabilities assumed in ~~cash, (ii) $6.7 in a promissory note from the Company to Nichols (Note 8), and (iii) the assumption of certain liabilities totaling approximately $2.1. The goodwill of $3.1~~this transaction. Goodwill arising from the acquisition represents the commercial opportunity for the Company to sell small diameter rod, bar and wire products as a complement to the Company’s existing portfolio of products to its core markets and end-use applications andthis transaction is ~~expected~~anticipated to be deductible for ~~income~~ tax purposes over the next 15 years. ~~All~~

The following unaudited pro forma financial information for the Company summarizes the results of operations for the periods indicated as if the Alexco acquisition had been completed as of January 1, 2010, the first day of the ~~goodwill is~~earliest period presented in the Statements of Consolidated Income included in this Report. This pro forma financial information considers principally (i) the Company’s ~~Fabricated Products segment. Total acquisition-related costs were approximately $0.8,~~unaudited financial results, (ii) the unaudited historical financial results of ~~which $0.4 was expensed during~~Alexco, as supplied to the ~~nine months ended September 30, 2010~~Company, and ~~was included~~(iii) select pro forma adjustments to the historical financial results of Alexco. Such pro forma adjustments represent principally estimates of (i) cost synergies from integration of the acquired operation into the Company’s existing business, (ii) the impact of the hypothetical amortization of acquired intangible assets and the recognition of fair value adjustments relating to tangible assets in ~~Selling, administrative, research~~pre-tax income in each period, and ~~development, and general~~(iii) the pro forma impact of the transaction on the Company’s tax provision in ~~the Statement of Consolidated Income. The Company does~~each period. These pro forma adjustments did not ~~expect the acquisition will~~ have a material impact on ~~its consolidated financial statements.~~

the pro forma Net income, as presented below. The following ~~table summarizes recognized amounts~~pro forma data does not purport to be indicative of ~~identifiable assets acquired and liabilities assumed~~the results of future operations or of the results that would have actually occurred had the acquisition taken place at the ~~acquisition date:~~beginning of 2010:

Inventory $ 3.9
Other current assets 2.3
Property, plant and equipment 4.2
Identifiable intangible assets with definite lives 4.3
Goodwill 3.1
Liabilities assumed (2.1 )

Consideration paid $ 15.7



	Quarter ended
	March 31,
	2011		2010
Net sales (combined)¹	$	322.6	$	274.4
Net income (combined)¹	$	11.3	$	9.9
Basic and diluted earnings per share (combined)¹	$	0.59	$	0.49

~~Identifiable intangible assets at September 30, 2010 are comprised of the following:~~

Estimated useful life Original cost Accumulated amortization Net book value
Customer relationships 20 $ 3.8 $ — $ 3.8
Backlog 3 0.5 (0.1 ) 0.4

$ 4.3 $ (0.1 ) $ 4.2

~~Total amortization expense~~

Consideration consisted of (i) $9.0 in cash, (ii) the $6.7 Nichols Promissory Note from the Company to Nichols (Note 4), and (iii) the assumption of certain liabilities totaling approximately $2.1. Total acquisition-related costs were approximately $0.8, all of which were expensed through December 31, 2010 and included in Selling, administrative, research and development, and general in the Statement of Consolidated Income. The acquisition did not have a material impact on the Company’s consolidated financial statements.

The following table summarizes recognized amounts of identifiable assets acquired and liabilities assumed at the acquisition date:


Inventory	$	3.9
Other current assets		2.3
Property, plant and equipment		4.2
Identifiable intangible assets with definite lives		4.3
Goodwill		3.1
Liabilities assumed		(2.1	)

Consideration paid	$	15.7

The goodwill of $3.1 arising from the acquisition represents the commercial opportunity for the Company to sell small-diameter rod, bar and wire products, as a complement to its other products, to its core markets and end market segment applications and is expected to be deductible for income tax purposes over the next 15 years.

6. Goodwill and Intangible Assets

A roll-forward of goodwill from December 31, 2010 to March 31, 2011 is as follows (see Note 5 for additional information about the Company’s business acquisitions):


Balance as of December 31, 2010	$	3.1
Goodwill arising from Alexco acquisition		34.1

Balance as of March 31, 2011	$	37.2

All of the Company’s goodwill is included in the Fabricated Products segment.

Identifiable intangible assets at March 31, 2011 and December 31, 2010 are comprised of the following:

March 31, 2011:


	Weighted
	average estimated				Accumulated
	useful life		Original cost		amortization			Net book value
Customer relationships		25	$	38.5	$	(0.5	)	$	38.0
Backlog		2		0.8		(0.4	)		0.4
Trademark and trade name		3		0.4		—			0.4

Total		24	$	39.7	$	(0.9	)	$	38.8

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(In millions of dollars, except share and per share amounts and as otherwise indicated)

December 31, 2010:


	Weighted
	average estimated				Accumulated
	useful life		Original cost		amortization			Net book value
Customer relationships		20	$	3.8	$	(0.1	)	$	3.7
Backlog		2		0.5		(0.2	)		0.3

Total		18	$	4.3	$	(0.3	)	$	4.0

Amortization expense relating to definite-lived intangible assets is recorded in the Fabricated Products segment. Such expense was $0.6 for the quarter ended March 31, 2011. The expected amortization of intangible assets for the next five calendar years is as follows:


2011	$	1.9
2012		2.0
2013		1.7
2014		1.6
2015		1.6

Total	$	8.8

7. Income Tax Matters

Tax Provision. The provision for income taxes for the quarters ended March 31, 2011 and March 31, 2010 consisted of:


	Quarter Ended March 31,
	2011		2010
Domestic	$	6.0	$	5.2
Foreign		0.4		1.0

Total	$	6.4	$	6.2

The income tax provision for the quarter ended March 31, 2011 was $6.4, or an effective tax rate of 36.3%. The difference between the effective tax rate and the projected blended statutory tax rate was primarily the result of a decrease in the valuation allowance, due to a change in tax law in the State of Illinois of $0.8, resulting in a 4.6% decrease in the effective tax rate, partially offset by (i) an increase in unrecognized tax benefits, including interest and penalties of ~~$1.1~~$0.3, resulting in a ~~5% decrease~~1.7% increase in the effective tax rate ~~as well as~~and (ii) the impact of a non-deductible compensation expense of ~~$0.5,~~$0.2, resulting in a ~~2.1%~~1.3% increase in the effective tax rate.

The foreign currency impact on unrecognized tax benefits, interest and penalties resulted in a $0.2 increase to currency translation adjustment that was recorded in Accumulated other comprehensive loss.

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.

At December 31, ~~2009,~~2010, the Company had ~~$858.2~~$882.6 of net operating loss (“NOL”) carryforwards available to reduce future cash payments for income taxes in the ~~United States.~~U.S. Of the $882.6 of NOL carryforwards at December 31, ~~2009, $1.2 relates to the~~2010, $1.7 consists of excess tax benefits from employee restricted stock. Equity will be increased by ~~$1.2~~$1.7 if and when such excess tax benefits are ultimately realized. ~~Such~~The NOL carryforwards expire periodically through ~~2027.~~2030. The Company also had $31.1 of alternative minimum tax (“AMT”) credit carryforwards with an indefinite life, available to offset regular federal income tax requirements.

To preserve the NOL carryforwards that may be available to the Company, (i) the Company’s certificate of incorporation ~~was amended and restated in July 2006 to, among other things, include~~includes certain restrictions on the transfer of the Company’s common ~~stock. In connection with~~stock and (ii) the ~~amendment and restatement, the~~ Company ~~and the Union VEBA, the Company’s largest stockholder,~~ entered into a stock transfer restriction ~~agreement.~~agreement with the Union VEBA (which remained the Company’s largest stockholder as of March 31, 2011).

In assessing the realizability of deferred tax assets, ~~the Company~~management considers whether it is “more likely than not” that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. ~~The Company~~Management considers taxable

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(In millions of dollars, except share and per share amounts and as otherwise indicated)

income in carryback years, the scheduled reversal of deferred tax liabilities, tax planning strategies and projected future taxable income in making this assessment. ~~As of December 31, 2009, due~~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 ~~has~~had a valuation allowance ~~of $18.0~~ against its deferred tax ~~assets.~~assets of $19.3 and $20.1 at March 31, 2011 and December 31, 2010, respectively. When recognized, the tax benefits relating to any reversal of ~~the~~this valuation allowance will be recorded as a reduction of income tax ~~expense pursuant to ASC Topic 805,~~~~Business Combinations~~.expense.

~~Other.~~Other. The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. The Canada Revenue Agency audited the Company’s tax returns for fiscal years 1998 through 2001 and issued assessment notices ~~for 1998 through 2001~~ for which Notices of Objection have been filed. In addition, the Canada Revenue Agency has audited the Company’s tax returns for fiscal years 2002 through 2004 and issued assessment notices, ~~for 2002 through 2004,~~as a result of which $7.9 has been paid to the Canada Revenue Agency against previously accrued tax reserves in the third quarter of 2009. There is an additional Canadian Provincial income tax assessment of ~~$1.1,~~$1.2, including interest, resulting from the audit of the Company’s tax returns for ~~the~~fiscal years 2002 through 2004 ~~income tax audit~~ that is anticipated to be paid against previously accrued tax reserves ~~within the~~in next ~~twelve~~12 months. ~~Certain~~The Company’s tax returns for 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 U.S. federal or state liability has been recorded for the undistributed earnings of the Company’s Canadian subsidiary at ~~December~~March 31, ~~2009.~~2011. These undistributed earnings are considered to be indefinitely reinvested. Accordingly, no provision for U.S. federal and state income taxes or foreign withholding taxes has been provided on such undistributed earnings. Determination of the potential amount of unrecognized deferred U.S. income tax liability and foreign withholding taxes is not practicable because of the complexities associated with ~~its~~such hypothetical calculation.

The Company has gross unrecognized benefits relating to uncertain tax positions. If and when such gross unrecognized tax benefits are ultimately recognized, it will go through the Company’s income tax provision and affect the effective tax rate in future periods.

The Company had gross unrecognized tax benefits of ~~$14.6~~$15.5 and ~~$15.6~~$15.0 at ~~September 30, 2010~~March 31, 2011 and December 31, ~~2009,~~2010, respectively. The ~~changes~~change during the ~~nine months~~quarter ended ~~September 30, 2010 were~~March 31, 2011 was primarily due to ~~a partial release of an unrecognized tax benefit, including interest and penalties, as a result of the expiration of a statute, as well as~~foreign currency fluctuations and a change in tax ~~position. The~~positions.

In addition, the Company recognizes interest and penalties related to ~~these~~ unrecognized tax benefits in the income tax provision. The Company had ~~approximately $6.2~~$6.9 and ~~$6.2~~$6.6 accrued at ~~September 30, 2010~~March 31, 2011 and December 31, ~~2009,~~2010, respectively, for interest and penalties. Of ~~the $6.2 of total interest and penalties at September 30, 2010,~~these amounts, $0.4 ~~is included in~~was recorded as current liabilities and ~~$5.8 is~~ included in ~~Long-term~~Other accrued liabilities inon the Consolidated Balance ~~Sheets. Of the $6.2 of total~~Sheets at March 31, 2011 and December 31, 2010. The Company recognized an increase in interest and ~~penalties at December 31, 2009,~~penalty of $0.3 ~~is included~~and $0.4 in ~~current liabilities and $5.9 is included in Long-term liabilities~~its tax provision in the ~~Consolidated Balance Sheets.~~quarters ended March 31, 2011 and March 31, 2010, respectively.

In connection with the gross unrecognized tax benefits (including interest and penalty) denominated in foreign currency, we incurred a foreign currency translation adjustment. During the ~~nine months~~quarter ended ~~September 30, 2010,~~March 31, 2011, the foreign currency impact on ~~gross unrecognized tax benefits, interest and penalties~~such liabilities resulted in a ~~$0.2 increase to~~$0.4 currency translation adjustment ~~that~~which was recorded ~~in Accumulated other~~within Other comprehensive ~~loss.~~income.

The Company expects its gross unrecognized tax benefits to be reduced by ~~$1.6~~$1.7 within the next 12 ~~months due to the resolution of certain tax audits and expirations of various statutes of limitation.~~

~~11.~~8. Employee Benefits

Pension and Similar Plans.Pensions and similar plans include:

	•		Monthly contributions of (in whole dollars) $1.00 per hour worked by each bargaining unit employee to the appropriate multi-employer pension plans sponsored by the ~~USW~~United Steel, Paper and Foresting, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union AFL-CIO, CLC (“USW”) and International Association of Machinists and certain other unions at certain of the Company’s production facilities, except that (i) the monthly contributions per hour worked by each bargaining unit employee to a pension plan sponsored by the USW at the Company’s Newark, Ohio and Spokane, Washington facilities increased to (in whole dollars) $1.25 starting July 2010 and will increase to (in whole dollars) $1.50 in July 2015 and (ii) monthly contributions to a pension plan sponsored by the USW at the Company’s newly acquired Florence, Alabama facility are (in whole dollars) $1.25 per hour worked by each bargaining unit employee. The Company currently estimates that contributions will range from $2.0 to $4.0 per year through 2013.

	•		A defined contribution 401(k) savings plan for hourly bargaining unit employees at ~~five~~eight of the Company’s production facilities. ~~The Company is required to make contributions to this plan for~~For active bargaining unit employees at four of these production facilities, the Company is required to make contributions to this plan ranging

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(In millions of dollars, except share and per share amounts and as otherwise indicated)

			from (in whole dollars) $800 to $2,400 per employee per year, depending on the employee’s age. For active bargaining unit employees at two other production facilities, the Company provides for (i) a concurrent match of up to 4% of certain contributions made by employees and (ii) an annual contribution of between 2% and 10% of their compensation to employees hired prior to January 1, 2004, depending on their age and years of service, or a fixed 2% annual contribution to employees hired on or after January 1, 2004. The Company currently estimates that contributions to such plans will range from $1.0 to $3.0 per year.

	•		A defined benefit plan for salaried employees at the Company’s facility in London, Ontario with annual contributions based on each salaried employee’s age and years of service. At December 31, 2009, approximately 55% of the plan assets were invested in equity securities, 40% of plan assets were invested in debt securities and the remaining plan assets were invested in short-term securities. The Company’s investment committee reviews and evaluates the investment portfolio. The asset mix target allocation on the long-term investments is approximately 60% in equity securities and 36% in debt securities with the remaining assets in short-term securities.

	•		A defined contribution 401(k) savings plan for salaried and certain hourly employees providing for a concurrent match of up to 4% of certain contributions 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 annually. The Company currently estimates that contributions to such plan will range from $4.0 to $6.0 per year.

	•		A defined benefit plan for salaried employees at the Company’s London, Ontario facility, with annual contributions based on each salaried employee’s age and years of service. At December 31, 2010, approximately 62% of the plan assets were invested in equity securities and 36% of plan assets were invested in debt securities. The remaining plan assets were invested in short-term securities. The Company’s investment committee reviews and evaluates the investment portfolio. The asset mix target allocation on the long-term investments is approximately 60% in equity securities and 36% in debt securities with the remaining assets in short-term securities. See Note 12 for additional information regarding the fair values of the Canadian pension plan assets.

	•		A non-qualified, unfunded, unsecured plan of deferred compensation for key employees who would otherwise suffer a loss of benefits under the Company’s defined contribution plan, as a result of the limitations imposed by the Internal Revenue Code. Despite the plan being an unfunded plan, the Company makes an annual contribution to a ~~Rabbi Trust~~rabbi trust to fulfill future funding obligations, as contemplated by the terms of the plan. The assets in the trust are at all times subject to the claims of the Company’s general creditors, and no participant has a claim to any assets of the trust. Plan participants are eligible to receive distributions from the trust subject to vesting and other eligibility requirements. Assets in the ~~Rabbi Trust~~rabbi trust relating to the deferred compensation plan are accounted for as available for sale securities and are included as Other assets on the Consolidated Balance Sheets (Note 6)2). Liabilities relating to the deferred compensation plan are included on the Consolidated Balance Sheets as Long-term liabilities (Note 6)2).

	•		An employment agreement with the Company’s chief executive officer which extends through July 6, 2015. The Company also provides certain members of senior management, including each of the Company’s named executive officers, with benefits related to terminations of employment in specified circumstances, including in connection with a change in control, by the Company without cause and by the named executive officer with good reason.

Postretirement Medical Obligations.As a part of the Company’s reorganization, the Company’s postretirement medical plan was terminated in 2004. Participants were given the option of coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”)~~, with the Company’s filing of its plan of reorganization as the qualifying event,~~ or participation in the applicable voluntary employee’s beneficiary association (“VEBA”), the VEBA that provides benefits for certain union retirees, their surviving spouses and eligible dependents (the ~~Union VEBA~~“Union VEBA”) or the VEBA that provides benefits for certain other eligible retirees, ~~and~~ their surviving spouse and eligible dependents (the “Salaried VEBA”)). Qualifying bargaining unit employees who do not, or are not eligible to, elect COBRA coverage are covered by the Union VEBA. The Salaried VEBA covers ~~all other~~certain retirees ~~including employees~~ who retired prior to the 2004 termination of the prior plan or who subsequently have retired or will retire with the required age and service requirements so long as their employment commenced prior to February 2002. The benefits paid by the VEBAs are at the sole discretion of the respective VEBA trustees and are outside the Company’s control.

As of September 30, 2010, the Union VEBA owned 3,523,980 shares of the Company’s common stock. A stock transfer restriction agreement between the Union VEBA and the Company places certain restrictions on the Union VEBA relating to the sale of shares of the Company’s common stock owned by the Union VEBA (see Note 9 of Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009). The number of shares of the Company’s common

stock that generally may be sold by the Union VEBA during any 12-month period without further approval of our Board of Directors is 1,321,485. On April 2, 2010, the Company filed a registration statement on Form S-3 for the resale of the shares of the Company’s common stock held by the Union VEBA in response to a demand by the Union VEBA under a registration rights agreement entered into by the Company and the VEBA Trust on July 6, 2006. The registration statement became effective on July 9, 2010. While the registration statement provides for registration of all shares of our common stock owned by the Union VEBA, the Union VEBA is also permitted to sell all or some portion of these shares in transactions exempt from the registration requirements of applicable securities laws, including Rule 144 of the Securities Act. Regardless of whether the Union VEBA sells shares pursuant to the registration statement or in transactions exempt from registration requirements, including Rule 144 of the Securities Act, the Union VEBA will continue to be prohibited from selling more than 1,321,485 shares of our common stock during any 12-month period without the approval of our Board of Directors.

During the nine months ended September 30, 2010, the Union VEBA sold 1,321,485 shares. The 1,321,485 shares sold resulted in (i) an increase of $52.0 in VEBA assets at an approximately $39.38 weighted average per share price realized by the Union VEBA, (ii) a reduction of $31.8 in common stock owned by Union VEBA (at $24.02 per share reorganization value), and (iii) the difference between the two amounts, net of tax adjustment, was credited to Additional capital. As of September 30, 2010, the Union VEBA owned approximately 18% of the Company’s outstanding common stock.

The Company’s only ~~obligation~~financial obligations to the VEBAs are (i) an annual variable cash contribution payable to the Union VEBA and the Salaried VEBA isand (ii) an obligation to pay one-half of the administrative expenses of the VEBAs, up to $0.3 per year. The obligation to the Union VEBA with respect to the annual variable cash ~~contribution. This obligation~~contribution extends through September 30, 2017 ~~with respect to the Union VEBA~~ (reflecting a ~~five year~~five-year extension agreed by the Company onin January ~~20,~~ 2010 in connection with the renewal and ratification of a labor agreement with the members of the USW at the Company’s Newark, Ohio and Spokane, Washington facilities), while the obligation to the Salaried VEBA has no termination date. The amount to be contributed to the VEBAs through September 2017 pursuant to the Company’s obligation 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 within 120 days following the end of the fiscal year, or within 15 days following the date on which the Company files its Annual Report on Form 10-K with the 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

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(In millions of dollars, except share and per share amounts and as otherwise indicated)

annual financial statements), whichever is earlier. The Union VEBA is managed by four trustees (two appointed by the Company and two appointed by the USW), and the assets are managed by an independent fiduciary.

Amounts owing by the Company to the VEBAs are recorded in the Company’s Consolidated Balance Sheets under Other accrued liabilities, with a corresponding increase in Net assets in respect of VEBAs. At December 31, ~~2009,~~2010, the Company had preliminarily determined that ~~$2.4~~$2.1 was owed to the VEBAs (comprised of ~~$2.0~~$1.8 to the Union VEBA and ~~$0.4~~$0.3 to the Salaried VEBA)~~; and these~~. These amounts were paid during the first quarter of ~~2010. In addition to contribution obligations,~~2011, along with an additional payment of $0.1, based on the ~~Company is obligated to pay one-half~~final computation of the administrative expenses of the Union VEBA, up to $0.3 in each successive year, which annual cap was effective beginning with 2008. During 2009, the Company paid $0.3 in administrative expenses of the Union VEBA.2010 results.

For accounting purposes, after discussions with the staff of the SEC, the Company treats the postretirement medical benefits to be paid by the VEBAs and the Company’s related annual variable contribution obligations as defined benefit postretirement plans with the current VEBA assets and future variable contributions described above, and earnings thereon, operating as a cap on the benefits to be paid. While the ~~Company’s~~Company has no control over the plan assets and its only ~~obligation~~financial obligations to the VEBAs isare to pay the annual variable contribution amount and ~~the Company has no control over the plan assets,~~certain administrative fees, the Company nonetheless accounts for net periodic postretirement benefit ~~costs in accordance with ASC Topic 715,~~~~Compensation — Retirement Benefits,~~and records any difference between the assets of each VEBA and its accumulated postretirement benefit obligation in the Company’s financial statements. ~~Such information~~Information necessary for the valuation of the net funded status of the plans must be obtained from the Salaried VEBA and Union VEBA on ~~a periodic~~an annual basis. It is possible that existing assets may be insufficient to fund the accumulated benefit obligation resulting in a negative net funded position on the Company’s Consolidated Balance Sheets; however, the Company has no obligation to fund either the Salaried VEBA or the Union VEBA beyond the annual variable cash contributions as determined.

Components of Net Periodic Benefit Cost ~~and Charges Relating to Other Benefit Plans.~~(Income) — The following ~~tables present~~table presents the components of net periodic benefit cost (income) for the quarters ended March 31, 2011 and ~~nine month~~March 31, 2010:



	Quarter Ended
	March 31,
	2011			2010
VEBAs:
Service cost	$	0.7		$	0.7
Interest cost		3.9			4.0
Expected return on plan assets		(7.6	)		(5.2	)
Amortization of prior service cost		1.0			1.0
Amortization of net gain		(0.2	)		(0.1	)

		(2.2	)		0.4
Deferred compensation plans		0.2			0.7
Defined contributions plans		3.4			3.2
Multiemployer pension plans		0.8			0.7

	$	2.2		$	5.0



The following tables present the allocation of these charges:


	Quarter Ended
	March 31,
	2011			2010
Fabricated Products segment	$	4.0		$	3.4
Corporate and Other segment		(1.8	)		1.6

	$	2.2		$	5.0

For all periods ~~ended September 30, 2010~~presented, the net periodic benefits relating to the VEBAs are included as a component of Selling, administrative, research and ~~September 30, 2009:~~development and general expense within All Other and substantially all of the Fabricated Products segment’s related charges are in Cost of products sold, excluding depreciation, amortization and other items with the balance in Selling, administrative, research and development and general.

1918

Quarter Ended Nine Months Ended
September 30, September 30,
2010 2009 2010 2009
VEBAs:
Service cost $ 0.7 $ 0.6 $ 2.2 $ 1.7
Interest cost 4.0 4.6 12.0 14.0
Expected return on plan assets (5.2 ) (5.2 ) (15.7 ) (15.7 )
Amortization of prior service cost 1.0 0.4 3.1 1.2
Amortization of net loss (gain) (0.1 ) 0.9 (0.3 ) 2.8

0.4 1.3 1.3 4.0
Deferred compensation plan 0.2 0.1 1.1 0.3
Defined contributions plans 1.8 2.2 7.6 7.2

$ 2.4 $ 3.6 $ 10.0 $ 11.5

~~The following tables present~~ As of March 31, 2011, the ~~allocation~~Union VEBA owned approximately 17% of ~~these charges:~~

Quarter Ended Nine Months Ended
September 30, September 30,
2010 2009 2010 2009
Fabricated Products segment $ 1.8 $ 2.2 $ 7.0 $ 6.6
Corporate and Other segment 0.6 1.4 3.0 4.9

$ 2.4 $ 3.6 $ 10.0 $ 11.5

~~For all periods presented, substantially~~the Company’s issued and outstanding shares of common stock, or 3,306,938 common shares, all of which have been registered for resale under the ~~Fabricated Products segment’s related charges~~Securities Act of 1933, as amended, or may be sold in transactions exempt from securities laws, including under Rule 144. However, a stock transfer restriction agreement between the Union VEBA and the Company restricts the number of shares of the Company’s common stock that generally may be sold by the Union VEBA during any 12-month period without further approval of our Board of Directors to 1,321,485. Shares owned by the Union VEBA that are subject to the stock transfer restriction agreement are treated as being similar to treasury stock (i.e. as a reduction of Stockholders’ equity) in ~~Cost~~the Company’s Consolidated Balance Sheets. During the quarter ended March 31, 2011, the Union VEBA sold 217,042 shares of ~~products~~the Company’s common stock permitted under the stock transfer restriction agreement. The 217,042 shares sold ~~excluding depreciation, amortization~~resulted in (i) an increase of $10.6 in VEBA assets (at a weighted-average price of $49.06 per share realized by the Union VEBA), (ii) a reduction of $5.2 in common stock owned by Union VEBA (at $24.02 per share reorganization value) and ~~other items, with~~(iii) the ~~balance being in Selling, administrative, research and development and general expense.~~difference between the two amounts, net of tax adjustment, was credited to Additional capital.

See Note 911 of Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2009~~2010 for additional information with respect to the VEBAs and key assumptions used with respect to the Company’s pension plans and key assumptions made in computing the net obligation of each VEBA.

~~12.~~9. Employee Incentive Plans

Short-term ~~incentive plans~~Incentive Plans

The Company has a short-term incentive compensation plan for senior management and certain ~~salaried~~corporate employees payable at the Company’s election in cash, shares of common stock, or a combination of cash and shares of common stock. Amounts earned under the plan are based primarily on EVA of the Company’s core Fabricated Products business, adjusted for certain safety and performance factors. Most of the Company’s production facilities have similar programs for both hourly and salaried employees. During the quarters ended March 31, 2011 and March 31, 2010, the Company recorded the following charges:


	Quarter Ended
	March 31,
	2011		2010
Cost of products sold	$	1.1	$	0.6
Selling, administrative, research and development and general		1.1		1.4

Total expense recorded in connection with short-term incentive plans	$	2.2	$	2.0


The following table presents the allocation of these charges:


	2011		2010
Fabricated Products segment	$	1.7	$	1.3
All Other		0.5		0.7

Total expense recorded in connection with short-term incentive plans	$	2.2	$	2.0

~~Long-term incentive plans~~Long- term Incentive Plans

General. ~~On July 6, 2006, the Kaiser Aluminum Corporation 2006 Equity and Performance Incentive Plan (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 and directors emeritus of the Company, are eligible to participate in the Kaiser Aluminum Corporation 2006 Equity and Performance Incentive ~~Plan.~~Plan (as amended, 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~~2016, and 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.~~date. 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. In December 2008,~~termination, and all grants made on or prior to the ~~Company~~date of termination will continue in effect thereafter subject to the terms thereof and of the Equity Incentive Plan. 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, a total of 2,722,222 common shares have been

2019

amended the Equity Incentive Plan to include a new French sub-plan in order to issue restricted stock units to eligible employees of the Company’s French subsidiary. Under the French sub-plan, the restriction period on the restricted stock units cannot be shorter than two years from the date of grant and the holder of such restricted stock units is not entitled to dividend equivalent payments in the event that the Company declares dividends on shares of its common stock. In June 2009, the Company amended the Equity Incentive Plan to clarify and confirm that directors emeritus are permitted to participate in the Equity Incentive Plan. In February 2010, the Company amended the Equity Incentive Plan to clarify and confirm the compensation committee’s authority in connection with the establishment of performance goals. In June 2010, upon shareholder approval, the Equity Incentive Plan was amended to add 500,000 common shares to the number of shares available for issuance under the Equity Incentive Plan.

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. As discussed above, in June 2010, the shareholders of the Company approved the addition of 500,000 shares of common stock to the number of shares availableauthorized for issuance under the Equity Incentive Plan. At ~~September 30, 2010, approximately 1,012,819~~March 31, 2011, 851,219 common shares were available for additional awards under the Equity Incentive Plan.

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, 2011 and ~~nine month periods ended September 30,~~March 31, 2010 ~~and September 30, 2009~~ were as follows:


	Quarter Ended				Nine Months Ended				Quarter Ended
	September 30,				September 30,				March 31,
	2010		2009		2010		2009		2011		2010
Service-based vested and non-vested common shares and restricted stock units	$	0.8	$	1.9	$	2.8	$	7.1	$	1.0	$	1.0
Performance shares		0.2		0.2		1.0		1.0		0.4		0.5
Service-based stock options		—		0.1		0.1		0.2		—		0.1

Total compensation charge	$	1.0	$	2.2	$	3.9	$	8.3
Total expense recorded in connection with the Equity Incentive Plan									$	1.4	$	1.6


The following table presents the allocation of these charges:

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(In millions of dollars, except share and per share amounts and as otherwise indicated)

At March 31, 2011, there was no unrecognized gross compensation expense related to stock options, as all unvested options became fully vested on April 3, 2010.

~~13.~~10. 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, indebtedness (and related Call Options and Warrants) and letters of credit (Notes ~~7, 8~~3, 4 and ~~14)~~11).

Minimum rental commitments under operating leases at ~~September 30, 2010 were~~March 31, 2011, are as follows: years ending December 31, ~~2010 – $1.6,~~ 2011 –— $7.5; 2012 — $6.9, ~~2012 – $6.4,~~ 2013 ~~– $5.5,~~— $5.9, 2014 — $3.4 and thereafter ~~– $38.1.~~— $38.0. There are renewal options in various operating leases subject to certain terms and conditions.

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

The Company has established procedures for regularly evaluating environmental loss contingencies, including those arising from environmental reviews and investigations and any other environmental remediation or compliance matters. The Company’s environmental accruals represent the Company’s undiscounted estimate of costs reasonably expected to be incurred based on presently enacted laws and regulations, existing requirements, currently available facts, existing technology, and the Company’s assessment of the likely remediation actions to be taken.

During the third quarter of 2010, the Company increased its environmental accruals in connection with the Company’s submission of a draft feasibility study to the Washington State Department of Ecology (“Washington State Ecology”) on September 8, 2010 (the “Feasibility Study”). The draft Feasibility Study included recommendations for a range of remediation alternatives to primarily address the historical use of oils containing polychlorinated biphenyls, or PCBs, at the Company’s Trentwood facility in Spokane, Washington, ~~and plans for remediation for~~which may be implemented over the next 30 years. ~~Although future annual costs reflected~~During the first quarter of 2011, the Company continued to work with Washington State Ecology to revise the draft Feasibility Study and to determine viable remedial approaches. As of March 31, 2011, no agreement with the Washington State Ecology has been reached on the final remediation approach. The draft Feasibility Study is still subject to further reviews, public comment and regulatory approvals before the final decree is issued. The Company expects the consent decree to be issued in 2012.

Based on the recommended remediation alternatives in the draft Feasibility Study ~~are not expected to vary materially from the current level of environmental expenditures, based on the draft Feasibility Study~~ and ~~the Company’s evaluation of~~ other existing historical environmental matters at the Trentwood facility and certain other locations owned or operated by the Company, the ~~Company increased its~~Company’s environmental accrual was $20.0 at March 31, 2011. The Company’s environmental accrual represents the low end of the range of incremental cost estimates based on proposed alternatives in the draft Feasibility Study, investigational studies and other remediation activities occurring at certain locations owned or operated by ~~$13.6 during~~ the ~~quarter ended September 30, 2010, to a total of $20.6 at September 30, 2010, to reflect the cost of remediation for the next 30 years.~~Company. The Company expects that these remediation actions will be taken over the next 30 years and estimates that ~~expenditures~~the incremental direct costs attributable to the remediation activities to be charged to these environmental accruals will be approximately ~~$0.5 in 2010, $1.1~~$0.8 in 2011, ~~$1.0~~$0.8 in 2012, ~~$3.2~~$2.7 in 2013, ~~and $14.8~~$0.7 in 2014, and $15.0 in 2015 and years thereafter through the balance of the ~~30 year~~30-year period. The draft Feasibility Study is still subject to further reviews, public comment and regulatory approvals before the final consent decree is issued. The Company expects the consent decree to be issued in 2012.

As additional facts are developed, feasibility studies at various facilities are completed, ~~definitive~~draft remediation plans ~~and~~are modified, necessary regulatory ~~approvals~~approval for the implementation of remediation are ~~established, and~~obtained, alternative technologies are developed, ~~changes in these and~~and/or other factors change, there may ~~result in~~be revisions to management’s estimates, and actual costs ~~exceeding~~may exceed the current environmental accruals. The Company believes at this time that it is reasonably possible that undiscounted costs associated with these environmental matters may exceed current accruals by amounts that could be, in the aggregate, up to an estimated ~~$23.8~~$22.0 over the next 30 years. It is reasonably possible that the Company’s recorded estimate of its obligation may change in the next 12 months.

Other Contingencies.The Company and its subsidiaries are parties to various lawsuits, claims, investigations, and administrative proceedings that arise in connection with past and current operations. The Company evaluates such matters on a ~~case by case~~case-by-case basis, and its policy is to vigorously contest any such claims it believes are without merit. ~~In accordance with ASC Topic 450,~~~~Contingencies~~~~, the~~The Company ~~reserves~~accrues for a legal liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Quarterly, in addition to when changes in facts and circumstances require it, the Company reviews and adjusts these ~~reserves~~accruals to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other information, and events pertaining to a particular case. While uncertainties are inherent in the final outcome of such matters and it is presently impossible to determine the actual cost that may ultimately be incurred, management believes that it has sufficiently reserved for such matters and that the ultimate resolution of pending matters will not have a material adverse impact on its consolidated financial position, operating results, or liquidity.

2322

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(In millions of dollars, except share and per share amounts and as otherwise indicated)

~~(Unaudited)~~

~~reserved for such matters and that the ultimate resolution of pending matters will not have a material adverse impact on its consolidated financial position, operating results, or liquidity.~~

~~14.~~11. Derivative Financial Instruments and Related Hedging Programs

Overview. In conducting its business, the Company, from ~~time-to-time,~~time to time, enters into derivative transactions, including forward contracts and options, to limit its economic (i.e., cash) exposure resulting from (i) metal price risk related to its sale of fabricated aluminum products and the purchase of metal used as raw material for its fabrication operations, (ii) ~~the~~ energy price risk ~~from~~relating to fluctuating prices ~~for~~of natural gas and electricity used in its production ~~process,~~processes, and (iii) foreign currency requirements with respect to its cash commitments for equipment purchases and with respect to its foreign subsidiaries, investment and ~~affiliate. Additionally, in~~cash commitments for equipment purchases. In March 2010, in connection with the issuance of the Notes, the Company ~~entered into~~purchased cash-settled Call Options relating to the Company’s common stock to limit its exposure to the ~~Bifurcated Conversion Feature~~cash conversion feature of the Notes (Note 7)3). ~~From time to time, the~~The Company may modify the terms of its derivative contracts based on operational needs or financing objectives. As the Company’s operational hedging activities are generally designed to ~~lock-in~~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.~~transactions occur. However, due to mark-to-market accounting, during the ~~life~~term of the derivative ~~contract,~~contracts, significant unrealized, non-cash gains and losses ~~are~~may be recorded in the income statement.

Hedges of Operational Risks. 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 to its customers. However, in certain instances the Company ~~may also be exposed~~enters into firm price arrangements with its customers and incurs price risk on its anticipated primary aluminum purchases in respect of such customer orders. The Hedging business unit uses third-party hedging instruments to ~~margin calls,~~limit exposure to metal-price risks related to firm price customer sales contracts (see Note 12 for additional information regarding the Company’s material derivative positions relating to hedges of operational risks, and their respective fair values).

During the quarters ended March 31, 2011 and March 31, 2010, total fabricated products shipments that contained fixed price terms were (in millions of pounds) 24.6 and 22.4, respectively. At March 31, 2011, the Fabricated Products segment held contracts for the delivery of fabricated aluminum products that have the effect of creating price risk on anticipated purchases of primary aluminum for the remainder of 2011, 2012 and 2013 and thereafter, totaling approximately (in millions of pounds): 81.1, 14.7 and 0.4, respectively.

A majority of the Company’s derivative contracts relating to hedges of operational risks contain credit-risk related contingencies, which the Company tries to minimize or offset through the ~~use~~management of counterparty credit lines, ~~and/~~the utilization of options as part of the hedging activities, or ~~options.~~both. The Company regularly reviews the creditworthiness of its derivative counterparties and does not expect to incur a significant loss from the failure of any counterparties to perform under any agreements.

Hedges ~~of Operational Risks~~. 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 and incurs price risk on its anticipated primary aluminum purchases in respect of customer orders. The Company uses third party hedging instruments to limit exposure to primary aluminum price risks related to substantially all fabricated products firm price arrangements. Unrealized and realized gains and losses associated with hedges of operational risks are reflected as a reduction or increase in Cost of products sold, excluding depreciation, amortization and other items.

During the nine month periods ended September 30, 2010 and September 30, 2009, total fabricated products shipments that contained firm price terms were (in millions of pounds) 72.3 and 128.7, respectively. At September 30, 2010, the Fabricated Products segment held contracts for the delivery of fabricated aluminum products that have the effect of creating price risk on anticipated purchases of primary aluminum for the remainder of 2010, for 2011, and for 2012 and thereafter, totaling approximately (in millions of pounds): 32.3, 84.8, and 14.2, respectively.

~~Hedges~~ Relating to the Notes. ~~In March 2010,~~As described in Note 1 and Note 3, the Company issued ~~$175.0~~Notes in the aggregate principal amount of ~~the Notes. Holders may convert their Notes into cash before January 1, 2015, only~~$175.0 in ~~certain circumstances determined by (i) the market price~~March 2010. The conversion feature of the ~~Company’s common stock, (ii) the trading price of the~~ Notes or (iii) the occurrence of specified corporate events. The Notes can be converted by the holders at any time on and after January 1, 2015 until the close of business on the second scheduled trading day immediately preceding the maturity date of the Notes. The conversion feature can only be settled in cash and iswas required to be bifurcated from the Notes and treated as a separate derivative ~~instrument under ASC 815 (Note 1).~~instrument. In order to offset the cash flow risk associated with the Bifurcated Conversion Feature, the Company purchased Call ~~Options. Both the Bifurcated Conversion Feature and the Call~~ Options, which are ~~measured at fair value with unrealized gains and losses recorded in Other income (expense) within the Company’s Statements of Consolidated Income.~~accounted for as derivative instruments. The Company expects the gain or loss from the Call Options to substantially offset ~~over time,~~ the ~~gain~~loss or ~~loss~~gain associated with changes to the valuation of the Bifurcated Conversion Feature. ~~In connection~~Accordingly, over time the Company does not expect there to be a material net impact to the Consolidated Statement of Income associated with the ~~issuance~~Bifurcated Conversion Feature and the Call Options (see Note 12 for additional information regarding the fair values of the ~~Notes,~~Bifurcated Conversion Feature and the ~~Company also entered into transactions pursuant to which the Company sold to the Option Counterparties the Warrants (Note 7)~~Call Options).

The ~~Warrants meet the definition of derivatives under ASC 815; however, because the Warrants have been determined to be indexed to~~following table summarizes the Company’s ~~own stock and to have met the requirement to be classified as equity instruments, they are not subject to the fair value provisions of ASC 815.~~material derivative positions at March 31, 2011:


		Notional
		Amount of
		Contracts
Commodity	Period	(mmlbs)		Fair Value
Aluminum —
Call option purchase contracts	4/11 through 12/11		36.7	$	9.2
Call option sales contracts	4/11 through 12/11		36.7	$	(9.2	)
Put option purchase contracts	4/11 through 12/11		76.7	$	—
Put option sales contracts	4/11 through 12/11		36.7	$	—
Fixed priced purchase contracts	4/11 through 11/13		98.8	$	21.5
Fixed priced sales contracts	4/11 through 12/11		10.5	$	(3.4	)
Midwest premium swap contracts¹	4/11 through 12/12		67.8	$	0.6

2423

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(In millions of dollars, except share and per share amounts and as otherwise indicated)

~~(Unaudited)~~


		Notional
		Amount
		of Contracts
Energy	Period	(mmbtu)		Fair Value
Natural gas —²
Call option purchase contracts	4/11 through 12/13		6,120,000	$	0.3
Call option sales contracts	4/11 through 12/11		2,070,000	$	—
Put option purchase contracts	4/11 through 12/11		2,070,000	$	1.7
Put option sales contracts	4/11 through 12/13		6,120,000	$	(3.7	)
Fixed priced purchase contracts	4/11 through 12/11		2,550,000	$	(0.1	)

~~The following table summarizes the Company’s material derivative positions at September 30, 2010:~~

Notional

Amount

of Contracts

Electricity

Period

(Mwh)

Fair Value

Fixed priced purchase contracts

1/12 through 12/12

87,840

—

Notional
Amount of
Contracts
Commodity Period (mmlbs) Fair Value
Aluminum —
Option purchase contracts 10/10 through 12/11 66.8 $ 0.2
Fixed priced purchase contracts 10/10 through 11/13 139.9 $ 15.3
Fixed priced sales contracts 10/10 through 12/11 17.1 $ (3.3 )
Regional premium swap contracts¹
10/10 through 12/11 92.6 $ 0.3

Notional
Amount
of Contracts
Energy Period (mmbtu) Fair Value
Natural gas —
Option purchase contracts²
10/10 through 12/12 11,520,000 $ (4.9 )
Fixed priced purchase contracts²
10/10 through 12/11 970,000 $ (0.6 )

Notional
Amount
of Contracts
Hedges Relating to the Notes Period (Common Shares) Fair Value
Bifurcated Conversion Feature³
3/10 through 3/15 3,621,608 $ (45.7 )
Call Options³
3/10 through 3/15 3,621,608 $ 36.1

Notional

Amount

of Contracts

Hedges Relating to the Notes

Period

(Common Shares)

Fair Value

Bifurcated Conversion Feature³

3/10 through 3/15

3,621,608

(56.3

)

Call Options³

3/10 through 3/15

3,621,608

46.4


¹		Regional premiums represent the premium over the ~~LME~~London Metal Exchange price for primary aluminum which is incurred on the Company’s purchases of primary aluminum.

²		As of ~~September 30, 2010,~~March 31, 2011, the Company’s exposure to fluctuations in natural gas prices had been substantially reduced for approximately ~~93%~~94%, 74% and 22% of the expected natural gas purchases for the remainder of ~~2010, approximately 88% of the expected natural gas purchases for~~ 2011, 2012 and ~~approximately 57% of the expected natural gas purchases for 2012.~~2013, respectively.

³		The Bifurcated Conversion Feature represents the cash conversion feature of the Notes. To hedge against the potential cash outflows associated with the Bifurcated Conversion Feature, the Company purchased cash-settled Call Options. The Call Options have an exercise price equal to the conversion price of the Notes, subject to anti-dilution adjustments substantially similar to the anti-dilution adjustments for the Notes. The Call Options will expire upon the maturity of the Notes. Although the fair value of the Call Options is derived from a notional number of shares of the Company’s common stock, the Call Options may only be settled in cash.

~~Fair Value Measurements~~. The Company reflects the fair value of its derivative contracts on a gross basis in the Consolidated Balance Sheets (Note 6)2).

Realized and Unrealized Gain and Losses.The realized and unrealized gains (losses) associated with all derivative contracts for the quarters ended March 31, 2011 and March 31, 2010 were as follows:


	Quarter Ended
	March 31,
	2011			2010
Realized gains (losses):
Aluminum	$	4.5		$	(0.7	)
Natural Gas		(1.4	)		(0.1	)

Total realized gains (losses):	$	3.1		$	(0.8	)

Unrealized gains (losses):
Aluminum	$	3.1		$	3.4
Natural Gas		1.2			(3.2	)
Call Options relating to the Notes		(2.0	)		—
Cash conversion feature of the Notes		3.7			—

Total unrealized gains	$	6.0		$	0.2

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(In millions of dollars, except share and per share amounts and as otherwise indicated)

12. Fair Value Measurements

Overview.The Company applies the fair value hierarchy established by US GAAP for the recognition and measurement of assets and liabilities. An asset or liability’s fair value classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, and considers counterparty risk in its assessment of fair value.

The fair values of financial assets and liabilities are measured on a recurring basis. The Company has elected not to carry any financial assets and liabilities at fair value, other than as required by US GAAP. Financial assets and liabilities that the Company carries at fair value, as required by US GAAP include: (i) its derivative instruments, (ii) the plan assets of the VEBAs and the Company’s Canadian defined benefit pension plan, and (iii) available for sale securities, consisting of investments related to the Company’s deferred compensation plan (see Note 8).

The majority of the Company’s non-financial assets and liabilities, which include goodwill, intangible assets, inventories and property, plant, and equipment are not required to be carried at fair value on a recurring basis. However, if certain triggering events occur (or as tested at least annually for goodwill), an evaluation of a non-financial asset or liability may be required, potentially resulting in an adjustment to the carrying amount of such asset or liability. For the quarters ended March 31, 2011 and March 31, 2010, the Company concluded that none of its non-financial assets and liabilities subject to fair value assessments on a non-recurring basis required a material adjustment to the carrying amount of such assets and liabilities.

Fair Values of Financial Assets and Liabilities.The Company’s derivative contracts are valued at fair value using significant observable and unobservable inputs.

Commodity, Foreign Currency and Energy Hedges—The fair values of a majority of these derivative contracts are based upon trades in liquid markets. Valuation model inputs can generally be verified, and valuation techniques do not involve significant judgment. The Company has some derivative contracts, however, 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.

Bifurcated Conversion Feature and Call Options—The fair value of the Bifurcated Conversion Feature is measured as the difference in the estimated fair value of the Notes and the estimated fair value of the Notes without the cash conversion feature. The Notes were valued based on the trading price of the Notes on ~~September 30, 2010 (Note 7)~~March 31, 2011 (seeOtherbelow). The fair value of the Notes without the cash conversion feature is the present value of the series of fixed income cash flows under the Notes, with a mandatory redemption in 2015.

The Call Options are valued using a binomial lattice valuation model. Significant inputs to the model are the Company’s stock price, risk-free interest rate, credit spread, dividend yield, expected volatility of the Company’s stock price, and probability of certain corporate events, all of which are observable inputs by market participants.

The significant assumptions used in the determining the fair value of the Call Option at March 31, 2011 were as follows:


Stock price at March 31, 2011¹	$	49.25
Quarterly dividend yield (per share)²	$	0.24
Risk-free interest rate³		1.77	%
Credit spread (basis points)⁴		419
Expected volatility rate⁵		29	%

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(In millions of dollars, except share and per share amounts and as otherwise indicated)

~~(Unaudited)~~

The Call Options are valued using a binomial lattice valuation model. Significant inputs to the model are the Company’s stock price, risk-free rate, credit spread, dividend yield, expected volatility of the Company’s stock price, and probability of certain corporate events, all of which are observable inputs by market participants.

~~The significant assumptions used in the determining the fair value of the Call Option at September 30, 2010 were as follows:~~

Stock price at September 30, 2010 $ 42.79
Quarterly dividend yield (per share)¹
$ 0.24
Risk-free interest rate²
1.11 %
Credit spread (basis points)³
528
Expected volatility rate⁴
33 %


¹		The Company’s stock price has the most material impact to the fair values of the Call Options and the Notes, which drives the fair value of the Bifurcated Conversion Feature.

²		The Company used a discrete quarterly dividend payment of $0.24 per share based on historical and expected future quarterly dividend payments.

²³		The risk-free rate was based on the five-year and three-year Constant Maturity Treasury rate on ~~September 30, 2010,~~March 31, 2011, compounded semi-annually.

³⁴		The Company’s credit rating was estimated to be between BB and B+ based on comparisons of its financial ratios and size to those of other rated companies. Using the Merrill Lynch High Yield index, the Company identified credit spreads for other debt issuances with similar credit ratings and used the median of such credit spreads.

⁴⁵		The volatility rate was based on both observed volatility, which is based on the Company’s historical stock price, and implied volatility from the Company’s traded options. Such volatility was further adjusted to take into consideration market participant risk tolerance.

The Call Options are expected to substantially eliminate the Company’s exposure to potential cash payments in excess of the principal amount of the Notes that it may be required to make upon the conversion of the Notes.

~~The~~ following table presents the Company’s derivative 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 ~~September 30, 2010:~~March 31, 2011:


	Level 1		Level 2			Level 3		Total			Level 1		Level 2			Level 3		Total
Derivative assets:
Aluminum swap contracts	$	—	$	16.2		$	—	$	16.2		$	—	$	21.6		$	—	$	21.6
Aluminum option contracts		—		9.3			—		9.3			—		9.2			—		9.2
Natural gas swap contracts												—		0.1			—		0.1
Natural gas option contracts		—		0.3			—		0.3			—		2.0			—		2.0
Call Options		—		36.1			—		36.1			—		46.4			—		46.4
Midwest premium swap contracts		—		—			0.3		0.3			—		—			0.6		0.6

Total	$	—	$	61.9		$	0.3	$	62.2		$	—	$	79.3		$	0.6	$	79.9

Derivative liabilities:
Aluminum swap contracts	$	—	$	(4.2	)	$	—	$	(4.2	)	$	—	$	(3.5	)	$	—	$	(3.5	)
Aluminum option contracts		—		(9.1	)		—		(9.1	)		—		(9.2	)		—		(9.2	)
Natural gas swap contracts		—		(0.6	)		—		(0.6	)		—		(0.2	)		—		(0.2	)
Natural gas option contracts		—		(5.2	)		—		(5.2	)		—		(3.7	)		—		(3.7	)
Bifurcated Conversion Feature		—		(45.7	)		—		(45.7	)		—		(56.3	)		—		(56.3	)


Total	$	—	$	(64.8	)	$	—	$	(64.8	)	$	—	$	(72.9	)	$	—	$	(72.9	)

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(In millions of dollars, except share and per share amounts and as otherwise indicated)

~~(Unaudited)~~

Level 1 Level 2 Level 3 Total
Derivative assets:
Aluminum swap contracts $ — $ 13.5 $ — $ 13.5
Aluminum option contracts — 14.2 — 14.2
Natural gas swap contracts — 0.3 — 0.3
Natural gas option contracts — 1.9 — 1.9
Midwest premium swap contracts — — 0.2 0.2

Total $ — $ 29.9 $ 0.2 $ 30.1

Derivative liabilities:
Aluminum swap contracts $ — $ (6.5 ) $ — $ (6.5 )
Aluminum option contracts — (4.2 ) — (4.2 )
Euro dollar forward contracts — (0.1 ) — (0.1 )
Natural gas swap contracts — (0.1 ) — (0.1 )
Natural gas option contracts — (2.5 ) — (2.5 )
Midwest premium swap contracts — — (0.2 ) (0.2 )

Total $ — $ (13.4 ) $ (0.2 ) $ (13.6 )

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, 2010: $ —
Total realized/unrealized losses included in:
Cost of goods sold excluding depreciation expense 0.9
Purchases, sales, issuances and settlements (0.6 )
Transfers in and (or) out of Level 3 —

Balance at September 30, 2010 $ 0.3

Total gains included in earnings attributable to the change in unrealized losses relating to derivative contracts still held at September 30, 2010: $ 0.2


	Level 3
Balance at January 1, 2011:	$	0.1
Total realized/unrealized losses included in:
Cost of goods sold excluding depreciation expense		0.6
Transactions involving Level 3 derivative contracts:
Purchases		0.1
Sales		—
Issuances		—
Settlements		(0.2	)

Transactions involving Level 3 derivatives — net		(0.1	)
Transfers in and (or) out of Level 3 valuation hierarchy		—


Balance at March 31, 2011	$	0.6


Total gains included in earnings attributable to the change in unrealized losses relating to derivative contracts held at March 31, 2011:	$	0.5

VEBA and Canadian pension plan assets.The VEBA assets are managed by various investment advisors selected by the trustees of each of the VEBAs. The plan assets are outside of the Company’s control, and the Company does not have insight into the investment strategies.

The ~~realized~~assets of the Company’s Canadian pension plan are managed by advisors selected by the Company, with the investment portfolio subject to periodic review and ~~unrealized gains (losses)~~evaluation by the Company’s investment committee. The investment of assets in the Canadian pension plan is based upon the objective of maintaining a diversified portfolio of investments in order to minimize concentration of credit and market risks (such as interest rate, currency, equity price and liquidity risks). The degree of risk and risk tolerance take into account the obligation structure of the plan, the anticipated demand for funds and the ~~quarters~~maturity profiles required from the investment portfolio in light of these demands.

The fair value of the plan assets of the VEBAs and ~~nine month periods ended September 30, 2010~~the Company’s Canadian defined benefit pension plan are reflected in the Company’s Consolidated Balance Sheets at fair value. In determining the fair value of plan assets each period, the Company utilizes primarily the results of valuations supplied by the investment advisors responsible for managing the assets of each plan.

Certain assets are valued based upon unadjusted quoted market prices in active markets that are accessible at the measurement date for identical, unrestricted assets (e.g., liquid securities listed on an exchange). Such assets are classified within Level 1 of the fair value hierarchy.

Valuation of other invested assets is based on significant observable inputs (e.g., net asset values of registered investment companies, valuations derived from actual market transactions, broker-dealer supplied valuations, or correlations between a given U.S. market and ~~September 30, 2009 were as follows:~~

Quarter Ended Nine Months Ended
September 30, September 30,
2010 2009 2010 2009
Realized losses:
Aluminum $ (0.9 ) $ (7.2 ) $ (2.6 ) $ (20.7 )
Foreign Currency — (2.7 ) — (13.3 )
Natural Gas (0.3 ) (2.0 ) (0.6 ) (8.5 )

Total realized losses: (1.2 ) $ (11.9 ) $ (3.2 ) $ (42.5 )

Unrealized gains (losses):
Aluminum $ 17.1 $ 22.1 $ 1.1 $ 29.9
Foreign Currency — 3.1 — 15.3
Natural Gas (2.4 ) 1.9 (5.2 ) 4.2
Purchased cash convertible note hedge 10.3 — 4.7 —
Cash conversion feature of Cash Convertible Notes (14.1 ) — (7.7 ) —

Total unrealized gains (losses) $ 10.9 $ 27.1 $ (7.1 ) $ 49.4

a non-U.S. security). Valuation model inputs can generally be verified and valuation techniques do not involve significant judgment. The fair values of such financial instruments are classified within Level 2 of the fair value hierarchy. The Company’s Canadian pension plan assets and the plan assets of the VEBAs are measured annually on December 31. See Note 11 of Notes to

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(In millions of dollars, except share and per share amounts and as otherwise indicated)

~~(Unaudited)~~Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December31, 2010 for additional information regarding fair value of plan assets.

~~Most~~Available for sale assets.The Company holds assets in various investment funds at certain registered investment companies in connection with its deferred compensation program (see Note 1 and Note 8). Such assets are accounted for as available for sale assets and are measured and recorded at fair value based on the net asset value of the investment funds on a recurring basis. Such fair value input is considered a Level 2 input. At March 31, 2011 and December 31, 2010, the amortized costs of the Company’s ~~derivative contracts contain credit-risk related contingencies. If~~available for sale assets were $4.7 and $4.6, respectively.

Other.The Company believes that the fair value of its cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and income tax receivables / payables approximate their respective carrying values due to their short maturities and nominal credit risk. Further, the ~~Company’s net derivative positions with the counterparty exceeds a specified threshold, if any, the counterparty is required to transfer cash collateral in excess~~trading price of the ~~threshold to~~Notes is considered a Level 1 input in the ~~Company. Conversely, if~~fair value hierarchy. The fair value of the Notes were $216.7 and $214.7 at March 31, 2011 and December 31, 2010, respectively.

The Company believes that the fair value of ~~these~~its LA Promissory Note and Nichols Promissory Note each materially approximate their respective carrying amounts in light of the Company’s credit profile, the interest rate applicable to each note, and the remaining duration of each instrument. Each of the foregoing fair value assessments is considered to be a Level 2 valuation within the fair value hierarchy.

Fair Values of Non-financial Assets and Liabilities.

Idled Assets.Included within Property, plant and equipment — net ~~derivative positions falls below a specified threshold, the Company is required to transfer cash collateral below the threshold to certain counterparties. At~~as of both ~~September 30, 2010~~March 31, 2011 and December 31, ~~2009,~~2010 were $5.5 of idled assets. Of the carrying amount of idled assets as of March 31, 2011 and December 31, 2010, $1.1 represented equipment used by the Company’s Tulsa, Oklahoma facility prior to the closure of that facility in 2008, and $4.4 represented assets that were acquired by the Company but had not yet been placed into service. The value of such assets was estimated in the fourth quarter of 2010 using a combination of the cost approach and market approach. The cost approach uses replacement cost and the market approach uses prices for similar assets to determine the value of assets, and both approaches use Level 3 fair value inputs. See Note 5 of Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 for additional information relating to idled assets.

CAROs.The inputs in estimating the fair value of CAROs include: (i) the timing of when any such CARO may be incurred, (ii) incremental costs associated with special handling or treatment of CARO materials and (iii) credit adjusted risk free rate, all of which are considered Level 3 inputs as they involve significant judgment of the Company. There were no ~~margin deposits with~~material adjustments to the estimated fair values of CARO’s for either the quarters ended March 31, 2011 or ~~from its counterparties.~~March 31, 2010. The estimated fair value of CARO liabilities at March 31, 2011 and December 31, 2010 was $3.9 and $3.8, respectively, based upon the application of a weighted average credit-adjusted risk free rate of 9.1%. CAROs are included in Other accrued liabilities or Long-term liabilities, as appropriate (see Note 2).

~~15.~~13. Earnings Per Share

Unvested stock-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) represent participating securities and are included in the computation of earnings per share pursuant to the two-class method.

Basic and diluted earnings per share for the quarters ended March 31, 2011 and ~~nine month periods ended September 30,~~March 31, 2010 ~~and September 30, 2009~~ were calculated as follows:


	Quarter Ended					Nine Months Ended						Quarter Ended
	September 30,					September 30,						March 31,
	2010		2009			2010			2009			2011		2010
Numerator:
Net Income	$	5.5	$	23.0		$	14.4		$	46.4
Net income												$	11.3	$	8.8
Less: net income attributable to participating securities¹		—		(0.2	)		(0.1	)		(1.2	)		—		(0.1	)

Net income available to common stockholders	$	5.5	$	22.8		$	14.3		$	45.2		$	11.3	$	8.7

Denominator:

Weighted-average common shares outstanding — Basic		18,941,426		19,981,715			19,499,099			19,567,963			18,949,549		20,020,309


Weighted-average common shares — Diluted		18,941,426		19,981,715			19,499,099			19,567,963			18,949,549		20,020,309


Earnings per common share:
Basic	$	0.29	$	1.14		$	0.74		$	2.31		$	0.59	$	0.44
Diluted	$	0.29	$	1.14		$	0.74		$	2.31		$	0.59	$	0.44

the participating securities that the Company expects to ultimately vest. Undistributed net income for a given period, if any, is apportioned to common stockholders and participating securities based on the weighted average number of each class of securities outstanding during the applicable period as a percentage of the combined weighted average number of these securities outstanding during the period. Undistributed losses are not allocated to participating securities, however, as such securities do not have an obligation to fund net losses of the Company.

In computing the diluted weighted average common shares outstanding for the quarters and nine month periods ended September 30, 2010 and September 30, 2009, the Company used the two-class method assuming that participating securities are not exercised, vested or converted. The Company included the dilutive effect of stock options in calculating the diluted weighted average common shares. Options to purchase 22,077 common shares at an average exercise price of $80.01 per share were outstanding at September 30, 2010 and September 30, 2009, respectively. The potential dilutive effect of such shares was zero for each of the quarters and nine month periods ended September 30, 2010 and September 30, 2009. Warrants relating to approximately 3.6 million common shares at an average exercise price of approximately $61.36 per share were issued in March 2010 and outstanding at September 30, 2010. The potential dilutive effect of shares underlying the Warrants was zero for the quarter and nine months ended September 30, 2010.

During the nine month periods ended September 30, 2010 and September 30, 2009, the Company paid a total of approximately $14.3 ($0.72 per common share) and $14.7 ($0.72 per common share), respectively, in cash dividends to stockholders, including the holders of restricted stock, and dividend equivalents to the holders of restricted stock units and to the holders of any performance shares with respect to one half of the performance shares.

~~16.~~14. Segment and Geographical Area Information

The Company’s primary line of business is the production of semi-fabricated specialty aluminum products. In addition, the Company also owns a 49% interest in Anglesey, which ~~operated an aluminum smelter in Holyhead, Wales until September 2009, when the contract for power supply that enabled smelting operations expired,~~owns and ~~thereafter has operated as~~operates a secondary aluminum remelt and casting ~~operation.~~facility in Holyhead, Wales.

~~The Company has~~Each of the Company’s production facilities is an operating segment. Such operating segments were aggregated for reporting purposes to one reportable segment, Fabricated Products. The Fabricated Products segment sells ~~value added~~value-added products such as aluminum sheet and plate, extruded and drawn products which are primarily used in ~~a wide range of industrial applications, including automotive,~~ aerospace ~~and~~/ high strength, general engineering, ~~end-use~~automotive, and other industrial end market segment applications. Prior to September 30, 2009, the Company also had a Primary Aluminum segment, which produced, through the Company’s interest in Anglesey, and sold commodity grade products as well as value added products such as ingot and billet for which the Company received a premium over fluctuating commodity market prices, and conducted hedging activities with respect to the Company’s exposure to primary aluminum price risk and British Pound Sterling exchange rate risk relating to Anglesey’s smelting operations.

~~Following the cessation of the smelting operations at Anglesey on September 30, 2009, the~~The Company’s operations consist of the Fabricated Products segment and three business units, ~~which consist of~~ Secondary Aluminum, Hedging, and Corporate and Other. The Secondary Aluminum business unit sells ~~value added~~value-added products such as ingot and billet, produced ~~by the secondary aluminum remelt and casting operations of~~from Anglesey, for which the Company receives a portion of a premium over normal commodity market prices. The Hedging business unit conducts hedging activities with respect to the Company’s exposure to primary aluminum ~~prices and conducted hedging activities with respect to British Pound Sterling exchange rate risks relating to Anglesey’s smelting operations through September 30, 2009.~~prices. The Corporate and Other business unit provides general and administrative support for the Company’s operations. For purposes of segment reporting under US GAAP, the Company treats the Fabricated Products segment as a reportable segment and combines the three other business units, Secondary Aluminum, Hedging and the Corporate and Other into one category, which is referred to as All Other. All Other is not considered a reportable segment.

The Company periodically reassesses the methodologies used to allocate costs among the Company’s business units to assess segment profitability. In 2010, the Company modified the allocation of incentive compensation expense relating to its LTI programs and certain short-term incentive plans among its business units. These reclassifications have no impact on the Company’s segment or consolidated Net sales, or its consolidated operating income. All prior period results have been retrospectively adjusted for consistency with the cost allocation in 2010. As a result, an additional $0.9 of charges relating to the Company’s LTI programs and certain short-term incentive plans are reflected in the operating results of the Fabricated Products segment for the quarter ended March 31, 2010.

The accounting policies of the ~~segments~~Fabricated Products segment are the same as those described in Note ~~1 of Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 and as further described in Note 1 of this Report.~~1. 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 charges, net.

Financial information by operating segment for the ~~quarters~~March 31, 2011, and ~~nine month periods ended September 30,~~March 31, 2010 ~~and September 30, 2009 is~~are as follows:


¹		Operating results in the Fabricated Products segment for ~~the~~ quarters ended ~~September 30,~~March 31, 2011 and March 31, 2010 ~~and September 30, 2009~~ included LIFO inventory ~~benefits (charges)~~charges of ~~$2.0~~$14.9 and ~~$(6.9),~~$9.2, respectively, and environmental expenses of ~~$13.1~~$0.2 and ~~$0.1,~~$0.4, respectively. Operating results in the Fabricated Products segment for the nine month periods ended September 30, 2010 and September 30, 2009 included LIFO inventory (charges) benefits of $(6.2) and $6.3, respectively, and environmental expenses of $13.5 and $0.6, respectively. Also included in the operating results for the nine months ended September 30, 2009 was a lower of cost or market inventory write-down of $9.3.

²		Operating results in All Other in 2009 included (i) realized and unrealized hedging gains (losses) on the Company’s Pound Sterling and metal derivative positions and (ii) impairment charges of the Company’s investment in Anglesey. Operating results in All Other in 2010 included realized and unrealized hedging gains (losses) on the Company’s metal derivative positions.

³		Operating results of the Fabricated Products segment and All Other include ~~losses~~gains (losses) on intercompany hedging activities related to metal. These amounts eliminate in consolidation. Internal hedging ~~losses~~gains (losses) related to metal in the Fabricated Products segment were ~~$0.8~~$4.3 and ~~$5.9~~$(0.6) for ~~the quarters ended September 30,~~March 31, 2011 and March 31, 2010, and September 30, 2009, respectively. Internal hedging losses related to metal in the Fabricated Products segment were $2.7 and $39.6 for the nine month periods ended September 30, 2010 and September 30, 2009, respectively. Conversely, All Other included such amounts as (losses) gains for the ~~quarters~~March 31, 2011 and ~~nine month periods ended September 30,~~March 31, 2010, ~~and September 30, 2009,~~ respectively.

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(In millions of dollars, except share and per share amounts and as otherwise indicated)

~~(Unaudited)~~ In connection with the above restructuring efforts, for the quarter ended March 31, 2010, the Company incurred and recorded in its Fabricated Products segment $0.6 of restructuring benefit relating to revisions of previously estimated employee termination costs. Restructuring expense for the quarter ended March 31, 2011 was immaterial.

~~2009, respectively.~~ The following table summarizes the activity relating to cash obligations arising from the Company’s restructuring ~~plans:~~plans during the quarter ended March 31, 2011:

Employee
Termination and
Other Personnel Facility related
Costs costs Total
Restructuring obligations at December 31, 2009 $ 2.3 $ — $ 2.3
Cash restructuring costs recorded in the nine months ended September 30, 2010 (0.9 ) — (0.9 )
Cash payments during the nine months ended September 30, 2010 (0.8 ) — (0.8 )

Restructuring obligations at September 30, 2010 $ 0.6 $ — $ 0.6

~~Assets sale.~~During the second quarter of 2010, the Company decided to offer for sale its manufacturing facility located in Greenwood, South Carolina. The Greenwood, South Carolina facility produces forged aluminum products, which no longer fit within the Company’s strategic portfolio of product offerings. Assets and liabilities of $7.6 and $0.9, respectively, were classified as held for sale at June 30, 2010 and $1.9 of impairment loss was recognized to reduce the carrying value of the assets classified as held for sale to their estimated fair value, less costs to sell. Such impairment loss was included in Other operating charges (benefit) in the Statements of Consolidated Income and was included as part of the Fabricated Products segment results, which the Company considers to be immaterial. The transaction closed on July 27, 2010. Cash consideration for the sale was approximately $4.8 which was received by the closing date. The Company anticipates that this sale will not have a material impact on its revenues or net income.


	Employee
	Termination and
	Other Personnel			Facility related
	Costs			costs		Total
Restructuring obligations at December 31, 2010	$	0.4		$	—	$	0.4
Cash payments in 2011		(0.2	)		—		(0.2	)

Restructuring obligations at March 31, 2011	$	0.2		$	—	$	0.2

~~18.~~16. Supplemental Cash Flow Information


	Nine Months Ended				Quarter Ended
	September 30,				March 31,
	2010		2009		2011		2010
Supplemental disclosure of cash flow information:
Interest paid	$	1.5	$	—	$	0.6	$	0.5

Income taxes paid	$	0.3	$	11.0	$	0.1	$	0.1


Supplemental disclosure of non-cash transactions:
Issuance of Nichols Promissory Note — Note 9	$	6.7	$	—
Non-cash capital expenditures					$	0.7	$	6.4

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. “Financial Statements” of this Report.

This Quarterly Report onForm 10-Q 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;~~conditions including cyclicality and other conditions in the aerospace, automobile and other end market segments we serve; developments in technology; new or modified statutory or regulatory requirements; and changing prices and market conditions. Part I, Item 1A. “Risk Factors” included in our Annual Report onForm 10-K for the year ended December 31, ~~2009 and Part II, Item 1A. “Risk Factors” included in our Quarterly Report on~~~~Form 10-Q~~ ~~for the quarter ended March 31,~~ 2010 ~~identify~~identifies 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 ~~seven~~the following sections:


	•		Overview;

	•		Results of Operations;

	•		Liquidity and Capital Resources;

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

	•		Critical Accounting Estimates and Policies;

	•		New Accounting Pronouncements; and

	•		Available Information.

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 on Form 10-K for the year ended December 31, ~~2009.~~2010.

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, (i) are particularly material to results, (ii) affect costs primarily as a result of external market factors, and (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 items such as fluctuations in underlying metal prices, ~~natural gas~~energy prices, and currency exchange ~~rates and our stock prices.~~rates.

Overview

We are a leading North American manufacturer of semi-fabricated specialty aluminum products for aerospace / high strength, general engineering, ~~and custom~~ automotive, and other industrial applications. ~~In addition, we~~We also own a 49% interest in Anglesey Aluminium Limited (“Anglesey”), which owns and operates a secondary aluminum remelt and casting facility in Holyhead, ~~Wales that had operated as an aluminum smelter until September 30, 2009 and commenced remelt and casting of secondary aluminum products in the fourth quarter of 2009.~~Wales.

At ~~September 30, 2010,~~March 31, 2011, we operated 10eleven focused ~~fabricated aluminum~~ production facilities in the United States (reflecting the ~~sale on July 27, 2010~~acquisition effective January 1, 2011 of ~~our~~the manufacturing facility ~~in Greenwood, South Carolina~~ and ~~the acquisition on August 9, 2010 of the facility and~~related assets of ~~Nichols Wire, Inc~~Alexco, L.L.C. (“~~Nichols”~~Alexco”) in ~~Florence, Alabama)~~Chandler, Arizona (the “Chandler, Arizona (Extrusion) facility”)) and one facility in ~~Canada. We~~Canada that produce rolled, extruded, and drawn aluminum products used principally for aerospace and defense, automotive, consumer durables, electronics, electrical, and machinery and equipment end market segment applications. Through these facilities, which comprise our Fabricated Products segment, we produced and shipped approximately ~~429~~144.1 million pounds of semi-fabricated aluminum products in 2009, which comprised 91% of our total consolidated net sales of approximately $1.0 billion and approximately 389.9 million pounds of semi-fabricated aluminum products during the nine months ended September 30, 2010, which comprised effectively all of our total consolidated net sales of approximately ~~$813.3 million. We strive to tightly integrate~~$322.6 million during the quarter ended March 31, 2011.

We have long-standing relationships with our customers, which consist primarily of blue-chip companies including leading aerospace companies, automotive suppliers and metal distributors. In our served markets, we believe that we are the supplier of choice to many of our customers, providing “Best in Class” customer satisfaction and offering a broad product portfolio. We have a culture of continuous improvement that is facilitated by the Kaiser Production System (“KPS”), an integrated application of the tools of Lean Manufacturing, Six Sigma and Total Productive Manufacturing. We believe KPS enables us to continuously reduce our own manufacturing costs, eliminate waste throughout the value chain, and deliver “Best in Class” customer service through consistent, on-time delivery of superior quality products on short lead times. We strive to tightly integrate the management of our operations across multiple production facilities, product lines and our served markets ~~in order~~ to maximize the efficiency of product flow to our customers.

A fundamental part of our business model is to mitigate the impact of aluminum price volatility on our cash flow. We manage the risk of fluctuations in the price of primary aluminum through either (i) pricing policies that generally allow us to pass the underlying cost of metal onto customers, or (ii) hedging by purchasing financial derivatives to shield us from exposure related to firm price sales contracts that specify the underlying metal price ~~and~~plus a conversion ~~cost~~price. While we can generally pass metal price movement onto customers, for ~~the sale.~~some of our higher value added products sold on a spot basis, our ability to change prices can lag, sometimes by as much as several months, with a favorable impact to us when metal prices decline and an adverse impact to us when metal prices increase. Primary aluminum prices increased ~~over the last half of 2009 and through~~during the first quarter of ~~2010, declined slightly in the second quarter~~2011, during which we were unable to pass all aluminum cost increases onto customers for some of ~~2010, and increased again in the third quarter of 2010.~~our higher value added products sold on a spot basis. The average London Metal Exchange (“LME”) transaction price per pound of primary aluminum for the ~~nine month periods ended September 30, 2010 and September 30, 2009 was $0.96 and $0.70, respectively. The average LME transaction price per pound of primary aluminum for the~~ quarters ended ~~September 30,~~March 31, 2011 and March 31, 2010 were $1.13 and ~~September 30, 2009 was $0.95 and $0.82,~~$0.98, respectively. At ~~October 22, 2010,~~April 21, 2011, the LME transaction price per pound was ~~$1.06.~~$1.24.

Our highly engineered products are ~~produced~~manufactured to meet demanding requirements of aerospace and defense, general engineering, automotive and ~~custom~~other industrial applications. We have focused our business on select end market segment applications where we believe we have sustainable competitive advantages and opportunities for long-term profitable growth. We believe that we differentiate ourselves with a broad product offering, “Best in Class” customer satisfaction and the ability to provide superior products through our Kaiser Select^® product line. Our ~~blue-chip customer base includes some of the top names~~Kaiser Select^® products are manufactured to deliver enhanced product characteristics with improved consistency which results in ~~the industry, with whom we share long-standing relationships. We believe we are a supplier of choice to~~better performance, lower waste, and, in many ~~customers in the aerospace and defense, automotive and general industrial market segments.~~cases, lower cost for our customers.

In the commercial aerospace sector, we believe that global economic growth and development will continue to drive growth in airline passenger miles. In addition, trends such as longer routes and larger payloads, ~~as well as~~and a ~~renewed~~ focus on fuel efficiency have increased the demand for new and larger aircraft. We believe that the long-term demand drivers, including growing build rates, larger airframes and increased use of monolithic design ~~used~~ throughout the industry will continue to increase demand for our high strength aerospace plate. Monolithic design and construction ~~utilizes~~utilize aluminum plate that is heavily machined to form the desired part from a single piece of metal as opposed to using aluminum sheet, extrusions or forgings that are affixed to one another using rivets, bolts or welds.

Our products are also sold into defense end ~~markets. While~~market segments. Ongoing deliveries of existing defense aircraft platforms and armor requirements for ground vehicles used in active military engagements continue to drive demand for ~~armor plate has declined from the record levels of 2007 and 2008,~~our products. Longer term, we expect the production of theF-35, or Joint Strike Fighter, ~~will~~to also drive demand for our high strength ~~products over the long term.~~products.

Commercial aerospace and defense applications have demanding customer requirements for quality and consistency. As a result, there are a very limited number of suppliers worldwide who are qualified to serve these market ~~segments, and we~~segments. We believe barriers to entry include significant capital requirements, technological expertise and ~~critical safety qualifications.~~a rigorous qualification process for safety-critical applications.

We expect the ~~2010~~2011 North American automotive sector build rates to increase approximately ~~35% from 2009, while still remaining well below historical levels in the near term.~~14% over 2010. Our automotive products typically have specific performance attributes in terms of machinability ~~energy absorption~~ and mechanical properties and are used for specific applications across a broad mix of North American original equipment manufacturers (“OEMs”) and automotive platforms. We believe that these attributes are not easily replicated by our competitors and are important to our customers, who are typically ~~“Tier-1”~~first tier automotive suppliers. Additionally, we believe that in North America, from 2001 to 2008, the aluminum extrusion content per vehicle grew at a compound annual growth rate of 5%, as automotive OEMs and their suppliers ~~attempted~~converted applications to aluminum to decrease weight without sacrificing structural integrity and safety performance. We also believe the United States’ Corporate Average Fuel Economy (“CAFE”) regulations, which increase fuel efficiency standards on an annual basis, will continue to drive growth in demand for aluminum ~~parts~~extruded components in passenger vehicles as a replacement for the heavier weight ~~steel.~~

Our general engineering products serve the North American industrial market segments, and demand for these products generally tracks the broader economic environment. We expect a gradual recovery in demand throughout the supply chain as the economy continues to rebound. Our metal service center customers have substantially reduced inventories and are expected to commence restocking as confidence in market demand builds.

~~For purposes~~ of segment reporting under United States generally accepted accounting principles (“GAAP”), we treat our Fabricated Products segment as its own reportable segment. We combine our three other business units, Secondary Aluminum, Hedging and the Corporate and Other into one category, which we refer to as All Other. All Other is not considered a reportable segment (see Note 16 of Notes to Interim Consolidated Financial Statements included in Part I, Item 1. “Financial Statements” of this Report).steel components.

Highlights of the quarter ended ~~September 30, 2010~~March 31, 2011 include:

~~Fabricated Products segment shipments of 129 million pounds, a 22% increase from the third quarter of 2009, resulting primarily from stronger demand across all end use applications;~~

	•		Fabricated Products segment shipments of 144.1 million pounds, a 13% increase from the first quarter of 2010, resulting primarily from stronger demand across all end use applications;

	•		Consolidated net income of $11.3 million and earnings per diluted share of $0.59, including pre-tax, non-cash mark-to-market gains on derivative positions of approximately $4.3 million;

	•		Consolidated net income of $5.5 million and earnings per diluted share of $0.29, including pre-tax, non-cash mark-to-market gains on derivates positions of approximately $15 million and environmental expense of approximately $14 million;

	•		~~August 9, 2010 completion~~Completion of the strategic acquisition from Alexco of the ~~manufacturing~~Chandler, Arizona (Extrusion) facility, ~~and related assets of Nichols, located in Florence, Alabama,~~ which manufactures ~~bare mechanical~~hard alloy ~~wire products, nails and aluminum rod and enables us to expand our offering of small diameter rod, bar and wire products to our core market segments of~~extrusions for the aerospace ~~automotive and general engineering. Consideration~~industry. Cash consideration for the acquisition was approximately ~~$16~~$83.2 million ~~consisting~~(which was net of ~~a $9~~$4.9 million cash ~~payment and a $7 million, five-year secured promissory note.~~

	•		~~Completion of~~received in the sale of our Greenwood, South Carolina facility that produces forged aluminum products, which no longer fit within our strategic portfolio of product offerings. We received cash consideration of $4.8 million, in connection with the sale of these assets.

	•		~~Cash balances and borrowing availability under our revolving credit facility of approximately $300 million, with no borrowings under that facility as of September 30, 2010;~~acquisition);

	•		Continued ramp-up of the new world class rod and bar extrusion facility in Kalamazoo, Michigan;

	•		Combined cash balances and borrowing availability under our revolving credit facility of approximately $246 million, with no borrowings under that facility as of March 31, 2011; and

	•		Declaration and payment of a regular dividend of $4.7 million, or $0.24 per common share, on ~~August 13, 2010~~February 15, 2011 to stockholders of record as of ~~July 26, 2010.~~January 24, 2011.

Results of Operations

Consolidated Selected Operational and Financial Information

The table below provides selected operational and financial information on a consolidated basis (in millions of ~~the Fabricated Products segment~~dollars, except shipments and ~~All Other~~prices) for the quarters ended March 31, 2011 and ~~nine month periods ended September 30, 2010~~March 31, 2010. See “Segment and ~~September 30, 2009.~~Business Unit Information” below for information regarding our reportable segment — Fabricated Products — and our other business units, which are aggregated and referred to herein as All Other.

The following data should be read in conjunction with our ~~interim~~ consolidated financial statements and the notes thereto contained elsewhere herein. See Note 1614 of Notes to Interim Consolidated Financial Statements included in Part ~~II,~~1, Item 8.1. “Financial ~~Statements and Supplementary Data”~~Statements” of ~~our Annual~~this Report ~~on Form 10-K for the year ended December 31, 2009~~ for further information regarding segments. Interim results are not necessarily indicative of those for a full year.


													Quarter Ended
	Quarter Ended						Nine Months Ended						March 31,
	September 30,						September 30,						2011			2010
	2010			2009			2010			2009			(In millions of dollars, except shipments
	(In millions of dollars, except shipments and average sales price)												and average sales price)
Shipments (mm lbs):
Fabricated Products		129.3			105.7			389.9			316.1			144.1			128.0
All Other¹		—			41.0			0.4			113.7			—			0.4

		129.3			146.7			390.3			429.8			144.1			128.4


Average Realized Third Party Sales Price (per pound):
Average Realized Third-Party Sales Price (per pound):
Fabricated Products²	$	2.04		$	2.03		$	2.08		$	2.09		$	2.24		$	2.09
All Other³	$	—		$	0.90		$	0.92		$	0.79		$	—		$	0.92

Net Sales:
Fabricated Products	$	263.4		$	215.1		$	813.0		$	660.7		$	322.6		$	267.2
All Other		—			36.9			0.3			89.3			—			0.3

Total Net Sales	$	263.4		$	252.0		$	813.3		$	750.0		$	322.6		$	267.5

Segment Operating Income (Loss):
Fabricated Products^{4 5}	$	5.9		$	26.4		$	62.0		$	59.0
All Other⁶		7.3			16.2			(30.0	)		25.8
Segment Operating Income (Loss):⁴
Fabricated Products^{5 6}													$	23.7		$	22.1
All Other⁷														(3.2	)		(7.3	)

Total Operating Income	$	13.2		$	42.6		$	32.0		$	84.8		$	20.5		$	14.8

Income Tax Provision	$	(0.4	)	$	(19.5	)	$	(7.7	)	$	(37.8	)
Income tax provision													$	(6.4	)	$	(6.2	)

Net Income	$	5.5		$	23.0		$	14.4		$	46.4		$	11.3		$	8.8

Capital Expenditures, net of Accounts Payable	$	8.2		$	14.4		$	34.9		$	51.0
Capital Expenditures													$	6.2		$	13.9


¹		~~For the quarters and nine month periods ended September 30, 2010 and September 30, 2009, shipments~~Shipments in All Other ~~reflects shipments of~~in 2010 represent residual activity involving primary aluminum ~~products produced~~purchased by ~~Anglesey.~~us from Anglesey while it continued its smelting operations (prior to September 30, 2009) and resold by us in the first quarter of 2010.

²		Average realized prices for our Fabricated Products segment are subject to fluctuations due to changes in product mix as well as underlying primary aluminum prices and are not necessarily indicative of changes in underlying profitability.

³		Average realized prices for All Other ~~reflect~~represent the average realized prices on sales of primary aluminum ~~product produced~~purchased by us from Anglesey while it continued its smelting operations (prior to September 30, 2009) and ~~are subject to fluctuations~~resold by us in the ~~LME price~~first quarter of ~~metal.~~2010.

⁴		~~Fabricated Products~~We periodically reassess the methodologies used to allocate costs among our business units to assess segment profitability. In the fourth quarter of 2010, we modified the allocation of incentive compensation expense relating to both our long-term incentive plans and certain short-term incentive plans to our business units. These reclassifications have no impact on our segment or consolidated Net sales, or our consolidated operating income. All interim period results of 2010 have been retrospectively adjusted for consistency with such cost allocation. As a result, an additional $0.9 million of charges relating to our long-term incentive plans and certain short-term employee incentive plans are reflected in the operating results ~~for the quarter and nine months ended September 30, 2010 include a non-cash last-in, first-out (“LIFO”) inventory benefit (charge)~~ of $2.0 million and $(6.2) million, respectively, and metal (losses) gains of approximately $(4.0) million and $3.3 million, respectively. Fabricated Products segment operating results for the quarter and nine months ended September 30, 2009 include a non-cash LIFO inventory (charge) benefit of $(6.9) million and $6.3 million, respectively, and metal gain (losses) of approximately $11.2 million and $(5.3) million, respectively. Fabricated Products segment operating results for the quarter and nine months ended September 30, 2010 also included environmental expenses of $13.1 million and $13.5 million, respectively. Also included in the Fabricated Products segment and, accordingly, excluded from the operating results ~~for the nine months ended September 30, 2009 was a $9.3 million lower~~ of ~~cost or market inventory write-down recognized~~All Other in the ~~first~~ quarter ~~of 2009. Fabricated Products segment operating results for the quarter and nine months~~ ended ~~September 30, 2009 include $0.1 million and $5.5 million, respectively, of restructuring charges relating to the restructuring plans involving our Tulsa, Oklahoma and Bellwood, Virginia facilities.~~March 31, 2010.

⁵		Fabricated Products segment ~~includes~~results for the quarter ended March 31, 2011 include non-cash mark-to-market gains on natural gas, electricity and foreign currency hedging activities totaling $1.2 million. Fabricated Products segment results for the quarter ended March 31, 2010 include non-cash mark-to-market losses on natural gas and foreign currency hedging activities totaling $2.4 million and $5.2 million in the quarter and nine months ended September 30, 2010, respectively. Fabricated Products segment also includes non-cash mark-to-market gains on natural gas and foreign currency hedging activities totaling $2.6 million and $5.4 million in the quarter and nine months ended September 30, 2009, respectively.of $(3.2) million. For further discussion regarding mark-to-market matters, see Note 1411 of Notes to Interim Consolidated Financial Statements included in Part I,1, Item 1. “Financial Statements” of this Report.

⁶		~~Operating~~Fabricated Products segment operating results for the quarters ended March 31, 2011 and March 31, 2010 include non-cash last-in, first-out (“LIFO”) inventory charges of $14.9 million and $9.2 million, respectively, and metal gains of approximately $12.4 million and $8.2 million, respectively.

⁷		The changes in operating income in All Other ~~was primarily~~were driven by the Corporate and Other and the Hedging business unit operating results. ~~For~~Included in the ~~quarter~~operating results of Corporate and ~~nine months~~Other were $2.2 million and $(0.4) million of net periodic pension benefit income (expense) relating to the VEBAs for the quarters ended ~~September 30,~~March 31, 2011 and March 31, 2010, respectively. In addition, for the quarters ended March 31, 2011 and March 31, 2010, non-cash mark-to-market gains on primary aluminum hedging activities were ~~$17.1~~$3.1 million and ~~$1.1~~$3.4 million, respectively, compared to non-cash mark-to-market gains of $22.1 million and $29.9 million for the quarter and nine months ended September 30, 2009, respectively. The mark-to-market impact of foreign currency derivatives for both the quarter and nine months ended September 30, 2010 was zero, compared to mark-to-market gains of $2.4 million and $14.1 million for the quarter and nine months ended September 30, 2009, respectively. For further discussion regarding mark-to-market matters, see Note 1411 of Notes to Interim Consolidated Financial Statements included in Part 1, Item 1. “Financial Statements” of this Report.

Summary.We reported net income of ~~$5.5~~$11.3 million and $8.8 million for the ~~quarter~~quarters ended ~~September 30,~~March 31, 2011 and March 31, 2010, compared to net income of $23.0 million for the quarter ended September 30, 2009. For the nine months ended September 30, 2010, we reported net income of $14.4 million compared to net income of $46.4 million for the nine months ended September 30, 2009. Our operating income for the quarter ended September 30, 2010 was $13.2 million compared to $42.6 million for the quarter ended September 30, 2009. Our operating income for the nine months ended September 30, 2010 was $32.0 million compared to $84.8 million for the nine months ended September 30, 2009.respectively. Both ~~quarters and nine month~~ periods include a number of non-run-rate items that are more fully explained below.

Net Sales.We reported Net sales for the quarter ended ~~September 30, 2010~~March 31, 2011 of ~~$263.4~~$322.6 million compared to ~~$252.0~~$267.5 million for the quarter ended ~~September 30, 2009.~~March 31, 2010. As more fully discussed below, the increase in Net sales during the quarter ended ~~September 30, 2010 is~~March 31, 2011 was primarily ~~the result of an increase in shipments in the Fabricated Products segment, partially offset by lower revenues in All~~

Other related to Anglesey’s new remelt operations reported on a net revenue recognition basis. Fabricated Products segment realized prices remained approximately the same in both periods, with higher underlying metal prices offsetting lower value added revenue per pound in the third quarter of 2010 as compared to the third quarter of 2009. The decrease in value added revenue per pound was due to ~~slightly lower pricing for most products and a shift in mix toward lower margin products.~~

For the nine months ended September 30, 2010, we reported Net sales of $813.3 million compared to $750.0 million for the nine months ended September 30, 2009. As more fully discussed below, the increase in Net sales during the nine months ended September 30, 2010 is primarily the result of an increase in Fabricated Products segment shipments ~~partially offset by lower revenues~~ in ~~All Other~~all end-use categories from the facilities we operated in the first quarter of 2010, as well as shipments from the Chandler, Arizona (Extrusion) facility and the manufacturing facility and related ~~to Anglesey’s new remelt operations reported on a net revenue recognition basis. Realized prices~~assets of Nichols Wire, Inc. in Florence, Alabama (the “Florence, Alabama facility”) acquired thereafter. The average realized price per pound for the Fabricated Products segment ~~remained approximately~~increased slightly in the ~~same in both nine month periods,~~first quarter of 2011 compared to the prior year quarter as a result of higher underlying metal prices ~~in the nine months ended September 30, 2010 offset lower value added revenue per pound. The decrease in value added revenue per pound was due to a leaner product mix,~~ as well as ~~lower pricing for most products, particularly for general engineering plate.~~slightly higher average value-added revenue. Fluctuation in underlying primary aluminum market prices does not necessarily directly impact profitability because (i) a substantial portion of the business conducted by the Fabricated Products segment passes primary aluminum price changes directly onto customers and (ii) our hedging activities in support of Fabricated Products segment firm price sales agreements limit our losses as well as gains from primary metal price changes.

Cost of Products Sold Excluding Depreciation, Amortization and Other Items.Cost of products sold, excluding depreciation, amortization and other items for the quarter ended ~~September 30, 2010~~March 31, 2011 totaled ~~$229.3~~$280.9 million, or 87% of Net Sales, compared to ~~$188.3~~$232.0 million, or ~~75%~~87% of Net sales, in ~~the~~ quarter ended ~~September 30, 2009.~~March 31, 2010. Included in Cost of products sold, excluding depreciation, amortization and other items were ~~$14.8~~$4.3 million and ~~$27.0~~$0.2 million of unrealized ~~non-cash~~ mark-to-market gains on our derivative positions for the quarters ended ~~September 30,~~March 31, 2011 and March 31, 2010, and September 30, 2009, respectively. Also included in Cost of products sold, excluding depreciation, amortization and other items were $13.1 million and $0.1 million of environmental expenses for the quarters ended September 30, 2010 and September 30, 2009, respectively. See ~~Segment~~“Segment and Business Unit ~~Information~~Information” below for a detailed discussion of the comparative results of operations for ~~the~~ quarters ~~ended September 30, 2010 and September 30, 2009.~~

Cost of products sold, excluding depreciation, amortization and other items for the nine months ended September 30, 2010 totaled $717.2 million, or 88% of Net Sales, compared to $584.2 million, or 78% of Net sales, in the nine months ended September 30, 2009. Included in Cost of products sold, excluding depreciation, amortization and other items were $(4.0) million and $49.4 million of unrealized non-cash mark-to-market (losses) gains on our derivative positions for the nine month periods ended September 30, 2010 and September 30, 2009. Also included in Cost of products sold, excluding depreciation, amortization and other items were $13.5 million and $0.6 million of environmental expenses for the nine month periods ended September 30, 2010 and September 30, 2009, respectively. See Segment and Business Unit Information below for a detailed discussion of the comparative results of operations for the nine month periods ended September 30, 2010 and September 30, 2009.

~~Lower of Cost or Market Inventory Write-down.~~~~We recorded a lower of cost or market inventory write-down of $9.3 million for the quarter~~ ended March 31, ~~2009 as a result of declining metal prices. There were no additional lower of cost or market inventory write-downs in the nine months ended September 30,~~2011 and March 31, 2010.

~~Impairment of Investment in Anglesey.~~In 2008, we fully impaired our investment in Anglesey in anticipation of the cessation of its smelting operations on September 30, 2009. In the six months ended June 30, 2009, we recorded $1.8 million of equity in income of Anglesey, which we concurrently impaired in full to maintain our investment balance at zero. Based on our continued assessment of the facts and circumstances, we suspended the equity method of accounting for our investment in Anglesey commencing in the third quarter of 2009.

Restructuring Costs and Other Charges.~~In connection with the~~We recorded an immaterial amount of restructuring ~~initiative announced~~benefit in 2008 to shut down the Tulsa, Oklahoma facility and curtail operations at the Bellwood, Virginia facility, we recorded $1.2 million in restructuring charges related primarily to contract termination costs and other costs during the quarter ended March 31, ~~2009. In the quarters ended June, 30, 2009~~2011 and ~~September 30, 2009, we recorded additional~~$0.6 of restructuring ~~charges of $5.2 million principally in connection with plans to further curtail operations at the Bellwood, Virginia facility. We made an adjustment~~benefit in the ~~amount~~quarter ended March 31, 2010. Such benefits consist primarily of ~~$0.9 million~~revisions to

previously estimated employee termination costs and were incurred and recorded in the Company’s Fabricated Products segment. See Note 15 of Notes to Interim Consolidated Financial Statements included in Part 1, Item 1. “Financial Statements” of this Report for additional information regarding our 2008 and 2009 restructuring ~~charges during the nine months ended September 30, 2010, due primarily to an extension of unemployment benefits granted by the state of Virginia, reducing our supplemental unemployment liability.~~activities.

Depreciation and Amortization.Depreciation and amortization for the quarter ended ~~September 30, 2010~~March 31, 2011 was ~~$4.8~~$6.3 million compared to ~~$3.9~~$4.0 million for the quarter ended ~~September 30, 2009. Depreciation and amortization for the nine months ended September 30, 2010 was $13.8 million compared to $12.3 million for the nine months ended September 30, 2009.~~March 31, 2010. Depreciation expense increased ~~in the quarter ended September 30, 2010~~ primarily as the result of bringing on-line certain production equipment ~~at our Kalamazoo, Michigan facility. We expect depreciation expense~~relating to ~~increase further as additional production equipment at~~investment in our Kalamazoo, Michigan facility ~~is fully brought on-line.~~and the inclusion of $0.6 million of amortization expense relating to intangible assets acquired in connection with the acquisitions of the Florence, Alabama facility and the Chandler, Arizona (Extrusion) facility.

Selling, Administrative, Research and Development, and General.Selling, administrative, research and development, and general expense totaled ~~$16.5~~$14.9 million infor the quarter ended ~~September 30, 2010~~March 31, 2011 compared to ~~$17.1~~$17.3 million infor the quarter ended ~~September 30,~~

2009. Selling, administrative, research and development, and general expense totaled $49.2 million in the nine months ended September 30, 2010 compared to $52.1 million in the nine months ended September 30, 2009.March 31, 2010. The decrease ~~in both the quarters and nine month periods were~~was primarily due to lower ~~non-cash stock~~employee compensation expense relating to our long-term incentive ~~program and lower net periodic pension costs relating to the VEBAs, partially offset by higher expenses relating to short term incentive program~~ and other benefit ~~programs.~~

~~Other Operating Charges (Benefits).~~~~Other operating charges (benefits)~~programs and lower periodic pension benefit expense with respect to certain voluntary employee’s beneficiary associations for ~~nine months ended September 30, 2010 consisted primarily of $1.9 million of impairment charge in connection with~~ the ~~re-classification~~benefit of certain ~~assets~~retirees, their surviving spouses and liabilities at our Greenwood, South Carolina, facility to assets and liabilities held for sale during the second quarter of 2010. Other operating charges (benefits) for the quarter and nine months ended September 30, 2009 reflected a $(0.9) million recovery of a pre-chapter 11 emergence obligation owed to us, for which we had previously established a full reserve.eligible dependents (the “VEBAs”).

Interest Expense.Interest expense of $4.5 million for the ~~nine months~~quarter ended ~~September 30, 2010~~March 31, 2011 was primarily related to cash and non-cash interest expense incurred on our ~~4.5%~~ cash convertible ~~senior~~ notes ~~due 2015~~ (the “Notes”)~~, which were issued on March 29, 2010. Total interest incurred was $4.5 million~~ and ~~$9.9 million for the quarter and nine months ended September 30, 2010, respectively. Of these amounts, $0.8 million and $2.7 million were capitalized as a part~~our revolving credit facility, net of ~~Construction in progress for the quarter and nine months ended September 30, 2010, respectively, leaving $3.7 million and $7.2~~$0.2 million of interest capitalization to Construction in progress. Interest expense in the quarter ~~and nine months~~ ended ~~September 30,~~March 31, 2010 ~~respectively. Interest expense~~ was ~~$0.2 million and $0.6 million for the quarter and nine months ended September 30, 2009, respectively. The majority~~zero as a result of ~~the~~ interest ~~incurred~~capitalization to Construction in ~~such periods was also capitalized.~~progress.

Other Income, ~~(Expense),~~ Net.Other income, ~~(expense),~~ net was ~~$(3.6)~~$1.7 million for the quarter ended ~~September 30, 2010,~~March 31, 2011, compared to ~~$0.1~~$0.2 million for the quarter ended ~~September 30, 2009.~~March 31, 2010. The increase in Other income, ~~(expense), net was $(2.7) million for the nine months ended September 30, 2010 compared to zero for the nine months ended September 30, 2009. Other income (expense),~~ net for the quarter ~~and nine months~~ ended ~~September 30, 2010~~March 31, 2011 was primarily related to a net unrealized ~~non-cash~~ mark-to-market ~~losses~~gain of $1.7 million on the derivative instruments relating to ~~the~~our Notes.

Income Tax Provision.The income tax provision for the ~~nine months~~quarter ended ~~September 30, 2010~~March 31, 2011 was ~~$7.7~~$6.4 million, or an effective tax rate of ~~34.7%~~36.3%. The difference between the effective tax rate and the projected blended statutory tax rate was primarily the result of a decrease in the valuation allowance due to a change in tax law in the State of Illinois of $0.8 million, resulting in a 4.6% decrease in the effective tax rate, partially offset by (i) an increase in unrecognized tax benefits, including interest and penalties, of $0.3 million resulting in a 1.7% increase in the effective tax rate and (ii) the impact of a non-deductible compensation expense of $0.2 million, resulting in a 1.3% increase in the effective tax rate.

The income tax provision for the ~~nine months~~quarter ended ~~September 30, 2009~~March 31, 2010 was ~~approximately 44.9%~~$6.2 million, or an effective tax rate of 41.4%. The difference between the effective tax rate and the projected blended statutory tax rate for the ~~nine months~~quarter ended ~~September 30,~~March 31, 2010 was primarily ~~related to~~the result of unrecognized tax benefits, including interest and penalties, of ~~$1.1~~$0.5 million, resulting in a ~~5% decrease~~3.6% increase in the effective tax rate ~~as well as~~from the ~~impact of non-deductible compensation expense of $0.5 million, resulting in a 2.1% increase in the effective tax~~2010 projected statutory rate. The difference between the effective tax rate and the projected blended statutory tax rate for the nine months ended September 30, 2009 was primarily related to the impact of non-deductible compensation expense, resulting in an increase to the income tax rate of approximately 4.6%.

Derivatives

From time-to-time, we enter into derivative transactions, including forward contracts and options, to limit our economic (i.e., cash) exposure resulting from (i) metal price risk related to our sale of fabricated aluminum products and the purchase of metal used as raw material for our fabrication operations, (ii) ~~the~~ energy price risk ~~from~~relating to fluctuating prices ~~for~~of natural gas and electricity used in our production ~~process,~~processes, and (iii) foreign currency requirements with respect to our foreign subsidiaries, investments, and cash commitments for equipment ~~purchases and with respect to our foreign subsidiaries and foreign affiliate.~~purchases. In March 2010, in connection with the issuance of the Notes, we purchased cash-settled call options (the “Call Options”) relating to our common stock ~~(the “Call Options”)~~ to limit our exposure to the cash conversion feature of the Notes (see Note 73 of Notes to Interim Consolidated Financial Statements included in Part I,1, Item 1. “Financial Statements” of this Report).

We may modify the terms of our derivative contracts based on operational needs or ~~financial~~financing objectives. 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 transactions occur. However, due to mark-to-market accounting, during the term of the derivative ~~contract,~~contracts, significant unrealized, non-cash gains and losses may be recorded in the income statement. We may also be exposed to margin calls placed on derivative contracts, which we try to minimize or offset through the management of counterparty credit lines, ~~and/~~the utilization of options as part of our hedging activities, or ~~the use of options.~~both. We regularly review the creditworthiness of our derivative counterparties and do not expect to incur a significant loss from the failure of any counterparties to perform under any agreements.

The fair value of our derivatives recorded on the Consolidated Balance Sheets at ~~September 30, 2010~~March 31, 2011 and December 31, ~~2009~~2010 was ~~$(2.6)~~$7.0 million and ~~$16.5~~$0.7 million, respectively. The ~~decrease~~increase in the net position was primarily due to ~~decreases~~increases in the underlying ~~prices for~~price of primary aluminum and natural ~~gas and the addition of new derivatives in connection with the issuance of the Notes.~~gas. The changes in market value of derivative contracts resulted in the recognition of ~~$7.1~~a $4.3 million of unrealized mark-to-market ~~loss~~gain on derivatives, which we consider to be a non-run-rate item (see Note 1411 of Notes to Interim Consolidated Financial Statements included in Part I,1, Item 1. “Financial Statements” of this Report).

3837

Fair Value Measurement

We apply the ~~provisions~~fair value hierarchy for the recognition and measurement of ~~Accounting Standard Codification (“ASC”) Topic 820,~~~~Fair Value Measurements~~assets and ~~Disclosures~~~~, in measuring~~liabilities. An asset or liability’s fair value classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, as well as consider counterparty risk in our assessment of fair value.

The fair values of financial assets and liabilities are measured on a recurring basis. We have elected not to carry all financial assets and liabilities at fair value, other than as required by United States generally accepted accounting principles (“US GAAP”). Financial assets and liabilities that we carry at fair value, as required by US GAAP include (i) our derivative ~~contracts and the fair value of our Canadian pension plan assets and~~instruments, (ii) the plan assets of the ~~voluntary employee beneficiary association (“VEBA”)~~VEBAs and our Canadian defined benefit pension plan, and (iii) available for sale securities, consisting of the ~~benefit~~investments related to our deferred compensation plan.

The majority of our non-financial assets and liabilities, which include goodwill, intangible assets, inventories and property, plant, and equipment, are not required to be carried at fair value on a recurring basis. However, if certain ~~union retirees, their surviving spouses~~triggering events occur (or as tested at least annually for goodwill), an evaluation of a non-financial asset or liability may be required, potentially resulting in an adjustment to the carrying amount of such asset or liability.

Below is a discussion of the fair value inputs to our material financial assets and ~~eligible dependents (the “Union VEBA”)~~liabilities measured and ~~the VEBA that provides benefits for certain eligible salaried retirees and their surviving spouses and eligible dependents (the “Salaried VEBA”).~~carried at fair value:

Commodity, Energy, Electricity and Foreign Currency ~~and Energy~~ Hedges—The fair values of a majority of these derivative contracts are based upon trades in liquid markets. 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 (see Note 1 of Notes to Interim Consolidated Financial Statements included in Part I,1. Item 1. “Financial Statements” of this Report). We, however, have some derivative contracts ~~however,~~ that do not have observable market quotes. For these financial instruments, we use 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.

Cash Conversion Feature of the Notes and Call Options—The value of the cash conversion feature of the Notes is measured as the difference inbetween the estimated fair value of the Notes and the estimated fair value of the Notes without the cash conversion feature. The Notes were valued based on the ~~closing~~trading price of the Notes on ~~September 30, 2010.~~March 31, 2011. The fair value of the Notes without the cash conversion feature is the present value of the series of fixed income cash flows under the Notes with a mandatory redemption in 2015. The Call Options are valued using a binomial lattice valuation model. Significant inputs to the model ~~are~~include our stock price, risk-free rate, credit spread, dividend yield, expected volatility of our stock price, and probability of certain corporate events, all of which are observable inputs by market participants. The fluctuations in the fair values of the Call Options and the Notes are primarily due to the changes in our stock price. See Note 1411 of Notes to Interim Consolidated Financial Statements included in Part I,1. Item 1. “Financial Statements” of this Report for significant assumptions used in these valuations.

Employee Benefit Plan Assets—In determining the fair value of employee benefit plan assets, ~~the Company utilizes~~we utilize primarily the results of valuations supplied by the investment advisors responsible for managing the assets of each plan. Certain plan assets are valued based upon unadjusted quoted market prices in active markets that are accessible at the measurement date for identical, unrestricted assets (e.g., liquid securities listed on an exchange). Such assets are classified within Level 1 of the fair value hierarchy. Valuation of other invested plan assets is based on significant observable inputs (e.g., net asset values of registered investment companies, valuations derived from actual market transactions, broker-dealer supplied valuations, or correlations between a given U.S. market and a non-U.S. security). Valuation model inputs can generally be verified and valuation techniques do not involve significant judgment. The fair values of such financial instruments are classified within Level 2 of the fair value hierarchy. Our Canadian pension plan assets and the plan assets of the ~~Union VEBA and the Salaried VEBA~~VEBAs are measured annually on December ~~31 of each year.~~31.

Segment and Business Unit Information

For the purposes of segment reporting under US GAAP, we have one reportable segment, Fabricated Products. We also have three other business units which we combine into All Other. ~~As discussed above, the~~The Fabricated Products segment which is made up of our production facilities, sells ~~value added~~value-added products such as heat treat sheet and plate and extruded rod, bar, wire, and tube products ~~which are~~primarily used in ~~a wide range of industrial applications, including~~ aerospace ~~defense,~~/ high strength, general engineering, automotive and ~~general engineering end-use applications.~~other industrial end market segment applications, which we categorize herein as Aero/HS Products, GE Products, Automotive Extrusions and Other Products. All Other consists of Secondary Aluminum, Hedging and Corporate and Other business units. The Secondary Aluminum business unit sells ~~value added~~value-added products such as ingot and billet produced by ~~the secondary aluminum remelt~~Anglesey, and ~~casting operations of Anglesey, for which we receive~~receives a portion of a premium over normal commodity market prices. Our Hedging business unit conducts hedging activities in respect of our exposure to primary aluminum ~~prices, and conducted hedging activities in respect of British Pound Sterling exchange rate risk relating to Anglesey’s smelting operations through September 30, 2009.~~prices. Our Corporate and Other business unit provides general and administrative support for our operations. All Other is not considered a reportable segment. The accounting policies of the segment and business units are the same as those described in Note 1 of Notes to Interim Consolidated Financial Statements in ~~Item 8. “Financial Statements and Supplementary Data” of our Annual Report on Form 10-K for the year ended December 31, 2009 and Note~~Part 1, ~~of Notes to Interim Consolidated Financial Statements included in Part I,~~ Item 1. “Financial Statements” of this Report. Segment results are evaluated internally before interest expense,

to be amortized over an estimated weighted average useful life of approximately 18 years. The acquired assets will be integrated into and complement the existing assets of our Fabricated Products segment. We do not anticipate that the transaction will have a material impact on our Fabricated Products segment or consolidated Net sales or Operating income in future periods.

As described in Note 17 of Notes to Interim Consolidated Financial Statements included in Part I., Item 1. “Financial Statements” of this Report, we completed the sale of our manufacturing facility in Greenwood, South Carolina in July 2010. Final cash consideration for the sale was approximately $4.8 million. In anticipation of the sale, we recognized an impairment loss of $1.9 million in the quarter ended June 30, 2010, to reduce the carrying value of the assets classified as held for sale to their estimated fair value, less costs to sell. The Greenwood, South Carolina facility was part of our Fabricated Products segment. We do not anticipate that the sale of the facility and related assets will have a material impact on our Fabricated Products segment or consolidated Net sales or Operating income in future periods.

The table below provides selected operational and financial information (in millions of dollars except shipments and average realized sales price) for our Fabricated Products segment for the quarters ended March 31, 2011 and ~~nine month periods ended September 30, 2010 and September 30, 2009:~~March 31, 2010:


	Quarters Ended				Nine Months Ended				Quarter Ended
	September 30,				September 30,				March 31,
	2010		2009		2010		2009		2011		2010
Shipments (mm lbs)		129.3		105.7		389.9		316.1		144.1		128.0

Composition of average realized third-party sales price (per pound):
Hedged cost of alloyed metal	$	0.98	$	0.91	$	1.00	$	0.87	$	1.15	$	1.02
Average realized third party value added revenue	$	1.06	$	1.12	$	1.08	$	1.22
Average realized third-party value-added revenue									$	1.09	$	1.07

Average realized third party sales price	$	2.04	$	2.03	$	2.08	$	2.09
Average realized third-party sales price									$	2.24	$	2.09

Net sales	$	263.4	$	215.1	$	813.0	$	660.7	$	322.6	$	267.2
Segment Operating Income	$	5.9	$	26.4	$	62.0	$	59.0	$	23.7	$	22.1

~~For~~of the ~~quarter ended September 30, 2010, Net sales~~Chandler, Arizona (Extrusion) facility and the Florence, Alabama facility. Shipments of ~~fabricated~~Aero/HS Products were 22% higher in 2011, reflecting improved demand and incremental shipments from the Chandler, Arizona (Extrusion) and Florence, Alabama facilities. Destocking of aerospace plate products increased by 22% to $263.4 million, as compared to the quarter ended September 30, 2009, due primarily to a 22% increase in shipments. Shipments for aerospace and high strength products during the quarter ended September 30, 2010 were 30% higher as compared to the quarter ended September 30, 2009 due primarily to stronger demand in select end markets and lower overall destocking as significant service center destocking was abated. However, shipments continued ~~to be negatively impacted by the large airframe manufacturers destocking~~ in the first ~~nine months~~quarter of ~~2010.~~2011. Shipments ~~for general engineering products were 3% higher during~~of Automotive Extrusions increased 29% over the prior year quarter ~~ended September 30, 2010~~ as compared to the quarter ended September 30, 2009, reflecting moderate improvement in overall industrial demand and insignificant impact of inventory stocking patterns by service center customers. Shipments for automotive ~~products during the quarter ended September 30, 2010 were 38% higher as compared to the quarter ended September 30, 2009 due to significantly stronger light vehicle~~ build rates ~~in North America. A $0.07 per pound increase in~~improved and we saw new aluminum automotive extrusion programs using our products ramp up. Average realized third-party sales price increased, primarily reflecting higher underlying hedged, alloyed metal prices was offset by a $0.06 per pound decrease in average Fabricated Products value added revenue per pound for the quarter ended September 30, 2010 as compared to the quarter ended September 30, 2009. The decrease in value added revenue per pound was due to slightly lower pricing for most products and a shift in mix toward lower margin products.

For the nine months ended September 30, 2010, Net sales of fabricated products increased by 23% to $813.0 million, as compared to the nine months ended September 30, 2009, due primarily to a 23% increase in shipments driven primarily by significantly stronger demand for general engineering and automotive products as service center destocking that was prevalent in 2009 abated and automotive build rates increased compared to the prior year period. Shipments for aerospace and high strength products during the nine months ended September 30, 2010 were moderately higher as compared to the nine months ended September 30, 2009. While average realized third party sales prices remained approximately the same, a 10% decrease in value added revenue per pound was offset by a 15% higher average underlying hedged alloyed metal price for the nine months ended September 30, 2010, as compared to the nine months ended September 30, 2009. The decrease in value added revenue per pound was due to a leaner product mix, as well as lower pricing for most products, particularly for general engineering plate. Consistent with our strategy, the underlying hedged cost of alloyed metal is passed through to ~~customers through various pricing policies.~~customers.

Operating income ~~for~~in the quarter ended September 30, 2010 was $5.9 million as compared to $26.4 million for the quarter ended September 30, 2009. Operating income for the nine months ended September 30, 2010 was $62.0 million as compared to $59.0 million for the nine months ended September 30, 2009. Operating incomeFabricated Products segment for the quarters ended March 31, 2011 and ~~nine month periods ended September 30,~~March 31, 2010 ~~and September 30, 2009~~ included several large non-run-rate items. These items are listed below (in millions of dollars):

Quarter Ended Nine Months Ended
September 30, September 30,
2010 2009 2010 2009
Operating income $ 5.9 $ 26.4 $ 62.0 $ 59.0
Impact to operating income of non-run-rate items:
Metal (losses) gains (before considering LIFO) (4.0 ) 11.2 3.3 (5.3 )
Non-cash LIFO benefits (charges) 2.0 (6.9 ) (6.2 ) 6.3
Non-cash lower of cost or market inventory write-down — — — (9.3 )
Mark-to-market (losses) gains on derivative instruments (2.4 ) 2.6 (5.2 ) 5.4
Restructuring benefits (charges) 0.4 (0.1 ) 0.9 (5.5 )
Impairment on held for sale assets — (1.9 ) —
Environmental expense (13.1 ) (0.1 ) (13.5 ) (0.6 )

Total non-run-rate items (17.1 ) 6.7 (22.6 ) (9.0 )

Operating income excluding non-run-rate items $ 23.0 $ 19.7 $ 84.6 $ 68.0


	Quarter Ended
	March 31,
	2011			2010
Operating income	$	23.7		$	22.1
Impact to operating income of non-run-rate items:
Metal gains (before considering LIFO)		12.4			8.2
Non-cash LIFO charges		(14.9	)		(9.2	)
Mark-to-market gains (losses) on derivative instruments		1.2			(3.2	)
Restructuring benefits		—			0.6
Environmental expenses		(0.2	)		(0.4	)

Total non-run-rate items		(1.5	)		(4.0	)

Operating income excluding non-run-rate items	$	25.2		$	26.1

As noted above, operating income excluding identified non-run-rate items for the quarter ended ~~September 30, 2010~~March 31, 2011 was ~~$3.3~~$0.9 million ~~higher~~lower than the operating income excluding identified non-run-rate items for the quarter ended ~~September 30, 2009. Operating income for the nine months ended September 30, 2010 was $16.6 million higher than for the nine months ended September 30, 2009.~~March 31, 2010. Operating income excluding non-run-rate items for the ~~quarters and nine months~~quarter ended ~~September 30, 2010~~March 31, 2011 as compared to that of the ~~corresponding periods in 2009~~quarter ended March 31, 2010 reflects the following impacts:

change in demand for our automotive and semi-conductor applications as a result of manufacturing disruptions in Japan, but there nonetheless remains some uncertainty as to the potential impact, if any, on the overall supply chain.

Overall for the second quarter ~~reflects normal seasonality which~~of 2011 we expect ~~will result in slightly lower~~demand and shipments and value added revenue compared to the third quarter. We anticipate continued major maintenance spending at a cost comparable to the third quarter, however, we anticipate manufacturing efficiencies to improve in the fourth quarter to performance levels similar to the first ~~half~~quarter. As we benefit from improving operating efficiencies and are able to increase spot prices on high value added products to recover rapidly increasing metal costs, we anticipate improved profitability (excluding non-run-rate items) compared to the first quarter of ~~2010 and to~~2011. While sharply rising raw material costs continue to ~~improve as~~pose a challenge, we ~~progress into 2011.~~believe that market conditions going forward will support more proactive pricing.

AsLooking longer term, we ~~look towards early 2011, we anticipate aerospace~~are very well positioned in attractive, growing markets and, ~~automotive~~with stronger demand ~~to improve~~ and ~~seasonally strong first quarter shipments~~the benefit from our organic and ~~value added revenue to exceed first quarter 2010 levels. In addition, we expect incremental benefits from the ramp up of~~acquisition investments, our ~~new Kalamazoo, Michigan facility and from the integration of the acquired assets into our Fabricated Products business.~~long-term earnings potential remains strong.

4241

All Other

~~All Other consists of~~ Secondary ~~Aluminum, Hedging~~Aluminum.We own a 49% interest in Anglesey, which operates a remelt and ~~Corporate and Other business units. The Secondary Aluminum business unit sells value added products such as~~casting facility in Wales. Anglesey produces value-added secondary aluminum ingot and billet ~~produced by~~and sells 49% of its output to us. We in turn sell the secondary aluminum ~~remelt and casting operations of Anglesey, for which we receive~~products to a third party, receiving a portion of a premium over normal commodity market ~~prices. Our Hedging business unit conducts hedging activities in respect of our exposure to primary aluminum~~ prices and conducted British Pound Sterling exchange rate risk relating to Anglesey’s smelting operations through September 30, 2009. Our Corporate and Other business unit provides general and administrative support for our operations. All Other is not considered a reportable segment.

~~Secondary and Primary Aluminum Activities.~~Anglesey operated under a power agreement that provided sufficient power to sustain its smelting operations at near-full capacity until the contract expiration at the end of September 2009. Despite Anglesey’s efforts to find a sustainable alternative to its power supply needs, no source of affordable power was identified to allow for the uninterrupted continuation of smelting operations beyond the expiration of the power contract. As a result, Anglesey fully curtailed its smelting operations on September 30, 2009. In the fourth quarter of 2009, Anglesey commenced a remelt and casting operation to produce secondary aluminum products such as log and billet. Anglesey purchases its own material for the remelt and casting operations and sells 49% of its output to us in transactions structured to largely eliminate our metal price and currency exchange rate risks with respect to our income and cash flow related to Anglesey. ~~See~~Because we in substance act as an agent in connection with sales of secondary aluminum produced by Anglesey, our sales of such secondary aluminum are presented net of the cost of sales. Accordingly, net sales and operating income in the quarter ended March 31, 2011 were all zero. Shipments, net sales and operating income for the quarter ended March 31, 2010 were $0.4 million, $0.3 million, and $0.1 million, respectively, representing residual activity of primary aluminum purchased from Anglesey while it operated as a smelter (prior to September 30, 2009) and resold by us in the first quarter of 2010.

As disclosed in Note 3 of Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2009 for additional information regarding the operations of Anglesey.~~

~~At December 31, 2008, we fully impaired~~2010, our investment in ~~Anglesey. For the six months ended June 30, 2009, we recorded $1.8 million in equity in income of~~ Anglesey ~~which was subsequently impaired~~has been written down to maintain our investment balance at zero. For the quarter ended September 30, 2009, Anglesey incurred a significant net loss, primarily as a result of employee redundancy costs incurred in connection with the cessation of its smelting operations. As a result of such loss,zero, and as we were not, and are not, obligated to, (i) advance any funds to Anglesey, (ii) guarantee any obligations of Anglesey, or (iii) make any commitments to provide any financial support for Anglesey, we suspended the use of the equity method of accounting with respect to our ownership in Anglesey commencing in the quarter ended September 30, ~~2009 and continuing through the quarter ended September 30, 2010. Accordingly, we did~~2009. We do not ~~recognize our share of Anglesey’s operating results for such periods, pursuant to ASC Topic 323,~~~~Investments~~—~~Equity Method and Joint Ventures~~~~. We will not resume~~anticipate resuming the use of the equity method of accounting with respect to our investment in Anglesey unless and until (i) our share of any future net income of Anglesey equals or is greater than our share of net losses not recognized during periods for which the equity method was suspended and (ii) future dividends can be expected. We do not anticipate the occurrence of such ~~events~~event during the next 12 months.

~~The table below provides selected operational and financial information (in millions of dollars except shipments and prices) for Anglesey related primary and secondary aluminum activities:~~

Quarter Ended Nine Months Ended
September 30, September 30,
2010 2009 2010 2009
Shipments (mm lbs) — 41.0 0.4 113.7
Average realized third party sales price (per pound) $ — $ 0.90 $ 0.92 $ 0.79
Net sales $ — $ 36.9 $ 0.3 $ 89.3
Operating Income $ — $ 7.1 $ 0.1 $ 8.1

Because we, in substance, are acting as agent in connection with sales of secondary aluminum products produced by Anglesey’s remelt operations, which commenced in the fourth quarter of 2009, our sales of such secondary aluminum products are presented net of the cost of sales. Shipments and net sales during the quarter and nine months ended September 30, 2009 are related to Anglesey’s smelting operations, which ceased as of September 30, 2009. Our sales of primary aluminum from Anglesey’s smelting operations were recorded on a gross basis when title, ownership and risk of loss were passed to the buyer and collectability was reasonably assured.

The following table recaps the major components of the operating results from Anglesey- related primary and secondary aluminum activities for the quarters and nine month periods ended September 30, 2010 and September 30, 2009 (in millions of dollars).

Quarter Ended Nine Months Ended
September 30, September 30,
2010 2009 2010 2009
Profit on metal sales from smelting operations (net of alumina sales)¹
$ — $ 6.7 $ 0.1 $ 9.5
Anglesey²
— 0.4 — 0.4
Impairment of investment in Anglesey — — — (1.8 )

$ — $ 7.1 $ 0.1 $ 8.1


¹		Operating income represents earnings on metal purchases from Anglesey and resold by us and on alumina purchases from third parties by us and sold to Anglesey while it operated as a smelter. Such earnings were impacted by the market price for primary aluminum and alumina pricing, offset by the impact of foreign currency translation.

²		Represents our share of earnings from Anglesey under the smelting operations and foreign currency transaction gains (losses) relating to our settlement of trade payables to Anglesey denominated in Pounds Sterling.

Hedging ~~activities.~~Activities.Our pricing of fabricated aluminum products ~~as discussed above,~~ is generally intended to ~~lock-in~~lock in a conversion margin (representing the value added from the fabrication process(es)) and to pass metal price risk on to our customers. However, in certain instances we do enter into firm price arrangements with our customers and incur price risk on our anticipated primary aluminum purchases in respect of such customer orders. ~~As such, whenever~~At the time our Fabricated Products segment enters into a firm price customer contract, our Hedging business unit and Fabricated Products segment enter into an “internal hedge” so that metal price risk resides in our Hedging business unit under All Other. Results from internal hedging activities between our Fabricated Products segment and Hedging business unit eliminate in consolidation. ~~We use third party~~The Hedging business unit uses third-party hedging instruments to limit exposure to ~~Fabricated Products firm~~ metal-price risks ~~which may have an adverse effect~~related to firm price customer sales contracts. These transactions are reflected on our ~~financial position, results of operations~~balance sheet and ~~cash flows.~~

In addition to conducting hedging activities in respect of our exposure to aluminum price risk, the Hedging business unit also conducted hedging activities in respect of our exposure to the British Pounds Sterling exchange rate relating to Anglesey’s smelting operations through September 30, 2009.recorded at fair value.

All hedging activities are managed centrally to minimize transaction costs, to monitor consolidated net exposures and to allow for increased responsiveness to changes in market factors.

The table below provides a detail of operating income (loss) (in millions of dollars) from our Hedging business unit for the quarters ended March 31, 2011 and ~~nine month periods ended September 30, 2010 and September 30, 2009:~~March 31, 2010:

Quarter Ended Nine Months Ended
September 30, September 30,
2010 2009 2010 2009
Internal hedging with Fabricated Products¹
$ 0.8 $ 5.9 $ 2.7 $ 39.6
Derivative settlements — Pound Sterling²
— (2.7 ) — (12.2 )
Derivative settlements — External metal hedging²
(0.9 ) (7.2 ) (2.6 ) (20.7 )
Mark-to-market gains on derivative instruments²
17.1 24.5 1.1 44.0

$ 17.0 $ 20.5 $ 1.2 $ 50.7


	Quarter Ended
	March 31,
	2011			2010
Internal hedging with Fabricated Products^1,2	$	(4.3	)	$	0.6
Derivative settlements — External metal hedging²		4.5			(0.7	)
Market-to-market on derivative instruments²		3.1			3.4

	$	3.3		$	3.3


¹		Eliminates in consolidation.

²		Impacted by positions and market prices.

Corporate and Other Activities.Operating expenses within the Corporate and Other business unit represent general and administrative expenses that are not allocated to other business ~~units.~~units or segments. The table below presents non-run-rate items within the Corporate and Other business unit, operating ~~loss~~expense and operating ~~loss~~expense excluding non-run-rate items (in millions of dollars) for the quarters ended March 31, 2011 and ~~nine month periods ended September 30, 2010 and September 30, 2009:~~March 31, 2010:


	Quarter Ended
	March 31,
	2011			2010
Operating expense	$	(6.5	)	$	(10.7	)
Impact to operating expense of non-run-rate items:

VEBA net periodic benefit income (expense)		2.2			(0.4	)


Operating expense excluding non-run-rate items	$	(8.7	)	$	(10.3	)

4442

Quarter Ended Nine Months Ended
September 30, September 30,
2010 2009 2010 2009
Operating expense $ (9.7 ) $ (11.4 ) $ (31.3 ) $ (33.0 )
Impact to operating expense of non-run-rate items:

VEBA net periodic benefit cost 0.4 1.3 1.3 4.0
Restructuring charges — — — 0.9
Environmental expense 0.5 — 0.5 —
Other operating charges (benefits) — — 0.1 (0.9 )

Total non-run-rate items 0.9 1.3 1.9 4.0

Operating expense excluding non-run-rate $ (8.8 ) $ (10.1 ) $ (29.4 ) $ (29.0 )

Corporate operating expenses excluding non-run-rate items for the quarter ended ~~September 30, 2010~~March 31, 2011 were ~~$1.3~~$1.6 million lower than such expenses for the comparable period in ~~2009.~~2010. The decrease primarily reflects ~~primarily~~(i) a ~~$1.1~~$1.0 million decrease in ~~non-cash stock~~employee compensation expense relating to our long-term and short term incentive programs ~~due~~and other benefit programs and (ii) higher worker’s compensation expense of $1.1 million in the first quarter of 2010 relating to ~~the vesting of certain employee equity awards.~~

Corporate operating expenses excluding non-run-rate items for the nine months ended September 30, 2010 were $0.4 million higher than such expenses for the comparable period in 2009. The increase reflects primarily (i) a $1.5 million increase in discontinued operationshistorical workers’ compensation ~~expense as a result of~~cases due to changes in estimated incurred but not reported expense and (ii) a $3.0 million increase in employee compensation expense relating to our short-term incentive program and other benefit programs, partially offset by (i) a $3.4 million decrease in non-cash stock compensation expense relating to our long-term incentive programs due to the vesting of certain employee equity awards and (ii) a decrease of $0.8 million in professional fees for tax related services and consulting services.expenses.

Liquidity and Capital Resources

Summary

During the first quarter 2010, we implemented a new debt structure, comprised of a $200.0 million credit facility (the “Revolving Credit Facility”) and $175.0 million aggregate principal amount of the Notes, to further enhance our financial strength and flexibility. The primary objectives of our financing strategy were to extend the maturity of the previously existing revolving credit facility beyond the July 2011 expiration date, provide more flexible terms and conditions, and more efficiently utilize our assets to collateralize existing and future financing requirements. In connection with the elimination of property, plant and equipment as collateral for the Revolving Credit Facility and the corresponding reduction in revolver commitment and borrowing availability, we arranged funded debt through a private offering of the Notes, which have a five year maturity. We believe the convertible debt market provided desired covenant flexibility, an appropriate issuance size and amount of balance sheet leverage, and a reasonable cost of financing. As a result, we believe we have enhanced our liquidity and financial flexibility to continue to support our ongoing business needs and longer term strategic growth objectives.

Cash and cash equivalents were ~~$143.7~~$55.9 million at ~~September 30, 2010, up~~March 31, 2011, down from ~~$30.3~~$135.6 million at December 31, ~~2009.~~2010. The ~~increase~~decrease in cash ~~and cash equivalents during the nine months ended September 30, 2010~~ is primarily driven by ~~the issuance of the Notes, resulting in $169.2~~$83.2 million of cash consideration paid to purchase the Chandler, Arizona (Extrusion) facility effective January 1, 2011, net ~~proceeds after deducting~~of $4.9 million of cash acquired in the ~~initial purchasers’ discounts and transaction fees and expenses (see “Sources of Liquidity” below).~~acquisition. Cash equivalents consist primarily of money market accounts, investments with an original maturity of three months or less when purchased, and other highly liquid investments. We place our cash in bank deposits and money market funds with high credit quality financial institutions which invest primarily in commercial paper and time deposits of prime quality, short-term repurchase agreements, and U.S. government agency notes. We have not experienced losses on our temporary cash investments.

In connection with the issuance of the Notes, we paid $31.4 million to several financial institutions (the “Option Counterparties”) to purchase the Call Options, which relate to our common stock, and received $14.3 million for issuing to the Option Counterparties net-share-settled warrants relating to approximately 3.6 million shares of our common stock (the “Warrants”). In addition, concurrent with the issuance of the Notes, we re-purchased approximately 1.2 million shares of our common stock for $44.2 million. These financing transactions contributed to a $107.9 million net increase to cash and cash equivalents during the quarter ended March 31, 2010 (see Cash Flows below for further detail regarding our cash flows for the nine month periods ended September 30, 2010 and September 30, 2009 by segment).

In addition to our unrestricted cash and cash equivalents described above, we have restricted cash that is pledged or held as collateral ~~at September 30, 2010 for certain letters of credit, or restricted to use for~~in connection with workers’ compensation requirements and certain other agreements. Short-term restricted cash, which is included in Prepaid expenses and other current assets, totaled $7.8 million at March 31, 2011 and $0.9 million at ~~both September 30, 2010 and~~ December 31, ~~2009.~~2010. Long-term restricted cash, which is included in Other Assets, was ~~$16.3~~$9.4 million at ~~September 30, 2010~~March 31, 2011 and ~~$17.4 million~~$16.3 at December 31, ~~2009.~~2010. The $6.9 million increase in short-term restricted cash and the corresponding decrease in long-term restricted cash during the quarter ended March 31, 2011 result from a reclassification based on the anticipated release to us, within the next 12 months, of funds held in a trust account. Once the funds are released to us, such amount will be reclassified from short-term restricted cash to cash and cash equivalents.

Operating Activities

Fabricated Products—~~During~~For the ~~nine months~~quarter ended ~~September 30, 2010,~~March 31, 2011, Fabricated Products segment operating activities provided ~~$83.8~~$29.4 million of ~~cash, as compared to $123.0 million of cash provided in the nine months ended September 30, 2009.~~cash. Cash provided in the ~~nine months~~quarter ended ~~September 30, 2010~~March 31, 2011 was primarily related to operating income ~~as adjusted to exclude net non-cash~~excluding non-run-rate items, depreciation and amortization of ~~$88.4~~$31.4 million, an increase in accounts ~~payables~~payable of ~~$5.6~~$13.9 million, partially offset by an increase in accounts receivable of $18.5 million.

Fabricated Products segment operating activities provided $37.4 million of cash in the first quarter of 2010. Cash provided in the first quarter of 2010 consists primarily of operating income of $23.0 million, an increase in accounts payable of $10.1 million and cash flows from significant changes in long-term assets and liabilities of ~~$10.6~~$13.4 million which ~~primarily represents~~included an increase of $10.5 million in deferred revenues related to cash received during the ~~period~~quarter from customers in advance of periods for which performance is ~~completed. The foregoing cash inflows were~~completed, partially offset by ~~an increase~~changes in ~~inventory of $31.8 million and~~current assets, including an increase in accounts receivables of ~~$4.6 million. Cash provided by~~$6.7 million and an increase in inventory of $6.2 million including the ~~Fabricated Products segment in the nine months ended September 30, 2009 was primarily related to decreases in working capital and secondarily to operating income.~~effect of LIFO charges.

All Other—Cash used in operations in All Other is comprised of (i) cash ~~provided (used)~~flows from ~~Anglesey related~~Anglesey-related operating activities, (ii) cash ~~provided by (used in)~~flows from hedging activities, and (iii) cash used in corporate and other activities.

Corporate and other operating activities used $12.8 million and $14.1 million of cash during the quarter ended March 31, 2011 and March 31, 2010, respectively. Cash outflow from Corporate and other operating activities in the first quarter of 2011 consisted primarily of payments relating to general and administrative costs of $7.6 million, our short-term incentive program in the amount of $1.9 million, and annual contributions to the VEBAs totaling $2.2 million. Cash outflow from Corporate and other operating activities in the first quarter of 2010 consisted primarily of payments relating to general and administrative costs of $9.2 million, our short-term incentive program in the amount of $2.3 million and annual contributions to the VEBAs totaling $2.8 million.

Anglesey-related activities provided ~~$7.5~~$0.9 million of cash infor the ~~nine months~~quarter ended ~~September 30, 2010,~~March 31, 2011, while ~~Anglesey related~~Anglesey-related activities ~~used $5.2~~provided $0.2 million of cash infor the ~~nine months~~quarter ended ~~September 30, 2009.~~March 31, 2010. Operating cash ~~flow for the nine months ended September 30, 2010 was~~flows were primarily related to changes in working ~~capital. Operating cash flow for the nine months ended September 30, 2009 was comprised of operating income from Anglesey-related~~capital in both periods.

Hedging-related activities used $1.7 million and ~~changes in working capital.~~

~~Hedging related activities provided $4.4~~$1.0 million of cash during the ~~nine months~~quarter ended ~~September 30,~~March 31, 2011 and March 31, 2010, ~~and $24.9 million of cash during the nine months ended September 30, 2009.~~respectively. Cash ~~provided by~~flows in our Hedging business unit isare related to realized hedging gains and losses on our derivative positions and isare affected by the timing of settlement of such positions.

Corporate and other operating activities used $30.4 million and $33.9 million of cash during the nine month periods ended September 30, 2010 and September 30, 2009, respectively. Cash outflow from Corporate and other operating activities in the nine months ended September 30, 2010 consisted primarily of $2.8 million of annual VEBA contribution, payment of $2.7 million in relation to our short-term incentive program and payments in respect of cash general and administrative costs. Cash outflow from Corporate and other operating activities in the nine months ended September 30, 2009 consisted primarily of $4.9 million of annual VEBA contribution, payment of $5.1 million in relation to our short-term incentive program and payments in respect of cash general and administrative costs.

Investing Activities

Fabricated Products—Cash used in investing activities for Fabricated Products during the quarter ended March 31, 2011 was ~~$42.6~~$89.4 million, ~~in the nine months ended September 30, 2010,~~ compared to ~~$50.3~~$13.5 million of cash used during the quarter ended March 31, 2010. Cash used during the quarter ended March 31, 2011 consists of cash used to purchase the Chandler, Arizona (Extrusion) facility in the ~~nine months ended September 30, 2009.~~amount of $83.2 million and capital expenditures in the amount of $6.2 million. Cash used in investing activities induring the ~~nine month periods~~quarter ended ~~September 30,~~March 31, 2010 consisted of cash outflow of (i) $34.0 million for capital expenditures, (ii) $9.0 million for the acquisition of the manufacturing facility and related assets of Nichols and (iii) $4.4 million for the purchase available for sale securities in connection with our deferred compensation plan, partially offset by cash inflow of $4.8 million for the sale of our Greenwood, South Carolina facility. Cash used in investing activities in the nine months ended September 30, 2009 was primarily related to ~~our~~ capital expenditures. See ~~“Capital Expenditures”~~Capital Expenditures and Investments below for additional information.

All Other—~~Investing~~Cash used in investing activities ~~in All Other~~during the quarter ended March 31, 2010 is ~~generally~~ related to ~~activities in restricted cash and~~ capital expenditures ~~within~~in the Corporate and Other business unit. ~~We have restricted cash on deposit as financial assurance for certain environmental obligations and workers’ compensation claims from the State of Washington.~~

Financing Activities

Fabricated Products—Cash ~~provided~~used in investing activities for Fabricated Products during the quarter ended March 31, 2011 was $0.3 million, relating primarily to principal payments in respect of the ~~nine months ended September 30, 2010 is comprised of a return of $1.1 million of restricted cash to~~note issued by us ~~relating to workers’ compensation deposit, partially offset by $0.9 million of capital expenditures. Cash generated from investing activities~~ in ~~All Other in the nine months ended September 30, 2009 is related to return of a portion of restricted cash related to margin deposit posted~~connection with our ~~derivative counterparties to support derivative hedging transactions at December 31, 2008.~~

~~Financing Activities~~purchase of the Florence, Alabama facility.

All Other—Cash used in financing activities during the quarter ended March 31, 2011 was $5.8 million, representing $4.7 million of cash dividends paid to our stockholders and holders of restricted stock and dividend equivalents paid to holders of restricted stock units and performance shares in February 2011 and $1.1 million of cash used to repurchase our common stock in connection with the vesting of employee restricted stock, restricted stock units and performance shares and payment of related withholding tax obligations. See Part II, Item 2. “Unregistered Sales of Equity Securities and Use of Proceeds” of this Report.

Cash provided by financing activities induring the ~~nine months~~quarter ended ~~September 30,~~March 31, 2010 was ~~$90.5~~$100.5 million. The cash inflow ~~was~~consists primarily ~~related to~~of proceeds generated from the issuance of the Notes and related transactions. We received $169.2 million of net proceeds from the sale of the Notes after deducting the initial purchasers’ discounts and transaction fees and fees and expenses of $5.8 million. In connection with the issuance of the Notes, we paid $31.4 million to ~~Option Counterparties~~several financial institutions (the “Option Counterparties”) to purchase the Call Options, and received $14.3 million for issuing ~~the Warrants.~~net-share-settled warrants (the “Warrants”). In addition, we used $44.2 million of the net proceeds from the Notes ~~transaction~~ to repurchase approximately 1.2 million shares of our common stock. ~~In addition to the financing transactions relating to the Notes,~~Also during the ~~nine months ended September 30,~~

first quarter of 2010, we ~~also~~ paid ~~$14.3~~$4.9 million in cash dividends and dividend equivalents to our stockholders and holders of ~~restricted stock, restricted stock units and performance shares and paid $0.4 million in principal and interest on the promissory note issued to Nichols.~~

~~Cash used in financing activities in the nine months ended September 30, 2009 was $51.9 million. The cash outflow was primarily related to the repayment of $36.0 million of net borrowings under~~ our ~~previously existing revolving credit facility and the payment of $14.7 million in cash dividends and dividend equivalents to our stockholders and holders of~~ restricted stock, restricted stock units and performance shares.

Sources of Liquidity

~~Our~~We believe our most significant sources of liquidity, ~~are funds generated by operating activities, available cash and cash equivalents, and borrowing availability under our Revolving Credit Facility. We believe that~~ funds generated from the expected results of operations together with available cash and cash equivalents and borrowing availability under our ~~Revolving Credit Facility,~~revolving credit facility, will be sufficient to finance our cash requirements, including those associated with our strategic investments and existing expansion plans, ~~and strategic initiatives,~~ for at least the next 12 months. ~~However,~~Nevertheless, our ability to satisfy our working capital requirements and debt service obligations, or fund planned capital expenditures, will substantially depend upon our future operating performance (which will be affected by prevailing economic conditions), and financial, business and other factors, some of which are beyond our control. In addition, there can be no assurance ~~that we will continue to generate cash flows at or above current levels or~~ that we will be able to maintain our ability to borrow under our ~~Revolving Credit Facility.~~revolving credit facility.

We may in the future consider additional expansion plans and strategic initiatives, including acquisitions, that could require us to raise additional funds through debt or equity financing. The timing and amount of such financing requirements, if any, will depend on a number of factors, including our ability to identify suitable investments or acquisitions. Even if we are able to identify such investments or acquisitions, there can be no assurance that the necessary financing will be available to us on acceptable terms or at all.

~~On March 23, 2010, we and certain of our subsidiaries entered into the Revolving Credit Facility with a group of lenders. The Revolving Credit Facility~~Our revolving credit facility provides for up to $200.0 million of borrowing base, of which up to a maximum of $60.0 million may be utilized for letters of credit. The revolving credit facility is secured by a first priority lien on substantially all of the accounts receivable, inventory and certain other related assets and proceeds of us and our domestic operating subsidiaries. Under the ~~Revolving Credit Facility,~~revolving credit facility, we are able to borrow from time to time an aggregate amount equal to the lesser of $200.0 million or a borrowing base comprised of ~~certain percentages~~approximately 85% of eligible accounts receivable and approximately 65% of eligible inventory, reduced by certain reserves, all as specified in the ~~Revolving Credit Facility.~~revolving credit facility.

The ~~Revolving Credit Facility~~revolving credit facility matures in March 2014, at which time all outstanding amounts ~~outstanding under the Revolving Credit Facility~~thereunder will be due and payable. Borrowings under the ~~Revolving Credit Facility~~revolving credit facility bear interest at a rate equal to either a base prime rate or LIBOR, at our option, plus, in each case, a specified variable percentage determined by reference to the then-remaining borrowing availability under the ~~Revolving Credit Facility.~~revolving credit facility. The ~~Revolving Credit Facility~~revolving credit facility may, subject to certain conditions and the agreement of lenders thereunder, be increased to up to $250.0 million.

Amounts owed under the ~~Revolving Credit Facility~~revolving credit facility may be accelerated ~~for payment~~ upon the occurrence of various events of default, including, without limitation, the failure to make principal or interest payments when due and breaches of covenants, representations and warranties set forth in the ~~Revolving Credit Facility.~~revolving credit facility. The ~~Revolving Credit Facility~~revolving credit facility places limitations on the ability of us and certain of our subsidiaries to, among other things, grant liens, engage in mergers, sell assets, incur debt, make investments, undertake transactions with affiliates, pay dividends and repurchase shares. In addition, we are required to maintain a fixed charge coverage ratio on a consolidated basis at or above 1.1 to 1.0 if ~~certain minimum~~borrowing availability ~~thresholds are not met, as specified in~~under the ~~Revolving Credit Facility.~~revolving credit facility is less than $30 million.

~~The Revolving Credit Facility is secured by a first priority lien~~Based on substantially all of the accounts receivable, inventory and certain other related assets and proceeds of us and our domestic operating subsidiaries. At September 30, 2010, we were in compliance with all covenants contained in the Revolving Credit Facility.

~~At September 30, 2010, based on~~both the borrowing base determination in effect as of ~~that~~March 31, 2011 as well as the borrowing base determination as of the date of filing of this Report, we had ~~$167.1~~$200.0 million available under the ~~Revolving Credit Facility,~~revolving credit facility. As of ~~which $9.9~~March 31, 2011, there were no borrowings under the revolving credit facility, and $9.8 million was being used to support outstanding letters of credit, leaving ~~$157.2~~$190.2 million of availability. ~~There~~As of the date of filing of this Report, there were no borrowings under the ~~Revolving Credit Facility at September 30, 2010 or during the quarter ended September 30, 2010.~~

Asrevolving credit facility, letter of credit usage was $9.9 million, and $190.1 million of the ~~filing date of this Report, based on the borrowing base determination, we had $164.1 million available under the Revolving Credit Facility, of which $9.9 million was being used~~facility remained available. The interest rate applicable to ~~support outstanding letters of credit, leaving $154.2 million of availability. There were no~~any borrowings under the ~~Revolving Credit Facility~~revolving credit facility would have been 5.25% at ~~October 22, 2010.~~March 31, 2011 for overnight borrowings.

At March 31, 2011, we were in compliance with all covenants contained in the revolving credit facility. We do not believe that the covenants under the revolving credit facility are reasonably likely to limit our ability to raise additional debt or equity should we choose to do so during the next 12 months. Additionally, we believe it is unlikely that we will trigger the liquidity threshold requiring measurement of the fixed charge coverage ratio during the next 12 months.

Debt

OnMandatory principal payments on the outstanding borrowings under our Notes and promissory notes at March ~~29, 2010, we issued $175.0 million aggregate principal amount~~31, 2011, excluding the discount and assuming no early conversions of our Notes, are as follows for each of the ~~Notes. Net proceeds from the sale~~periods ending December 31 (see Note 3 and Note 4 of Notes to Interim Consolidated Financial Statements included in Part 1, Item 1. “Financial Statements” of this Report for further details of the Notes ~~were approximately $169.2 million, after deducting~~and the initial purchasers’ discounts and transaction fees and expenses. The Notes bear stated interest at a rate of 4.50% per annum. Interest is payable semi-annually in arrears on April 1 and October 1 of each year, beginning on October 1, 2010. The Notes will mature on April 1, 2015, subject to earlier repurchase or conversion upon the occurrence of certain events.promissory notes):


	Payments Due by Period
											2015 and
	Total		2011		2012		2013		2014		Thereafter
Convertible notes principal	$	175.0	$	—	$	—	$	—	$	—	$	175.0
Nichols promissory note principal		5.7		1.0		1.3		1.3		1.3		0.8
LA promissory note principal		7.0		—		3.5		3.5		—		—

Total	$	187.7	$	1.0	$	4.8	$	4.8	$	1.3	$	175.8

The Notes are not convertible into shares of our common stock, ~~or into any other securities under any circumstances. Instead,~~but instead, upon the conversion of ~~the~~ Notes, we ~~will~~would pay ana cash conversion amount ~~of cash~~ based on the market value of our common stock at ~~that~~the time of conversion and ~~an initial~~a conversion rate equal to 20.6949 shares of our common stock (such conversion rate being subject to adjustment under certain circumstances) per $1,000 principal amount of the Notes ~~(which is equal~~(equivalent to aan initial conversion price of approximately $48.32 per ~~share, representing~~share). Upon a ~~26%~~ conversion ~~premium over the closing price~~ of $38.35 per share of our common stock on March 23, 2010), subject to adjustment, based on the occurrence of certain events, including, but not limited to, (i) the issuance of certain dividends on our common stock, (ii) the issuance of certain rights, options or warrants, (iii) the effectuation of share splits of combinations, (iv) certain distributions of property and (v) certain issuer tender or exchange offers as described in the Indenture. Holders may convert their notes into cash before January 1, 2015, only in certain circumstances determined by (i) the market price of our common stock, (ii) the trading price of the Notes, ~~or (iii) the occurrence of specified corporate events. The Notes can be converted by the holders at~~ any time on or after January 1, 2015 until the close of business on the second scheduled trading day immediately preceding the maturity date of the Notes. The Notes are subject to repurchase by us at the option of the holders following a fundamental change, as defined in the indenture governing the Notes, including, but not limited to, (i) certain ownership changes, (ii) certain recapitalizations, mergers and dispositions, (iii) approval of any plan or proposal for the liquidation, or dissolution of our company, and (iv) our common stock ceasing to be listed on any of The New York Stock Exchange, The NASDAQ Global Select Market or The NASDAQ Global Market, at a price equal to 100% ofpayment above the principal amount ~~of the Notes plus accrued and unpaid interest up to the fundamental change repurchase date. We may not redeem the Notes.~~

The indenture governing the Notes contains customary terms and covenants, including that upon certain events of default occurring and continuing, either the trustee or the holders of at least 25% in aggregate principal amount of the Notes then outstanding may declare the entire principal amount of all the Notes, and the interest accrued on the Notes, towould be ~~immediately due and payable.~~

~~To reduce the potential financial risk associated with the conversion feature of the Notes, on March 23 and March 26, 2010,~~offset by payments we entered into convertible note hedge transactions to purchase the Call Options from the Option Counterparties. The Call Options have an exercise price equal to the conversion price of the Notes, subject to anti-dilution adjustments substantially similar to the anti-dilution adjustments for the Notes. The Call Options will expire upon the maturity of the Notes. The convertible note hedge transactions are expected to generally reduce our exposure to potential cash payments in excess of the principal amount of the Notes that we may be required to make upon the conversion of the Notes. Upon the exercise of the Call Options, the Company willwould be entitled to receive from the Option Counterparties ~~amounts of cash generally based on the amount by which the market price per share of the Company’s common stock, as measured under the terms~~upon exercise of the Call Options ~~is greater than~~that we entered into contemporaneously with the ~~exercise price~~issuance of the ~~Call~~

~~Options (which is initially equal to the initial conversion~~Notes. If our stock price, ~~of the Notes of $48.32 per share of our common stock) during the relevant valuation period under the Call Options.~~

On March 23 and March 26, 2010, we also entered into warrant transactions to sell the Option Counterparties the Warrants. The Warrants will expire on July 1, 2015. The Option Counterparties paid an aggregate amount of approximately $14.3 million to us for the Warrants. If the market price per share of our common stock, as measured under the terms of the Warrants, exceeds ~~the strike price of the Warrants (which is initially equal to~~ $61.36 ~~representing 160% of the closing price of $38.35~~ per share ~~of our common stock on March 23, 2010)~~(such amount being subject to adjustment under certain circumstances), we will issue to the Option Counterparties shares of our common stock having a value equal to such excess, as measured under the terms of the Warrants. The Warrants may not be exercised prior to their July 1, 2015 expiration date.

~~The Call Options and the Warrants are separate transactions, are not part~~As of ~~the terms of~~March 31, 2011, the Notes ~~and~~were not convertible. We do not ~~change a holder’s rights under~~expect the ~~Notes.~~

In connection with our acquisition of the manufacturing facility and related assets of Nichols on August 9, 2010, a promissory note in the amount of $6.7 million (“Nichols Promissory Note”) was issuedNotes to Nichols as a part of the consideration paid. The Nichols Promissory Note bears interest at a rate of 7.5% per annum. Accrued but unpaid interest is due quarterly through maturity of the note on August 9, 2015, with the first such payment having been made on September 30, 2010. We have the option to repay all or a portion of the promissory note at any timebe converted by investors prior to the ~~maturity date. Principal payments~~first quarter of 2015 (if at all). See Note 3 of Notes to Consolidated Financial Statements included in Part 1, Item 1. “Financial statements” of this Report for information on the ~~note are due~~circumstances in ~~equal quarterly installments, with~~which the first such payment having been made on September 30, 2010. The Nichols Promissory Note is secured by certain real property and equipment included in the assets acquired from Nichols. The current portion of the Nichols Promissory Note was $1.3 million on September 30, 2010.

As of September 30, 2010, we also had a $7.0 outstanding promissory note (the “LA Promissory Note”) in connection with our purchase of the previously leased land and buildings associated with our Los Angeles, California facility, in December 2008. Interest is payable on the unpaid principal balance of the LA Promissory Note monthly in arrears at the prime rate, as defined in the LA Promissory Note, plus 1.5%, in no event exceeding 10% per annum. A principal payment of $3.5Notes will ~~be due on~~become convertible prior to January 1, 2012 and the remaining $3.5 will be due on January 1, 2013. The LA Promissory Note is secured by a deed of trust on the property. The interest rate applicable to the LA Promissory Note was 4.75% at September 30, 2010.2015.

Capital Expenditures and Investments

~~Capital Expenditures.~~A component of our long-term strategy is our capital expenditure program including our organic growth initiatives. ~~The following table presents our capital expenditures for~~Capital spending during the ~~nine month periods ended September 30, 2010 and September 30, 2009 (in millions~~first quarter of ~~dollars):~~

Nine Months Ended
September 30,
2010 2009
Kalamazoo, Michigan facility¹
$ 24.0 $ 38.4
Other²
6.2 9.4
Change in accounts payable associated with capital expenditures 4.7 3.2

Total capital expenditures, net of change in accounts payable $ 34.9 $ 51.0


¹		The Kalamazoo, Michigan facility is equipped with two extrusion presses and a remelt operation. We expect that it will significantly improve the capabilities and efficiencies of our rod and bar operations, enhance the market position of such products, and be a platform to enable further extruded product growth for automotive applications. This investment program is expected to be substantially complete in late 2010. We estimate that $25 million to $30 million will be incurred in connection with this investment program during 2010.

²		~~Other capital spending~~2011 was spread among most of our manufacturing locations on projects expected to reduce operating costs, improve product quality, increase capacity or enhance operational security.

Total capital expenditures and investments for Fabricated Products are currently expected to be in the ~~$40~~$35 million to ~~$50~~$45 million range for all of ~~2010~~2011 and are expected to be funded using cash generated from operations, available cash and cash equivalents, or borrowings under the ~~Revolving Credit Facility~~revolving credit facility or other third-party financing arrangements.

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 assurance can be provided as to the timing or success of any such expenditures.

~~Investments.~~~~On August 9, 2010,~~Effective January 1, 2011, we ~~completed~~purchased the ~~acquisition of the manufacturing~~Chandler, Arizona (Extrusion) facility, ~~and related assets of Nichols, located in Florence, Alabama,~~ which manufactures bare mechanical alloy wire products, nails and aluminum rod for aerospace, general engineering, and automotive applications. The acquired assets have been integrated into and complement the existing assets of our Fabricated Products segment. Consideration for the purchase consisted of (i) $9.0 million in cash, (ii) $6.7 million in a promissory note to Nichols, and (iii) the assumption of certain liabilities totaling approximately $2.1 million.

~~On October 12, 2010, we entered into a definitive agreement to purchase substantially all of the assets and to assume substantially all of the liabilities of Alexco, a manufacturer of~~manufacturers hard alloy extrusions for the aerospace ~~industry based~~industry. We paid net cash consideration of $83.2 million (which was net of $4.9 million cash received in ~~Chandler, Arizona.~~the acquisition) with existing cash on hand, and assumed certain liabilities totaling approximately $1.0 million. The acquisition ~~is intended~~positions us in a significant end market segment that provides a natural complement to ~~complement~~ our ~~current offering~~offerings of sheet, plate, cold finish and drawn tube products for aerospace applications in our Fabricated Products segment. ~~The transaction is anticipated~~See Note 5 of Notes to ~~close~~Interim Consolidated Financial Statements included in ~~December, 2010, subject to satisfaction~~Part 1, Item. 1. “Financial Statements” of ~~closing conditions, including receipt of third party consents. We intend to fund~~this Report for information about the ~~purchase price of approximately $90 million~~assets acquired and liabilities assumed in connection with ~~existing cash on hand.~~this transaction.

Dividends

During the ~~nine months~~quarters ended ~~September 30,~~March 31, 2011 and March 31, 2010, we paid a total of ~~$14.3~~$4.7 million and $4.9 million, or ~~$0.72~~$0.24 per common share and $0.24 per common share, respectively, in cash dividends to our stockholders, including the holders of restricted stock, and dividend equivalents to the holders of restricted stock units and the holders of performance ~~shares with respect to approximately half of the performance~~ shares.

On ~~October 11, 2010, we announced that~~April 7, 2011, our Board of Directors ~~had~~ approved the declaration of a quarterly cash dividend of $0.24 per share on our common ~~share payable~~stock to be paid on ~~November 15, 2010~~May 13, 2011 to stockholders of record at the close of business on ~~October 22, 2010.~~April 25, 2011.

The future declaration and payment of dividends, if any, will be at the discretion of the Board of Directors and will depend on a number of factors, including our financial and operating results, financial condition, anticipated cash requirements and ability to satisfy conditions contained in our ~~Revolving Credit Facility.~~revolving credit facility. We can give no assurance that dividends will be declared and paid in the future.

Stock Repurchase Plan

~~During the second quarter of 2008, our~~Our Board of Directors ~~authorized~~approved a stock repurchase program for the repurchase of up to $75.0 million of our common shares, with repurchase transactions to occur in open-market or privately negotiated transactions at such times and prices as management deemed appropriate and to be funded with our excess liquidity after giving consideration to internal and external growth opportunities and future cash flows. The program may be modified, extended or terminated by our Board of Directors at any time. As of ~~September 30, 2010,~~March 31, 2011, $46.9 million remained available for repurchases under the existing repurchase authorization.

During the first quarter of 2010, in connection with the issuance of the Notes and pursuant to a separate authorization from our Board of Directors, we repurchased $44.2 million, or approximately 1.2 million shares of our outstanding common stock, in privately negotiated, off-market ~~transactions with purchasers of the Notes.~~transactions.

Under our Amended and Restated 2006 Equity and Performance Incentive Plan, we allow participants to elect to have us withhold common shares to satisfy minimum statutory tax withholding obligations arising from the recognition of income ~~upon~~and the vesting of restricted stock or restricted stock units. When we withhold these shares, we are to remit to the appropriate taxing authorities the market price of the shares withheld, which could be deemed a purchase of the common shares by us on the date of withholding. During the first quarter ~~ended June 30, 2010,~~of 2011, we withheld ~~9,984~~22,862 shares of common stock to satisfy tax withholding obligations. All such shares were withheld and cancelled by us on the applicable vesting dates or dates on which income was recognized, and the number of shares withheld was determined based on the closing price per common share as reported byon the Nasdaq ~~Stock~~Global Select Market ~~LLC~~ on such dates.

Restrictions Related to Equity Capital

As discussed in Note 911 of Notes to Consolidated Financial Statements included in Part II, Item 8. “Financial Statements and Supplementary Data” and elsewhere in our Annual Report on Form 10-K for the year ended December 31, ~~2009,~~2010, there are restrictions on the transfer of our common shares. ~~Additionally, our Revolving Credit Facility places limitations on our ability to repurchase our common stock and to pay dividends (see Sources of Liquidity above).~~

Environmental Commitments and Contingencies

We are subject to a number of environmental laws and regulations, fines or penalties assessed for alleged breaches of the environmental laws and regulations, and claims and litigation based upon such laws and regulations. We have established procedures for regularly evaluating environmental loss contingencies, including those arising from environmental reviews and investigations and any other environmental remediation or compliance matters. Our environmental accruals represent our undiscounted estimate of costs reasonably expected to be incurred based on presently enacted laws and regulations, existing requirements, currently available facts, existing technology, and our assessment of the likely remediation actions to be taken.

During the third quarter of 2010, we increased our environmental accruals in connection with our submission of a draft feasibility study to the Washington State Department of ~~Washington~~Ecology on September 8, ~~2010 (the “Feasibility Study”).~~2010. The draft ~~Feasibility Study~~feasibility study included recommendations for a range of remediation alternatives to primarily address the historical use of oils containing polychlorinated biphenyls, or PCBs, at our Trentwood facility in Spokane, Washington, ~~and plans for remediation for~~which may be implemented over the next 30 years. ~~Based~~During the first quarter of 2011, we continued to work with Washington State Department of Ecology to revise the draft feasibility study and to determine viable remedial approaches. As of March 31, 2011, no agreement with the Washington State Department of Ecology has been reached on the draft Feasibility Study and our evaluation of other existing historical environmental matters at the Trentwood facility and certain other locations owned or operated by us, we increased our environmental accruals by $13.6 million during the quarter ended September 30, 2010, to a total environmental reserve of $20.6 million at September 30, 2010, primarily to reflect anticipated expenditures included in the draft Feasibility Study for the next 30 years at or near the current level of expenditures incurred in connection with ongoing efforts to address the historical issues at the Trentwood facility. Of the total environmental reserve, $18.6 million is related to our Trentwood facility in Spokane, Washington. We expect that thesefinal remediation actions will be taken over the next 30 years and estimate that expenditures to be charged to these environmental accruals will be approximately $0.5 million in 2010, $1.1 million in 2011, $1.0 million in 2012, $3.2 million in 2013, and $14.8 million in 2014 and years thereafter through the balance of the 30 year period.approach. The draft Feasibility Study is still subject to further reviews, public comment and regulatory approvals before the final consent decree is issued. We expect the consent decree to be issued in 2012.

Based on the recommended remediation alternatives in the draft Feasibility Study and other existing historical environmental matters at the Trentwood facility and certain other locations owned or operated by us, our environmental accrual was $20.0 million at March 31, 2011. Our environmental accrual represents the low end of the range of incremental cost estimates based on proposed alternatives in the draft feasibility study, investigational studies and other remediation activities occurring at certain locations owned or operated by us. We expect that these remediation actions will be taken over the next 30 years and estimate that the incremental direct costs attributable to the remediation activities to be charged to these environmental accruals will be approximately $0.8 million in 2011, $0.8 million in 2012, $2.7 million in 2013, $0.7 million in 2014, and $15.0 million in 2015 and years thereafter through the balance of the 30-year period.

As additional facts are developed, feasibility studies at various ~~locations~~facilities are completed, ~~definitive~~draft remediation plans ~~and~~are modified, necessary regulatory ~~approvals~~approval for the implementation of remediation are ~~established, and~~obtained, alternative technologies are developed, ~~changes in these and~~and/or other factors change, there may ~~result in~~be revisions to management’s estimates and actual costs ~~exceeding~~may exceed the current environmental accruals. We believe at this time that it is reasonably possible that changes in various factors and our assumptions, including the effectiveness of our recommended remediation alternatives, the completion of the review of our draft Feasibility Study and resulting clean-up action plan expected to become part of a consent decree, and the nature of the costs identified in the draft Feasibility Study could cause the undiscounted costs associated with these environmental matters ~~again primarily in connection with our ongoing efforts to address the historical use of oils containing PCBs at our Trentwood facility, to~~may exceed current accruals by amounts that could be, in the aggregate, up to an estimated ~~$23.8 million.~~$22.0 million over the next 30 years. It is reasonably possible that our recorded estimate of its obligation may change in the next 12 months.

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

During the ~~nine months~~quarter ended ~~September 30, 2010,~~March 31, 2011, we granted additional stock-based awards to certain members of management under our stock-based long term incentive plan ~~in connection with our 2010 compensation program~~ (see Note 129 of Notes to Interim Consolidated Financial Statements included in Part I, Item 1. “Financial Statements” of this Report). Additional awards are expected to be made in future years.

~~“Management’s~~ “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, ~~2009~~2010 for additional information regarding our contractual obligations, commercial commitments, and off-balance-sheet and other arrangements.

Critical Accounting Estimates and Policies

Our consolidated financial statements are prepared in accordance with US GAAP. In connection with the 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 ~~we believe~~management believes to be relevant at the time our consolidated financial statements are prepared. On a regular basis, ~~we review~~management reviews the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with US 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.

~~Notes and Call Options~~. At September 30, 2010, the Notes and the related Call Options were outstanding. The cash conversion feature of the Notes and the Call Options are accounted for as derivative instruments. We measure the value of the cash conversion feature as the difference in the estimated fair value of the Notes and the estimated fair value of the Notes without the cash conversion feature. We value the Notes based on the trading price of the Notes and we value the Notes without the cash conversion feature based on the present value of the series of fixed income cash flows under the Notes, with a mandatory redemption in 2015. We value the Call Options using a binomial lattice valuation model. Significant inputs to the model are our stock price, risk-free rate, credit spread, dividend yield, expected volatility of our stock price, and probability of certain corporate events, all of which are observable inputs by market participants. Our estimates of fair value of the cash conversion feature of the Notes and the Call Options contain uncertainties given the difficulty predicting factors such as the expected volatility of our stock price and the probability of certain corporate events. An increase in the expected volatility of our stock price would cause the estimated fair values of the cash conversion feature and the Call Options to increase; conversely, a decrease in the expected volatility of our stock price would cause the estimated fair values of the cash conversion feature and the Call Options to decrease. However, we do not expect the net change in the fair value of these derivatives to have a material impact to our financial statements, over time.

~~Acquisition, Goodwill and Intangible Assets.~~In connection with the acquisition of the manufacturing facility and related assets of Nichols, we accounted for the acquisition using the purchase method of accounting, which requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective estimated fair values. We recognize goodwill as of the acquisition date, as a residual over the fair values of the identifiable net assets acquired. Goodwill is tested for impairment at least on an annual basis, as well as on an interim basis as warranted, at the time of events and changes in circumstances.

Intangible assets acquired will be amortized over the estimated useful lives of the respective assets, to reflect the pattern in which the economic benefits of the intangible assets are consumed. In the event the pattern cannot be reliably determined, we use a straight-line amortization method. Whenever events or changes in circumstances indicate that the carrying amount of the intangible assets may not be recoverable, the intangible assets will be reviewed for impairment. The weighted average estimated useful life of our intangible assets is approximately 18 years, as of the filing of this Report.

The judgments made in determining the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can significantly impact our results of operations. Fair values and useful lives are determined based on, among other factors, the expected future period of benefit of the asset, the various characteristics of the asset and projected cash flows. As the determination of an asset’s fair value and useful life involves management making certain estimates and because these estimates form the basis for the determination of whether or not an impairment charge should be recorded, these estimates are considered to be critical accounting estimates.

Our significant accounting policies are discussed in Note 1 of Notes to Consolidated Financial Statements included in Part II, Item 8. “Financial Statements and Supplementary Data” of our Annual Report on Form 10-K for the year ended December 31, ~~2009.~~2010. We discuss our critical accounting estimates in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, ~~2009. With the exception of our judgments and estimates in respect of: (i) the Notes and the related derivatives and (ii) acquisition-related accounting, each of which is discussed above, there~~2010. There has been no material change in our critical accounting estimates since the end of fiscal 2009. Changes to our significant accounting policies since the end of fiscal 2009 are discussed in Note 1 of Notes to Interim Consolidated Financial Statements included in Part I, Item 1. “Financial Statements” of this Report.December 2010.

New Accounting Pronouncements

For a discussion of all recently adopted and recently issued but not yet adopted accounting pronouncements, see “New Accounting Pronouncements” in Note 1 of Notes to Interim Consolidated Financial Statements included in Part I, Item 1. “Financial Statements” of this Report.

Available Information

Our website is located at~~www.kaiseraluminum.com~~www.kaiseraluminum.com.. The website includes a section for investor relations under which we provide notifications of news or announcements regarding our financial performance, including Securities and Exchange Commission (the “SEC”) filings, investor events, and press and earnings releases. In addition, all Kaiser Aluminum Corporation filings submitted to the SEC, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on ~~Form~~form 8-K, and Proxy Statements for our annual meeting of stockholders, as well as other Kaiser Aluminum Corporation reports and statements, are available on the SEC’s web site atwww.sec.gov. Such filings are also available for download free of charge on our website. In addition, we provide and archive on our website webcasts of our quarterly earnings calls and certain events in which management participates or hosts with members of the investment community, and related investor presentations. The contents of the website is not intended to be incorporated by reference into this Report or in any other report or document filed by us and any reference to the websites are intended to be inactive textual references only.

Item 3.Quantitative and Qualitative Disclosures About Market Risk

Our operating results are sensitive to changes in the prices of 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 1411 of Notes to Interim Consolidated Financial Statements included in Part I,1, Item 1. “Financial ~~Information”~~Statements” of this Report, we have historically utilized hedging transactions to ~~lock-in~~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 energy prices and foreign currency exchange ~~rates and energy prices.~~rates.

Sensitivity

~~Primary and~~ Primary/Secondary Aluminum.As a result of the full curtailment of Anglesey’s smelting operations at September 30, 2009 and the commencement of secondary aluminum remelt and casting operations discussed in Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (see “Results of Operations — Segment and Business Unit Information — All Other”) of this Report, we believe our exposure to primary aluminum price risk, with respect to our income and cash flows related to our share of Anglesey production, has largely been eliminated.

Our pricing of fabricated aluminum products is generally intended to ~~lock-in~~lock in a conversion margin (representing the value added from the fabrication process(es)), and to pass metal price risk ~~onto~~to our customers. However, in certain instances we do enter into firm price arrangements with our customers and incur price risk on our anticipated primary aluminum purchases in respect of such customer orders. ~~We use third party~~At the time our Fabricated Products segment enters into a firm price customer contract, our Hedging business unit and Fabricated Products segment enter into an “internal hedge” so that metal price risk resides in our Hedging business unit under All Other. Results from internal hedging activities between our Fabricated Products segment and Hedging business unit eliminate in consolidation. The Hedging business unit uses third-party hedging instruments to limit exposure to ~~primary aluminum price~~

metal-price risks related to ~~substantially all fabricated products~~ firm price ~~arrangements, which~~customer sales contracts and such transactions may have an adverse effect on our financial position, results of operations and cash flows.

Total fabricated products shipments during the ~~nine month periods~~quarters ended ~~September 30,~~March 31, 2011 and March 31, 2010 ~~and September 30, 2009~~ for which we had price risk were (in millions of pounds) ~~72.3~~24.6 and ~~128.7,~~22.4, respectively. At ~~September 30, 2010,~~March 31, 2011, we had sales contracts for the delivery of fabricated aluminum products that have the effect of creating price risk on anticipated primary aluminum purchases for the remainder of ~~2010, for~~ 2011, 2012 and ~~for 2012~~2013 and thereafter totaling approximately (in millions of pounds)~~: 32.3, 84.8~~ 81.1, 14.7, and ~~14.2,~~0.4, respectively.

Foreign Currency.We, from time to time, enter into forward exchange contracts to hedge material exposures for foreign currencies. Our primary foreign exchange exposure is our operating costs of our London, Ontario facility ~~as well as~~and for cash commitments for equipment purchases.

~~Because we~~We do not anticipate recognition of equity income or losses relating to our investment in Anglesey for at least the next 12 ~~months, and because~~months. Further, we expect to purchase and sell our share of Anglesey secondary aluminum production under pricing mechanisms that are intended to eliminate metal price risk and currency exchange ~~risk,~~risk. As a result, the British Pound Sterling exchange exposure related to ~~Anglesey’s earnings~~our income and cash flow relating to Anglesey is effectively eliminated in the near-term.

Energy.We are exposed to energy price risk from fluctuating prices for natural ~~gas.~~gas and electricity. We estimate that, before consideration of any hedging activities and the potential to pass through higher natural gas prices to customers, each $1.00 change in natural gas prices (per mmbtu) impacts our annual operating costs by approximately ~~$3.7~~$3.8 million. We estimate that the energy price risk from fluctuations in electricity prices, net of the impact of our electricity-related hedging agreements, would not likely have a material effect on our annual operating costs.

We, from time-to-time, in the ordinary course of business, enter into hedging transactions with major suppliers of energy and energy-related financial investments. As of ~~September 30, 2010,~~March 31, 2011, our exposure to fluctuations in natural gas prices had been

substantially reduced for approximately ~~93%~~94%, 74% and 22% of the expected natural gas purchases for the remainder of ~~2010, approximately 88% of the expected natural gas purchases for~~ 2011, 2012 and ~~approximately 57% of the expected natural gas purchases for 2012.~~2013, respectively.

Item 4.Controls and Procedures

Evaluation of Disclosure Controls and ~~Procedures~~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 ~~SEC’s~~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, ~~we recognize~~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 ~~we are~~management is required to apply ~~our~~its judgment in evaluating the cost-benefit relationship of possible 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 as of the end of the period covered by this Report at the reasonable assurance level.

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

PART II — OTHER ~~INFORMATION~~INFOMRATION

Item 1.Legal Proceedings.

Reference is made to Part I, Item 3. “Legal Proceedings” included in our Annual Report on Form 10-K for the year ended December 31, ~~2009~~2010 for information concerning material legal proceedings with respect to the Company. There have been no material developments since December 31, ~~2009.~~2010.

Item 1A.Risk Factors.

Reference is made to Part I, Item 1A. “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, ~~2009 and to Part II, Item 1A. “Risk Factors” included in our Quarterly Report on Form 10-Q for the quarter ended March 31,~~ 2010 for information concerning risk factors. There have been no material changes in the risk factors since ~~March~~December 31, 2010.

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

~~None.~~The following table provides information regarding our repurchases of our common shares during the quarter ended March 31, 2011:


					Total		Maximum
					Number of		Dollar Value
					Shares		of Shares that
					Purchased		May Yet Be
					as Part of		Purchased
	Total Number				Publicly		Under the
	of Shares		Average Price		Announced		Program
	Purchased¹		per Share		Programs²		(millions)²
January 1, 2011 - January 31, 2011		—		—		—		—
February 1, 2011 - February 28, 2011		—		—		—		—
March 1, 2011 - March 31, 2011		22,862		49.03		—	$	46.9

Total		22,862		49.03		—	$	46.9


¹		Under our Amended and Restated 2006 Equity and Performance Incentive Plan, we allow participants to elect to have us withhold common shares to satisfy minimum statutory tax withholding obligations arising from the recognition of income and the vesting of restricted stock, restricted stock units and performance shares. When we withhold these shares, we are to remit to the appropriate taxing authorities the market price of the shares withheld, which could be deemed a purchase of the common shares by us on the date of withholding. During the quarter ended March 31, 2011, we withheld 22,862 shares of common stock to satisfy employee tax withholding obligations. All such shares were withheld and cancelled by us on the applicable vesting dates or dates on which income was recognized, and the number of shares withheld was determined based on the closing price per common share as reported on the Nasdaq Global Select Market on such dates.

²		In June 2008, our Board of Directors authorized the repurchase of up to $75 million of our common shares. Repurchase transactions will occur at such times and prices as management deems appropriate and will be funded with the Company’s excess liquidity after giving consideration to internal and external growth opportunities and future cash flows. Repurchases were not authorized to commence until after July 6, 2008. Repurchases may be in open-market transactions or in privately negotiated transactions, and the program may be modified, extended, or terminated by the Company’s Board of Directors at any time.

Item 3.Defaults Upon Senior Securities.

None.

INDEX TO EXHIBITS


Exhibit
Number		Description
*10.1		Amendment No. 1, dated as of January 3, 2011, to Asset Purchase Agreement between Desert Fabco Acquisition, LLC and Alexco, L.L.C., dated as of October 12, 2010.

10.2		Kaiser Aluminum Fabricated Products 2011 Short-Term Incentive Plan For Key Managers Summary (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed by the Company on March 7, 2010, File No. 000-52105).

10.3		2011 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 7, 2010, File No. 000-52105).

10.4		2011 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 7, 2010, File No. 000-52105).

10.5		Kaiser Aluminum Corporation 2011 — 2013 Long-Term Incentive Program Management Objectives and Formula for Determining Performance Shares Earned Summary (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K, filed by the Company on March 7, 2010, 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.

* 101.INS **		XBRL Instance

* 101.SCH **		XBRL Taxonomy Extension Schema

* 101.CAL **		XBRL Taxonomy Extension Calculation

* 101.DEF **		XBRL Taxonomy Extension Definition

* 101.LAB **		XBRL Taxonomy Extension ~~Labels~~Label

* 101.PRE **		XBRL Taxonomy Extension Presentation


*		Filed herewith.

**		As provided in Rule 406T of Regulation S-T, XBRL information is furnished ~~and~~but deemed not filed for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

5753


PART I
Item 1. Financial Statements			1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			33
Item 3. Quantitative and Qualitative Disclosures About Market ~~Risks~~Risk			5348
Item 4. Controls and Procedures			5449

PART II
Item 1. Legal Proceedings			5449
Item 1A. Risk Factors			5449
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			5450
Item 3. Defaults Upon Senior Securities			5450
Item 4. [Removed and Reserved]			5550
Item 5. Other Information			5550
Item 6. Exhibits			5550

SIGNATURES			5652

INDEX OF EXHIBITS			5753

EXHIBITS			5855


	Non-Vested					Restricted					Non-Vested					Restricted
	Common Shares					Stock Units					Common Shares					Stock Units
				Weighted-Average					Weighted-Average					Weighted-Average					Weighted-Average
				Grant-Date Fair					Grant-Date Fair					Grant-Date Fair					Grant-Date Fair
	Shares			Value per Share		Units			Value per Unit		Shares			Value per Share		Units			Value per Unit
Outstanding at December 31, 2009		254,152		$	32.74		7,528		$	18.13
Outstanding at December 31, 2010												268,864		$	27.91		7,872		$	21.74
Granted		97,931			34.39		2,362			36.23		63,303			46.59		2,182			46.59
Vested		(75,680	)		52.92		(686	)		37.79		(46,464	)		56.63		(3,314	)		16.83
Forfeited		(1,624	)		23.87		—			—		—			—		—			—

Outstanding at September 30, 2010		274,779		$	27.82		9,204		$	21.31

Outstanding at March 31, 2011												285,703		$	27.38		6,740		$	32.20


	Performance Shares
				Weighted-
				Average
				Grant-Date
				Fair Value
	Shares			per Share
Outstanding at December 31, 2009		508,214		$	23.75
Granted		205,789			34.13
Vested		(609	)		31.02
Forfeited		(6,532	)		26.09

Outstanding at September 30, 2010		706,862		$	26.74


	Performance Shares
				Weighted-
				Average
				Grant-Date
				Fair Value
	Shares			per Share
Outstanding at December 31, 2010		686,895		$	26.84
Granted		186,918			46.59
Vested		(10,585	)		74.34
Cancelled		(68,799	)		74.34

Outstanding at March 31, 2011		794,429		$	26.74


	Estimated useful life		Original cost		Accumulated amortization			Net book value
Customer relationships		20	$	3.8	$	—		$	3.8
Backlog		3		0.5		(0.1	)		0.4

			$	4.3	$	(0.1	)	$	4.2


¹		The combined results presented for the quarter ended March 31, 2011 are the actual results presented in the Statement of Consolidated Income for such period, as the operating results for the Chandler, Arizona (Extrusion) facility were included in the Company’s consolidated operating results commencing January 1, 2011 (see Note 1).


Stock price at September 30, 2010	$	42.79
Quarterly dividend yield (per share)¹	$	0.24
Risk-free interest rate²		1.11	%
Credit spread (basis points)³		528
Expected volatility rate⁴		33	%


	Level 3
Balance at January 1, 2010:	$	—
Total realized/unrealized losses included in:
Cost of goods sold excluding depreciation expense		0.9
Purchases, sales, issuances and settlements		(0.6	)
Transfers in and (or) out of Level 3		—

Balance at September 30, 2010	$	0.3

Total gains included in earnings attributable to the change in unrealized losses relating to derivative contracts still held at September 30, 2010:	$	0.2


¹		Net income attributable to participating securities for a given period includes both distributed and undistributed net income, as applicable. Distributed net income attributed to participating securities ~~represents~~consists of dividend and dividend equivalents declared on the participating securities that the Company expects to ultimately vest. Undistributed net income for a given period, if any, is apportioned to participating securities based on the weighted-average number of each class of securities outstanding during the applicable period as a percentage of the combined weighted-average number of these securities outstanding during the period. Undistributed losses are not allocated to participating securities, however, as holders of such securities do not have an obligation to fund net losses of the Company.


¹		~~For the quarter and nine month periods ended September 30, 2009,~~ Net sales in All Other ~~represent net sales relating~~represents residual activity involving primary aluminum purchased by the Company from Anglesey while it continued its smelting operations, prior to ~~Anglesey’s smelting operations.~~September 30, 2009, and resold by the Company in the first quarter of 2010. In connection with Anglesey’s new remelt ~~operations~~operation beginning in the fourth quarter of 2009, the Company changed its basis of revenue recognition from a gross ~~basis~~ to a net basis ~~(Note~~(see Note 1).


¹		Assets in All Other primarily represents all of the Company’s cash and cash equivalents, derivative assets, net assets in respect of VEBA and net deferred income tax assets.


¹		See “Derivative Financial Instruments” in Note 1 for a discussion of accounting policy for such instruments.


¹		~~Value added~~Value-added revenue represents net sales less hedged cost of alloyed metal.


	3Q10 vs. 3Q09			9M10 vs. 9M09		2011 vs. 2010
	Favorable/(Unfavorable)			Favorable/(Unfavorable)		Favorable/(Unfavorable)
Sales impact	$	7.7		$	7.8	$	6.7
Manufacturing efficiency improvements		(3.1	)		8.4
Manufacturing inefficiency							(2.4	)
Depreciation expense							(2.2	)
Energy costs							1.1
Planned major maintenance							(0.9	)
Other		(1.3	)		0.4		(3.2	)

Total	$	3.3		$	16.6	$	(0.9	)


*		Filed herewith.

**		As provided in ~~rule~~Rule 406T of Regulation S-T, XBRL information is furnished ~~and~~but deemed not filed for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.


	KAISER ALUMINUM CORPORATION
	/s/ Daniel J. Rinkenberger
	Daniel J. Rinkenberger
	Senior Vice President and Chief Financial Officer ~~(Principal~~ (Principal Financial Officer)


	/s/ Neal West
	Neal West
Date: ~~October 27, 2010~~April 28, 2011	Vice President and Chief Accounting Officer ~~(Principal~~ (Principal Accounting Officer)