SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)Form 10-K
OF THE SECURITIES EXCHANGE ACT OF 1934
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 20072009
Commission file number 0-52105
KAISER ALUMINUM CORPORATION
(Exact name of registrant as specified in its charter)
   
Delaware
(State of Incorporation)		 94-3030279

(State of Incorporation)
(I.R.S. Employer
Identification No.)
   
27422 PORTOLA PARKWAY, SUITE 350,
FOOTHILL RANCH, CALIFORNIA
(Address of principal executive offices)
 92610-2831
(Zip Code)
Registrant’s telephone number, including area code:

(949) 614-1740
Securities registered pursuant to Section 12(b) of the Act:
   
Title of Class
 
Name of Exchange on Which Registered
 
Common Stock, par value $0.01 par valueper share Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:

NONE
     
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yesþo Nooþ
     
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yeso Noþ
     
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). Yeso Noo
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to thisForm 10-K.þ
     
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 Filer o Non-acceleratedAccelerated Filero Non-accelerated FileroSmaller reporting companyo
    (Do not check if a smaller reporting company)  
     
Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Act). Yeso Noþ
     
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of the last business day of the registrant’s most recently completed second fiscal quarter (June 29, 2007)30, 2009) was approximately $1.1$.5 billion.
     
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 January 31, 2008,February 15, 2010, there were 20,580,81520,276,571 shares of common stock of the registrant outstanding.
 

Documents Incorporated By Reference. Certain portions of the registrant’s definitive proxy statement related to the registrant’s 20082010 annual meeting of stockholders are incorporated by reference into Part III of this Report onForm 10-K.

TABLE OF CONTENTS
     
  Page
Page
 
PART I  1 
Item 1.Business  1 
Item 1A.Risk Factors  1110 
Item 1B.Unresolved Staff Comments  2220 
Item 2.Properties  2321 
Item 3.Legal Proceedings  2321 
Item 4.Submission of Matters to a Vote of Security Holders  23
21 
PART II  2422 
Item 5.Market for Registrant’s Common Equity and Related Stockholder Matters  2422 
Item 6.Selected Financial Data  2624 
Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations  2726 
Item 7A.Quantitative and Qualitative Disclosures About Market Risk  6053 
Item 8.Financial Statements and Supplementary Data  6155 
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial DisclosureDisclosure.  12298 
Item 9A.Controls and Procedures  12298 
Item 9B.Other Information  122
98 
PART III  12298 
Item 10.Directors and Executive Officers of the Registrant  12298 
Item 11.Executive Compensation  12298 
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters  12298 
Item 13.Certain Relationships and Related Transactions  12398 
Item 14.Principal Accountant Fees and Services  123
98 
PART IV.IV  12399 
Item 15.Exhibits and Financial Statement Schedules  123
99 
SIGNATURES  124100 
INDEX OF EXHIBITS  125101 
     
In this Report, all references to “Kaiser,” “we,” “us,” “the Company” and “our” refer to Kaiser Aluminum Corporation and its subsidiaries, unless the context otherwise requires or where otherwise indicated.


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PART I
PART IItem 1.Business
Forward-Looking Statements
     
Item 1.Business
Forward-Looking Statements
This Annual Report onForm 10-K contains statements which constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements appear throughout this Report, including this Item 1. “Business — Business Operations,” Item 1A. “Risk Factors,” and Item 7. “Management’s Discussion and Analysis of Financial Conditions and Results of Operations.” These forward-looking statements can be identified by the use of forward-looking terminology such as “believes,” “expects,” “may,” “estimates,” “will,” “should,” “plans,” or “anticipates,” or the negative of the foregoing or other variations 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 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, including cyclicality and other conditions in the aerospace and other end markets we serve; developments in technology; new or modified statutory or regulatory requirements; changing prices and market conditions; and other factors discussed in Item 1A. “Risk Factors” and elsewhere in this Report.
     
Readers are urged to consider these factors carefully in evaluating any forward-looking statements and are cautioned not to place undue reliance on these forward-looking statements. The forward-looking statements included herein are made only as of the date of this Report, and we undertake no obligation to update any information contained in this Report or to publicly release any revisions to any forward-looking statements that may be made to reflect events or circumstances that occur, or that we become aware of, after the date of this Report.
Availability of Information
     
We make available our Annual Reports on Form10-K, Quarterly Reports onForm 10-Q, Current Reports onForm 8-K, and amendments to those reports, filed or furnished pursuant to section 13(a) or 15(d) of the Securities Exchange Act of 1934, free of charge through our Internet website atwww.kaiseraluminum.com under the heading “Investor Relations” as soon as reasonably practicable after we electronically file such material with or furnish it to the Securities and Exchange Commission (“SEC”). The public also may read and copy any of these materials at the SEC’s Public Reference Room, 100 F Street, NE, Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at1-800-732-0330. The SEC also maintains an Internet site that contains the Company’s filings; the address of that site ishttp://www.sec.gov.
Business Overview
     
Founded in 1946, Kaiser Aluminum CorporationCorporation’s primary line of business is the production of semi-fabricated specialty aluminum products. In addition, we own a 49% interest in Anglesey Aluminium Limited (“Kaiser,” “the Company,” “we” or “us”Anglesey”), which operated an aluminum smelter in Holyhead, Wales until September 2009, when the contract for the power supply that enabled smelting operations expired, and thereafter has operated as a secondary aluminum remelt and casting operation. Rio Tinto Plc owns the remaining 51% ownership interest in Anglesey and is an independent fabricated aluminum products manufacturing company with 2007responsible for the day-to-day operations of Anglesey. Our net sales were approximately $1.0 billion in 2009.
     Prior to September 30, 2009, our operations were organized and managed by product type and included two operating segments of approximately $1.5 billion.the aluminum industry. The aluminum industry segments were Fabricated Products and Primary Aluminum. The Fabricated Products segment sells value-added products such as aluminum sheet and plate, extruded and drawn products, and forgings which are used in a wide range of industrial applications, including automotive, aerospace and general engineering end-use applications. The Primary Aluminum segment produced, through its interest in Anglesey, and sold commodity grade products as well as value-added products such as ingot and billet for which we received a premium over fluctuating commodity market prices, and conducted hedging activities in respect of our exposure to primary aluminum price 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, our operations consist of one operating segment in the aluminum industry, Fabricated Products. In addition to the Fabricated Products segment, we also have three other business units which consist of Secondary Aluminum, Hedging, and Corporate and Other. The Secondary Aluminum business unit sells value added products such as ingot and billet, produced from Anglesey, for which we receive a

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portion of a premium over normal commodity market prices. Our Hedging business unit conducts hedging activities in respect of our exposure to primary aluminum price and 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. For purposes of segment reporting under United States Generally Accepted Accounting Principles (“GAAP”), we treat the Fabricated Products segment as its own reportable segment. We were foundedcombine the 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 “Business Operations” below).
     Our Fabricated Products segment is comprised of 10 north American production facilities that we operated in 1946 and operate 10 production2009, with nine such facilities in the United States and one in Canada. WeThrough these facilities we manufacture rolled, extruded, drawn and forged aluminum products within three end use categories consisting of aerospace and high strength products (which we refer to as Aero/HS products), general engineering products (which we refer to as GE products) and custom automotive and industrial products (which we refer to as Custom products). See “Business Operations — Fabricated Products Segment” below for additional information.
     
WeThrough our North American production facilities, we produced and shipped approximately 548429 million pounds of fabricatedsemi-fabricated aluminum products in 20072009, which comprised 86%91% of our total net sales. We have long-standing relationships with our customers, which include leading aerospace companies, automotive suppliers and metal distributors. We strive to tightly integrate the management of the operations within our Fabricated Products segment across multiple production facilities, product lines and target markets in order to maximize the efficiency of product flow to our customers. In our served markets, we seek to be the supplier of choice by pursuing “Best in Class” customer satisfaction and offering a broad product portfolio.


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In order to capitalize on the significant growth in demand for high quality heat treat aluminum plate products in the market for Aero/HS products, commencing in the third quarter oflate 2005, we beganundertook a major expansion at our Trentwood facility in Spokane, Washington.Washington, amounting to a total capital investment of approximately $139 million, the final phase of which was completed in the fourth quarter of 2008. The Trentwood expansion significantly increased our aluminum plate production capacity and enablesenabled us to produce thicker gauge aluminum plate. The three phase expansion is expected to amount to $139 million in capital investment. The first phase became fully operational in the fourth quarter of 2006. The second phase was fully operational at December 31, 2007 and the third phase is expected to be fully operational by the end of 2008.
     
In 2007, we announced a $91 millionan investment program in our rod, bar and tube value stream including a facility expected to be in Kalamazoo, Michigan, as well as improvements at three existing extrusion and drawing facilities. This investment program is expected to significantly improve the capabilities and efficiencies of our rod and bar and seamless extruded and drawn tube operations and enhance the market position of such products. TheWe expect the facility in Kalamazoo, facility willMichigan to be equipped with two extrusion presses and a remelt operation. Completion of these investments is expected to occur by late 2009.2010.
     
In February 2008,Due to the economic conditions, we announced $14 million of additional programs that will enhance our Kaiser Select® capabilitiesplans in December 2008 to close operations at our Tulsa, Oklahoma and Sherman, Texas extrusion plantsfacility and significantly reduce energy consumptionoperations at oneour Bellwood, Virginia facility. The Tulsa, Oklahoma facility and the Bellwood, Virginia facility primarily produced, extruded rod and bar products sold principally to service centers for general engineering applications. The operations and workforce reductions were a result of deteriorating economic and market conditions. Approximately 45 employees at the Tulsa, Oklahoma facility and 125 employees at the Bellwood, Virginia facility were affected. The Tulsa, Oklahoma plant was closed in late December 2008. In May 2009, we announced plans to further curtail operations at our casting unitsBellwood, Virginia facility to focus solely on drive shaft and seamless tube products and shut down the Bellwood, Virginia facility temporarily during July 2009, in our Trentwood facility. We expectresponse to planned shutdowns in the majority of these additional programs to be completed during 2008.
automotive industry and continued weak economic and market conditions. In addition, we reduced our personnel in certain other locations during the second quarter of 2009, in an effort to our core streamline costs. Approximately 85 employees were affected by this reduction in force, principally at the Bellwood, Virginia facility.
Business Operations
•Fabricated Products operations, we have a 49% ownership interest in Anglesey Aluminium Limited (which we refer to as “Anglesey”), a company that owns an aluminum smelter based in Holyhead, Wales. Anglesey has produced in excess of 300 million pounds of primary aluminum for each of the last three fiscal years, of which 49% is available to us. During 2007, sales of our portion of Anglesey’s output represented 14% of our total net sales. Because we also purchase primary aluminum for our fabricated products at market prices, Anglesey’s production acts as a natural hedge for our Fabricated Products operations. Anglesey operates under a power agreement that provides sufficient power to sustain its aluminum reduction operations at full capacity through September 2009. The nuclear facility which supplies power to Anglesey is scheduled to close operations in 2010. Anglesey’s ability to operate its aluminum reduction operations past September 2009 is dependent upon procuring adequate power on acceptable terms. We can give no assurance that Anglesey will be able to do so. If Anglesey cannot obtain adequate power on acceptable terms, Anglesey’s aluminum reduction operations will likely be shut down. Given the potential for future shutdown and related costs, dividends from Anglesey were temporarily suspended while Anglesey studied future cash requirements. A shutdown process may involve significant costs to Anglesey which could decrease or eliminate its ability to pay future dividends. Based on a review of cash anticipated to be available for future cash requirements, Anglesey removed the temporary suspension of dividends and distributed $4.4 million and $9.9 million in dividends in August and December of 2007, respectively. No assurance can be given that Anglesey will not suspend dividends again in the future. The process of shutting down aluminum reduction operations may involve transition complications which may prevent Anglesey from operating at full capacity until the expiration of the power agreement.
Between the first quarter of 2002 and the first quarter of 2003, Kaiser and 25 of our then-existing subsidiaries filed voluntary petitions for relief in the United States Bankruptcy Court for the District of Delaware (which we refer to as the “Bankruptcy Court”) under chapter 11 of the United States Bankruptcy Code (which we refer to as the “Bankruptcy Code”). Pursuant to our Second Amended Plan of Reorganization (which we refer to as our “Plan”), we emerged from chapter 11 bankruptcy on July 6, 2006 (which we refer to as the “Effective Date”). Our Plan allowed us to eliminate significant legacy liabilities, including long-term indebtedness, pension obligations, retiree medical obligations and liabilities relating to asbestos and other personal injury claims. In addition, prior to our emergence from chapter 11 bankruptcy, we sold all of our interests in bauxite mining operations, alumina refineries and aluminum smelters, other than our interest in Anglesey, in order to focus on our fabricated aluminum products business, which we believe has a stronger competitive position and presents greater opportunities for growth.


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Business Operations
• Fabricated Products Business UnitSegment
Overview.Overview
     Our Fabricated Products business unitsegment produces rolled, extruded, drawn, and forged aluminum products used principally for aerospace and defense, automotive, consumer durables, electronics, electrical, and machinery and equipment end-use applications. In general, the Fabricated Products business unitsegment manufactures products in one of three broad categories: Aero/HS products; GE products; and Custom products. During 2009, 2008 and 2007, 2006 and 2005, our eleven North American fabricated products manufacturing facilities produced and shipped approximately 548, 523429, 559 and 482548 million pounds of fabricated aluminum products, respectively, which accounted for approximately 86%91%, 85%89%, and 86% of our total net sales for 2009, 2008 and 2007, 2006 and 2005, respectively.

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Types of Products Produced
     
The aluminum fabricated mill products market is broadly defined to include the markets for flat-rolled, extruded, drawn, forged and cast aluminum products, used in a variety of end-use applications. We participate in certain portions of the markets for flat-rolled, extruded/drawn and forged products focusing on highly engineered products for Aero/HS products;products, GE products;products, and Custom products. The portions of the markets in which we participate accounted for approximately 20% of total North American shipments of aluminum fabricated mill products in 2007.2009.
     
Aerospace and High Strength Products.Our Aero/HS products include high quality heat treat plate and sheet, as well as cold finish bar, seamless drawn tube and billet that are manufactured to demanding specifications for the global aerospace and defense industries. These industries use our products in applications that demand high tensile strength, superior fatigue resistance properties and exceptional durability even in harsh environments. For instance, aerospace manufacturers use high-strength alloys for a variety of structures that must perform consistently under extreme variations in temperature and altitude. Our Aero/HS products are used for a wide variety of end uses. We make aluminum plate and tube for aerospace applications, and we manufacture a variety of specialized rod and bar products that are incorporated in diverse applications. The aerospace and defense market’s consumption of fabricated aluminum products is driven by overall levels of industrial production, airframe build rates, which are cyclical in nature, and defense spending, as well as the potential availability of competing materials such as composites. Demand growth is expected to increasehas increased for thick plate with growth in “monolithic” construction of commercial and other aircraft. In monolithic construction, aluminum plate is heavily machined to form the desired part from a single piece of metal (as opposed to creating parts using aluminum sheet, extrusions or forgings that are affixed to one another using rivets, bolts or welds). Military applications for heat treat plate and sheet include aircraft frames for military use and skins and armor plating to protect ground vehicles from explosive devices.skins. Products sold for Aero/HS applications represented 32%34% of our 20072009 fabricated products shipments. Aero/HS products net sales in 20072009 were approximately 39%46% of our 20072009 fabricated products net sales. Value added revenues, which represents net sales less hedged cost of alloyed metal, for Aero/HS products was $278.0 million, or 54% of total value added revenue in 2009.
     
General Engineering Products.GE products consist primarily of standard catalog items sold to large metal distributors. These products have a wide range of uses, many of which involve further fabrication of these products for numerous transportation and industrial end-use applications where machining of plate, rod and bar is intensive. Our GE products consist of 6000-series alloy rod, bar, tube, sheet, plate and standard extrusions. The 6000-series alloy is an extrudable medium-strength alloy that is heat treatable and extremely versatile. Our GE products have a wide range of uses and applications, many of which involve further fabrication of these products for numerous transportation and other industrial end uses.end-use applications where machining of plate, rod and bar is intensive. For example, our products are used in the enhancement of military vehicles such as plating to protect ground vehicles from explosive devices, in the specialized manufacturing process for liquid crystal display screens, and in the vacuum chambers in which semiconductors are made. Our rod and bar products are manufactured into rivets, nails, screws, bolts and parts of machinery and equipment. Demand growth and cyclicality for GE products tend to mirror broad economic patterns and industrial activity in North America. Demand is also impacted by the destocking and restocking of inventory in the full supply chain. Products sold for GE applications represented 45%44% of our 20072009 fabricated products shipments. GE products net sales in 20072009 were approximately 40%37% of our 20072009 fabricated products net sales. Value added revenues, which represents net sales less hedged cost of alloyed metal, for GE products were $164.7million, or 32% of total value added revenue in 2009.
     
Custom Automotive and Industrial Products.Our Custom products consist of extruded/drawn and forged aluminum products for many North American automotive and industrial end uses, including consumer durables,


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electrical/electronic, machinery and equipment, automobile, light truck, heavy truck and truck trailer applications. Examples of the wide variety of custom products that we supply to the automotive industry include extruded products for bumpers and anti-lock braking systems, drawn tube for drive shafts and forgings for suspension control arms and drive train yokes. Other Custom product sales include extruded products for water heater anodes, truck trailers and electrical/electronic exchangers.markets. For some Custom products, we perform limited fabrication, including sawing and cutting to length. Demand growth and cyclicality for Custom products tend to mirror broad economic patterns and industrial activity in North America, with specific individual market segments such as automotive, heavy truck and truck trailer applications tracking their respective build rates. Products sold for Custom applications represented 23%22% of our 20072009 fabricated products shipments. Custom products net sales in 20072009 were approximately 21%17% of our 20072009 fabricated products net sales. Value added revenues, which represents net sales less hedged cost of alloyed metal, for Custom products were $70.7 million, or 14% of total value added revenue in 2009.
     
End Markets In Which We Do Not Participate.We have elected not to participate in certain end markets for fabricated aluminum products, including beverage and food cans, building and construction materials, and foil used for packaging. We believe our chosen end markets present better opportunities for sales growth and premium pricing of differentiated products. The markets we have elected to participate in represented approximately 7% of the North American flat rolled products market and 54%55% of the North American extrusion market in 2007.2009.

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Types of Manufacturing Processes Employed
     
We utilize the following manufacturing processes to produce our fabricated products:
     
Flat rolling.The traditional manufacturing process for aluminum flat-rolled products uses ingot, a large rectangular slab of aluminum, as the starter material. The ingot is processed through a series of rolling operations, both hot and cold. Finishing steps may include heat treatment, annealing, coating, stretching, leveling or slitting to achieve the desired metallurgical, dimensional and performance characteristics. Aluminum flat-rolled products are manufactured using a variety of alloy mixtures, a range of tempers (hardness), gauges (thickness) and widths, and various coatings and finishes. Flat-rolled aluminum semi-finished products are generally either sheet (under 0.25 inches in thickness) or plate (up to 15 inches in thickness). The vast majority of the North American market for aluminum flat-rolled products uses “common alloy” material for construction and other applications and beverage/food can sheet. However, these are products and markets in which we have chosen not to participate. Rather, we have focused our efforts on “heat treat” products. Heat treat products are distinguished from common alloy products by higher strength and other desired product attributes. The primary end use of heat treat flat-rolled sheet and plate is for Aero/HS and GE products.
     
Extrusion.The extrusion process typically starts with a cast billet, which is an aluminum cylinder of varying length and diameter. The first step in the process is to heat the billet to an elevated temperature whereby the metal is malleable. The billet is put into an extrusion press and pushed, or extruded, through a die that gives the material the desired two-dimensional cross section. The material is either quenched as it leaves the press, or subjected to a post-extrusion heat treatment cycle, to control the material’s physical properties. The extrusion is then straightened by stretching and cut to length before being hardened in aging ovens. The largest end uses of extruded products are in the construction, general engineering and custom markets. Building and construction products represent the single largest end-use market for extrusions by a significant amount. However, we have chosen to focus our efforts on GE and Custom products because we believe we have strong production capability, well-developed technical expertise and high product quality with respect to these products.
     
Drawing.Drawing is a fabrication operation in which extruded tubes and rods are pulled through a die, or drawn. The purpose of drawing is to reduce the diameter and wall thickness while improving physical properties and dimensions. Material may go through multiple drawing steps to achieve the final dimensional specifications. Aero/HS products is a primary end-use market and is our focus.
     
Forging.Forging is a manufacturing process in which metal is pressed, pounded or squeezed under great pressure into high-strength parts known as forgings. Forged parts are heat treated before final shipment to the customer. The end-use applications are primarily in transportation, where highstrength-to-weight ratios in products are valued. We focus our production on certain types of automotive and sports vehicle applications.


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A description of the manufacturing processes and category of products at each of our 11 production facilities is shown below:
     
  Manufacturing
  
Location
 
Process
 Types of Products
Chandler, Arizona Extrusion/Drawing Aero/HS
Greenwood, South Carolina Forging Custom
Jackson, Tennessee Extrusion/Drawing Aero/HS, GE
Kalamazoo, Michigan (1)ExtrusionGE
London, Ontario Extrusion Custom,GE
Los Angeles, California Extrusion Custom, GE Custom
Newark, Ohio Extrusion/Rod Rolling Aero/HS, GE
Richland, Washington Extrusion Aero/HS, GE
Richmond (Bellwood), Virginia Extrusion/Drawing Custom, GE Custom
Sherman, Texas Extrusion Custom,GE
Spokane, Washington Flat Rolling Aero/HS, GE
Tulsa, Oklahoma
(1) ExtrusionGEThe Kalamazoo, Michigan facility is expected to begin production in mid - 2010.
As can be seen inreflected by the table above, many of our facilities employ the same basic manufacturing process and produce the same type of end use products. Over the past several years, given the similar economic and other characteristics at each location, we have made a significant effort to more tightly integrate the management of our Fabricated Products business unit across multiple manufacturing locations, product lines, and target markets to maximize the efficiency of product flow to customers. Purchasing is centralized for a substantial portion of the Fabricated Products business unit’s primary aluminum requirements in order to maximize price, credit and other benefits. Because many customers purchase a number of different products that are produced at different plants, there has also been substantial integration of theour sales force

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and its management.management are also significantly integrated. We believe that integration of our operations allows us to capture efficiencies while allowing our facilities to remain highly focused.
  
Raw Materials
     
We purchase substantially all of the primary aluminum and recycled and scrap aluminum used to make our fabricated products from third-party suppliers. In a majority of the cases, we purchase primary aluminum ingot and recycled and scrap aluminum in varying percentages depending on various market factors including price and availability. The price for primary aluminum purchased for the Fabricated Products business unit is typically based on the Average Midwest Transaction Price (or “Midwest Price”), which from 20022007 to 2007,2009, has ranged between approximately $.02$.03 to $.08$.05 per pound above the price traded on the London Metal Exchange (or “LME”) depending on primary aluminum supply/demand dynamics in North America. Recycled and scrap aluminum are typically purchased at a modest discount to ingot prices but can require additional processing. In addition to producing fabricated aluminum products for sale to third parties, certain of our production facilities provide one another with billet, log or other intermediate material in lieu of purchasing such items from third party suppliers. For example, a substantial majority of the product from the Richland, Washington facility is used as base input at the Chandler, Arizona facility; the Sherman, Texas facility is currently supplying billet to the Tulsa, Oklahoma facility; the Richmond,Bellwood, Virginia facility typically receives some portion of its metal supply from either (or both of) the London, Ontario or Newark, Ohio facilities; and the Newark, Ohio facility also supplies billet and log to the Jackson, Tennessee facility and extruded forge stock to the Greenwood, South Carolina facility.
  
Pricing
     
The price we pay for primary aluminum, the principal raw material for our fabricated aluminum products business, typically is the Midwest Price, which consists of two components: the price quoted for primary aluminum ingot on the LME and the Midwest Transaction Premium,transaction premium, a premium to LME reflecting domestic market dynamics as well as the cost of shipping and warehousing. Because aluminum prices are volatile, we manage the risk of fluctuations in the price of primary


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aluminum through a combination of pricing policies, internal hedging and financial derivatives. Our three principal pricing mechanisms are as follows:
 • Spot price.Some of our customers pay a product price that incorporates the spot price of primary aluminum in effect at the time of shipment to a customer. This pricing mechanism typically allows us to pass commodity price risk to the customer.
 
 • Index-based price.Some of our customers pay a product price that incorporates an index-based price for primary aluminum such as Platt’s Midwest price for primary aluminum. This pricing mechanism also typically allows us to pass commodity price risk to the customer.
 
 • Firm price.Some of our customers pay a firm price. We bear commodity price risk on firm-price contracts, which we normally hedge though a combination ofwith financial derivatives and production from Anglesey.derivatives. For internal reporting purposes, whenever the Fabricated Products business unitsegment enters into a firm price contract, it also enters into an “internal hedge” with the Primary AluminumHedging business unit within All Other, so that all the metal price risk resides in the Primary AluminumHedging business unit. Results from internal hedging activities between the twoFabricated Products segment and the Hedging business unitsunit are eliminated in consolidation.
  
Sales, Marketing and Distribution
     
Industry sales margins for fabricated products fluctuate in response to competitive and market dynamics. Sales are made directly to customers by our sales personnel located in the United States, Canada and Europe, and by independent sales agents in Asia, Mexico and the Middle East. Our sales and marketing efforts are focused on the markets for Aero/HS, GE, and Custom products.
     
Aerospace and High Strength Products.Approximately 50%60% of our Aero/HS product shipments are sold to distributors with the remainder sold directly to customers. Sales are made eitherprimarily under contracts (with terms spanning from one year to several years) oras well as on anorder-by-order basis. We serve this market with a North American sales force focused on Aero/HS and GE products and direct sales representatives in Western Europe. Key competitive dynamics for Aero/HS products include the level of commercial aircraft construction spending (which in turn is often subject to broader economic cycles) and defense spending.
     
General Engineering Products.A substantial majority of our GE products are sold to large distributors in North America, with orders primarily consisting of standard catalog items shipped with a relatively short lead-time. We service this market with a North American sales force focused on GE and Aero/HS products. Key competitive dynamics for GE products include product price, product-line breadth, product quality, delivery performance and customer service.
     
Custom Automotive and Industrial Products.Our Custom products are sold primarily to first tier automotive suppliers and industrial end users. Sales contracts are typically medium to long term in length. Almost all sales of Custom products occur through direct channels using a North American direct sales force that works closely with our technical sales organization. Key demand drivers for our automotive products include the level of North American light vehicle manufacturing and increased use of aluminum in

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vehicles in response to increasingly strict governmental standards for fuel efficiency. Demand for industrial products is directly linked to the strength of the U.S. industrial economy.
  
Customers
     
In 2007,2009, our Fabricated Products business unit had approximately 600540 customers. The largest, Reliance Steel & Aluminum (“Reliance”), and the five largest customers for fabricated products accounted for approximately 15%20% and 36%48%, respectively, of our net sales in 2007.2009. The loss of Reliance, as a customer, would have a material adverse effect on us. However, we believe that our relationship with Reliance is good and the risk of loss of Reliance as a customer is remote.


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Research and Development
     
We operate three research and development centers. Our Rolling and Heat Treat Center and our Metallurgical Analysis Center are both located at our Trentwood facility in Spokane, Washington. The Rolling and Heat Treat Center has complete hot rolling, cold rolling and heat treat capabilities to simulate, in small lots, processing of flat-rolled products for process and product development on an experimental scale. The Metallurgical Analysis Center consists of a full metallographic laboratory and a scanning electron microscope to support research development programs as well as respond to plant technical service requests. The third center, our Solidification and Casting Center, is located in Newark, Ohio and has a short stroke experimental caster with ingot cast rolling capabilities for the experimental rolling milldevelopmental casting unit capable of casting billets and ingots for extrusion billet usedand rolling experiments. The casting unit is also capable of casting full size billets and ingots for processing on the production extrusion presses and rolling mills.
     The combination of this R&D work and concurrent product and process development with production operations has resulted in plant extrusion trials. Duethe creation and delivery of value added Kaiser Select® products.
•All Other
     All Other contains three primary elements: (i) Anglesey-related activities, including primary aluminum production prior to September 30, 2009 and secondary aluminum production thereafter, (ii) hedging activities in respect of our researchexposure to primary aluminum price and development efforts, we have been ableBritish Pound Sterling exchange rate risk relating to introduceAnglesey’s smelting operations through September 30, 2009 and (iii) corporate and other activities.
Primary/Secondary Aluminum production through Anglesey. Anglesey fully curtailed its smelting operations on September 30, 2009 and in the fourth quarter of 2009, began a remelt and casting operation producing value added products such as our unique T-Form® sheetingot and billet for which provides aerospace customers with high formabilitywe received a portion of a premium over normal commodity market prices. Our secondary aluminum sales from the remelt and casting operation are accounted for net of cost of sales, and we reported zero net sales in 2009. Prior to fourth quarter of 2009, Anglesey operated as wella smelter and produced commodity grade aluminum sow and/or value-added products such as requisite strength characteristics.
• Primary Aluminum Business Unit
Our Primary Aluminum business unit contains two primary elements: (a) activities related to our interests iningot and related to Anglesey and (b)billet for which we received a premium over normal commodity market prices. Our primary aluminum hedging-related activities. Our Primary Aluminum business unitsales from the smelting operations were accounted for on a gross basis and represented approximately 14%, 15% and 14%9% of our total net sales for 2007, 2006 and 2005, respectively.2009.
     
Anglesey.  We own a 49% interest inPrior to the cessation of the smelting operations, Anglesey which owns an aluminum smelter at Holyhead, Wales. Rio Tinto Plc owns the remaining 51% ownership interest in Anglesey and hasday-to-day operating responsibilities for Anglesey. Anglesey has produced in excess of 300 million pounds for each of primary aluminum in 2007, approximately 260 million pounds of primary aluminum in 2008 and approximately 230 million pounds of primary aluminum during the last three fiscal years.first nine months of 2009. We supplysupplied 49% of Anglesey’s alumina requirements and purchasepurchased 49% of Anglesey’s aluminum output, in each case based on a market-related pricing formula. Anglesey producesproduced billet, rolling ingot and sow for the United Kingdom and European marketplace. We sellsold our share of Anglesey’s output to a single third party at market prices. The price received for sales of production from Anglesey typically approximatesapproximated the LME price. We also realizerealized a premium (historically between $.05 and $.12up to $.17 per pound above LME price depending on the product) for sales of value- addedvalue-added products such as billet and rolling ingot.
To meet our obligation to sell alumina to Anglesey in proportion to our ownership percentage, we purchasepurchased alumina under a contract that providesprovided adequate alumina for operations through AugustSeptember 2009 at prices that are based on the market prices for primary aluminum. We will need to secure a new alumina contract for the period after August 2009 in the event additional power is secured. We can give no assurance regarding our ability to secure a source of alumina on comparable terms. If we are unable to do so, the results of our Primary Aluminum operations will be affected.
     
Anglesey operatesoperated under a power agreement that providesprovided sufficient power to sustain its smelting operations at full capacity through September 2009. The nuclear facility which supplies power to Anglesey is scheduled to close operations in 2010. Anglesey’s ability to operate its aluminum reduction operations past September 2009 is dependent upon procuring adequate power on acceptable terms. We can give no assurance that Anglesey will be able to do so. If Anglesey cannot obtain adequate power on acceptable terms, Anglesey’s aluminum reduction operations will likely be shut down. Given the potential for future shutdown and related costs, dividends from Anglesey were temporarily suspended while Anglesey studied future cash requirements. Based on the review of cash anticipated to be available for future cash requirements, Anglesey removed the temporary suspension of dividends and distributed $4.4 million and $9.9 million in dividends to us in August and December of 2007, respectively. No assurance can be given that Anglesey will not suspend dividends again in the future. The shutdown process may involve significant costs to Anglesey which could decrease or eliminate its ability to pay future dividends. The process of shutting down operations may involve transition complications which may prevent Anglesey from operating at fullnear-full capacity until the expiration of such agreement at the end of September 2009. Despite Anglesey’s efforts to find a sustainable alternative to its power supply needs, no sources of affordable power were identified to allow for the uninterrupted continuation of smelting operations beyond the power agreement.contract expiration date. As a result, Anglesey fully curtailed its smelting operations as of September 30, 2009.
     In the fourth quarter of 2009, Anglesey commenced remelt and casting operations to produce secondary aluminum. Anglesey purchases its own material for the remelt and casting operation and sells its output to us and Rio Tinto, in proportion to our respective ownership interests. We expect Anglesey’s maximum production of secondary aluminum to ultimately reach approximately 140 million pounds per year, 49% of which will be sold to us in transactions structured to largely eliminate risks of inventory loss and metal price and currency exchange rate fluctuation with respect to our income and cash flow related to Anglesey.

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     We fully impaired our investment in Anglesey during the fourth quarter of 2008, taking into account the full curtailment of Anglesey’s smelting operations due to its inability to obtain affordable power (which we had anticipated as a likely possibility), Anglesey’s cash requirements for redundancy and pension payments, uncertainty with respect to the future of its operations, and our conclusion at that time that we should not expect to receive any dividends from Anglesey in the foreseeable future. For the first half of 2009, based upon our continued assessment of the facts and circumstances, we recorded additional impairment charges of $1.8 million relating to our investment in Anglesey, such that our investment balance remained at zero.
     During the third quarter of 2009, Anglesey incurred a significant net loss, primarily as the result of recording charges for employee termination costs in connection with the cessation of its smelting operations. As a result of such loss and as we did 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 equity method of accounting with respect to our ownership in Anglesey during the quarter ended September 30, 2009. Accordingly, we did not recognize our share of Anglesey’s net loss for such period. We do not 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 expect the occurrence of such event during the next 12 months.
     In June 2008, Anglesey suffered a significant failure in the rectifier yard that resulted in a localized fire in one of the power transformers. As a result of the fire, Anglesey operated below its production capacity during the latter half of 2008 and incurred incremental costs, primarily associated with repair and maintenance costs, as well as loss of margin due to the outage. Under its property damage and business interruption insurance coverage, Anglesey received insurance settlement payments of approximately 14.0 million Pound Sterling in 2008 and 2009. These payments did not have any impact on our results as we fully impaired the value of our share of the insurance proceeds received by Anglesey in 2008 and we did not record our 49% share of the 2009 settlement due to the suspension of equity method of accounting in the third quarter of 2009. We do not expect to receive any such insurance proceeds paid to Anglesey through the distribution of dividends. However, in December 2009, we received a $.6 million insurance settlement payment for the loss of premium on the sale of our share of value added aluminum products resulting from the interruption of production caused by the fire.
Hedging.Our pricing of fabricated aluminum products, as discussed above, 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 our customers. However, in certain instances we do enter into firm price arrangements. In such instances, we have price risk on our anticipated primary aluminum purchases in respect of the customer’s order. Total fabricated products shipments for which we were subject to price risk were 239, 200 and 155 (in millions of pounds) during 2007, 2006 and 2005, respectively.


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WheneverAs such, whenever our Fabricated Products business unitsegment enters into a firm price contract, our Primary AluminumHedging business unit and Fabricated Products business unitsegment enter into an “internal hedge” so that all the metal price risk resides in our Primary Aluminumthe Hedging business unit. Results from internal hedging activities between the two segmentsFabricated Products and Hedging eliminate in consolidation. As more fully discussed in Item 7A. “Quantitative and Qualitative Disclosures About Market Risk,” during 2007, 2008 and the last three years,nine months period ended September 30, 2009, our net exposure to primary aluminum price risk at Anglesey substantially offset a significant amount the volume of fabricated products shipments with underlying primary aluminum price risk. As such, we considerconsidered our access to Anglesey production overall to be a “natural” hedge against any Fabricated Products firm metal-price risk. However, since the volume of fabricated products shipped under firm prices may not matchhave matched up on amonth-to-month basis with expected Anglesey-related primary aluminum shipments and to the extent that firm price contracts from our Fabricated Products business unit exceedsegment exceeded the Anglesey-relatedAnglesey related primary aluminum shipments, we may useused third party hedging instruments to eliminateminimize any net remaining primary aluminum price exposure existing at any time.
     As a result of the cessation of Anglesey’s smelting operations as of September 30, 2009 noted above, the “natural hedge” against primary aluminum price fluctuation created by our participation in the primary aluminum market was effectively eliminated. Accordingly, we deemed it appropriate to increase our hedging activities to limit exposure to such price risks, which may have an adverse effect on our financial position, results of operations and cash flows. Total fabricated product shipments for which we were subject to price risk were 163, 228 and 239 (in millions of pounds) during 2009, 2008 and 2007, respectively.
Primary aluminum-related     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 British Pound Sterling exchange rate relating to Anglesey’s smelting operations through September 30, 2009.

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     All hedging activities are managed centrally on behalf of our business segmentsunits to minimize transaction costs, to monitor consolidated net exposures and to allow for increased responsiveness to changes in market factors. Hedging activities are conducted in compliance with a policy approved by our boardBoard of directors,Directors, and hedging transactions are only entered into after appropriate approvals are obtained from our hedging committee (which includes(members of which include our chief executive officer and key financial officers).
     Corporate and Other.This business unit provides general and administrative support to our operations. The expenses incurred in this business unit are not allocated to our other operations.
• Discontinued Operations
Prior to 2004, we were a more significant producer of primary aluminum and sold significant amounts of our alumina and primary aluminum production in domestic and international markets. Our strategy was to sell all of the alumina and primary aluminum available to us in excess of our internal requirements to third parties. As part of our reorganization, we made a strategic decision to sell all of our commodity-related interests, other than our interests in and related to Anglesey, as summarized below.
Entity/Facility
Location
Product
Period of Disposition
Queensland Alumina LimitedAustraliaAluminaSecond Quarter 2005
Gramercy refineryLouisianaAluminaFourth Quarter 2004
Kaiser Jamaica Bauxite CompanyJamaicaBauxiteFourth Quarter 2004
Volta Aluminium Company LimitedGhanaPrimary AluminumFourth Quarter 2004
Alumina Partners of JamaicaJamaicaAluminaThird Quarter 2004
Mead SmelterWashingtonPrimary AluminumSecond Quarter 2004
We refer to Queensland Alumina Limited and Alumina Partners of Jamaica herein as QAL and Alpart, respectively.
Segment and Geographical Area Financial Information
     
The information set forth in Note 1615 of Notes to Consolidated Financial Statements included in Item 8. “Financial Statements and Supplementary Data” regarding our segmentsGAAP reporting segment and geographical areas in which we operate is incorporated herein by reference.
Competition
     
The fabricated aluminum industry is highly competitive. We concentrate our fabricating operations on highly engineered products for which we believe we have production capability, technical expertise, high product quality, and geographic and other competitive advantages. We differentiate ourselves from our competition by Bestpursuing “Best in ClassClass” customer satisfaction which is driven by quality, availability, price and service, including delivery performance. Our primary competition in the global heat treated flat-rolled products is Alcoa, Inc. and Rio Tinto Plc (through it’sits ownership of Alcan’s fabricated aluminum products business). In the extrusion market, we compete with many regional participants as well as larger companies with national reach such as Sapa AG (the joint venture formed by Orkla and Alcoa),SAPA, Norsk Hydro ASA and Indalex.Alcoa. Some of our competitors are substantially larger, have greater financial


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resources, and may have other strategic advantages, including more efficient technologies or lower raw material costs.
     
Our fabricated aluminum products facilities are located in North America. To the extent our competitors have production facilities located outside North America, they may be able to produce similar products at a lower cost. We may not be able to adequately reduce costs to compete with these products. Increased competition could cause a reduction in our shipment volume and profitability or increase our expenditures, any one of which could have a material adverse effect on our results of operations.
     
In addition, our fabricated aluminum products compete with products made from other materials, such as steel and composites, for various applications, including aircraft manufacturing. The willingness of customers to accept substitutions for aluminum and the ability of large customers to exert leverage in the marketplace to reduce the pricing for fabricated aluminum products could adversely affect our results of operations.
     
For the heat treat plate and sheet products, new competition is limited by technological expertise that only a few companies have developed through significant investment in research and development. Further, use of plate and sheet in safety critical applications make quality and product consistency critical factors. Suppliers must pass a rigorous qualification process to sell to airframe manufacturers. Additionally, significant investment in infrastructure and specialized equipment is required to supply heat treat plate and sheet.
     
Barriers to entry are lower for extruded and forged products, mostly due to the lower required investment in equipment. However, the products that we produce are somewhat differentiated from the majority of products sold by competitors. We maintain a competitive advantage by using application engineering and advanced process engineering to distinguish our company and our products. We believe our metallurgical expertise and controlled manufacturing processes enable superior product consistency.
Employees
     
At December 31, 2007,2009, we employed approximately 2,6002,100 persons, of which approximately 2,5402,040 were employed in our Fabricated Products business unitsegment and approximately 60 were employed in our corporate group, most of whom are located in our offices in Foothill Ranch, California.

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The table below shows each manufacturing and warehouse location, the primary union affiliation, if any, and the expiration date for the current union contract. As discussed below, union affiliations are with the United Steel, Paper and Foresting, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union, AFL — CIO, CLC (“USW”) and International Association of Machinists (“IAM”).
     
    Contract
Location
 
Union
 Expiration Date
Chandler, AZ Non-unionUSW (1) —April 2012
Greenwood, SC Non-union —
Jackson, TN Non-union —
London, Ontario USW Canada Feb 20092012
Los Angeles, CA Teamsters May 2009April 2012
Newark, OH USW (2) Sept 2010
Richland, WA Non-union —
Richmond (Bellwood), VA USW/IAM Nov 2010
Sherman, TX IAM Dec 2010
Spokane, WA USW (2) Sept 2010
Tulsa, OKPlainfield, IL USWTeamsters NovApril 2010
 
(1)In November 2008, certain employees at our Chandler, Arizona plant voted for affiliation with the USW. In April 2009, the Company entered into a labor agreement with the USW in connection with this affiliation.
(2)In January 2010, the Company and the USW entered into a new five-year labor agreement relating to employees at the Company’s Newark, Ohio and Spokane, Washington facilities, effective October 1, 2010 through September 30, 2015.
As part of our chapter 11 reorganization,     In 2006 we entered into a settlement with the United Steelworkers, or USW regarding, among other things, pension and retiree medical obligations. Under the terms of the settlement, we agreed to adopt a position of neutrality regarding the unionization of any of our employees.


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Environmental Matters
     
We are subject to numerous environmental laws and regulations with respect to, among other things: air and water emissions and discharges; the generation, storage, treatment, transportation and disposal of solid and hazardous waste; and the release of hazardous or toxic substances, pollutants and contaminants into the environment. Compliance with these environmental laws is and will continue to be costly.
     
Our continuing operations includingand certain of our former operations conducted prior to our emergence from chapter 11 bankruptcy in July 2006, have subjected, and may in the future subject, us to fines or penalties for alleged breaches of environmental laws and to obligations to perform investigations or clean up of the environment. We may also be subject to claims from governmental authorities or third parties related to alleged injuries to the environment, human health or natural resources, including claims with respect to waste disposal sites, the clean up of sites currently or formerly used by us or exposure of individuals to hazardous materials. Any investigation,clean-up or other remediation costs, fines or penalties, or costs to resolve third-party claims, may be significant and could have a material adverse effect on our financial position, results of operations and cash flows.
     
We have accrued, and will accrue as necessary, for costs relating to the above matters that are reasonably expected to be incurred based on available information. However, it is possible that actual costs may differ, perhaps significantly, from the amounts expected or accrued, and such differences could have a material adverse effect on our financial position, results of operations and cash flows. In addition, new laws or regulations, or changes to existing laws and regulations may occur, and we cannot assure you as to the amount that we would have to spend to comply with such new or amended laws and regulations or the effects that they would have on our financial position, results of operations and cash flows.
Emergence From Reorganization ProceedingsLegal Structure
     
From the first quarter of 2002 to June 30, 2006, Kaiser and 25 of its subsidiaries operated under chapter 11 of the United States Bankruptcy Code under the supervision of the Bankruptcy Court. Pursuant to our Plan, Kaiser and its subsidiaries, which included all of our core fabricated products facilities and operations and a 49% interest in Anglesey, emerged from chapter 11 on July 6, 2006. Pursuant to the Plan, all material pre-petition debt, pension and post-retirement medical obligations and asbestos and other tort liabilities, along with other pre-petition claims (which in total aggregated at June 30, 2006 approximately $4.4 billion) were addressed and resolved. Pursuant to the Plan, all of the equity interests of Kaiser’s pre-emergence stockholders were cancelled without consideration. Equity of the newly emerged Kaiser was issued and delivered to a third-party disbursing agent for distribution to claimholders pursuant to the Plan.
All financial statement information before July 1, 2006 relates to Kaiser before emergence from chapter 11 (sometimes referred to herein as the “Predecessor”). Kaiser after emergence is sometimes referred to herein as the “Successor.” As more fully discussed below, there will be a number of differences between the financial statements before and after emergence that will make comparisons of future and past financial information difficult and may make it more difficult to assess our future prospects based on historical performance.
We also made some changes to our accounting policies and procedures as part of the application of “fresh start” accounting as required by the American Institute of Certified Professional Accountants Statement of Position90-7(“SOP 90-7”),Financial Reporting by Entities in Reorganization Under the Bankruptcy Codeand the emergence process. In general, our accounting policies are the same as or similar to those historically used to prepare our financial statements. In certain cases, however, we adopted different accounting principles for, or applied methodologies differently to, our post emergence financial statement information. For instance, we changed our accounting methodologies with respect to inventory accounting. While we still account for inventories on alast-in, first-out (“LIFO”) basis after emergence, we are applying LIFO differently than we did in the past. Specifically, we now view each quarter on a standalone basis for computing LIFO; in the past, we recorded LIFO amounts with a view to the entire fiscal year, which, with certain exceptions, tended to result in LIFO charges being recorded in the fourth quarter or second half of the year.


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Legal Structure
In connection with our Plan, we restructured and simplified our corporate structure. The result of the simplifiedOur current corporate structure is summarized as follows:
 • We directly own 100% of the issued and outstanding shares of capital stock of Kaiser Aluminum Investments Company, a Delaware corporation (“KAIC”), which functions as an intermediate holding company.
 
 • KAIC owns 49% of the ownership interests of Anglesey and 100% of the ownership interests of each of:
 • •Kaiser Aluminum Fabricated Products, LLC, a Delaware limited liability company (“KAFP”), which holds the assets and liabilities associated with our Fabricated Products business unit (excluding those assets and liabilities associated with our London, Ontario facility);

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 • •Kaiser Aluminum Canada Limited, an Ontario corporation, (“KACL”), which holds the assets and liabilities associated with our London, Ontario facility and certain former Canadian subsidiaries that were largely inactive;facility;
 
 • • DCO Management, LLC (formerly known as Kaiser Aluminum & Chemical Corporation, LLC,LLC), a Delaware limited liability company, (“KACC, LLC”), which, as a successor by merger to Kaiser Aluminum & Chemical Corporation, holds our remaining non-operating assets and liabilities not assumed by KAFP;liabilities;
 
 • •Kaiser Aluminium International, Inc., a Delaware corporation, which functions primarily as the seller of our products delivered outside the United States; and
 
 • •Trochus Insurance Co., Ltd., a corporation formed in Bermuda, which has historically functioned as a captive insurance company.
company; and
Item 1A.
Risk Factors• Kaiser Aluminum France, SAS, a corporation formed in France for the primary purpose of engaging in market development and commercialization and distribution of our products in Western Europe.
Item 1A.Risk Factors
     
This Item may contain statements which constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. See Item 1. “Business — Forward LookingForward-Looking Statements” for cautionary information with respect to such forward-looking statements. Such cautionary information should be read as applying to all forward-looking statements wherever they appear in this Report. Forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties. Actual results may vary from those in forward-looking statements as a result of a number of factors including those we discuss in this Item and elsewhere in this Report.
     
In addition to the factors discussed elsewhere in this Report, the risks described below are those which we believe are the material risks we face. The occurrence of any of the events discussed below could significantly and adversely affect our business, prospects, financial condition, results of operations and cash flows as well as the trading price of our common stock.
  We have experienced and continue to experience the effects of unprecedented economic uncertainty.
A reader may not be able     The U.S. and global economies have recently experienced and continue to compare our historical financial informationexperience a period of substantial uncertainty with wide-ranging effects, including:
•disruption in global financial markets that has reduced the liquidity available to us, our customers, our suppliers and the purchasers of products that materially affect demand for our products, including commercial airlines;
•a substantially weakened banking and financial system that creates ongoing risk and exposure to the impact of non-performance by banks committed to provide financing, hedging counterparties, insurers, customers and suppliers;
•extreme volatility in commodity prices that can materially impact the results of our hedging strategies, increase near term cash margin requirements, reduce the value of our inventories and borrowing base under our revolving credit facility and result in substantial non-cash charges as we adjust inventory values and mark-to-market our hedge positions;
•substantial reductions in consumer spending that reduce the demand for applications that use our products, including commercial aircraft, automobiles, trucks and trailers;
•the rapid destocking of inventory levels throughout the supply chain in response to reduced demand and increasing uncertainty, which destocking has only recently started to show some moderation;
•reduced customer demand under existing contracts resulting in customers limiting purchases to contractual minimum volumes, seeking relief from contractual obligations or breaching those obligations;
•ongoing risk that customers and suppliers may liquidate or seek protection under federal bankruptcy laws and reject existing contractual commitments;
•difficulty successfully executing our strategy of growth through acquisitions;

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•the possibility of additional plant closures or workforce reductions in response to prolonged or increased reduction in demand for our products;
•pressure to reduce defense spending, which reductions could affect demand for our products used in defense applications, as the U.S. and foreign governments are faced with competing national priorities; and
•the inability to predict with any certainty the effectiveness and long term impact of economic stimulus plans.
     We are unable to predict the impact, severity and duration of these effects, any of which could have a material adverse impact on our financial information relating to periods after our emergence from chapter 11 bankruptcy.
As a result of the effectiveness of our chapter 11 plan of reorganization, our Plan, on July 6, 2006, we are operating our business under a new capital structure. In addition, we adopted fresh start reporting in accordance with American Institute of Certified Public Accountants Statement of Position90-7, orSOP 90-7,Financial Reporting by Entities in Reorganization Under the Bankruptcy Codeas of July 1, 2006. BecauseSOP 90-7 requires us to account for our assets and liabilities at their fair values as of the effectiveness of our Plan, our financial condition andposition, results of operations from and after July 1, 2006 are not comparable in some material respects to the financial condition or results of operations reflected in our historical financial statements at dates or for periods prior to July 1, 2006.cash flows.
  
We operate in a highly competitive industry which could adversely affect our profitability.industry.
     
The fabricated products segment of the aluminum industry is highly competitive. Competition in the sale of fabricated aluminum products is based upon quality, availability, price and service, including delivery performance. Many of our competitors are substantially larger than we are and have greater financial resources than we do, and


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may have other strategic advantages, including aluminum smelting capacity providing a long term natural hedge that facilitates the offering of fixed price contracts without margin exposure, more efficient technologies or lower raw material costs. Our facilities are primarily located in North America. To the extent that our competitors have or develop production facilities located outside North America, they may be able to produce similar products at a lower cost.cost or sell those products at a lower price during periods when the currency exchange rates favor foreign competition or “dump” those products in violation of existing trade laws. We may not be able to adequately reduce our costs or prices to compete with these products. Increased competition could cause a reduction in our shipment volumes and profitability or increase our expenditures, any one of which could have a material adverse effect on our financial position, results of operations and cash flows.
  
Recent economic factors.
Over recent months, several banks and other financial institutions have announced multi-billion dollar write-downs related to their exposure to mortgage-backed securities and other financial instruments. This, along with other factors, has led to a tightening in the credit markets for certain borrowers. In addition, oil prices have hit unprecedented high levels and are having a negative impact on air carriers around the world. Further, there is uncertainty over the general direction of the U.S. economy. Although certain markets we serve, including aerospace and defense, remain strong, the impact of the high price of oil or a downturn in the U.S. or global economy could result in a decrease in demand for our products, cause our customers to fail to meet contractual commitments and have a material adverse impact on our financial position, results of operations and cash flows.
We depend on a core group of significant customers.
     
In 2007,2009, our largest fabricated products customer, Reliance, accounted for approximately 15%20% of our fabricated products net sales, and our five largest customers accounted for approximately 36%48% of our fabricated products net sales. If our existing relationships with significant customers materially deteriorate or are terminated and we are not successful in replacing lost business, our financial position, results of operations and cash flows could be materially and adversely affected. In addition, a significantprolonged or increasing downturn in the business or financial condition of any of our significant customers could cause any one or more of them to limit purchases to contractual minimum volumes, seek relief from contractual minimums or breach those obligations, all of which could materially and adversely affect our financial position, results of operations and cash flows.
Our industry is very sensitive to foreign economic, regulatory and political factors that may adversely affect our business.
     
We import primary aluminum from, and manufacture fabricated products used in, foreign countries. We also own 49% of Anglesey. We purchase alumina to supply to Anglesey, and wewill purchase aluminum from Anglesey for sale to a third party in the United Kingdom.parties. Factors in the politically and economically diverse countries in which we operate or have customers or suppliers, including inflation, fluctuations in currency and interest rates, competitive factors, civil unrest and labor problems, could affect our financial position, results of operations and cash flows. Our financial position, results of operations and cash flows could also be adversely affected by:
 • acts of war or terrorism or the threat of war or terrorism;
 
 • government regulation in the countries in which we operate, service customers or purchase raw materials;
 
 • the implementation of controls on imports, exports or prices;
 
 • the adoption of new forms of taxation and duties;
 
 •new forms of emission controls and tax, commonly known as “cap and trade”;
• the imposition of currency restrictions;
 
 • the nationalization or appropriation of rights or other assets; and
 
 • trade disputes involving countries in which we operate, service customers or purchase raw materials.

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The aerospace industry is cyclical and downturns in the aerospace industry, including downturns resulting from acts of terrorism, could adversely affect our revenues and profitability.business.
     
We derive a significant portion of our revenue from products sold to the aerospace industry, which is highly cyclical and tends to decline in response to overall declines in industrial production. As a result, our business is affected by overall levels of industrial production and fluctuations in the aerospace industry. The commercial


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aerospace industry is historically driven by the demand from commercial airlines for new aircraft. Demand for commercial aircraft is influenced by airline industry profitability, trends in airline passenger traffic, by the state of the U.S. and worldglobal economies and numerous other factors, including the effects of terrorism. In recent years, a number of major airlines have undergone chapter 11 bankruptcy and experienced financial strain from volatile fuel prices. The aerospace industry also suffered significantly in the wake of the events of September 11, 2001, resulting in a sharp decrease globally in new commercial aircraft deliveries and order cancellations or deferrals by the major airlines. Despite existing backlogs, continued financial instability in the industry, reduced liquidity, terrorist acts or the increased threat of terrorism may lead to reduced demand for new aircraft that utilize our products, which could adversely affect our financial position, results of operations and cash flows. The military aerospace cycleindustry is highly dependent on U.S. and foreign government funding; however, it is also driven by the effects of terrorism, a changing global political environment, U.S. foreign policy, regulatory changes, the retirement of older aircraft, and technological improvements to new aircraft engines that increase reliability.reliability, and delays in the development or launch of new programs. The timing, duration and severityextent of cyclical upturns and downturns cannot be predicted with certainty. A future downturn or reduction in demanddefense spending could have a material adverse effect on our financial position, results of operations and cash flows.
In addition, because weReductions in defense spending for aerospace and other suppliers are expanding production capacity, heat treat plate prices may eventually begin to decrease as production capacity increases or demand decreases. Although we have implemented cost reduction and sales growth initiatives to minimize the impact on our results of operations, as heat treat plate prices return to more typical historical levels, these initiatives may not be adequate and our financial position, results of operations and cash flows may be adversely affected. Similarly, additional delays in the ramp up of production of new commercial aircraft programsnon-aerospace military applications could substantially reduce near-term demand for certainour products.
     Our products are used in a wide variety of our products. A reductionmilitary applications, including military jets, armored vehicles and ordinance. The funding of U.S. government programs is subject to congressional appropriations. Many of the programs in anticipated demand could have a material adverse effect on our financial position, results of operationswhich we participate may extend several years; however these programs are normally funded annually. Changes in military strategy and cash flows.
A number of major airlines have also recently undergone chapter 11 bankruptcypriorities may affect current and continuefuture programs. Similarly, there is significant pressure to experience financial strain from high fuel prices. Continued financial instabilityreduce defense spending as the U.S. and foreign governments are faced with competing national priorities. Reductions in defense spending would reduce the industry may lead to reduced demand for new aircraft that utilize our products whichand could adversely affect our financial position, results of operations and cash flows.
  
The aerospace industry suffered significantly in the wake of the events of September 11, 2001, resulting in a sharp decrease globally in new commercial aircraft deliveries and order cancellations or deferrals by the major airlines. This decrease reduced the demand for our Aero/HS products. While there has been a recovery since 2001, the threat of terrorism and fears of future terrorist acts could negatively affect the aerospace industry and our financial position, results of operations and cash flows.
Our customers may reduce their demand for aluminum products in favor of alternative materials.
     
Our fabricated aluminum products compete with products made from other materials, such as steel and composites, for various applications. For instance, the commercial aerospace industry has used and continues to evaluate the further use of alternative materials to aluminum, such as composites, in order to reduce the weight and increase the fuel efficiency of aircraft. The willingness of customers to accept substitutions for aluminum or the ability of large customers to exert leverage in the marketplace to reduce the pricing for fabricated aluminum products could adversely affect the demand for our products, particularly our aerospace and high strength products, and thus adversely affect our financial position, results of operations and cash flows.
FurtherExtended or further downturns in the automotive industryand heavy duty truck and trailer industries could adversely affect our net sales and profitability.business.
     
The demand for many of our general engineering and custom products is dependent on the production of automobiles,cars, light trucks, SUVs, and heavy duty vehicles and trailers in North America. The automotive industry is highly cyclical, as new vehicle demand is dependent on consumer spending and is tied closely to the overall strength of the North American economy. The North American automotive industry is facing costly inventory corrections which could adversely affect our net sales and profitability.heavy truck and trailer industries have experienced severe downturns in sales. Multiple production cuts by heavy duty truck and major United States automobileU.S. manufacturers in recent years may continue to adversely affect the demand for our products. TheMany North American automotive manufacturers and some of their first tier suppliers are also burdened with substantial structural costs, including pension and healthcare costs that impact their profitability and labor relations. If therelations, that have resulted in severe financial difficulty, including bankruptcy, for several of them. A worsening of these companies’ financial condition or their bankruptcy could have further serious effects on the U.S. and global economies which, in turn, could worsen the conditions of these auto manufacturers continues to be unsteady or if any of these automobile manufacturers seek restructuring or relief through bankruptcy proceedings,the markets which directly affect the demand forof our products may decline, adversely affecting our net sales and profitability.products. Similarly, anya prolonged decline in the demand for new automobiles,cars, light trucks, SUVs, and heavy duty vehicles and trailers, particularly in the United States,U.S., could have a material adverse effect on our financial position, results of operations and cash flows. Seasonality experienced by the automotive industry in the third and fourth quarters of the calendar year also affects our financial position, results of operations and cash flows.


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Changes in consumer demand may adversely affect our operations which supply automotive end users.
     
Recent and any future increasesIncreases in energy costs that consumers incur is resultinghave resulted in shifts in consumer demand away from motor vehicles that typically have a higher content of the products we currently supply, such as light trucks and SUVs. The loss of business with respect to, or a lack of commercial success of, one or more particular vehicle models for which we are a significant supplier could have an adverse impact on our financial position, results of operations and cash flows.

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We may not be able to successfully negotiate pricing terms withface tremendous pressure from our automotive customers.customers on pricing.
     
Cost cutting initiatives that our automotive customers have adopted generally result in increased downward pressure on pricing and our automotive customers typically seek agreements requiring reductions in pricing over the period of production. Pricing pressure may increase further intensify, particularly in North America, as North American automobile manufacturers continue to aggressively pursue cost cutting initiatives. If we are unable to generate sufficient production cost savings in the future to offset any required price reductions, our financial position, results of operations and cash flows could be adversely impacted.
Because our products are often components of our customers’ products, reductionsReductions in demand for our products may be more severe than, and may occur prior to reductions in demand for, our customers’ products.
Our products are often components of the end-products of our customers.     Customers purchasing our fabricated aluminum products, such as those in the cyclical automotive and aerospace industries, generally require significant lead time in the production of their own products. Therefore, demand for our products may increase prior to demand for our customers’ products. Conversely, demand for our products may decrease as our customers anticipate a downturn in their respective businesses. As demand for our customers’ products begins to soften, our customers typically reduce or eliminate their demand for our products and meet the reduced demand for their products using their own inventory without replenishing that inventory, which results in a reduction in demand for our products that is greater than the reduction in demand for their products. This amplified reduction in demand for our products in the event of a downswingdownturn in our customers’ respective businesses (de-stocking) may adversely affect our financial position, results of operations and cash flows.
Our business is subject to unplanned business interruptions which may adversely affect our performance.business.
     
The production of aluminum and fabricated aluminum products and aluminum is subject to unplanned events such as explosions, fires, inclement weather, natural disasters, accidents, transportation interruptions and supply interruptions. Operational interruptions at one or more of our production facilities, particularly interruptions at our Trentwood facility in Spokane, Washington where our production of plate and sheet is concentrated, could cause substantial losses in our production capacity. Furthermore, because customers may be dependent on planned deliveries from us, customers that have to reschedule their own production due to our delivery delays may be able to pursue financial claims against us, and we may incur costs to correct such problems in addition to any liability resulting from such claims. Such interruptionsInterruptions may also harm our reputation among actual and potential customers, potentially resulting in a loss of business. To the extent these losses are not covered by insurance, our financial position, results of operations and cash flows may be adversely affected by such events.
Covenants and events of default in our debt instruments could limit our ability to undertake certain types of transactions and adversely affect our liquidity.
     
Our revolving credit facility contains negative and financial covenants and events of default that may limit our financial flexibility and ability to undertake certain types of transactions. For instance, we are subject to negative covenants that restrict our activities, including restrictions on creatingour ability to grant liens, engagingengage in mergers, consolidations and sales ofsell assets, incurring indebtedness, providing guaranties, engagingincur debt, engage in different businesses, making loansmake investments, pay dividends, and investments, making certain dividends, debt and other restricted payments, making certain prepayments of indebtedness, engaging in certain transactions with affiliates and entering into certain restrictive agreements.repurchase shares. If we fail to satisfy the covenants set forth in our revolving credit facility or anotheran event of default occurs under the


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revolving credit facility, we could be prohibited from borrowing for our working capital needs.borrowing. If we cannot borrow under the revolving credit facility, to meet our working capital needs, we could be required to seek additional financing, if available, or curtail our operations. Additional financing may not be available on commercially acceptable terms, or at all. If the revolving credit facility is terminated and we do not have sufficient cash on hand to pay any amounts due,outstanding under the facility, we could be required to sell assets or to obtain additional financing.
  
We depend on our subsidiaries for cash to meet our obligations and pay any dividends.
     
We are a holding company. Our subsidiaries conduct all of our operations and own substantially all of our assets. Consequently, our cash flow and our ability to meet our obligations or pay dividends to our stockholders depend upon the cash flow of our subsidiaries and the payment of funds by our subsidiaries to us in the form of dividends, tax sharing payments or otherwise. Our subsidiaries’ ability to provide funding will depend on their earnings, the terms of their indebtedness (including the revolving credit facility), tax considerations and legal restrictions.
  
We may not be able to successfully implement our productivity and cost reduction initiatives.
     As the economy and markets for our products move through economic downturns or supply otherwise begins to exceed demand through increases in capacity or reduced demand, it is increasingly important for us to be a low cost producer. Although we have

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We have
undertaken and expect to continue to undertake productivity and cost reduction initiatives to improve performance, including deployment of company-wide business improvement methodologies, such as our production system, the Kaiser Production System, which involves the integrated utilization of application and advanced process engineering and business improvement methodologies such as Lean Enterprise, Total Productive MaintenanceManufacturing and Six Sigma. WeSigma, we cannot assure you that all of these initiatives will be completed or beneficial to us or that any estimated cost saving from such activities will be fully realized. Even when we are able to generate new efficiencies successfully in the short to medium term, we may not be able to continue to reduce cost and increase productivity over the long term.
  
Our profitabilitybusiness could be adversely affected by increases in the cost of raw materials and freight.
     
The price of primary aluminum has historically been subject to significant cyclical price fluctuations, and the timing of changes in the market price of aluminum is largely unpredictable. Although our pricing of fabricated aluminum products is generally intended to pass the risk of price fluctuations on to our customers, we may not be able to pass on the entire cost of such increases to our customers or offset fully the effects of higher costs for other raw materials through the use of surcharges and other measures, which may cause our profitability to decline. There will also be a potential time lag between increases in prices for raw materials under our purchase contracts and the point when we can implement a corresponding increase in price under our sales contracts with our customers. As a result, we may be exposed to fluctuations in raw material prices, including aluminum, since, during the time lag, we may have to bear the additional cost of the price increase under our purchase contracts. If these events were to occur, they could have a material adverse effect on our financial position, results of operations and cash flows. Furthermore, we are party to arrangements based on fixed prices so that we bear the entire risk of rising aluminum prices, which may cause our profitability to decline. In addition, an increaseincreases in raw material prices may cause some of our customers to substitute other materials for our products over time, adversely affecting our financial position, results of operations and cash flows due to both a decrease in the sales of fabricated aluminum products and a decrease in demand for the primary aluminum produced at Anglesey.products.
  
We are responsible for selling and delivering alumina to Anglesey in proportion to our ownership percentage at a predetermined price. Such alumina is purchased under contracts that extends through August 2009 at prices tied to primary aluminum prices. In addition we delivered the alumina to Anglesey under the terms of a freight contract that expired at the end of 2007. Current freight rates are substantially higher than rates under the former contract. We cannot assure you that we will be able to secure a source of alumina at comparable process for the period after August of 2009. If we are unable to do so or freight rates do not improve, our financial position, results of operations and cash flows associated with our Primarily Aluminum business segment may be adversely affected.
The price volatility of energy costs may adversely affect our profitability.business.
     
Our income and cash flows depend on the margin above fixed and variable expenses (including energy costs) at which we are able to sell our fabricated aluminum products. The volatility in costs of fuel, principally natural gas,


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and other utility services, principally electricity, used by our production facilities affect operating costs. Fuel and utility prices have been, and will continue to be, affected by factors outside our control, such as supply and demand for fuel and utility services in both local and regional markets. The daily closing pricemarkets and the potential regulation of the front-month futures contract for natural gas per million British thermal units as reported on NYMEX ranged between $5.38 and $8.64 in 2007, $4.20 and $10.63 in 2006 and $5.79 and $15.38 in 2005. Typically, electricity prices fluctuate with natural gas prices which increases our exposure to energy costs.greenhouse gases. Future increases in fuel and utility prices may have ana material adverse effect on our financial position, results of operations and cash flows.
Our hedging programs may limit the income and cash flows we would otherwise expect to receive if our hedging program were not in place.place and may otherwise affect our business.
     
From time to time in the ordinary course of business, we may enter into hedging transactions to limit our exposure to price risks relating to primary aluminum prices, energy prices and foreign currency. To the extent that these hedging transactions fix prices or exchange rates and the prices for primary aluminum exceed the fixed or ceiling prices, established by these hedging transactions or energy costs or foreign exchange rates are below the fixed prices or rates established by these hedging transactions, our income and cash flows will be lower than they otherwise would have been. Additionally, to the extent that primary aluminum prices, energy prices and/or foreign currency exchange rates deviate materially and adversely from fixed, floor or ceiling prices or rates established by outstanding hedging transactions, we fail to satisfy the covenants, or an event of default occurs under the terms of the underlying documents, we could incur margin calls whichthat could adversely impact our liquidity.
The expirationliquidity and result in a material adverse effect on our financial position, results of operations and cash flows. Conversely, we are exposed to risks associated with the power agreement for Anglesey may adversely affect our cash flows and affectcredit worthiness of our hedging programs.
The agreement under which Anglesey receives power expires in September 2009, and the nuclear facility which supplies such power is scheduled to cease operations in 2010. As of the date of this Report, Anglesey has not identifiedcounterparties. Non-performance by a source from which to obtain sufficient power to sustain its operationscounterparty could have a material adverse effect on reasonably acceptable terms after the expiration of the current agreement in September 2009, and we cannot assure you that Anglesey will be able to do so. If, as a result, Anglesey’s aluminum reduction is curtailed or its costs are increased, our cash flows may be adversely affected. In addition, any decrease in Anglesey’s production would reduce or eliminate the “natural hedge” against rising primary aluminum prices created by our participation in the primary aluminum market and, accordingly, we may deem it appropriate to increase our hedging activity to limit exposure to such price risks, potentially adversely affecting our financial position, results of operations and cash flows.
Uncertainty is expected to preclude recognition of future operating results of Anglesey and the distribution of dividends by Anglesey.
If     Through the quarter ended September 30, 2009, Anglesey cannot obtainoperated under a power agreement that provided sufficient power on acceptable terms, Anglesey’s aluminum reduction operations will likely be shut down. Given the potential for future shut down and related costs, Anglesey temporarily suspended dividends during the last half of 2006 and the first half of 2007 while it studied future cash requirements. Based on a review of cash anticipated to be available for future cash requirements, Anglesey removed the temporary suspension of dividends and declared dividends in August 2007 and November 2007. The shut down may involve significant costs to Anglesey which could decrease or eliminatesustain its ability to pay dividends. The process of shutting down aluminum reduction operations may involve transition complications which may prevent Anglesey from operating its aluminum reductionsmelting operations at full capacity untilnear-full capacity. This power agreement expired at the end of September 2009, and, despite Anglesey’s efforts to find a sustainable alternative to its power supply needs, no sources of power were identified to allow for the uninterrupted continuation of smelting operations beyond the expiration date of the power contract. As a result, Anglesey fully curtailed its smelting operations as of September 30, 2009. Although Anglesey commenced remelt and casting operations during the fourth quarter of 2009, unless we can determine that current or future operating results from Anglesey will be recoverable, we will not recognize future operating results from Anglesey. The expected inability to recognize future operating results of Anglesey and the continued lack of dividend income from Anglesey will adversely affect our financial position, results of operations and cash flows, may be negatively affected even before the September 2009 expiration of the power contract.relative to our past performance.

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We are exposed to fluctuations in foreign currency exchange rates and interest rates, as well as inflation and other economic factors in the countries in which we operate.
     
Economic factors, including inflation and fluctuations in foreign currency exchange rates and interest rates in the countries in which we operate, could affect our revenues, expenses and results of operations. In particular, lower valuation of the U.S. dollar against other currencies, particularly the Canadian dollar, Euro and British Pound Sterling, may affect our profitability as some important raw materials are purchased in other currencies, while products generally are sold in U.S. dollars.


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Our ability to keep key management and other personnel in place and our ability to attract management and other personnel may affect our performance.
     
We depend on our senior executive officers and other key personnel to run our business.business and design our compensation programs to attract and retain key personnel and facilitate our ability to develop effective succession plans. The loss of any of these officers or other key personnel or failure to attract key personnel could materially and adversely affect our succession planning and operations. Competition for qualified employees among companies that rely heavily on engineering and technology is intense, and the loss of qualified employees or an inability to attract, retain and motivate additional highly skilled employees required for the operation and expansion of our business could hinder our ability to improve manufacturing operations, conduct research activities successfully or develop marketable products.
Our production costs may increase and we may not sustain our sales and earnings if we failfailure to maintain satisfactory labor relations.relations could adversely affect our business.
     
A significant number of our employees are represented by labor unions under labor contracts with varying durations and expiration dates. All of these contracts currently expire in 2009 and 2010,dates, including labor contracts with the USW, covering fourfive of our manufacturing locations andlocations. Employees represented by labor unions under labor contracts represented approximately 1,055, or 41%,64% of our employees scheduledat December 31, 2009. In January 2010, we were successful in renegotiating the terms of a labor contract with the USW covering employees at our manufacturing locations in Newark, Ohio and Spokane, Washington and extending the term of such contract to September 2015. Contracts at six other manufacturing locations expire in the Fall of 2010.2010 through 2012. We may not be able to renegotiate or negotiate these or our other labor contracts on satisfactory terms when they expire.terms. As part of any such renegotiation,negotiation, we may reach agreements with respect to future wages and benefits that could materially and adversely affect our future financial position, results of operations and cash flows. In addition, such negotiations could divert management attention or result in union-initiated work actions, including strikes or work stoppages, that could have a material adverse effect on our financial position, results of operations and cash flows. Moreover, the existence of labor agreements may not prevent such union-initiated work actions.
Our business is regulated by a wide variety of health and safety laws and regulations and compliance may be costly and may adversely affect our results of operations.business.
     
Our operations are regulated by a wide variety of health and safety laws and regulations. Compliance with these laws and regulations may be costly and could have a material adverse effect on our results of operations. In addition, these laws and regulations are subject to change at any time, and we can give you no assurance as to the effect that any such changes would have on our operations or the amount that we would have to spend to comply with such laws and regulations as so changed.
  
Environmental compliance, clean up and damage claims may decrease our cash flow and adversely affect our results of operations.business.
     
We are subject to numerous environmental laws and regulations with respect to, among other things: air and water emissions and discharges; the generation, storage, treatment, transportation and disposal of solid and hazardous waste; and the release of hazardous or toxic substances, pollutants and contaminants into the environment. Compliance with these environmental laws is and will continue to be costly.
     
Our continuing operations includingand certain of our former operations conducted prior to our emergence from chapter 11 bankruptcy, have subjected, and may in the future subject, us to fines, or penalties and expenses for alleged breaches of environmental laws and to obligations to perform investigations or clean up of the environment. We may also be subject to claims from governmental authorities or third parties related to alleged injuries to the environment, human health or natural resources, including claims with respect to waste disposal sites, the clean up of sites currently or formerly used by us or exposure of individuals to hazardous materials. Any investigation,clean-up or other remediation costs, fines or penalties, or costs to resolve third-party claims may be significant and could have a material adverse effect on our financial position, results of operations and cash flows.

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We have accrued, and will accrue, for costs relating to the above matters that are reasonably expected to be incurred based on available information. However, it is possible that actual costs may differ, perhaps significantly, from the amounts expected or accrued, and suchaccrued. Similarly, the timing of those expenditures may occur faster than anticipated. These differences could have a material adverse effect on our financial position, results of operations and cash flows. In addition, new laws or regulations or changes to existing laws and regulations may occur, including government mandated green initiatives and we cannot assure you as tolimitations on carbon emissions, that increase the amount that we would have to spend to comply with suchcost or complexity of compliance, including the increased regulation of greenhouse gas emissions. Difference in actual costs, the timing of payments for previously accrued costs and the impact of new or amended laws and regulations or the effects that they wouldmay have a material adverse effect on our financial position, results of operations and cash flows.


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New governmental regulation relating to greenhouse gas emissions may subject us to significant new costs and restrictions on our operations.
     Climate change is receiving increasing attention worldwide. Many scientists, legislators and others attribute climate change to increased levels of greenhouse gases, including carbon dioxide, which has led to significant legislative and regulatory efforts to limit greenhouse gas emissions. There are bills pending in Congress that would regulate greenhouse gas emissions through a cap-and-trade system under which emitters would be required to buy allowances to offset emissions of greenhouse gas. In addition, several states, including states where we have manufacturing plants, are considering various greenhouse gas registration and reduction programs. Certain of our manufacturing plants use significant amounts of energy, including electricity and natural gas, and certain of our plants emit amounts of greenhouse gas above certain minimum thresholds that are likely to be affected by existing proposals. Greenhouse gas regulation could increase the price of the electricity we purchase, increase costs for our use of natural gas, potentially restrict access to or the use of natural gas, require us to purchase allowances to offset our own emissions or result in an overall increase in our costs of raw materials, any one of which could significantly increase our costs, reduce our competitiveness in a global economy or otherwise negatively affect our business, operations or financial results. While future emission regulation appears likely, it is too early to predict how this regulation will affect our business, operations or financial results.
Other legal proceedings or investigations or changes in the laws and regulations to which we are subject may adversely affect our results of operations.business.
     
In addition to the matters described above, we may from time to timetime-to-time be involved in, or be the subject of, disputes, proceedings and investigations with respect to a variety of matters, including matters related to personal injury, employees, taxes and contracts, as well as other disputes and proceedings that arise in the ordinary course of business. It could be costly to defend againstaddress these claims or any investigations involving them, whether meritorious or not, and legal proceedings and investigations could divert management’s attention as well as operational resources, negatively affecting our financial position, results of operations and cash flows. It could also be costly to make payments on account of any such claims.
     
Additionally, as with the environmental laws and regulations, to which we are subject, the other laws and regulations which govern our business are subject to change at any time, and we cannot assure you astime. Compliance with changes to the amount that we would have to spend to comply with suchexisting laws and regulations as so changed or otherwise as to the effect that any such changes would have on our operations.
Product liability claims against us could result in significant costs or negatively affect our reputation and could adversely affect our results of operations.
We are sometimes exposed to warranty and product liability claims. We cannot assure you that we will not experience material product liability losses arising from such claims in the future. We generally maintain insurance against many product liability risks but we cannot assure you that our coverage will be adequate for liabilities ultimately incurred. In addition, we cannot assure you that insurance will continue to be available to us on terms acceptable to us. A successful claim that exceeds our available insurance coverage could have a material adverse effect on our financial position, results of operations and cash flows.
     Product liability claims against us could result in significant costs and could adversely affect our business.
     We are sometimes exposed to warranty and product liability claims. While we generally maintain insurance against many product liability risks, a successful claim that is not insured, exceeds our available insurance coverage, or is no longer fully insured as a result of the insolvency of one or more of the underlying carriers could have a material adverse effect on our financial position, results of operations and cash flows.
Our Trentwood expansion and rod, bar, and tube investment projects and other expansion projects may not be completed as scheduled.
     
We are currently engaged in various investment projects, including investment in our rod, bar, and tube value stream to, among other things, develop and complete the processstart-up of a $139 millionproduction facility in Kalamazoo, Michigan and various other expansion of production capacity and gauge capability at our Trentwood facility which includes the final $34 million follow-on investment announced in June 2007. While the first two phases were successfully completed at December 31, 2007, ourprojects. Our ability to complete the final phase of this project,these projects, and the timing and costs of doing so, are subject to various risks associated with all major construction projects, many of which are beyond our control, including technical or mechanical problems. If completion of the final phase is significantly delayed or interupts production, we may lose production or be unable to meet shipping deadlines on time or at all, which would adversely affect our results of operations, may lead to litigationproblems, economic conditions and may damage our relationships with these customers and our reputation generally.
In the third quarter of 2007 we announced a $91 million investment in our rod, bar, and tube value stream including the development of a production facility expected to be in Kalamazoo, Michigan.permitting. If we are unable to fully complete these projects or if the actual costs for these projects exceed our current expectations, our financial position, results of operations and cash flows could be adversely affected.

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We may not be able to successfully execute our strategy of growth through acquisitions.
     
A component of our growth strategy is to acquire fabricated products assets in order to complement our product portfolio. Our ability to do so will be dependent upon a number of factors, including our ability to identify acceptable acquisition candidates, consummate acquisitions on favorable terms, successfully integrate acquired assets, obtain financing to fund acquisitions and support our growth and many other factors beyond our control. Risks associated with acquisitions include those relating to:
 • diversion of management’s time and attention from our existing business;
 
 • challenges in managing the increased scope, geographic diversity and complexity of operations;
 
 • difficulties integrating the financial, technological and management standards, processes, procedures and controls of the acquired business with those of our existing operations;


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 • liability for known or unknown environmental conditions or other contingent liabilities not covered by indemnification or insurance;
 
 • greater than anticipated expenditures required for compliance with environmental or other regulatory standards or for investments to improve operating results;
 
 • difficulties achieving anticipated operational improvements;
 
 • incurrence of indebtedness to finance acquisitions or capital expenditures relating to acquired assets; and
 
 • issuance of additional equity, which could result in further dilution of the ownership interests of existing stockholders.
     
We may not be successful in acquiring additional assets, and any acquisitions that we do consummate may not produce the anticipated benefits or may have adverse effects on our financial position, results of operations and cash flows.
  Our effective income tax rate could increase and materially adversely affect our business.
     We operate in multiple tax jurisdictions and pay tax on our income according to the tax laws of these jurisdictions. Various factors, some of which are beyond our control, determine our effective tax rate and/or the amount we are required to pay, including changes in or interpretations of tax laws in any given jurisdiction, our ability to use net operating losses and tax credit carry forwards and other tax attributes, changes in geographical allocation of income and expense, and our judgment about the realizability of deferred tax assets. Such changes to our effective tax rate could materially adversely affect our financial position, liquidity, results of operations and cash flows.
Exposure to additional income tax liabilities due to audits could materially adversely affect our business.
     Due to our size and the nature of our business, we are subject to ongoing reviews by taxing jurisdictions on various tax matters, including challenges to various positions we assert on our income tax and withholding tax returns. We accrue income tax liabilities and tax contingencies based upon our best estimate of the taxes ultimately expected to be paid after considering our knowledge of all relevant facts and circumstances, existing tax laws, our experience with previous audits and settlements, the status of current tax examinations and how the tax authorities view certain issues. Such amounts are included in taxes payable or other non-current liabilities, as appropriate, and updated over time as more information becomes available. We record additional tax expense in the period in which we determine that the recorded tax liability is less than the ultimate assessment we expect. We are currently subject to audit and review in a number of jurisdictions in which we operate and have been advised that further audits may commence in the next 12 months.
We are exposed to risks relating to evaluations of controls required by Section 404 of the Sarbanes-Oxley Act of 2002.
     
We are required to comply with Section 404 of the Sarbanes-Oxley Act of 2002. While we have concluded that at December 31, 20072009, we have no material weaknesses in our internal controls over financial reporting we cannot assure you that we will not have a material weakness in the future. A “material weakness” is a control deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. If we fail to maintain a system of internal controls over financial reporting that meets the requirements of Section 404, we might be subject to sanctions or investigation by regulatory authorities such as the SEC or by the NASDAQNasdaq Stock Market LLC. Additionally, failure to comply with Section 404 or the report by us of a material weakness may cause investors to lose confidence in our financial statements and our stock price may be adversely affected. If we fail to remedy any material weakness, our financial

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statements may be inaccurate, we may be subject to increase in insurance costs, we may not have access to the capital markets, and our stock price may be adversely affected.
  
We may not be able to adequately protect proprietary rights to our technology.
     
Our success will depend in part upon our proprietary technology and processes. Although we attempt to protect our intellectual property through patents, trademarks, trade secrets, copyrights, confidentiality and nondisclosure agreements and other measures, these measures may not be adequate to protect such intellectual property, particularly in foreign countries where the laws may offer significantly less intellectual property protection than is offered by the laws of the United States. In addition, any attempts to enforce our intellectual property rights, even if successful, could result in costly and prolonged litigation, divert management’s attention and adversely affect our results of operations and cash flows. Failure to adequately protectThe unauthorized use of our intellectual property may adversely affect our results of operations as our competitors would be able to utilize such property without having had to incur the costs of developing it, thus potentially reducing our relative profitability. Furthermore, we may be subject to claims that our technology infringes the intellectual property rights of another. Even if without merit, those claims could result in costly and prolonged litigation, divert management’s attention and adversely affect our incomeresults of operations and cash flows. In addition, we may be required to enter into licensing agreements in order to continue using technology that is important to our business. However, we may be unable to obtain license agreements on acceptable terms, which could negatively affect our financial position, results of operations and cash flows.
  
We may not be able to utilize all of our net operating loss carry-forwards.
     
We have net operating loss carry-forwards and other significant U.S. tax attributes that we believe could offset otherwise taxable income in the United States. At December 31, 2007, these tax attributes could together offset $897.5 million of otherwise taxable income. The amount of net operating loss carry-forwards available in any year to offset our net taxable income will be reduced or eliminated if we experience anfollowing a more than 50% change in ownership during any period of 36 consecutive months (an “ownership change”) as defined indetermined under the Internal Revenue Code of 1986 (the “Code”). Upon our emergence from chapter 11 bankruptcy, weWe entered into a stock transfer restriction agreement with our largest stockholder, a VEBAvoluntary employee’s beneficiary association, or “VEBA”, that provides benefits for certain eligible


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retirees represented by certain unions and their spouses and eligible dependents (which we refer to as the Union VEBA)“Union VEBA”), and our certificate of incorporation was amended to prohibit and void certain transfers of our common stock. Both reduce the risk that an ownership change will jeopardize our net operating loss carry-forwards. Because U.S. tax law limits the time during which carry-forwards may be applied against future taxes, we may not be able to take full advantage of the carry-forwards for federal income tax purposes. In addition, thefederal and state tax laws pertaining to net operating loss carry-forwards may be changed from time to time such that the net operating loss carry-forwards may be reduced or eliminated. If the net operating loss carry-forwards become unavailable to us or are fully utilized, our future income will not be shielded from federal and state income taxation, thereby reducingand the funds otherwise available for general corporate purposes.purposes would be reduced.
  
Transfer restrictions and other factors could hinder the market for our common stock.
     
In order to reduce the risk that anyan ownership change in our ownership would jeopardize the preservation of our U.S. federal income tax attributes, including net operating loss carry-forwards, for purposes of Sections 382 and 383 of the Code, upon emergence from chapter 11 bankruptcy, we entered into a stock transfer restriction agreement with our largest stockholder, the Union VEBA, and amended and restated our certificate of incorporation to include restrictions on transfers involving 5% ownership. These transfer restrictions couldmay make our stock less attractive to large institutional holders, discourage potential acquirers from attempting to take over our company, limit the price that investors might be willing to pay for shares of our common stock and otherwise hinder the market for our common stock. In addition, the market price of our common stock may be subject to significant fluctuations in response to numerous factors, including variations in our annual or quarterly financial results or those of our competitors, changes by financial analysts in their estimates of our future earnings, substantial amounts of our common stock being sold into the public markets upon the expiration of share transfer restrictions, which expire in July 2016, or upon the occurrence of certain events relating to U.S. tax benefits available under section 382 of the Code, conditions in the economy or stock market in general or in the fabricated aluminum products industry in particular or unfavorable publicity.
We may not be able tocould engage in or approve certain transactions involving our common shares without impairingthat inadvertently impair the use of our federal income tax attributes.
     
Section 382 of the Code affects our ability to use our federal income tax attributes, including our net operating loss carry-forwards, following a more than 50% change in ownership during any period of 36 consecutive months, allan ownership change, as determined under the Code, an “ownership change”.Code. Certain transactions may be included in the calculation of an ownership change, including transactions involving our repurchase or issuance of our common shares, our issuance of new common shares, the sale of additional common shares by the Union VEBA,shares. When we engage in or approve any person or group of persons becoming a 5% holder oftransaction involving our common shares and any 5% holder increasing the number of common shares held. Transactionsthat may be included in the calculation of an ownership change, may limit our abilitypractice is to engage in or approve additional transactions duringfirst perform the balance of the applicable 36 month period without affectingcalculations necessary to confirm that our ability to use our federal income tax attributes. The limitation onattributes will not be affected. These calculations are complex and reflect certain necessary assumptions. Accordingly, it is possible that we could approve or engage in a transaction involving our inability tocommon shares that causes an ownership change and inadvertently impair the use of our federal income tax attributes.

18

We could engage in or approve additional transactions may adversely impact the market forinvolving our common shares andthat adversely affect significant stockholders.
     Under the transfer restrictions in our certificate of incorporation, our 5% stockholders are, in effect, required to seek the approval of, or a determination by, our Board of Directors before they engage in transactions involving our common stock. We could engage in or approve transactions involving our common stock that limit our ability to pursue certainapprove future transactions includinginvolving our common stock by our 5% stockholders in accordance with the repurchasetransfer restrictions in our certificate of incorporation without impairing the use of our federal income tax attributes. In addition, we could engage in or approve transactions involving our common stock that cause stockholders owning less than 5% to become 5% stockholders, resulting in those stockholders having to seek the approval of, or a determination by, our Board of Directors under our certificate of incorporation before they could engage in future transactions involving our common stock. For example, share repurchases reduce the number of our common shares oroutstanding and could cause a stockholder holding less than 5% to raise capital in the equity marketsand/or to issue new common shares to pursue external growth opportunities.
become a 5% stockholder even though it has not acquired any additional shares.
Our net sales, operating results and profitability may vary from periodfail to period, which may lead to volatility inmeet investor expectations and the trading price of our stock.stock may decline due to a variety of factors beyond our control.
     
Our financial and operating results may be significantly below the expectations of public market analysts and investors and the price of our common stock may decline due to the following factors:factors beyond our control, including, among others:
 • volatility in the spot market for primary aluminum and energy costs;
 
 • changes in the volume, price and mix of the products we sell;
 
 • our annual accruals for variable payment obligations to the Union VEBA and another VEBA that provides benefits for certain other eligible retirees and their surviving spouses and eligible dependents (which we refer to as the Salaried VEBA)“Salaried VEBA”);
 
 • non-cash charges includinglast-in, first-out, or LIFO,“LIFO”, inventory charges and impairments;impairments, lower of cost or market valuation adjustments to inventory, mark-to-market gains and losses related to our derivative transactions and impairments of fixed assets and investments;


20

 •U.S. and global economic conditions;
 
 • unanticipated interruptions of our operations for any reason;operations;
 
 • variations in the maintenance needs for our facilities;
 
 • unanticipated changes in our labor relations;
 
 • cyclical aspects impacting demand for our products; and
 
 • reductions in defense spending.
Our annual variable payment obligations to the Union VEBA and Salaried VEBA are linked with our profitability, which means that not all of our earnings will be available to our stockholders.
     
We are obligated to make annual payments to the Union VEBA and Salaried VEBA calculated based on our profitability and therefore not all of our earnings will be available to our stockholders. The aggregate amount of our annual payments to these VEBAs is capped however at $20 million and is subject to other limitations. As a result of these payment obligations, our earnings and cash flows may be reduced. In connection with the renegotiation and entry of a labor agreement with the USW, we agreed to extend our obligation to make annual payments to the Union VEBA to September 30, 2017. Although our obligation to make annual payments to the Union VEBA terminates for periods beginning after December 31, 2012,September 30, 2017, the Union VEBA or other groups representing our current and future retired hourly employees may seek to extend our obligation beyond the termination date. Any such extension could have a material adverse effect on our financial position, results of operations and cash flows.
  
A significant percentage of our stock is held by the Union VEBA which may exert significant influence over us.
     
The Union VEBA owns 23.5%approximately 24% of our outstanding common stock as of December 31, 2007.February 15, 2010. As a result, the Union VEBA has significant influence over matters requiring stockholder approval, including the composition of our Board of Directors. Further, to the extent that the Union VEBA and other substantial stockholders were to act in concert, they could potentially control any action taken by our stockholders. This concentration of ownership could also facilitate or hinder proxy contests, tender offers, open market purchase programs, mergers or other purchases of our common stock that might otherwise give stockholders the

19

opportunity to realize a premium over the then prevailing market price of our common stock or cause the market price of our common stock to decline. We cannot assure you that the interests of our major stockholders will not conflict with our interests or the interests of our other investors.
The USW has director nomination rights through which it may influence us, and USW interests may not align with our interests or the interests of our other investors.
     
Pursuant to an agreement,agreements between the United Steel, PaperCompany and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union, AFL-CIO, CLC, orthe USW, the USW has been granted rightsthe right to nominate candidates which, if elected, would constitute 40% of our Board of Directors through December 31, 2012September 30, 2015 at which time the USW is required to cause any director nominated by the USW to submit his or her resignation to our Board of Directors, which submission our Board of Directors may accept or reject in its discretion. As a result, the directors nominated by the USW may have a significant voice in the decisions of our Board of Directors. It is possible that the USW may seek to extend the term of the agreement and its right to nominate board members beyond 2012 and continue its ability to have a significant voice in the decisions of our Board of Directors.
2015.
Payment of dividends may not continue in the future and our payment of dividends and stock repurchases are subject to restriction.
     
In June 2007, our Board of Directors initiated the payment of a regular quarterly cash dividend of $0.18 per common share per quarter.dividend. A quarterly cash dividend has been paid in each subsequent quarter. FutureThe future declaration and payment of dividends, if any, will be at the discretion of the Board of Directors and will be dependent upondepend on a number of factors, including our results, of operations, financial condition, anticipated cash requirements, future prospects and other factors.ability to satisfy conditions reflected in our revolving credit facility. We can give no assurance that any dividends will be declared and paid in the future. Our revolving credit facility, currentlyas amended on January 9, 2009, restricts our ability to pay any dividends or purchase any ofand prohibits us from repurchasing our stock.common shares. Under our revolving credit facility, we may pay cash


21

dividends only if we maintain $100 million in borrowing availability and are not in default or would not be in defaultdefault. In addition, our revolving credit facility, as a result of theamended, limits dividends and are limitedduring any fiscal year to an aggregate amount based on a portion of cumulative earnings, net of dividends, as adjusted for certain other cash inflows.
not to exceed $25 million.
Our certificate of incorporation includes transfer restrictions that may void transactions in our common stock effected by 5% stockholders.
     
Our certificate of incorporation places restrictions onrestricts the transfer of our equity securities if either (1) the transferor holds 5% or more of the fair market value of all of our issued and outstanding equity securities or (2) as a result of the transfer, either any person would become such a 5% stockholder or the percentage stock ownership of any such 5% stockholder would be increased. These restrictions are subject to exceptions set forth in our certificate of incorporation. Any transfer that violates these restrictions is void and will be unwound as provided in our certificate of incorporation. Moreover, as indicated below, these provisions may make our stock less attractive to large institutional holders, and may also discourage potential acquirers from attempting to take over our company. As a result, these transfer restrictions may have the effect of delaying or deterring a change of control of our company and may limit the price that investors might be willing to pay in the future for shares of our common stock.
Delaware law, our governing documents and the stock transfer restriction agreement we entered into as part of our Plan may impede or discourage a takeover, which could adversely affect the value of our common stock.
     
Provisions of Delaware law, our certificate of incorporation and the stock transfer restriction agreement with the Union VEBA may have the effect of discouragingdiscourage a change of control of our company or deterringdeter tender offers for our common stock. We are currently subject to anti-takeover provisions under Delaware law. These anti-takeover provisions impose various impediments to the ability of a third party to acquire control of us, even if a change of control would be beneficial to our existing stockholders.us. Additionally, provisions of our certificate of incorporation and bylaws impose various procedural and other requirements, which could make it more difficult for stockholders to effect somecertain corporate actions. For example, our certificate of incorporation authorizes our Board of Directors to determine the rights, preferences and privileges and restrictions of unissued shares of preferred stock without any vote or action by our stockholders. Thus,As a result, our Board of Directors can authorize and issue shares of preferred stock with voting or conversion rights that could adversely affect the voting or other rights of holders of common stock. Our certificate of incorporation also divides our Board of Directors into three classes of directors who serve for staggered terms. A significant effect of a classified boardBoard of directorsDirectors may be to deter hostile takeover attempts because an acquirer could experience delays in replacing a majority of directors. Moreover, stockholders are not permitted to call a special meeting. As indicated above, ourOur certificate of incorporation prohibits certain transactions in our common stock involving 5% stockholders or parties who would become 5% stockholders as a result of the transaction. In addition, we are party to a stock transfer restriction agreement with the Union VEBA which limits its ability to transfer our common stock. The general effect of the transfer restrictions in the stock transfer restriction agreement and our certificate of incorporation is to ensure that a change in ownership of more than 45% of our outstanding common stock cannot occur in any three-year period.period without the consent of our Board of Directors. These rights and provisions may have the effect of delaying or deterring a change of control of our company and may limit the price that investors might be willing to pay in the future for shares of our common stock.
Item 1B.Unresolved Staff Comments
Item 1B.Unresolved Staff Comments
     
None.


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Item 2.Properties
Item 2.Properties
     
The locations of the principal plants and other materially important physical properties relating to our Fabricated Products business unit are below:
LocationSquare footageOwned or Leased
Chandler, Arizona93,000Leased(1)
Greenwood, South Carolina185,000Owned    
Jackson, Tennessee310,000Owned    
Kalamazoo, Michigan465,000Leased(2)
London, Ontario (Canada)265,000Owned    
Los Angeles, California183,000Owned    
Newark, Ohio1,293,000Owned    
Richland, Washington45,000Leased(3)
Richmond (Bellwood), Virginia443,000Owned    
Plainfield, Illinois80,000Leased(4)
Sherman, Texas313,000Owned    
Spokane, Washington2,854,000Owned/Leased(5)
Tulsa, Oklahoma28,000Owned (6)
Total6,557,000
         
Location
 Square footage  Owned or Leased 
 
Chandler, Arizona  57,000   Leased(1)
Greenwood, South Carolina  134,000   Owned 
Jackson, Tennessee  310,000   Owned 
London, Ontario (Canada)  274,000   Owned 
Los Angeles, California  178,000   Leased(2)
Newark, Ohio  1,293,000   Owned 
Richland, Washington  48,000   Leased(3)
Richmond, Virginia  443,000   Owned 
Plainfield, Illinois  80,000   Leased(4)
Sherman, Texas  313,000   Owned 
Spokane, Washington  2,854,000   Owned/Leased(5)
Tulsa, Oklahoma  23,000   Owned 
         
Total  6,007,000     
         
 
(1)The Chandler, Arizona facility is subject to a land lease with a primary lease term that expires in 2033. We have certain extension rights in respect of the Chandler, Arizona lease.
 
(2)The Los Angeles, CaliforniaKalamazoo, Michigan facility is subject to a lease with a 20142033 expiration date.
 
(3)The Richland, Washington facility is subject to a lease with a 2011 expiration date, subject to certain extension rights held by us.
 
(4)The Plainfield, Illinois facility is subject to a lease with a 2010 expiration date withand a renewal option subject to certain terms and conditions.
 
(5)2,733,000 square feet is owned and 121,000 square feet is leasedsubject to a lease with a 2010 expiration date withand a renewal option subject to certain terms and conditions.
(6)We closed the Tulsa, Oklahoma facility in December 2008.
     
Plants and equipment and other facilities are generally in good condition and suitable for their intended uses.
     
Our corporate headquarters located in Foothill Ranch, California, is a leased facility consisting of 21,500 square feet.feet at December 31, 2009. In November 2009, we amended the term of the existing lease agreement, effective January 2010, to expand the leased square footage to approximately 25,000 and to extend the term of the lease to June 2016.
     
Our obligations under the revolving credit facility are secured by, among other things, liens on our U.S. production facilities. See Note 87 of Notes to Consolidated Financial Statements included in Item 8. “Financial Statements and Supplementary Data” for further discussion.
Item 3.Item 3.Legal ProceedingsLegal Proceedings
Reorganization Proceedings
     None.
The discussion in Item 1. “Business — Emergence from Reorganization Proceedings” and Notes 2 and 194.Submission of NotesMatters to Consolidated Financial Statements included in Item 8. “Financial Statements and Supplementary Data” are incorporated herein by reference. Pursuant to our Plan, on July 6, 2006, the pre-petition ownership interestsa Vote of Kaiser were cancelled without consideration and approximately $4.4 billion of pre-petition claims against us, including claims in respect of debt, pension and postretirement medical obligations and asbestos and other tort liabilities were resolved on our emergence from chapter 11 bankruptcy.Security Holders
     
Item 4.Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of our security holders during the fourth quarter of 2007.2009.


2321

 

PART II
Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
     
Item 5.Market for Registrant’s Common Equity and Related Stockholder Matters
Market Information
Our outstanding common stock is traded on the Nasdaq Global Select Market under the ticker symbol “KALU.”
     
The following table sets forth the high and low sale prices of our common stock for each quarterly period since such common stock began trading on July 7, 2006 following our emergence from Chapter 11 bankruptcy.for fiscal years 2008 and 2009:
         
  High  Low 
 
Fiscal 2006        
Third quarter (from July 7, 2006) $44.50  $37.50 
Fourth quarter $62.00  $43.50 
Fiscal 2007        
First quarter $78.00  $57.60 
Second quarter $88.68  $72.33 
Third quarter $78.26  $57.88 
Fourth quarter $80.58  $66.27 
         
  High Low
Fiscal 2008        
First quarter. $79.84  $56.67 
Second quarter $76.46  $53.23 
Third quarter. $55.49  $41.89 
Fourth quarter $43.00  $15.01 
Fiscal 2009        
First quarter. $29.24  $16.36 
Second quarter $37.41  $22.19 
Third quarter. $41.65  $29.76 
Fourth quarter $43.59  $33.15 
Holders
     
As of January 31, 2008,February 15, 2010, there were 601approximately 620 holders of record of our common stock.
Dividends
     
InCommencing June 2007, our Board of Directors initiated the paymentdeclaration of a regular quarterly cash dividends to holders of our common stock, including the holders of restricted stock. Such dividend declarations also resulted in the payment of $0.18dividend equivalents to the holders of certain restricted stock units and the holders of performance shares with respect to one half of the performance shares issued under our equity and performance incentive plan. Dividends declared were $.18 per common share per quarter until June 2008, at which time our Board of Directors increased the quarterly cash dividend to $.24 per common share per quarter. ATotal cash dividends (and dividend equivalents) paid in 2009, 2008 and 2007 were $.96 per share (or $19.6 million), $.84 per common share (or $17.2 million) and $.36 per common share (or $7.4 million), respectively.
     In January 2010, our Board of Director declared another quarterly cash dividend has beenof $.24 per common share, or $4.9 million, to holders of record at the close of business on January 25, 2010, which was paid in each subsequent quarter.on or about February 12, 2010.
     Future declaration and payment of dividends, if any, will be at the discretion of the Board of Directors and will be dependent upon our results of operations, financial condition, cash requirements, future prospects and other factors. We can give no assurance that any dividends will be declared or paid in the future. Our revolving credit facility, currentlyas amended on January 9, 2009, restricts our ability to pay any dividends or purchase any of our stock. Under our revolving credit facility, wedividends. We may pay cash dividends only if we maintain $100 million in borrowing availability thereunder and are not in default or would not be in default as a result of the dividend payment, and such dividends and are limited to an amount based on a portion of cumulative earnings, net of dividends, as adjusted for certain other cash inflows.cannot exceed $25 million during any fiscal year.


2422

 

Stock Performance Graph
     
The following graph compares the cumulative total shareholder return on the Company’s common stock with: (i) the Dow Jones Wilshire 5000 Index, (ii) the Russell 2000, which we are a part of and (iii)(ii) the S&P SmallCap 600. The graph assumes (i) an initial investment of $100 as of July 7, 2006, the first day on which the Company’s common stock began trading on the Nasdaq Stock Market, and (ii) reinvestment of all dividends. The performance graph is not necessarily indicative of future performance of our stock price.
COMPARISON OF 1842 MONTH CUMULATIVE TOTAL RETURN*
Among Kaiser Aluminum Corporation, The Dow Jones Wilshire 5000S&P Smallcap 600 Index
And The Russell 2000 Index and The S&P SmallCap 600 Index
     
 
* $100 invested on 7/7/06 in stock or on 6/30/06 in index-including reinvestment of dividends.
Fiscal year ending December 31.
*$100 invested on 7/7/06 in stock or index, including reinvestment of dividends. Fiscal year ending December 31.
Copyright© 2010 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.
     
Our performance graph reflects the cumulative return of (i) the Dow Jones Wilshire 5000 Index, a broad equity market index that includes companies whose equity securities are traded on the Nasdaq Global Select Market, (ii) the Russell 2000, a broad equity market index of which we are a component and (iii)(ii) the S&P SmallCap 600. We added the comparison to the Russell 2000 index in the above graph as we became a component of the index in 2007. We elected to use the S&P SmallCap 600 index after determining that no published industry or line-of-business indexesindices were closely enough related to our industry or business to provide a reasonable basis for comparison. Similarly, we determined that we could not identify comparables to include in a peer group that would provide a reasonable basis for comparison and that, as a result, an index consisting of companies with similar market capitalizations was appropriate.
Issuer Repurchases of Equity Securities
     In June 2008, our Board of Directors authorized the repurchase of up to $75 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. All shares repurchased under this stock repurchase program were treated as treasury shares. In January 2009, we entered into an amendment to our revolving credit facility that prohibits us from repurchasing our common shares. As a result, we can no longer repurchase our common shares or withhold common shares to satisfy employee minimum statutory withholding obligations without lender approval.


2523

 

Item 6.Selected Financial Data
Item 6.Selected Financial Data
     All financial statement information before July 1, 2006 relates to Kaiser before emergence from chapter 11 bankruptcy. There will be a number of differences between the financial statements before and after emergence that will make comparisons of future and past financial information difficult and may make it more difficult to assess our future prospects based on historical performance. For example, earnings (loss) per share and share information for the Predecessor may not be meaningful because, pursuant to our plan of reorganization, the equity interests in the Company’s existing stockholders were cancelled without consideration.
     In connection with our emergence from chapter 11 bankruptcy, we also made some changes to our accounting policies and procedures, including those made as part of the application of “fresh start” accounting as required by the American Institute of Certified Professional Accountants Statement of Position 90-7 (“SOP 90-7”),Financial Reporting by Entities in Reorganization Under the Bankruptcy Code. In general, our accounting policies are the same as or similar to those historically used to prepare our financial statements. In certain cases, however, we adopted different accounting principles for, or applied methodologies differently to, our post emergence financial statement information. For instance, we changed our accounting methodologies with respect to inventory accounting. While we still account for inventories on a last-in, first-out (“LIFO”) basis after emergence, we are applying LIFO differently than we did in the past. Specifically, we now view each quarter on a standalone basis for computing LIFO; in the past, we recorded LIFO amounts with a view to the entire fiscal year, which, with certain exceptions, tended to result in LIFO charges being recorded in the fourth quarter or second half of the year.
The following table represents our selected financial data. The table should be read in conjunctions with Item 7,“Management’s7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,”Operations” and Item 8,“Financial8. “Financial Statements and Supplementary Data,”Data” of this Report.
                          
         Predecessor 
     Year Ended December 31, 2006          
     July 1, 2006
              
  Year Ended
  through
   January 1, 2006
          
  December 31,
  December 31,
   to
  Year Ended December 31, 
  2007  2006   July 1, 2006  2005  2004  2003 
  (In millions of dollars, except shipments, average sales price and per share amounts) 
Net sales $1,504.5  $667.5   $689.8  $1,089.7  $942.4  $710.2 
                          
Income (loss) from continuing operations  101.0   26.2    3,136.9   (1,112.7)  (868.1)  (273.6)
                          
Income (loss) from discontinued operations  —   —    4.3   363.7   121.3   (514.7)
                          
Cumulative effect of accounting change  —   —    —   (4.7)  —   — 
                          
Net income Earnings (loss) per share: $101.0  $26.2   $3,141.2  $(753.7) $(746.8) $(788.3)
                          
Basic:                         
Income (loss) from continuing operations $5.05  $1.31   $39.37  $(13.97) $(10.88) $(3.41)
                          
Income (loss) from discontinued operations  —   —    .05   4.57   1.52   (6.42)
                          
Cumulative effect of accounting change  —   —    —   (.06)  —   — 
                          
Net income (loss) $5.05  $1.31   $39.42  $(9.46) $(9.36) $(9.83)
                          
Diluted:                         
Income from continuing operations $4.97  $1.30                  
                          
Income (loss) from discontinued operations  —   —                  
                          
Cumulative effect of accounting change  —   —                  
                          
Net income $4.97  $1.30                  
                          
Shipments (mm lbs)  705.0   326.9    350.6   637.5   615.2   531.0 
                          
Average realized third party sales price (per lb) $2.13  $2.04   $1.97  $1.71  $1.53  $1.34 
                          
Cash dividends declared per common share $0.54  $—   $—  $—  $—  $— 
                          
Capital expenditures, net of accounts payable $61.8  $30.0   $28.1  $31.0  $7.6  $8.9 
                          
Depreciation expense $11.9  $5.5   $9.8  $19.9  $22.3  $25.7 
                          
                         
              Year Ended December 31, 2006    
  Year Year Year July 1, 2006     Year
  Ended Ended Ended through January 1, 2006 Ended
  December 31, December 31, December 31, December 31, to December 31,
  2009 2008 2007 2006 July 1, 2006 2005
  (In millions of dollars, except shipments, average sales price and per share amounts)
Net sales $987.0  $1,508.2  $1,504.5  $667.5  $689.8  $1,089.7 
Income (loss) from continuing operations  70.5   (68.5)  101.0   26.2   3,136.9   (1,112.7)
Income from discontinued operations  —   —   —   —   4.3   363.7 
Cumulative effect of accounting change  —   —   —   —   —   (4.7)
Net income (loss) $70.5  $(68.5) $101.0  $26.2  $3,141.2  $(753.7)
Basic income (loss) per share:                        
Income (loss) from continuing operations $3.51  $(3.45) $4.91  $1.31  $39.37  $(13.97)
Income from discontinued operations  —   —   —   —   .05   4.57 
Cumulative effect of accounting change  —   —   —   —   —   (.06)
Net income (loss) per share $3.51  $(3.45) $4.91  $1.31  $39.42  $(9.46)
Diluted income (loss) per share:                        
Income (loss) from continuing operations $3.51  $(3.45) $4.91  $1.30  $39.37  $(13.97)
Income from discontinued operations  —   —   —   —   .05   4.57 
Cumulative effect of accounting change  —   —   —   —   —   (.06)
Net income (loss) per share $3.51  $(3.45) $4.91  $1.30  $39.42  $(9.46)
Shipments (mm lbs)  542.4   691.6   705.0   326.9   350.6   637.5 
Average realized third party sales price (per lb) $1.82  $2.18  $2.13  $2.04  $1.97  $1.71 
Cash dividends declared per common share $.96  $.66  $.54  $—  $—  $— 
Capital expenditures, net of accounts payable $59.2  $93.2  $61.8  $30.0  $28.1  $31.0 
Depreciation expense $16.4  $14.7  $11.9  $5.5  $9.8  $19.9 


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     Predecessor     
 December 31,  December 31,
 2007 2006   2005 2004 2003  2009 2008 2007 2006  2005
Total assets $1,165.2  $655.4   $1,538.9  $1,882.4  $1,623.5  $1,085.5 $1,145.4 $1,165.2 $655.4   $1,538.9 
Long-term borrowings, including amounts due within one year  —   50.0    1.2   2.8   2.2  7.0 43.0 — 50.0    1.2 
     
The financial information for all prior periods has been reclassified to reflect discontinued operations. See Note 20 of Notes to Consolidated Financial Statements. Earnings (loss) per share and share information for the Predecessor may not be meaningful because, pursuant to the Plan, the equity interests in the Company’s existing stockholders were cancelled without consideration.
In addition to the operational results presenteddiscussed in Item 7,7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” significant items that impacted the financial results included, but were not limited to, the following:
     2009:
2007: During the fourth quarter we repaid our $50 million term loan. In June of 2007, our Board of Directors initiated a regular quarterly dividend of $.18 per share. We declared total dividends of $11.1 million in 2007. In addition, in 2007 we determined that we met the “more likely than not” criteria for recognition of our deferred tax assets and we released the vast majority of the valuations allowance. At December 31, 2007, total assets included net deferred tax assets of $327.8
•We recorded $80.5 million of non-cash, pre-tax, unrealized mark to market gains on our derivative positions.
•We generated $127.7 million of cash from operations, repaid $36 million borrowed in 2008 under our revolving credit facility, and had no borrowings and $161.9 million of borrowing capacity (net of capacity used for letters of credit) under our revolving credit facility as of December 31, 2009.
•We paid dividends totaling $19.6 million in 2009.
•We recorded a $9.3 million lower of cost or market inventory adjustment in the first quarter of 2009 due to a decline in metal prices following December 31, 2008.
•We continued to fully impair our investment in Anglesey during the first half of 2009, resulting in impairment charges of $1.8 million. Anglesey fully curtailed its smelting operations at the end of September 30, 2009 and commenced remelt and casting operations in the fourth quarter of 2009. Due principally to a significant loss incurred by Anglesey during the third quarter of 2009, relating primarily to charges recorded for employee redundancy costs in connection with the cessation of its smelting operations, we suspended the use of the equity method of accounting commencing in the third quarter of 2009.
•In the first quarter of 2009, we incurred restructuring costs and other charges in connection with the closure of our Tulsa, Oklahoma facility. Such costs consisted principally of contract termination and facility shut-down costs. In the second quarter of 2009, we curtailed operations at our Bellwood, Virginia facility to focus solely on drive shaft and seamless tube products and shut down the Bellwood, Virginia facility temporarily during the month of July 2009, in response to planned shutdowns in the automotive industry and continued weak economic and market conditions. In addition, we reduced our personnel in certain other locations in the second quarter in an effort to streamline costs. In connection with these plans, we recorded restructuring costs and other charges of $5.4 million, principally related to involuntary employee termination and other personnel costs.
     2008:
•We recorded $87.1 million of non-cash, pre-tax, unrealized mark to market losses on our derivative positions primarily as a result of the decline in metal price.
•We recorded a $65.5 million lower of cost or market inventory adjustment due to the decline in metal prices. This inventory write-down lowered the LIFO inventory values that had been established at relatively high prices during the implementation of fresh start accounting in July 2006.
•In December 2008, we announced plans to close operations at our Tulsa, Oklahoma extrusion facility and significantly reduce operations at our Bellwood, Virginia facility in response to lower demand for products produced at these locations. These actions resulted in a restructuring charge of $8.8 million in the fourth quarter of 2008 related to employee termination benefits and asset impairment.

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•Based on a review of new facts and circumstances that came into light during the fourth quarter of 2008 and early 2009 regarding Anglesey, we did not expect to be able to recover our investment in Anglesey, based on the expectation that Anglesey would fully curtail its smelting operations at the end of September 2009, when its power contract expired. As a result, we recorded an impairment charge of $37.8 million and a corresponding decrease to Investment in and advances to unconsolidated affiliate.
•On June 12, 2008, Anglesey suffered a significant failure in the rectifier yard that resulted in a localized fire in one of the power transformers. As a result of the fire, Anglesey was operating below its maximum capacity during the second half of 2008, returning to its normal production level in the fourth quarter of 2008. In December 2008, Anglesey received $20 million (approximately 14.0 million Pound Sterling) in a partial insurance settlement, of which $10 million was recorded as an increase in our equity in earnings and an increase in our investment in Anglesey. This amount was subsequently impaired at December 31, 2008.
•We announced a $75 million stock repurchase plan to commence after July 6, 2008. We repurchased 572,706 shares of common stock at a weighted-average price of $49.05 per share, or total cost of $28.1 million, under the repurchase plan. Our revolving credit facility, as amended on January 9, 2009, currently prohibits us from repurchasing our common shares, including under the repurchase plan.
•We began drawing down on our revolving credit facility during the last two quarters of 2008 and had $36.0 million of outstanding borrowings at December 31, 2008.
•We paid dividends totaling $17.2 million in 2008.
2007:
•During the fourth quarter, we repaid our $50 million term loan.
•In June 2007, our Board of Directors initiated a regular quarterly dividend of $.18 per share. We paid total dividends of $7.4 million in 2007.
•In addition, in 2007 we determined that we met the “more likely than not” criteria for recognition of our deferred tax assets and we released the vast majority of the valuations allowance. At December 31, 2007, total assets included net deferred tax assets of $327.8 million.
2006:
We emerged from chapter 11 bankruptcy on July 6, 2006 with all of our then-existing fabricated product facilities and operations and a 49% interest in Anglesey. During the period from January 1, 2006 to July 1, 2006, we recorded gains onupon emergence and other reorganization related benefits (costs) of approximately $3.1 billion.
     2005:
2005: 
•We were in chapter 11 bankruptcy for the entire year. During 2005, we recorded reorganization costs of approximately $1.2 billion. We also recorded a $4.7 million charge as a result of adopting accounting for conditional asset retirement obligations.
2004: We were in chapter 11 bankruptcy for the entire year. We disposed of various foreign operations and recorded settlement and termination charges related to the termination of post-retirement medical and pension benefits plans. During 2004 we recorded reorganization costs of approximately $39 million.
2003: We were in chapter 11 bankruptcy for the entire year. We recorded an impairment charge of $368.0 million relating to our interests in Gramercy/Kaiser Jamaica Bauxite Company which were sold in 2004. We also recorded non-cash charges of $121.2 million upon termination of a pension plan.
Item 7.
Management’s Discussion and Analysis•We also recorded a $4.7 million charge as a result of Financial Condition and Results of Operationsadopting accounting for conditional asset retirement obligations.
Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations
     
This Annual Report onForm 10-K contains statements which constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements appear throughout 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 the negative of the foregoing or other variations of 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 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 including cyclicality and other conditions in the aerospace, automobile and other end markets we serve; developments in technology; new or modified statutory or regulatory requirements; and changing prices and market conditions. This Item and Item 1A. “Risk Factors” each identify other

26

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.
     
In accordance with Section 404 of the Sarbanes-Oxley Act of 2002, our management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of our internal control over financial

27

reporting and concluded that such control was effective as of December 31, 2007.2009. Management’s report on the effectiveness of our internal control over financial reporting and the related report of our independent registered public accounting firm are included in Item 8,8. “Financial Statements and Supplementary Data,”Data” of this Annual Report onForm 10-K.
     
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 tenthe following sections:
 • Overview
 
 •Financial Reporting Changes
• Business Strategy and Core Philosophies
 
 • Management Review of 20072009 and Outlook for the Future
 
 • Results of Operations
 
 • Other MattersInformation
 
 • Liquidity and Capital Resources
 
 • Contractual Obligations, Commercial Commitments and Off-Balance-Sheet and Other Arrangements
 
 • Critical Accounting Estimates
 
 • New Accounting Pronouncements
     
We believe ourOur MD&A should be read in conjunction with the Consolidated Financial Statementsconsolidated financial statements and related Notesnotes included in Item 8,8. “Financial Statements and Supplementary Data,” of this Annual Report onForm 10-K.
     
Unless otherwise noted, this MD&A relates only to results from continuing operations. In the discussion of operating results below, certain items are referred to as non-run-rate items. For purposes of such discussion, non-run-rate items are items that, while they may recur from period to period, (i) are (i) 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 prices and currency exchange rates.
Overview
     
We are a leading producerNorth American manufacturer of fabricatedsemi-fabricated specialty aluminum products for aerospace / high strength, general engineering and custom automotive and industrial applications. In addition, we own a 49% interest in Anglesey, which owns and operatesa 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 Holyhead, Wales.the fourth quarter of 2009.
     
We have twoone reportable operating segments,segment, Fabricated Products and Primary Aluminum, and our Corporate segment.Products. The Fabricated Products segment is comprised of all of the operations within the fabricated aluminum products industry including our eleven fabricatingproduction facilities in North America at the end of 2007. The Fabricated Products segmentand sells value-added products such as heat treat aluminum sheet and plate, extrusions and forgings which are used in a wide range of industrial applications, including aerospace, defense, automotive and general engineering end-use applications.
The Primary Aluminum segment produces commodity grade products as well as We also have three other business units which we combine into All Other. All Other is comprised of (i) all business activities relating to Anglesey’s smelting operations prior to the fourth quarter of 2009 and, thereafter, the purchase and sale of value-added products such as ingot andsecondary aluminum billet produced by Anglesey for which we receive a portion of a premium over normal commodity market prices, and conducts(ii) hedging activities in respect of our exposure to primary aluminum price risk.risk and our exposure to British Pound Sterling exchange rate risk relating to Anglesey’s smelting operations through September 30, 2009, and (iii) corporate and other activities, expenses of which are not allocated to other business units.
     
Changes in global, regional, or country-specific economic conditions can have a significant impact on overall demand for aluminum-intensive fabricated products in the marketsmarket segments in which we participate. Such changes in


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demand can directly affect our earnings by impacting the overall volume and mix of such products sold. Overall, demand for our fabricated products dramatically

27

declined in the final months of 2008 and the first half of 2009. Weak end-use demand, along with significant inventory de-stocking by our service center customers and others in the value stream adversely impacted our shipments. During 2007 2006, and 2005,the first nine months of 2008, the markets for aerospace and high strength products in which we participate were comparatively strong, resulting in higher shipments and improved margins.
     
ChangesPrimary aluminum prices fell significantly over the course of the last half of 2008 and partially recovered beginning in the second quarter of 2009. The average LME transaction price per pound of primary aluminum for 2009, 2008 and 2007 was $.76, $1.17 and $1.20, respectively. At February 15, 2010, the LME transaction price per pound was $.92. The Company operates with an intent to remain neutral to primary aluminum price changes by passing on such price changes to its customers or, to the extent that it has firm price contracts, hedging such exposures to primary aluminum prices also affect our Primary Aluminum segment and expected earnings under any firm price fabricated products contracts. However, the impacts of such changes are generally offset by each other or by primary aluminum hedges.with counterparties.
     Our operating results are also, albeit to a lesser degree, sensitive to changes in prices for power and natural gas and changes in certain foreign exchange rates. All of the foregoing have been subject to significant price fluctuations over recent years. For a discussion of our sensitivity to changes in market conditions, see Item 7A. “Quantitative and Qualitative Disclosures About Market Risks - Sensitivity.”
During 2007, the average London Metal Exchange, or LME, transaction price per pound of primary aluminum was $1.20. During 2006 and 2005, the average LME price per pound for primary aluminum was $1.17 and $.86, respectively. At January 31, 2008, the LME price was approximately $1.20 per pound.
Financial Reporting Changes
From the first quarter of 2002 to June 30, 2006, Kaiser and 25 of its subsidiaries operated under chapter 11 of the United States Bankruptcy Code under the supervision of the Bankruptcy Court. Pursuant to the Plan, Kaiser and its subsidiaries, which owned all of our core fabricated products facilities and operations and a 49% interest in Anglesey, emerged from chapter 11 on July 6, 2006. Pursuant to the Plan, all material pre-petition debt, pension and post-retirement medical obligations and asbestos and other tort liabilities, along with other pre-petition claims (which in total aggregated at June 30, 2006 approximately $4.4 billion) were addressed and resolved. Pursuant to the Plan, all of the equity interests of Kaiser’s pre-emergence stockholders were cancelled without consideration. Equity of the newly emerged Kaiser was issued and delivered to a third-party disbursing agent for distribution to claimholders pursuant to the Plan. See Notes 2 and 19 of Notes to Consolidated Financial Statements included in this Report for additional information on Kaiser’s reorganization and the Plan.
Our emergence from chapter 11 bankruptcy and adoption of fresh start accounting resulted in a new reporting entity for accounting purposes. Although we emerged from chapter 11 bankruptcy on July 6, 2006, we adopted fresh start accounting under the provisions of American Institute of Certified Professional Accountants (“AICPA”) Statement of Position90-7(“SOP 90-7”),Financial Reporting by Entities in Reorganization Under the Bankruptcy Code, effective as of the beginning of business on July 1, 2006. As such, it was assumed that the emergence was completed instantaneously at the beginning of business on July 1, 2006 so that all operating activities during the period from July 1, 2006 through December 31, 2006 are reported as applying to the new reporting entity. We believe that this is a reasonable presentation as there were no material non-Plan-related transactions between July 1, 2006 and July 6, 2006.
All financial statement information before July 1, 2006 relates to Kaiser before emergence from chapter 11 (sometimes referred to herein as the “Predecessor”). Kaiser after emergence is sometimes referred to herein as the “Successor.” As more fully discussed below, there will be a number of differences between the financial statements before and after emergence that will make comparisons of financial information difficult and may make it more difficult to assess our future prospects based on historical performance.
As indicated above, we also made changes to our accounting policies and procedures as part of the application of “fresh start” accounting as required bySOP 90-7. In general, our accounting policies are the same as or similar to those historically used to prepare our financial statements. In certain cases, however, we adopted different accounting principles for, or applied methodologies differently to, our post emergence financial statement information. For instance, we changed our accounting methodologies with respect to inventory accounting. While we still account for inventories on alast-in, first-out (“LIFO”) basis after emergence, we are applying LIFO differently than we did in the past. Specifically, we now view each quarter on a standalone year-to-date basis for computing LIFO; in the past, the Predecessor recorded LIFO amounts with a view to the entire fiscal year, which, with certain exceptions, tended to result in LIFO charges being recorded in the fourth quarter or second half of the year.


29

Additionally, certain items such as earnings per share and Statement of Financial Accounting StandardsNo. 123-R,Share-Based Payment(see discussion in Note 11 and Note 15 of Notes to Consolidated Financial Statements included in Item 8. “Financial Statements and Supplementary Data”), which had few, if any, implications while we were in chapter 11 bankruptcy, will have increased importance in our future financial statement information.
Business Strategy and Core Philosophies
     
We are a leading manufacturer of fabricatedsemi-fabricated specialty aluminum products. We specialize in providing highly engineered solutions that meet the demanding needsrequirements of the transportation and industrial markets.market segments we serve. We are leaders in our industry, maintaining a strong competitive position in a significant majority of the marketsmarket segments we serve. In a very competitive marketplace, we distinguish ourselves with our “Best in Class” customer satisfaction along withand a broad and deep product offering.portfolio. Our blue-chip customer base includes some of the top names in industry, with whom we share long-standing relationships based on quality and trust. We have established a platform for growth that we believe is well positioned within the industry.
     
We strive to reinforce our position as supplier of choice through our “Best in Class” customer satisfaction seekingand seek to continuously improve our cost performance and effortsin order to be thea low cost providerproducer by eliminating waste throughout the value stream.chain.
     
Our line of Kaiser Select® products reflects a structured approach to reduce waste and variability for our customers. Our Kaiser Select® products are manufactured according to strict specifications thatand are intended to deliver enhanced product characteristics with improved consistency that result in better performance and, in many cases, lower cost for our customers.
     
Our lean enterprise initiative is facilitated by the Kaiser Production System (“KPS”), which is an integrated application of the tools of Lean manufacturing,Enterprise, Six Sigma and Total Productive Manufacturing which underpins our continuous effort to provide “Best in Class” customer satisfaction. We believe KPS enables us to deliver superior customer service through consistent, on-time delivery of superior quality products on short lead times. We are committed to imbedding KPS as the common culture through which we continuously improve our operations and enhance our total competitive position.
Management Review of 20072009 and Outlook for the Future
     
In 2007, we continuedOverall Fabricated Products shipment volumes in 2009 declined significantly as compared to 2008, reflecting weak economic and end-market conditions for general engineering and automotive applications, exacerbated by significant inventory destocking by our focus ondistributor customers and others in the generationvalue chain. Inventory destocking of long-term value throughproducts for aerospace and high strength applications also occurred throughout the supply chain during 2009. Despite lower shipment volume, our organic growth initiatives,emphasis in 2009 was to further strengthen our financial position and competitive advantage. We met these objectives by (i) generating cash from operations and ending the year virtually debt free, (ii) realigning inventories and other components of working capital, in light of weaker near-term demand, (iii) flexing our operations to lower demand, (iv) improving our manufacturing efficiencies and underlying cost control,performance, (v) introducing new Kaiser Select® plate products, and ongoing focus on streamlining(vi) continuing to invest in our existing value streams. This focus contributed to the following financial achievements:new state-of-the-art casting and extrusion facility in Kalamazoo, Michigan.
     
• Record Fabricated Products segment shipments of 548 million pounds, and Fabricated Products operating income of $169 million with Fabricated Products net sales growth over 2006 of 12%;
• Consolidated net income of $101 million, or $4.97 per diluted share;
• Income from continuing operations for 2007 up 39% from 2006 (Predecessor and Successor combined excluding Reorganization items) in spite of the continued high cost for primary aluminum, natural gas and other general cost inflation;
• Cash provided by operating activities of $130 million which funded all capital investment and also allowed us to repay our $50 million term loan during the fourth quarter of 2007;
• Recognition of $328 million of net deferred tax assets at December 31, 2007 primarily in relation to our net operating loss carry-forwards.
During 20072009, our results benefited from higher averagereflected a 23% decrease in Fabricated Products shipment volume and a 13% decrease in Fabricated Products realized third party salesprices. The decrease in prices in both our Fabricated Products and Primary Aluminum segments duesegment primarily reflects the pass-through to favorable mix and higher value-added pricing as well as highercustomers of lower underlying primaryhedged, alloyed metal prices. In addition, there wasValue-added revenue per pound remained virtually unchanged as compared to 2008.
     Looking into 2010 and beyond, we see continued strongdestocking by airframe manufacturers, but destocking by service center customers for our aerospace and high strength products appears to be abating. The net impact is that we expect our shipments for aerospace and high strength products to be slightly improved during the first half of 2010 from the average of the last three quarters of 2009. We expect demand for ourgeneral engineering products into steadily improve with the aerospace, high strengthindustrial portion of the North American economy, and defense markets. We brought additional heat treat capacity onlinewe are optimistic that destocking for these products has ended as service center inventories are at our Trentwoodhistorically low levels.


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facility and benefited from continued strongAutomotive demand for our products in the aerospace, high strength and defense markets. In 2007 we also faced a number of challenges including; weakness in demand in the ground transportation and general industrial markets; lower industry mill shipments of general engineering rod and bar products primarily as a result of service center de-stocking; and higher energy prices.
Looking into 2008 and beyond weis expected to improve approximately 35% relative to 2009, tracking improved North American automotive build rates that are nonetheless expected to remain substantially below historic levels. We anticipate our main areas of focus will be:
 •Completinglaunching our world class Kalamazoo, Michigan casting and realizingextrusion facility with initial production in the benefits from our organic growth initiatives described above together with the additional $14 million investment announced on February 13, 2008;first half of 2010 ramping up to full-scale production by year-end 2010;
 
 •Capitalizing onmanaging our strong market presencecapital structure to ensure proper levels of capital and generating a return on capital that exceeds our cost of capital;liquidity to support growth initiatives;
 
 •Generating cash from operations that funds capital expenditures made in the ordinary course of business as well as other initiatives, including additional organic growth programs and external growth acquisitions;
 • Managing our debtcontinuing to differentiate ourselves with additional Kaiser Select® products, “Best In Class” customer satisfaction, strong delivery performance, expanded product breadth, and capital structure to maintain a balance between cost and flexibility;broader geographic marketing presence; and
 
 •Maximizationcontinuing to improve the manufacturing efficiencies of shareholder value.our facilities to generate additional cost improvements over our performance in 2009.
Results of Operations
Fiscal 20072009 Summary
For the purposes of this discussion the Successor’s results for the period from July 1, 2006 through December 31, 2006 have been combined with the Predecessor’s results for the period from January 1, 2006 to July 1, 2006 and are compared to the Successor’s results for the year ended December 31, 2007.
 •Net income for the year ended December 31, 2007 was $101.0 million compared with $3,167.4 million for the year ended December 31, 2006. Net income for the year ended December 31, 2006 included a non-cash gain of approximately $3,110.3 million related to our implementation of the Plan and application of fresh start accounting.
• Net sales for the year ended December 31, 2007 increased by 11%2009 decreased to $1,504.5$987.0 million compared to $1,357.3$1,508.2 million for the year ended December 31, 2006.2008. The increase primarilydecrease reflected higher shipments, favorable product mixlower Fabricated Products segment shipment volume and higher value-added pricing in Fabricated Productsrealized prices as well as higher marketlower shipment volume and realized prices for primary aluminum. Such increases inon sale of primary aluminum marketproducts in the Primary/Secondary business unit. The decrease in realized prices do not necessarily directly translate to increased profitability because (a) a substantial portion of the business conducted byin our Fabricated Products business unit passessegment reflects primarily the pass-through to customers of lower underlying hedged, alloyed metal prices while value-added revenue per pound remained virtually unchanged as compared to 2008. The decrease in shipment volume of primary aluminum pricesproducts is due to the cessation of Anglesey’s smelting operation on directly to customers and (b) our hedging activities, while limiting our risk of losses, may limit our ability to participate in price increases.September 30, 2009.
 
 • Our operating income for the year ended December 31, 2007 increased by 81% to $182.02009 was $118.7 million compared to an operating loss of $91.0 million for the year ended December 31, 2006.2008. The increase2009 operating income included significant items that we consider to be non-run-rate, which totaled $55.8 million. These items primarily included $80.5 million of non-cash mark to market gains on our derivative positions, $9.3 million of lower of cost or market inventory write-downs and $5.4 million of restructuring costs related primarily to employee termination costs. The 2008 operating loss also reflected significant items that we consider to be non-run-rate, which totaled $206.6 million. These items primarily included $87.1 million of unrealized mark to market losses on our derivative positions, $65.5 million of lower of cost or market inventory write-down, $37.8 million of impairment charges relating to our investment in Anglesey, and $8.8 million of restructuring costs and other charges in connection with the closure of our Tulsa, Oklahoma facility and the partial curtailment of our Bellwood, Virginia operation, of which $4.5 million was primarily a resultrelated to one time employee termination costs and $4.3 million was related to asset impairments (see further discussion of increased shipments, favorable product mix and higher value-added pricing for the periodour operating income before non-run-rate in our Fabricated Products segment together with gains in our Primary Aluminum segment from higher realized primary aluminum prices (net of hedging), improved contractual alumina pricing, favorable currency exchange (net of hedging), higher shipments and lower operating costs.“Segment Information” below).
 
 • Net income for the year ended December 31, 2007 included Other operating benefits of $13.62009 was $70.5 million, related primarily to the reimbursement of $8.3 million of amounts paid in connection with the sale of our interests in and related to Queensland Alumina Limited in 2005, a $4.9 million non-cash gain from the settlement of a claim by the purchaser of the Gramercy alumina refinery and our interests in and related to Kaiser Jamaica Bauxite Company, a $1.6 million gain from the resolution of contingencies relating to the sale of a property prior to emergence, a $1.3 million gain relatedas compared to a settlement with the Pension Benefit Guaranty Corporation or PBGC, and a chargenet loss of $2.6$68.5 million related to other post-emergence chapter 11 related items (see Note 14 of Notes to Consolidated Financial Statements included in Item 8. “Financial Statements and Supplementary Data”).


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• Our effective tax rate remained high at 44.6% for the year ended December 31, 20072008. The net income (loss) for 2009 and 2008 included all of the non-run-rate items discussed above.
•Our effective tax provision rate was 40.5% for the year ended December 31, 2009 (see discussion of “Provision (Benefit) for Income Taxes”).
 
 •Starting in June 2007, our BoardIn 2009, we paid a total of Directors initiated the payment of a regular quarterly cash dividend of $.18approximately $19.6 million, or $.96 per common share, per quarter. Duringin cash dividends to stockholders, including holders of restricted stock, and in dividend equivalents to the year ended December 31, 2007 we made two dividend payments totaling $0.36 per common share or $7.4 million inholders of certain restricted stock units and the aggregate. During December 2007, we declared a third quarterly cash dividendholders of $.18 per common share, or $3.7 million, which was paid in February 2008.performance shares with respect to one half of the performance shares.
Consolidated Selected Operational and Financial Information
     
The table below provides selected operational and financial information on a consolidated basis (in millions of dollars, except shipments and prices). The selected operational for 2009, 2008 and financial information after July 6, 2006 are those of the Successor and are not comparable to those of the Predecessor. However, for purposes of this discussion (in the table below and subsequently throughout this section), the Successor’s results for the period from July 1, 2006 through December 31, 2006 have been combined with the Predecessor’s results for the period from January 1, 2006 to July 1, 2006 and are compared to the Successor’s results for the year ended December 31, 2007 and Predecessor’s results for the year ended December 31, 2005. Differences between periods due to fresh start accounting are explained when material.2007.


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The following data should be read in conjunction with our consolidated financial statements and the notes thereto included in Item 8. “Financial and Supplementary Data.” See Note 1615 of Notes to Consolidated Financial Statements included in Item 8. “Financial Statements and Supplementary Data” for further information regarding segments.
             
  Year Ended  Year Ended  Year Ended 
  December 31,  December 31,  December 31, 
  2009  2008  2007 
  (In millions of dollars, except shipments and average sales price) 
Shipments (mm lbs):            
Fabricated Products  428.5   558.5   547.8 
All Other(1)  113.9   133.1   157.2 
          
   542.4   691.6   705.0 
          
Average Realized Third Party Sales Price (per pound):            
Fabricated Products(2) $2.09  $2.39  $2.37 
All Other(3) $.79  $1.29  $1.31 
Net Sales:            
Fabricated Products $897.1  $1,336.8  $1,298.3 
All Other  89.9   171.4   206.2 
          
Total Net Sales $987.0  $1,508.2  $1,504.5 
          
Segment Operating Income (Loss):            
Fabricated Products(4)(5) $78.2  $53.5  $169.0 
All Other (6)  40.5   (144.5)  13.0 
          
Total Operating Income (Loss) $118.7  $(91.0) $182.0 
          
Income tax provision (benefit) $48.1  $(22.8) $81.4 
          
Net Income (Loss) $70.5  $(68.5) $101.0 
          
Capital Expenditures, (net of accounts payable) $59.2  $93.2  $61.8 
          
                      
     Year Ended December 31, 2006    
     July 1, 2006
   Predecessor
     Predecessor
 
  Year Ended
  through
   January 1, 2006
     Year Ended
 
  December 31,
  December 31,
   to
     December 31,
 
  2007  2006   July 1, 2006  Combined  2005 
  (In millions of dollars, except shipments and average sales price) 
Shipments (mm lbs):                     
Fabricated Products  547.8   249.6    273.5   523.1   481.9 
Primary Aluminum  157.2   77.3    77.1   154.4   155.6 
                      
   705.0   326.9    350.6   677.5   637.5 
                      
Average Realized Third Party Sales Price (per pound):                     
Fabricated Products(1) $2.37  $2.27   $2.16  $2.21  $1.95 
Primary Aluminum(2) $1.31  $1.30   $1.28  $1.29  $.95 
Net Sales:                     
Fabricated Products $1,298.3  $567.2   $590.9  $1,158.1  $939.0 
Primary Aluminum  206.2   100.3    98.9   199.2   150.7 
                      
Total Net Sales $1,504.5  $667.5   $689.8  $1,357.3  $1,089.7 
                      
Segment Operating Income (Loss):                     
Fabricated Products(3)(4) $169.0  $60.8   $61.2  $122.0  $87.2 
Primary Aluminum(5)(6)  46.5   10.8    12.4   23.2   16.4 
Corporate and Other  (47.1)  (25.5)   (20.3)  (45.8)  (35.8)
Other Operating Benefits (Charges), Net(7)  13.6   2.2    (.9)  1.3   (8.0)
                      
Total Operating Income $182.0  $48.3   $52.4  $100.7  $59.8 
                      
Discontinued Operations $—  $—   $4.3  $4.3  $363.7 
                      
Reorganization Items(8) $—  $—   $3,090.3  $3,090.3  $(1,162.1)
                      
Loss from Cumulative Effect on Years Prior to 2005 of Adopting Accounting For Conditional Asset Retirement Obligations(9) $—  $—   $—  $—  $(4.7)
                      
Income tax provision $81.4  $23.7   $6.2  $29.9  $2.8 
                      
Net Income (Loss) $101.0  $26.2   $3,141.2  $3,167.4  $(753.7)
                      
Capital Expenditures, (net of accounts payable and excluding discontinued operations) $61.8  $30.0   $28.1  $58.1  $31.0 
                      
 
(1)Shipments in All Other represent shipments of primary aluminum products produced by Anglesey’s smelting operations. Shipments decreased in 2009 compared to prior periods primarily as a result of the cessation of the smelting operation on September 30, 2009 (see further discussion in “Segment Information”below).
(2)Average realized prices for our Fabricated Products business unitsegment 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. See Item 1. “Business”.
(2)Average realized prices for our Primary Aluminum business unit exclude hedging revenues.“Business.”
 
(3)Average realized prices for All Other represent average realized prices on sales of primary aluminum product produced by Anglesey’s smelting operations and is subject to fluctuations in LME price of metal.
(4)Fabricated Products business unitsegment operating results for 2007, 2006 combined2009, 2008 and 20052007 include non-cash LIFO inventory benefits (charges)charges (benefits) of $14.0$8.7 million, $(25.0)$(7.5) million, and $(9.3)$(14.0) million, respectively, and metal gains (losses) of approximately $5.5 million, $(11.4) million, and $(13.1) million, $20.8respectively. Also included in the operating results for 2009 and 2008 are $9.3 million and $4.6$65.5 million, respectively.


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respectively, of lower of cost or market inventory write-downs.
(4)
(5)Fabricated Products business unitsegment operating results for 20072009, 2008 and 2006 combined2007 include non-cash mark-to-market gains (losses) on natural gas and foreign currency hedging activities totaling $4.9 million, $(5.7) million, and $1.7 million, and $(2.2) million.respectively. For further discussion regarding mark-to-market matters, see Note 13 of Notes to Consolidated Financial Statements included in Item 8. “Financial Statements and Supplementary Data.”
(5)Primary Aluminum business unit operating results for 2007, 2006 combined, include non-cash mark-to-market gains (losses) on primary aluminum hedging activities totaling $16.2 million and $5.7 million, respectively, and on foreign currency derivatives of $(8.2) million and $11.6 million, respectively. 2005 included a non-cash mark-to-market loss of $4.1 million on primary aluminum and foreign currency hedging and derivative activities. For further discussion regarding mark-to-market matters, see Note 1312 of Notes to Consolidated Financial Statements included in Item 8. “Financial Statements and Supplementary Data.”
 
(6)Primary AluminumWith respect to operating income in All Other, Primary/Secondary aluminum business unit operating results for 20052009 and 2008 include non-cashimpairment charges of approximately $4.1$1.8 million and $37.8 million, respectively, relating to our investment in respect of our decision in 2006 to restate our accounting for derivative financial instruments.Anglesey.
 
(7)SeeHedging business unit operating results for 2009, 2008 and 2007, include non-cash mark-to-market gains (losses) on primary aluminum hedging activities totaling $61.3 million, $(67.2) million, and $16.2 million, respectively, and on foreign currency derivatives of $14.3 million, $(14.2) million, and $(8.2) million, respectively. For further discussion regarding mark-to-market matters, see Note 1412 of Notes to Consolidated Financial Statements included in Item 8. “Financial Statements and Supplementary Data”Data.”
Corporate and other business unit operating results for 2007 include $13.6 million of Other operating benefits. See discussion below for a detailed summary of the components of Other operating benefits (charges), net and the business segment to which the items relate.
(8)See Notes 2 and 19 of Notes to Consolidated Financial Statements included in Item 8. “Financial Statements and Supplementary Data” for a discussion of Reorganization items.
(9)See Notes 1 and 5 of Notes to Consolidated Financial Statements included in Item 8. “Financial Statements and Supplementary Data” for a discussion of the changes in accounting for conditional asset retirement obligations.net.

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Summary.We reported netNet income of $70.5 million for 2009 compared to a Net loss of $68.5 million for 2008 and Net income of $101.0 million for 2007 compared to net income of $3,167.4 million for 2006 and a net loss of $753.7 million for 2005.2007. Net income for 20062009 includes the following pretax items: (i) a non-cash mark-to-market unrealized gain of $3,110.3$80.5 million relatedon our derivative positions primarily as a result of the increase in metal prices in the latter half of 2009, (ii) a $9.3 million charge relating to lower of cost or market valuation of inventory and (iii) restructuring charges of $5.4 million primarily relating to the implementationclosure of our PlanTulsa, Oklahoma facility announced in 2008 and applicationfurther curtailment of fresh start accounting. Net loss for 2005 includes a non-cash loss of $1,131.5 million related to the assignment of intercompany claims for the benefit of certain creditors offset by a gain of $365.6 million on the sale ofoperations at our interests in and related to QAL and favorable QAL operating results prior to its sale on April 1, 2005.Bellwood, Virginia facility. All years include a number of other non-run-rate items that are more fully explained in the sections below.
     
Net Sales.We reported Net sales of $987.0 million in 2007 of2009 as compared to $1,508.2 million in 2008 and $1,504.5 million compared to $1,357.3 million in 2006 and $1,089.7 million in 2005.2007. As more fully discussed below, the decrease in revenues in 2009 is primarily the result of a decrease in our Fabricated Products shipment volume and realized prices, and a decrease in Anglesey-related primary aluminum shipment volume and pricing. The decrease of shipment volume in our Fabricated Products segment is primarily due to weak economic and end-market conditions for general engineering and automotive applications, exacerbated by significant inventory destocking by our distributor customers and others in the supply chain, as well as inventory destocking of products for aerospace and high strength applications throughout the supply chain. The decrease in primary aluminum shipments through Anglesey is primarily due to the cessation of the smelting operation at Anglesey on September 30, 2009 (see “Segment Information-All Other” below). The decrease in Fabricated Products segment realized prices reflects primarily the pass-through to customers of lower underlying alloyed metal prices. Value-added revenue per pound remained virtually unchanged as compared to 2008 (see further discussion in “Segment Information-Fabricated Products” below).
     The increase in revenues infrom 2007 to 2008 is primarily the result of higher shipments favorable product mix and value-added pricing in Fabricated Products, as well asoffset by a higher market price for primary aluminum. Such increasesdecrease of shipments in primary aluminum market prices do not necessarily directly translate to increased profitability because (a) a substantial portion of the business conducted by the Fabricated Products business unit passes primary aluminum prices on directly to customers and (b) our hedging activities, while limiting our risk of losses, may limit our ability to participate in price increases.
The increase in revenues in 2006 as compared to 2005 is primarilythrough Anglesey due to higher market prices for primary aluminum and secondarily due to increased fabricated products shipments.a fire at Anglesey during the second quarter of 2008.
     
Cost of Products Sold.Sold, excluding Depreciation and Other Items.Cost of goods sold, excluding depreciation in 20072009 totaled $1,251.1$766.4 million, compared to $1,176.8 million in 2006 or 83% and 87%78% of net sales, respectively.as compared to $1,400.7 million, or 93% of net sales, in 2008. The reductiondecrease in Cost of products sold, excluding depreciation as a percentage of netsnet sales in 20072009 was primarily the result of mark-to-market unrealized gains (losses) of $80.5 million and $(87.1) million on our derivative positions in 2009 and 2008, respectively (see further discussion in “Segment Information-Fabricated Products” below).
     Cost of goods sold, excluding depreciation in 2008 totaled $1,400.7 million, or 93% of net sales, compared to $1,251.1 million, or 83% of net sales, in 2007. The increase in Cost of products sold, excluding depreciation as a percentage of net sales in 2008 was primarily the result of a LIFO gainmark-to-market unrealized loss of $14.0$87.1 million on our derivative positions. Additionally, increases in 2007 compared to a LIFO charge of $25.0 million in 2006.energy, freight, currency exchange, major maintenance expense, and other manufacturing costs increased the Cost of products sold, excluding depreciation as a percentage of net sales in 2006 totaled $1,176.82008 (see further discussion in “Segment Information-Fabricated Products” below).
Lower of Cost or Market Inventory Write-down.We recorded lower of cost or market inventory write-downs of $9.3 million compared to $951.1and $65.5 million in 2005 or 87%2009 and 2008, respectively, as a result of declining metal prices.
Impairment of Investment in both years.Anglesey.In 2008, we recorded a charge of $37.8 million to fully impair our 49% equity investment in Anglesey, in anticipation of the cessation of its smelting operations on September 30, 2009. In the first half of 2009, we recorded $1.8 million in equity in income, which we subsequently impaired to maintain our investment balance at zero. For the quarters ended September 30, 2009 and December 31, 2009, no additional impairment charges were recorded, due to the suspension of the equity method of accounting, as more fully described in Note 3 of Notes to Consolidated Financial statements included in Item 8. “Financial Statements and Supplementary Data.”
     Restructuring Costs and Other Charges.In December 2008, we announced plans to close our Tulsa, Oklahoma facility and to curtail operations at our Bellwood, Virginia facility. We recorded $8.8 million of restructuring charges and other costs in 2008 in connection with such plans. In 2009, we recorded $5.4 million of restructuring charges and other costs comprised of: (i) $.8 million of additional charges in connection with our 2008 plans to close our Tulsa, Oklahoma facility and curtail operations at Bellwood, Virginia and (ii) $4.6 million in connection with plans announced in the second quarter of 2009 to further curtail operations at our Bellwood, Virginia facility. See Note 16 of Notes to Consolidated Financial statements included in Item 8. “Financial Statements and Supplementary Data” for further information regarding our 2008 and 2009 restructuring plans.
Depreciation and Amortization.Depreciation and amortization for 20072009 was $11.9$16.4 million compared to $15.3$14.7 million in 2008 and $11.9 million for 2006. The period from July 1, 2006 to December 31, 2006 and the year ended December 31, 2007 benefited from lower depreciation as a result of the application of fresh start accounting. This accounted for a reduction2007. Increases in depreciation expense of approximately $4.5 million relatedfrom 2007 to the first half of 2007 compared2008 and from 2008 to 2009 were the period from January 1, 2006 through July 1, 2006. This reduction was partially offset in 2007 by an increase in depreciation expense as a result of constructionConstruction in progress being placed into production duringthroughout the second half of 2007.2007 and 2008 primarily in relation to the various expansion projects, including the expansion project at our Trentwood facility in Spokane, Washington.


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Depreciation and amortization for 2006 was $15.3 million compared to $19.9 million for 2005. The period from July 1, 2006 to December 31, 2006 benefited from $4.3 million of lower depreciation as a result of the application of fresh start accounting.
Selling, Administrative, Research and Development, and General.Selling, administrative, research and development, and general expense totaled $69.9 million in 2009 as compared to $73.1 million in 2007 compared to $65.8 millionboth 2008 and 2007. The decrease in 2006. The increase in 2007 is primarily related to an increase in non-cash equity compensation expense from $4.0 million in 2006 to $9.1 million in 2007. In addition, in 2007 we incurred $2.8 million of additional expenses in relation to the continued investment in research and development, our Kaiser Production System group and management of our capital spending programs.
Selling,selling, administrative, research and development and general expense totaled $65.8 million in 2006expenses for 2009 as compared to $50.9 million2008 is principally due to: (i) the net reductions in 2005. The increase of $14.9 millionadministrative expense within All Other (See “Segment Information—All Other” below) and (ii) overhead cost reductions in 2006 primarily related to higher incentive compensation expense of approximately $8.3 million, approximately $1.9 million in professional fees relating to work in regard to the Sarbanes-Oxley Act of 2002 and approximately $1.3 million of costs associated with certain computer upgrades.Fabricated Products segment.
     
Other Operating (Benefits) Charges, Net.Included within Other operating (benefits) charges, net (in millions of dollars) for 2007, 20062009, 2008, and 20052007, were the following:
             
  Year Ended  Year Ended  Year Ended 
  December 31,  December 31,  December 31, 
  2009  2008  2007 
Alternative minimum tax (“AMT”) reimbursement (1) $—  $—  $(7.2)
Professional fees  —   —   (1.1)
Bad debt recoveries relating to pre-emergence write-offs  (.9)  (1.6)  — 
Pension Benefit Guaranty Corporation (“PBGC”) settlement (2)  —   —   (1.3)
Non-cash benefit resulting from settlement of a $5.0 claim by the purchaser of the Gramercy, Louisiana alumina refinery and Kaiser Jamaica Bauxite Company for payment of $.1  —   —   (4.9)
Resolution of contingencies relating to sale of property prior to emergence (3)  —   —   (1.6)
Post emergence Chapter 11 — related items (4)  —   .2   2.6 
             
Other  —   —   (.1)
          
  $(.9) $(1.4) $(13.6)
          
                  
         Predecessor 
     Year Ended December 31, 2006    
     July 1, 2006
        
  Year Ended
  through
   January 1, 2006
  Year Ended
 
  December 31,
  December 31,
   to
  December 31,
 
  2007  2006   July 1, 2006  2005 
Reimbursement of amounts paid in connection with sale of the Company’s interests in and related to QAL-Corporate:                 
AMT (Note 9) $(7.2) $—   $—  $— 
Professional fees  (1.1)  —    —   — 
Pension benefit related to terminated pension plans — Corporate (Notes 10 and 24)  —   (4.2)   —   — 
Resolution of a “pre-emergence” contingency — Corporate (Note 12)  —   (3.0)   —   — 
Pension Benefit Guaranty Corporation (“PBGC”) settlement — Corporate(1)  (1.3)  —    —   — 
Non-cash benefit resulting from settlement of a $5.0 claim by the purchaser of the Gramercy, Louisiana alumina refinery and Kaiser Jamaica Bauxite Company for payment of $.1 — Corporate  (4.9)  —    —   — 
Resolution of contingencies relating to sale of property prior to emergence — Corporate(2)  (1.6)  —    —   — 
Post emergence Chapter 11 — related items — Corporate(3)  2.6   4.5    —   — 
Charges associated with retroactive portion of contributions to defined contribution plans upon termination of defined benefit plans(4) (Note 10) —                 
Fabricated Products  —   .4    —   6.3 
Corporate  —   —    —   .5 
Other  (.1)  .1    .9   1.2 
                  
  $(13.6) $(2.2)  $.9  $8.0 
                  


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(1)The AMT reimbursement represents a reimbursement from the liquidating trustee for the plan of liquidation of two of our former subsidiaries in connection with the sale of our interests in and related to a certain discontinued operation in 2005.
(2)The PBGC proceeds consist of a payment related to a settlement agreement entered into with the PBGC in connection with the our chapter 11 reorganization (see Note 12).reorganization.
 
(2)(3)During 2007, certain contingencies related to the sale of the Predecessor’sour interest in a smelter in Tacoma, Washington were resolved with the buyer. As a result, approximately $1.6 million of the sale proceeds which had been placed into escrow at the time of sale, were released to us. At the Effective Date,our emergence from chapter 11 bankruptcy, no value had been ascribed to the funds in escrow because they were deemed to be contingent assets at that time.
 
(3)(4)Post-emergencechapter 11-related items include primarily professional fees and expenses incurred after emergence which related directly to our reorganization.
(4)Amount in 2006 represents a one time contribution related to the retroactive implementation of the hourly defined benefit plans (See Note 10).
     
Interest Expense.Interest expense was zero in 2009 compared with $1.0 million in 2008 and $4.3 million in 2007 compared with $1.92007. The change in expense from 2008 to 2009 is primarily due to $2.7 million of interest capitalization on Construction in 2006 resulting in an increase of $2.4 million. The increase inprogress therefore reducing interest expense in 2009 to zero. The decrease in expense from 2007 to 2008 is primarily related to the prepaymentresult of athe repayment of our term loan resulting in a $1.5 million write-off of the remaining unamortized deferred financing costs as interest expense and the change in total borrowing outstanding during the period, partially offset by an increase in interest capitalized as construction in progress during the year.fourth quarter of 2007.
     
Interest expense was $1.9 million in 2006 compared to $5.2 million in 2005 resulting in a decrease of $3.3 million. The period from January 1, 2006 to July 1, 2006 excluded unrecorded contractual interest expense of $47.4 million and 2005 excluded unrecorded contractual interest expense of $95.0 million because we were still in chapter 11 bankruptcy during these periods.
Reorganization Items.  We recognized no costs or benefits in relation to reorganization items in 2007 compared to a benefit of $3,090.3 million in 2006 and a cost of $1,162.1 million in 2005. The primary component of the benefit recognized in 2006 was a gain of $3,110.3 million related to the implementation of our Plan and the application of fresh start accounting. The primary component of the cost recognized in 2005 was a loss of $1,131.5 million related to the assignment of intercompany claims for the benefit of certain creditors.
Other Income (Expense) — Net.Other income (expense) — net was a charge of $.1 million in 2009 compared with a benefit of $.7 million in 2008 and a benefit of $4.7 million in 2007. The decrease from 2008 to 2009 was primarily due to lower interest income as the result of lower interest rates. The decrease from 2007 comparedto 2008 was primarily due to a benefit of $3.9 million in 2006. The increase in 2007 is primarily related to an increasedecrease in interest income of $3.3 million. Interest income was recorded$3.6 million as a reduction in reorganization expense before our emergence from bankruptcy. This increase was partially offset by a $1.6 million gain on the saleresult of real estate in 2006 compared to a loss on disposition of assets of $.6 million in 2007.lower interest earning cash balances during 2008.
     
Other income (expense) — net was a benefit of $3.9 million in 2006 compared to a charge of $2.4 million in 2005. The change of $6.3 million is primarily due to a $2.0 million increase in interest income. Interest income was recorded as a reduction in reorganization expense before our emergence from bankruptcy. Also included in 2006 was $1.6 million of gain on sales of real estate.
ProvisionProvision(Benefit) for Income Taxes.  OurThe income tax provision for 2009 was $48.1 million, or an effective tax rate was 44.6% for 2007.of 40.5%. The highdifference between the effective tax rate and the projected blended statutory tax rate for 2009 was primarily related to the following:
Impact of a non-deductible compensation expense, resulted in 2007 was impactedan increase to the income tax provision of $4.7 million, and increased the blended statutory tax provision rate by several factors including:approximately 3.9%;

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 •The Company’s equity in income before income taxes of Anglesey is treated as a reduction (increase) in Cost of products sold, excluding depreciation expense. The income tax effects of the Company’s equity in income are includedDecrease in the valuation allowance for certain federal and state net operating losses, state tax provision. Thisrate adjustments and federal general business tax credits, which resulted in $12.9 million being included ina decrease to the income tax provision increasingof $2.9 million and a decrease to the effectiveblended statutory tax provision rate by approximately 7%.of 2.4%;
 
 •Benefits associated with changes in the valuation allowance established at emergence were first utilized to reduce intangible assets, with any excess being recorded as an adjustment to Stockholders’ equity. This resulted in $62.2 million of benefits not being included in the income tax provision but increasing Stockholders’ equity. This increased the effective tax rate by approximately 34%.
 • The impact of unrecognizedUnrecognized tax benefits, including interest and penalties, increased the income tax provision by $3.0$1.3 million and the effectiveblended statutory tax provision rate by approximately 2%.1.1%; and


36

 • The foreign currency impact on unrecognized tax benefits, interest and penalties resulted in a $3.8$2.7 million currency translation adjustment that was recorded in Accumulated other comprehensive income.
• A favorable geographical distribution of income.
     Our effective tax benefit rate was 25.0% for 2008. The tax benefit from the United States pre-tax book loss was partially offset by the tax provision for Canada and United Kingdom relating to Anglesey resulting in a blended statutory tax benefit rate of 39.6%. The difference between the effective tax benefit rate and the blended statutory tax benefit rate for 2008 was primarily due to the following factors: (i) increase in the valuation allowance for certain federal and state net operating losses, state tax rate adjustments and the impairment related to Anglesey resulted in $7.1 million being included in the income tax provision, decreasing the blended statutory tax benefit rate by approximately 7.7%, (ii) our equity in income before income taxes of Anglesey is treated as a reduction (increase) in Cost of products sold excluding depreciation, and because the income tax effects of our equity in income are included in the tax provision, $3.5 million was included in the income tax provision, decreasing the blended statutory tax benefit rate by approximately 3.8%, (iii) unrecognized tax benefits, including interest and penalties, decreased the income tax benefit by $2.4 million and the blended statutory tax benefit rate by approximately 2.7%, and (iv) the foreign currency impact on unrecognized tax benefits, interest and penalties resulted in a $5.2 million currency translation adjustment that was recorded in Accumulated other comprehensive income.
Comparison of the 2007     Our effective income tax rate was 44.6% for 2007. The high effective tax rate for 2007 was impacted by several factors including (i) the income tax effects of our equity in income of Anglesey, which impacted the provision by $12.9 million, (ii) benefits associated with changes in the tax valuation allowance of $62.2 million were recorded as adjustments to Stockholders’ equity and not reflected in the ratestax provision, increasing the effective tax rate, (iii) the impact of unrecognized tax benefits, including interest and penalties, which increased the tax provision by approximately $3.0 million, and (iv) a favorable geographic distribution of income.
Derivatives
     In conducting our business, we, from time-to-time, 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 sales of fabricated aluminum products and the purchase of metal used as raw materials for our fabrication operations, (ii) the energy price risk from fluctuating prices for natural gas used in 2006our production process, and 2005(iii) foreign currency requirements with respect to cash commitments for equipment purchases and with respect to our foreign subsidiaries and affiliate. As our hedging activities are not usefulgenerally 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, significant reorganization related benefitsunrealized, non-cash gains and costs recognizedlosses may be recorded in those periods that were not subjectthe income statement as a reduction or increase in Cost of products sold, excluding depreciation, amortization and other items. We may also be exposed to normal income tax treatment. Accordingly, no comparisonmargin calls placed on derivative contracts, which we try to prior years is provided.minimize or offset through counterparty credit lines and/or the use of options. From time to time, we may modify the terms of the derivative contracts based on operational needs.
     
Income From Discontinued Operations.  Income from discontinued operations for 2006 includedThe fair value of our derivatives recorded on the Consolidated Balance Sheets at December 31, 2009 and December 31, 2008 was a payment from an insurer for certain residual claims relating to the 2000 incident at our Gramercy, Louisiana alumina facility, which was sold in 2004,net asset of $16.5 million and a refund relatednet liability of $59.6 million, respectively. The primary reasons for the increase in the net position were settlements of derivatives during 2009, giving rise to certain energy surcharges,realized losses of $52.6 million for the period, the increase in metal prices and natural gas prices, the effect of changes in outstanding foreign currency hedge positions, and changes in foreign currency rates compared to December 31, 2008. The settlement of derivatives and changes in market value of contracts resulted in the recognition of $80.5 million of unrealized mark-to-market gains on derivatives, which had been pending forwe consider to be a number of years. These amounts were partially offset by a charge resulting from an agreement between the Bonneville Power Administration and us for a rejected electric power contractnon-run-rate item (see Note 2012 of Notes to Consolidated Financial Statements included in Item 8. “Financial Statements and Supplementary Data”Supplemental Data.”). Operating results from discontinued operations for 2005 included
Fair Value Measurement
     We apply the $365.6 million gain onprovisions of ASC Topic 820,Fair Value Measurements and Disclosures, in measuring the salefair value of our interestsderivative contracts and the fair value of our Canadian pension plan assets and the plan assets of the VEBAs.
     Our derivative contracts are valued at fair value using significant observable and unobservable inputs. Such financial instruments consist of primary aluminum, natural gas, and foreign currency contracts. 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

33

significant judgment. The fair values of such financial instruments are generally classified within Level 2 of the fair value hierarchy. We have some derivative contracts 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.
     In determining the fair value of plan assets, the Company utilizes 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.
Restructuring Activities
     In December 2008, we announced plans to close operations at our Tulsa, Oklahoma facility and significantly reduce operations at our Bellwood, Virginia facility. The Tulsa and the Bellwood facilities produced primarily extruded rod and bar products sold principally to service centers for general engineering applications. The operations and workforce reductions were a result of deteriorating economic and market conditions. Approximately 45 employees at the Tulsa, Oklahoma facility and 125 employees at the Bellwood, Virginia facility were affected. As a result, we incurred restructuring costs and other charges of $8.8 million during the fourth quarter of 2008, of which $4.5 million was related to QALinvoluntary employee terminations and the favorable operating results of our interests in and$4.3 million was related to QAL, which were sold asasset impairments. During 2009, we recorded additional charges of April 1, 2005.
Cumulative Effect of Accounting Change.  Effective December 31, 2005, we adopted Financial Accounting Standards Board (FASB) Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations” (FIN 47) and recorded a cumulative effect adjustment of $4.7$.8 million in connection with these restructuring efforts, consisting primarily of costs associatedcontract termination and facility shut-down costs. Approximately $.3 million of such expense represented cash obligations, with the removalbalance represented by non-cash charges. The restructuring efforts initiated during the fourth quarter of 2008 were substantially completed by the first quarter of 2009.
     In May 2009, we announced plans to further curtail operations at our Bellwood, Virginia facility to focus solely on drive shaft and disposalseamless tube products and shut down the Bellwood, Virginia facility temporarily during the month of asbestos (allJuly 2009, in response to planned shutdowns in the automotive industry and continued weak economic and market conditions. In addition, we reduced our personnel in certain other locations in the quarter ended June 30, 2009, in an effort to streamline costs. Approximately 85 employees were affected by the reduction in force, principally at the Bellwood, Virginia location. In connection with the foregoing plans, we recorded restructuring costs and other charges of $4.6 million of which is believed$4.3 million were related to be fully containedinvoluntary employee terminations and encapsulated within walls, floors, ceilings or piping)other personnel costs, and the remaining $.3 million were principally related to a non-cash asset impairment. Of the personnel-related costs incurred, approximately $.8 million represented incremental non-cash expense, in connection with the accelerated vesting of certain older plants if such plantspreviously granted stock-based payments. The restructuring efforts initiated during the second quarter of 2009 were to undergo major renovation or be demolished (see Note 1substantially completed by the end of Notes to Consolidated Financial Statements included in Item 8. “Financial Statements and Supplementary Data”).2009.
     The following table summarizes the activity relating to cash obligations (in millions) arising from the Company’s restructuring plans:
             
  Employee  Facility-    
  Termination  Related    
  Costs  Costs  Total 
Restructuring obligations at December 31, 2007 $—  $—  $— 
             
Cash restructuring costs and other charges incurred in 2008  4.5   —   4.5 
             
Cash payments in 2008  —   —   — 
          
             
Restructuring obligations at December 31, 2008  4.5   —   4.5 
             
Cash restructuring costs and other charges incurred in 2009  3.3   .5   3.8 
             
Cash payments in 2009  (5.5)  (.5)  (6.0)
          
             
Restructuring obligations at December 31, 2009 $2.3  $—  $2.3 
          
     These restructuring activities reduced excess capacity in our manufacturing system in response to reduced demand in the general engineering and ground transportation end markets in late 2008 and 2009. Costs related to maintaining this excess capacity were

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avoided during 2009. We continue to maintain adequate capacity throughout our operations capable of meeting customer needs and serving anticipated market demand in the core markets of extruded rod and bar, seamless tube, and automotive products.
Segment and Business Unit Information
     
Our continuingFor the purposes of segment reporting under GAAP, we have one reportable segment, Fabricated Products. We also have three other business units which we combine into All Other. All Other is not considered a reportable segment. As described above, the Fabricated Products segment is comprised of our production facilities in North America which sell value-added, semi-fabricated specialty aluminum products such as heat treat sheet and plate, extrusions and forgings which are used in a wide range of industrial applications, including aerospace, defense, automotive and general engineering end-use applications. All Other is comprised of (i) Anglesey-related activities, including the smelting operations prior to September 30, 2009 and, thereafter, the purchase and sale of value-added secondary aluminum billet produced by Anglesey for which we receive a portion of a premium over normal commodity market prices recognized on a net basis as revenue, (ii) hedging activities in respect of our exposure to primary aluminum price risk and our exposure to British Pound Sterling exchange rate risk relating to Anglesey’s smelting operations through September 30, 2009, and (iii) corporate and other activities, expenses of which are organized and managed by product type and include two operating segments and the Corporate segment.not allocated to other business units. The accounting policies of the segmentssegment are the same as those described in Note 1 of Notes to Consolidated Financial Statements included in Item 8. “Financial Statements and Supplementary Data”.Data.” Segment results are evaluated internally by us before any allocation of Corporate overhead and without any charge for income taxes, interest expense, or Other operating (benefits) charges, net.other expense (income) and income taxes.
     
Fabricated Products
     
The table below provides selected operational and financial information (in millions of dollars except shipments and average sales process) for our Fabricated Products segment:segment for 2009, 2008 and 2007:
             
  Year Ended  Year Ended  Year Ended 
  December 31,  December 31,  December 31, 
  2009  2008  2007 
Shipments (mm lbs)  428.5   558.5   547.8 
             
Composition of average realized third-party sales price (per pound):            
Hedged cost of alloyed metal $.89  $1.19  $1.20 
Average realized third party value-added revenue $1.20  $1.20  $1.17 
Average realized third party sales price $2.09  $2.39  $2.37 
             
Net sales $897.1  $1,336.8  $1,298.3 
Segment Operating Income $78.2  $53.5  $169.0 
     
                      
     Year Ended December 31, 2006  Predecessor 
     July 1, 2006
   Predecessor
       
  Year Ended
  through
   January 1, 2006
     Year Ended
 
  December 31,
  December 31,
   to
     December 31,
 
  2007  2006   July 1, 2006  Combined  2005 
Shipments (mm lbs)  547.8   249.6    273.5   523.1   481.9 
Average realized third party sales price (per pound) $2.37  $2.27   $2.16  $2.21  $1.95 
Net sales $1,298.3  $567.2   $590.9  $1,158.1  $939.0 
Segment Operating Income $169.0  $60.8   $61.2  $122.0  $87.2 
For 2009, net sales of fabricated products decreased by 33% to $897.1 million, as compared to 2008, due primarily to a 23% decrease in shipments and a 13% decrease in average realized prices. Shipments of products for aerospace and high-strength applications in 2009 were 8% lower as compared to 2008 due to inventory destocking of products for aerospace and high strength applications throughout the supply chain during 2009, which was largely offset by higher contractual aerospace plate shipments. Shipments of general engineering products and automotive and custom industrial products in 2009 declined 29% as compared to 2008, reflecting weak economic and end-market conditions for general engineering and automotive applications, exacerbated by significant inventory destocking by our distributor customers and others in the value chain.
     The reduction in average realized prices reflected the pass through to customers of 25% lower underlying hedged alloyed metal prices. Value-added revenue per pound remained consistent from 2008.
Net sales of fabricated products in 2008 increased by 12%3% to $1,298.3$1,336.8 million for 2007 as compared to 2006,2007, due primarily due to a 5%2% increase in shipments and a 7%1% increase in average realized prices. Shipments of products for aerospace, high-strength and defense applications were slightly higher in 20072008 as compared to 2006,2007, reflecting continued strong demand for such products. Shipments of general engineering products as well as incremental capacity from two new heat treat plate furnaces at our Trentwood facility in Spokane, Washington which were fully operational for the entire year in 2007. This was partially offset by lower shipments of products for ground transportation and other industrial applicationsalso higher as compared to 2006.2007, but shipments for automotive and custom industrial products declined as compared to 2007. The increase in average realized price in 2008 as compared to 2007 was primarily due to higher realized value-added pricing.


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     The table below provides shipment and value-added revenue information for our three end-use product groupings for 2009, 2008 and 2007 for our Fabricated Products segment:
             
  Year Ended  Year Ended  Year Ended 
  December 31,  December 31,  December 31, 
  2009  2008  2007 
Shipments (mm lbs):            
Aerospace and high strength products  144.8   157.7   155.0 
General engineering products  189.0   258.1   245.8 
All other products  94.7   142.7   147.0 
          
   428.5   558.5   547.8 
Value added revenue(1):            
Aerospace and high strength products $278.0  $323.8  $297.4 
General engineering products  164.7   248.9   225.3 
All other products  70.7   99.8   116.5 
          
  $513.4  $672.5  $639.2 
Value added revenue per pound:            
Aerospace and high strength products $1.92  $2.05  $1.92 
General engineering products  .87   .96   .92 
All other products  .75   .70   .79 
          
  $1.20  $1.20  $1.17 
(1)Value added revenue represents net sales less hedged cost of alloyed metal.
Based on recent trends, management’s expectations for our Fabricated Products segment in 2010 include the average realized prices primarily reflects improved value-added pricing and a favorable product mix as well as the pass-through to customers of higher underlying primary aluminum prices.following:
•Aerospace and High Strength.We are optimistic about the long-term fundamentals of the aerospace industry and believe build rates of commercial aircraft will continue to be strong. While we believe destocking of inventory by service centers of aerospace and high strength products is abating, we expect destocking by airframe manufacturers to continue in the near-term. The net impact is that we expect our shipments for aerospace and high strength products to be slightly improved during the first half of 2010 from the average of the last three quarters of 2009 while the airframe manufacturers work through their inventory overhang.
•General Engineering.We expect demand for general engineering products to steadily improve with the industrial portion of the North American economy, and we are optimistic that destocking for these products has ended as service center inventories are at historic low levels.
•Custom Automotive and Industrial Products.Automotive demand is expected to improve 35% relative to 2009, tracking improved North American automotive build rates that are nonetheless expected to remain substantially below historic levels.
     
Overall, we believe the mix of products will continue to benefit from increased heat treat plate shipments in 2008 that will be made possible by incremental capacity from the third heat treat plate furnace and the new stretcher which enables us to produce heavier gauge plate products, both of which were fully operational at December 31, 2007, as well as the final Trentwood capacity expansion phase which is scheduled to be fully operational by the end of 2008. 2007 reflected an overall richer product mix which we expect to continue into 2008. Recent trends in other parts of our business that could affect 2008 include a potential weakening of industrial demand, service center re-stocking of extruded rod and bar inventories which began in late 2007 and reduced vehicle builds in 2008 offset by our participation in new automotive programs and selected export opportunities.
Net sales of fabricated products increased by 23% to $1,158.1 million for 2006 as compared to 2005, primarily due to a 13% increase in average realized prices and a 9% increase in shipments. The increase in the average realized prices primarily reflects higher underlying primary aluminum prices together with a richer product mix. The increase in volume in 2006 was led by Aero/HS and defense-related shipments. Shipments of custom automotive and industrial products and general engineering products were also higher in 2006. The increased aerospace and defense-related shipments reflect the strong demand for such products. Additionally, the first new heat treat plate furnace of our $139 million Trentwood expansion project reached full capacity and started producing in fourth quarter of 2006, contributing to increased shipments and a richer product mix in that quarter.
Operating income for 2007 of $169.0 million was $47.0 million higher than 2006. Operating income for 2007 included favorable impacts from heat treat plate of approximately $41.5 million from higher shipments2009, 2008 and stronger value added pricing as compared to the prior year. The impact of shipments for ground transportation and other industrial applications to operating income was approximately $2.1 million unfavorable. The results of 2007 also reflect higher planned major maintenance expense and other costs, including energy and research and development as compared to 2006, partially offset by improved general cost performance year over year. Depreciation and amortization in 2007 was approximately $3.4 million lower than 2006, primarily as a result of the application of fresh start accounting partially offset by Construction in progress being placed into production in 2007.
Operating income for 2006 of $122.0 million was $34.8 million higher than for the prior year. Operating income for 2006 included a favorable impact of $33.6 million from higher shipments, favorable mix, stronger value-added pricing and favorable scrap raw material costs as compared to the prior year. Energy costs and cost performance both slightly improved year over year, offset by slightly higher major maintenance. Depreciation and amortization in 2006 was $4.6 million lower than 2005, primarily as a result of the adoption of fresh start accounting.
Operating income for 2007, 2006 and 2005 includes non-run-rate items. Non-run-rate items to us are items that, while they may recur from period to period, (i) are (1) particularly material to results, (2)(ii) affect costs primarily as a result of external market factors, and (3)(iii) may not recur in future periods if the same level of underlying performance were to occur. Non-run-rate items are part of our business and operating environment but are worthy of being highlighted for the benefit of the users of the financial statements. Our intent is to allow users of the financial statements to consider our results both in light of and separately from fluctuations in underlying metal prices, natural gas prices and currency exchange rates. These items are listed below (in millions of dollars) (Predecessor:
             
  Year Ended December 31, 
  2009  2008  2007 
Segment operating income $78.2  $53.5  $169.0 
             
Metal gains (losses) (before considering LIFO)  5.5   (11.4)  (13.1)
Non-cash LIFO benefit (charges)  (8.7)  7.5   14.0 
Non-cash lower of cost or market inventory write down (1)�� (9.3)  (65.5)  — 
Mark-to-market gains (losses) (2)  4.9   (5.7)  1.7 
Restructuring charges and other costs (3)  (4.5)  (8.8)  — 
Pre-emergence related environmental costs (4)  (.7)  (5.0)  (.9)
          
Total non-run-rate items  (12.8)  (88.9)  1.7 
          
             
Segment operating income excluding non-run-rate items $91.0  $142.4  $167.3 
          
(1)The $65.5 million lower of cost or market inventory write-down in 2008 was the result of the decline in metal prices in late 2008. The $9.3 million lower of cost or market inventory write-down in 2009 was the result of a further decline in metal prices in the first quarter of 2009.
(2)Mark to market gains (losses) represent unrealized gains (losses) on natural gas and certain foreign currency derivative instruments.

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(3)Restructuring charges and other costs of $8.8 million in 2008 were the result of the restructuring plan to close the Tulsa, Oklahoma extrusion facility and to curtail operations at the Bellwood, Virginia facility. Restructuring charges and other costs of $4.5 million in 2009 include an additional $.8 million in connection with the restructuring plan described above and $3.7 million in connection with: (i) the further curtailment in the second quarter of our Bellwood, Virginia facility to focus solely on drive shaft and seamless tube products, (ii) the temporary shut down of the Bellwood, Virginia facility during the month of July 2009 and (iii) the reduction of personnel in certain other locations in the second quarter of 2009 in an effort to streamline costs (see discussion above).
(4)Pre-emergence related environmental costs were related to environmental issues at our Spokane, Washington facility that existed before our emergence from chapter 11 bankruptcy.
     As noted above, segment operating income excluding identified non-run-rate items for 2009 was $51.4 million lower than in 2008, and Successor periodsoperating income excluding identified non-run-rate items for 2008 was $24.9 million lower than in 2006 have been combined2007. Segment operating income for 2009 as compared to 2008 and for 2008 as compared to 2007 (in millions) reflects the purpose of this discussion):following impacts:
         
  2009 vs. 2008  2008 vs. 2007 
  Favorable  Favorable 
  (unfavorable)  (unfavorable) 
Sales impact $(94.0) $24.8 
Manufacturing inefficiencies(1)  13.6   (23.7)
Energy costs  18.5   (12.1)
Planned major maintenance  6.9   (2.6)
Freight costs  6.7   (3.4)
Depreciation expense  (1.6)  (2.8)
Currency exchange related  3.0   (1.3)
Other  (4.5)  (3.8)
       
Total $(51.4) $(24.9)
       
 
             
  Year Ended December 31, 
  2007  2006  2005 
 
Metal gains (losses) (before considering LIFO) $(13.1) $20.8  $4.6 
Non-cash LIFO benefit (charges)  14.0   (25.0)  (9.3)
Mark-to-market gains (losses)  1.7   (2.2)  — 
             
Total non-run-rate items $2.6  $(6.4) $(4.7)
             
(1)Manufacturing inefficiencies in 2008 were primarily the result of (i) planned interruptions in connection with the implementation of various investment programs, including the completion of our heat treat plate expansion project at our Trentwood facility in Spokane, Washington, (ii) challenges created by sudden drop in demand, and (iii) weather related inefficiencies.
     
Segment operating results for 2009, 2008 and 2007 2006 and 2005 include (losses) gains on intercompany hedging activities with the Primary Aluminumhedging business unit totaling $19.8$(42.8) million, $44.6$16.9 million, and $11.1$19.8 million, respectively. These amounts eliminate in consolidation.
All Other
     All Other is comprised of (i) Anglesey-related activities, including primary aluminum production prior to September 30, 2009 and secondary aluminum production thereafter, (ii) hedging activities in respect of our exposure to primary aluminum price risk and our exposure to British Pound Sterling exchange rate risk relating to Anglesey’s smelting operations through September 30, 2009, and (iii) corporate and other activities, expenses of which are not allocated to other business units:


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amounts eliminate in consolidation. Segment operating results exclude defined contribution savings plan charges of approximately $.4 million and $6.3 million for 2006 and 2005, respectively, which are included in Other operating (benefits) charges, net (see Note 14 of Notes to Consolidated Financial Statements included in Item 8. “Financial Statements and Supplementary Data”).
Primary AluminumPrimary/Secondary aluminum activities.
     
The table below provides selected operational and financial information (in millions of dollars except shipments and prices) for our Primary Aluminum segment:Anglesey related primary/secondary aluminum activities:
             
  Year Ended  Year Ended  Year Ended 
  December 31,  December 31,  December 31, 
  2009  2008  2007 
Shipments (mm lbs)  113.9   133.1   157.2 
Average realized third party sales price (per pound) $.79  $1.29  $1.31 
Net sales $89.9  $171.4  $206.2 
Operating Income (Loss) $8.4  $(14.8) $58.7 
     
                      
     Year Ended December 31, 2006       
     July 1, 2006
   Predecessor
     Predecessor
 
  Year Ended
  through
   January 1, 2006
     Year Ended
 
  December 31,
  December 31,
   to
     December 31,
 
  2007  2006   July 1, 2006  Combined  2006 
Shipments (mm lbs)  157.2   77.3    77.1   154.4   155.6 
Average realized third party sales price (per pound) $1.31  $1.30   $1.28  $1.29  $.95 
Net sales $206.2  $100.3   $98.9  $199.2  $150.7 
Segment Operating Income $46.5  $10.8   $12.4  $23.2  $16.4 
During 2007,2009, third party net sales of primary aluminum increased 4%decreased 47% compared to 2006.2008. The increasedecrease in net sales is primarily due to a 2% increase14% decrease in shipments and a 2% increase39% decrease in average realized prices. The lower shipments during the 2009 periods reflect the impact of the cessation of Anglesey’s smelting operation on September 30, 2009. Sales of primary aluminum from Anglesey’s smelting operations were recorded on a gross basis when title, ownership and risk of loss was passed to the buyer and collectability was reasonably assured. In connection with Anglesey's remelt operations, which commenced in the fourth quarter of 2009, we substantially reduced or eliminated our risks of inventory loss and metal prices and foreign currency exchange rate fluctuation. As we, in substance, are acting as the agent in the sales arrangement of the secondary aluminum products, the sales are and will be presented net of the cost of sales. During 2006,the fourth quarter of 2009, we did not recognize any net revenue on secondary aluminum shipments. During 2008, third party net sales of primary aluminum increased 32%decreased 17% compared to 2005. This increase2007. The decrease in 2006 was almost entirely attributablenet sales is primarily due to the increasesa 15% decrease in shipments and a 2% decrease in average realized primary aluminum prices. The net sales and unit prices do not considerlower shipments during the impact2008 periods reflect the loss of hedging transactions.production from the outage triggered by the fire on June 12, 2008 (see discussion below).
     
The following table recaps the major components of segmentthe operating results from Anglesey related primary and secondary aluminum activities for the current and prior year periods (in millions of dollars) and the discussion following the table looks atindicates the primary factors leading to such differences. Many of such factors indicated are subject to significant fluctuation from period to period and are largely impacted by items outside management’s control. See Item 1A. “Risk Factors.” (Predecessor and Successor periods in 2006 have been combined for the purpose of this discussion.)
             
      Year Ended    
      December 31,    
  2009  2008  2007 
Profit on metal sales from smelting operations (net of alumina sales)(1) $10.2  $15.5  $7.1 
Anglesey(2)  —   7.5   51.6 
Impairment of investment in Anglesey  (1.8)  (37.8)  — 
          
  $8.4  $(14.8) $58.7 
          
 
             
  Year Ended December 31, 
  2007  2006  2005 
 
Anglesey operations-related(1)(4) $58.7  $49.4  $32.5 
Internal hedging with Fabricated Products(2)  (19.8)  (44.6)  (11.1)
Derivative settlements — Pound Sterling(3)(4)  10.2   (.1)  (.6)
Derivative settlements — External metal hedging(3)(4)  (10.6)  1.2   (.3)
Market-to-market on derivative instruments(3)  8.0   17.3   (4.1)
             
  $46.5  $23.2  $16.4 
             
(1)Operating income from sales of productionrepresents earnings on metal purchases from Anglesey isand 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. Operating results in 2008 reflect the adverse impact from a fire in June 2008 (see discussion below). Anglesey results also include, for all periods presented, foreign currency transaction gains (losses) relating to our settlement of trade payables to Anglesey denominated in pounds sterling.
     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 sources of affordable power were 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 remelt and casting operations to produce secondary aluminum. Anglesey purchases its own material for the remelt and casting operation and sells its output to us and Rio Tinto, in proportion to our respective ownership interests. We expect Anglesey’s maximum production of secondary aluminum to ultimately reach approximately 140 million pounds per year, 49% of which will be sold to us in transactions structured to largely eliminate risks of inventory loss and metal price and foreign currency exchange rate fluctuation with respect to our income and cash flow related to Anglesey.
     We fully impaired our investment in Anglesey during the fourth quarter of 2008, taking into account the full curtailment of Anglesey’s smelting operations due to its inability to obtain affordable power (which we had anticipated as a likely possibility), Anglesey’s cash requirements for redundancy and pension payments, uncertainty with respect to the future of its operations, and our conclusion at that time that we should not expect to receive any dividends from Anglesey in the foreseeable future. For the first half of

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2009, based upon our continued assessment of the facts and circumstances, we recorded additional impairment charges of $1.8 million relating to our investment in Anglesey, such that our investment balance remained at zero.
     During the third quarter of 2009, Anglesey incurred a significant net loss, primarily as the result of recording charges for employee termination costs in connection with the cessation of its smelting operations. As a result of such loss 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 equity method of accounting with respect to our ownership in Anglesey during the quarter ended September 30, 2009. Accordingly, we did not recognize our share of Anglesey’s net loss for such period. We do not 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 expect the occurrence of such events during the next 12 months.
     In June 2008, Anglesey suffered a significant failure in the rectifier yard that resulted in a localized fire in one of the power transformers. As a result of the fire, Anglesey operated below its production capacity during the latter half of 2008 and incurred incremental costs, primarily associated with repair and maintenance costs, as well as loss of margin due to the outage. Under its property damage and business interruption insurance coverage, Anglesey received insurance settlement payments of approximately 14.0 million Pound Sterling in 2008 and 2009. These payments did not have any impact on our results as we fully impaired the value of our share of the insurance proceeds received by Anglesey in 2008 and we did not record our 49% share of the 2009 settlement due to the suspension of equity method of accounting in the third quarter of 2009. We do not expect to receive any such insurance proceeds paid to Anglesey through the distribution of dividends. However, in December 2009, we received a $.6 million insurance settlement payment for the loss of premium on the sale of our share of value added aluminum products resulting from the interruption of production caused by the fire.
Hedging activities.
     Our pricing of fabricated aluminum products, as discussed above, 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 our customers. However, in certain instances we do enter into firm price arrangements. In such instances, we have price risk on our anticipated primary aluminum purchases in respect of the customer’s order. As such, whenever 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 Fabricated Products and Hedging eliminate in consolidation. As more fully discussed in Item 7A. “Quantitative and Qualitative Disclosures About Market Risk,” prior to the cessation of Anglesey’s smelting operations on September 30, 2009, our net exposure to primary aluminum price risk at Anglesey offset a significant amount the volume of fabricated products shipments with underlying primary aluminum price risk. As such, we considered our access to Anglesey production overall to be a “natural” hedge against Fabricated Products firm metal-price risk. However, since the volume of fabricated products shipped under firm prices may not have matched up on a month-to-month basis with expected Anglesey-related primary aluminum shipments and to the extent that firm price contracts from our Fabricated Products segment exceeded the Anglesey related primary aluminum shipments, we used third party hedging instruments to minimize any net remaining primary aluminum price exposure existing at any time.
     As a result of the cessation of Anglesey’s smelting operations as of September 30, 2009 noted above, the “natural hedge” against primary aluminum price fluctuation created by our participation in the primary aluminum market was effectively eliminated. Accordingly, we use third party hedging instruments to limit exposure to Fabricated Products firm metal-price risks, which may have an adverse effect on our financial position, results of operations 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 British Pound Sterling exchange rate relating to Anglesey’s smelting operations through September 30, 2009.
     All hedging activities are managed centrally on behalf of our business units to minimize transaction costs, to monitor consolidated net exposures and to allow for increased responsiveness to changes in market factors.

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     The table below provides a detail of operating income from our Hedging business unit for 2009, 2008 and 2007:
             
      Year Ended  
      December 31,  
  2009 2008 2007
Internal hedging with Fabricated Products(1)  42.8   (16.9)  (19.8)
Derivative settlements — Pound Sterling(2)  (12.2)  (2.9)  10.2 
Derivative settlements — External metal hedging(2)  (29.2)  16.4   (10.6)
Market-to-market on derivative instruments(2)  75.6   (81.4)  8.0 
             
  $77.0  $(84.8) $(12.2)
             
(1)Eliminates in consolidation.
 
(3)(2)Impacted by positions and market prices.
(4)In 2007 we began to track Pound Sterling and external metal hedging derivative settlement gains and losses separately from the Anglesey operations-related income. As such we have conformed the presentation for 2006 and 2005 to that of 2007 to allow for an appropriate comparison of results.
Primary Aluminum segment operating income in 2007 as compared to 2006 was favorably impacted approximately $14.7 million by improved realized pricing (after considering the impact of hedging transactions), the components of which were (a) $24.8 million of lower losses on intercompany hedging activities with the


39

Fabricated Products segment (these intercompany hedge amounts are eliminated in consolidation), (b) $11.8 million of higher realized losses on external metal derivative transactions, and (c) $1.7 million of favorable impact from the changes in the LME price for primary aluminum on the operations of Anglesey (included in “Angleseyoperations-related” in the table above). Anglesey operations-related results in 2007 also reflected a 20% favorable contractual pricing adjustment for alumina starting in the second quarter of 2007, with a favorable impact of $7.6 million as compared to 2006. Additionally, higher shipments and lower operating costs had a favorable impact of $6.5 million on Anglesey operations-related results. The foreign currency exchange rate (Pound Sterling) caused an adverse impact of $8.0 million to Anglesey operations-related results, which was more than offset by realized hedging gains on Pound Sterling derivative transactions, which was $10.3 million more favorable in 2007 than 2006. Segment operating results for 2007 reflected unrealized mark-to-market gains for metal and currency derivative transactions of $8.0 million compared to $17.3 million for 2006.
In 2008, we anticipate that the Primary Aluminum segment will be adversely impacted by approximately $9 million due to the impact of Pound Sterling exchange rates, reflecting derivative transactions that set a higher effective exchange rate in 2008 than those in place for 2007. Additionally, management believes ocean freight cost increases will have an adverse impact of approximately $7 million in 2008 as compared to 2007.
The improvement in Anglesey operations-related results in 2006 over 2005, as well as the offsetting adverse internal hedging results were driven primarily by increases in primary aluminum market prices. Beginning in the second quarter of 2005, the Anglesey operations-related operating results were adversely affected by an approximate 20% increase in contractual alumina costs. Anglesey operations-related operating results were also affected by an approximate 15% contractual increase in Anglesey’s power costs in 2006 (an adverse change of approximately $5 million compared to 2005). Segment operating results for 2006 reflected unrealized mark-to-market gains for metal and currency derivative transactions of $17.3 million compared to unrealized losses of $4.1 million for 2006.
The nuclear plant that supplies Anglesey its power is currently slated for decommissioning in 2010. For Anglesey to be able to continue aluminum reduction past September 2009 when its current power contract expires, Anglesey will have to secure a new or alternative power contract at prices that make its aluminum reduction operations viable. No assurance can be provided that Anglesey will be successful in this regard.
In addition, given the potential for future shutdown and related costs, Anglesey temporarily suspended dividends during the last half of 2006 and the first half of 2007 while it studied future cash requirements. Based on a review of cash anticipated to be available for future cash requirements, Anglesey removed the temporary suspension of dividends and declared and paid dividends in August and December of 2007. We received total dividends of $14.3 million in respect of our 49% ownership interest in 2007. Dividends over the past five years have fluctuated substantially depending on various operational and market factors. During the last five years, cash dividends received were as follows: 2007 — $14.3, 2006 — $11.8, 2005 — $9.0, 2004 — $4.5 and 2003 — $4.3. No assurance can be given that Anglesey will not suspend dividends again in the future.
Corporate and Other activities.
     
Operating expenses within the Corporate operating expensesand Other business unit represent corporate general and administrative expenses that are not allocated to ourother business segments.units, and Other operating benefits discussed above. The table below presents non-run-rate items within the Corporate and Other business unit, operating loss and operating loss excluding non-run-rate items:
             
      Year Ended    
      December 31,    
  2009  2008  2007 
Operating loss  (44.9)  (44.8)  (33.5)
             
VEBA net periodic benefit (cost) income  (5.3)  0.6   2.6 
Pre-emergence related environmental costs  (1.7)  (0.5)  — 
Restructuring charges  (0.9)  —   — 
Other operating benefits  0.9   1.4   13.6 
          
Total non-run-rate items  (7.0)  1.5   16.2 
             
Operating loss excluding non-run-rate $(37.9) $(46.3) $(49.7)
          
     Corporate operating expenses exclude Other operating (benefit) charges, net discussed above.excluding non-run-rate items for 2009 were $8.4 million lower than such expenses for 2008. The decrease reflects primarily (i) a $2.6 million decrease in short term incentive compensation accrual, (ii) a $3.6 million reduction in professional fees and (iii) a $1.9 million reduction in stock compensation cost based upon timing of vesting and changes in vesting assumptions relating to performance shares.
     
Corporate operating expenses before non-run-rate items for 20072008 were $1.3$3.4 million higherlower than such expenses for 2007. The decrease reflects primarily (i) a $1.6 million decrease in 2006. Of this increase, salary andshort term incentive compensation accruals were $9.6accrual, (ii) a $2.7 million higher primarily as a result of better operating results in 2007 as compared to 2006. Included in the increase was an increase of $5.1 million in non-cash charges associated with equity compensation (see Note 11 of Notes to Consolidated Financial Statements included in Item 8. “Financial Statements and Supplementary Data”). These increases were partially offset by a reduction in retiree medical expense of $1.0 million, a reduction in VEBA net periodic benefit income (costs) of $3.2 million and lower costs for outside servicesprofessional fees related primarily to compliance with the Sarbanes-Oxley Act of 2002 and (iii) a $1.0 million increase in stock compensation cost based upon timing of $1.1 million. Additionally,vesting and changes in 2006 wevesting assumptions relating to performance shares offsetting partially the other decreases in operating expenses.
     We consider the restructuring costs and other charges, the environmental costs incurred approximately $1.3 million related to computer system upgrades compared to $.3 million of such costs in 2007.


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Corporate operating expenses for 2006 were $10.0 million higher than2008 in 2005. Incentive compensation accruals were $8.3 million higher in 2006 than in 2005, including a $4.0 million non-cash charge associatedconnection with the granting of vested and non-vested sharescertain of our common stock at emergence as more fullyformer production facilities, and the VEBA net period benefit costs discussed in Notes 1 and 10 of Notesabove to Consolidated Financial Statements included in Item 8. “Financial Statements and Supplementary Data.” Additionally, we incurred $1.9 million of preparation costs related to the Sarbanes-Oxley Act of 2002 and $1.3 million of costs associated with certain computer system upgrades. The remaining change in 2006 primarily reflects lower salary and other costs related to the movement toward a post-emergence structure.
be non-run-rate items.
Other MattersInformation
     
Internal Revenue Service Section 382 Ruling
On May 2, 2007, we received a ruling from the Internal Revenue Service (the “IRS”) relating to the application of Section 382 of the Internal Revenue Code of 1986 (the “Code”) to ourWe have significant federal income tax attributes (the “IRS ruling”).
attributes. Section 382 of the Code affects a corporation’s ability to use its federal income tax attributes, including its net operating loss carry-forwards, following a more than 50% change in ownership during any period of 36 consecutive months, all as determined under the Code (an “ownership change”). Under Section 382(l)(5) of the Code, if we were to have an ownership change, prior to July 6, 2008 (i.e., within the two-year period following our emergence from chapter 11 bankruptcy on July 6, 2006), our ability to use our federal income tax attributes would be eliminated. However, if we were to have an ownership change on or after July 6, 2008, our ability to use our federal income tax attributes would be limited, but not eliminated. In such circumstances, the amount of post-ownership change annual taxable income that could be offset by pre-ownership change tax attributes would be limited to an amount equal to the product of (a)(i) the aggregate value of our outstanding common shares immediately prior to the ownership change and (b)(ii) the applicable federal long-term tax exempt rate in effect on the date of the ownership change.
     
In order to reduce the risk that any change in our ownership would jeopardize the preservation of our federal income tax attributes, existing upon our emergence from chapter 11 bankruptcy, our certificate of incorporation prohibits certain transfers of our equity securities. More specifically, subject to certain exceptions for

40

transactions that would not impair our federal income tax attributes, our certificate of incorporation prohibits a transfer of our equity securities without the prior approval of our Board of Directors if either (a) the transferor holds 5% or more of the total fair market value of all of our issued and outstanding equity securities (such person, a “5% shareholder”) or (b) as a result of such transfer, either (i) any person or group of persons would become a 5% shareholder or (ii) the percentage stock ownership of any 5% shareholder would be increased (any such transfer, a “5% transaction”).
     
In addition, we entered intohave a stock transfer restriction agreement with the Union VEBA, which wasis our largest shareholder upon our emergence from chapter 11 bankruptcy.shareholder. Under the stock transfer restriction agreement, until the restriction release date, subject to exceptions for certain transactions that would not impair our federal income tax attributes, the Union VEBA is prohibited from transferring or otherwise disposing of more than 15% of the total common shares issued to the Union VEBA pursuant to our Plan during any12-month period without the prior approval of our Board of Directors. Under our Plan, the Union VEBA had rights to receive 11,439,900 common shares upon our emergence from chapter 11 bankruptcy; however, prior to emergence, the Union VEBA sold its right to 2,630,000 of such shares. Under the terms of the stock transfer restriction agreement, the Union VEBA was treated as if it received the full 11,439,900 shares at emergence and sold 2,630,000 of such shares immediately thereafter.
The stock transfer restriction agreement contemplated that a ruling would be sought from the IRS that, for purposes of Section 382 of the Code, we could treat the Union VEBA as having received 8,809,900 rather than 11,439,900 common shares pursuant to our plan of reorganization. On May 2, 2007, we received the IRS ruling, which was to that effect. As a result of the IRS ruling, under the stock transfer restriction agreement, the number of common shares that generally may be sold by the Union VEBA during any12-month period was reduced from 1,715,985 to 1,321,485 and the next date on which the Union VEBA could sell common shares without the prior consentis 1,321,485. As of our Board of Directors was January 31, 2009. At the September 2007 meeting of our Board of Directors, the Board approved a resolution granting its consent to the sale by the Union VEBA of up to 627,200 common


41

shares. All 627,200 shares were sold by the Union VEBA in the fourth quarter of 2007. The next date on which2010, the Union VEBA may sell up to 1,321,485 common shares without the prior consent of our Board of Directors is January 31, 2010.shares.
     
Preserving our federal income tax attributes affects our ability to issue new common shares because such issuances must be considered in determining whether an ownership change has occurred under Section 382 of the Code. The IRS ruling increased the number of common sharesWe estimate that we can currently issue without potentially impairing our ability to use our federal income tax attributes. As a result of the IRS ruling, we can currently issue approximately 17,400,00030.0 million common shares without potentially impairing our ability to use our federal income tax attributes. However, additional sales by the Union VEBA could, and other 5% transactions would, decrease the number of common shares we can issue during any 36 month period without impairing our ability to use our federal income tax attributes. Similarly, any issuance of common shares by us would limit the number of shares that could be transferred in 5% transactions (other than sales permitted to be made by the Union VEBA under the stock transfer restriction agreement without the consent of our Board of Directors). If at any time we were to issue the maximum number of common shares that we could possibly issue without potentially impairing our ability to use of our federal income tax attributes, there could be no 5% transactions (other than sales by the Union VEBA permitted under the stock transfer restriction agreement without the consent of our Board of Directors) during the36-month period thereafter.
Liquidity and Capital Resources
     
Summary
     
We ended 2007 with $68.7Cash and cash equivalents were $30.3 million as of December 31, 2009, up from $.2 million as of December 31, 2008. In addition to cash and cash equivalents, upour revolving credit facility is a source of liquidity for operations. Borrowing on the revolving credit facility was zero at December 31, 2009, down from $50.0$36.0 million at the end of 2006. Working capital, the excess ofDecember 31, 2008. Operating income and net cash inflows from changes in certain current assets over currentand liabilities was $289.2 million atduring 2009 contributed to the endrepayment of 2007, up from $208.5 million atrevolving credit borrowings and the end of 2006. The increase in working capital is primarily drivencash and cash equivalents. Of the $127.7 million of net cash provided by increasesoperating activities during 2009, approximately $118.7 million was attributable to operating income for the period. Significant cash flows from changes in current assets and liabilities include decreases in inventories of $29.1 million, in trade and other receivables of $30.1 million, and in net receivables from affiliate of $11.6 million. Partially offsetting these cash inventories and deferred income tax assets, partially offset byinflows was a $19.8 million decrease in current derivative assets;other accrued liabilities and a $18.5 million decrease in current derivative liabilities primarily as a result of changing underlying metal prices and foreign currency exchange rates.payables to affiliate.
     
Cash equivalents consist primarily of money market accounts and other highly liquid investments with an original maturity of three months or less when purchased. Our liquidity is affected by restricted cash that is pledged as collateral for derivative contracts with our counterparties and for certain letters of credit, or restricted to use for workers’ compensation requirements and othercertain agreements. Short term restricted cash, included in Prepaid expenses and other current assets, totaled $1.5$.9 million and $1.7$1.4 million as of December 31, 20072009 and 2006,December 31, 2008, respectively. Long term restricted cash, which was included in Other Assets, was $14.4$17.4 million and $23.5$35.4 million as of December 31, 20072009 and 2006,December 31, 2008, respectively. Included in long term restricted cash at December 31, 2009 and December 31, 2008 were zero and $17.2 million, respectively, of margin call deposits with our counterparties relating to our derivative positions.


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Cash Flows
     
The following table summarizes our cash flow from operating, investing and financing activities for each of the past three years (in millions of dollars):
                      
     Year Ended December 31, 2006    
         Predecessor
       
     Period from
   Period from
     Predecessor
 
  Year Ended
  July 1, 2006
   January 1, 2006
     Year Ended
 
  December 31,
  to December 31,
   to July 1,
     December 31,
 
  2007  2006   2006  Combined  2005 
Total cash provided by (used in):                     
Operating activities:                     
Fabricated Products $144  $62   $13  $75  $88 
Primary Aluminum  25   (7)   36   29   20 
Corporate and Other  (39)  (36)   (70)  (106)  (108)
Discontinued Operations  —   —    9   9   17 
                      
  $130  $19   $(12) $7  $17 
                      
Investing activities:                     
Fabricated Products  (62)  (30)   (27)  (57)  (30)
Corporate and Other  9   —    —   —   — 
Discontinued Operations  —   —    —   —   401 
                      
  $(53) $(30)  $(27) $(57) $371 
                      
Financing activities:                     
Corporate and Other  (58)  49    1   50   (7)
Discontinued Operations  —   —    —   —   (387)
                      
  $(58) $49   $1  $50  $(394)
                      
             
  Year Ended  Year Ended  Year Ended 
  December 31,  December 31,  December 31, 
  2009  2008  2007 
Total cash provided by (used in):            
Operating activities:            
Fabricated Products $154.1  $82.9  $162.1 
All Other  (26.4)  (36.0)  (32.5)
          
  $127.7  $46.9  $129.6 
          
Investing activities:            
Fabricated Products  (59.2)  (91.6)  (61.8)
All Other  18.5   (20.9)  9.2 
          
  $(40.7) $(112.5) $(52.6)
          
Financing activities:            
All Other  (56.9)  (2.9)  (58.3)
          
  $(56.9) $(2.9) $(58.3)
          
Operating Activities
     
Fabricated Products —In 2007,2009, Fabricated ProductsProducts’ operating activities provided approximately $144 million of cash. This amount compares with 2006 when Fabricated Products operating activities provided approximately $75$154.1 million of cash and with 2005 when the Fabricated Products operating activities of the Predecessor provided approximately $88compared to $82.9 million of cash.cash provided in 2008. Cash provided in 2009 was primarily related to operating income of $78.2 million and significant cash flows from changes in current assets and liabilities, including a decrease in accounts receivables of $16.3 million, a decrease in inventory of $28.3 million, and an increase of $11.3 million in deferred revenues related primarily to cash received during the year from customers in advance of periods for which (i) production capacity is reserved, (ii) customer commitments have been deferred or reduced or (iii) performance is completed. Cash provided by Fabricated Products segment decreased in 2008 compared to 2007 due primarily to lower operating results and 2006 wasincreases in accounts receivables and inventories (excluding the effect of lower of cost or market inventory write-down).
All Other —Cash used in operations in All Other is comprised of (i) cash provided (used) from Anglesey related operating activities, (ii) cash provided by (used in) hedging activities and (iii) cash used in corporate and other activities.
     Anglesey related activities used $6.0 million of cash in 2009, compared to cash provided from Anglesey related activities of $37.3 million and $24.5 million of cash in 2008 and 2007, respectively. Operating cash flows in all periods presented were comprised of operating income from Anglesey related activities and changes in working capital. The decrease in cash flows in 2009 compared to 2008 is primarily due to improveda decrease in operating results offsetincome as a result of the cessation of Anglesey’s smelting operation on September 30, 2009, decreases in part by increased working capital.Accounts Payable and net Payable to/Due from affiliate. The increase in working capitalcash in 2008 compared to 2007 is primarily due to a decrease in Trade receivables and 2006 was primarily the result of the impact of higher primary aluminum prices and increased demand for fabricated aluminum products on inventories and accounts receivable. Substantially all of the cash providedan increase in 2005 was generated from operating results; working capital changes were modest.Payable to affiliate.
     
Primary Aluminum —In 2007, operating activities attributable to our interest in andHedging related to Anglesey provided approximately $25 million in cash. This compares to 2006, when operating activities provided approximately $29$18.8 million of cash attributableduring 2009 compared to our interest in and related to Anglesey. In 2005 the operating activities of the Predecessor provided approximately $20$23.3 million of cash attributable toused in 2008 and $18.0 million used in 2007. Cash provided by (used in) our interests in andHedging business unit are related to Anglesey. The increases in cash flows between 2007realized hedging gains (losses) on our derivative positions and 2006 and between 2006 and 2005 were primarily attributable to increases in primary aluminum market prices.are affected by the timing of settlement of such realized gains (losses).
     
Corporate and Other —other operating activities used $39.2 million, $50.0 million and $39.0 million of cash during 2009, 2008 and 2007, respectively. Cash outflow from Corporate and Other operating activities used approximately $39in 2009 consist primarily of $4.9 million of cash during 2007. Corporateannual VEBA contribution and Other operating activities (including all “legacy” costs) used approximately $106payments of $27.2 million of cash during 2006. Corporate and Other operating activities of the Predecessor used approximately


43

$108 million of cash in 2005. Cash outflows from corporate and other operating activities in 2007, 2006 and 2005 included: (1) zero, $11 million and $37 million, respectively, in respect of former employeecash general and retiree medical obligations through fundingadministrative costs. In 2008, cash outflow consisted primarily of the VEBAs; (2) payments for reorganization costs of approximately $7 million, $28 million and $39 million, respectively; and (3) paymentspayment in respect of general and administrative costs totaling approximately $43of $34.6 million $41and annual VEBA contribution of $8.5 million. In 2007, cash outflow consisted primarily of payment in respect of cash general and administrative costs of $36.7 million $29and payment for reorganization costs of $7.0 million respectively. The cash outflows in 2007 werepartially offset by approximately $9$8.7 million of proceeds from Other operating (benefits)(benefit) charges, net. Cash outflows for Corporate and Other operating activities in 2006 also included payments pursuant to our Plan of $25 million.
Discontinued Operations —In 2006, Discontinued Operations operating activities provided $9 million of cash. This compares with 2005 when Discontinued Operations operating activities of the Predecessor provided $17 million of cash. Cash provided by Discontinued Operations in 2006 consisted of the proceeds from an $8 million payment from an insurer and a $1 million refund from commodity interests energy vendors. The decrease in cash provided by Discontinued Operations in 2006 over 2005 resulted primarily from a decrease in favorable operating results due to the sale of all of the commodity interests on April 1, 2005.
Investing Activities
     
Fabricated Products —Cash used in investing activities for Fabricated Products was $62$59.2 million in 2007. This compares2009, compared to 2006 when Fabricated Products investing activities$91.6 million and $61.8 million of cash used $57 million in cash.2008 and 2007, respectively. Cash used in investing activities in 2009, 2008 and 2007 was primarily related to our capital expenditures. Refer to “Capital Expenditures” below for Predecessor Fabricated Products was $30 millionadditional information.

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All Other —Investing activities in 2005. The increase inAll Other is primarily related to margin deposits required as cash collateral with our derivative counterparties and restricted cash we had on deposit as financial assurance for certain environmental obligations and workers’ compensation claims from the State of Washington. Cash used in investing activities in All Other was $20.9 million in 2008, representing transfers of the aforementioned margin call deposits to our counterparties relating to our derivative positions at December 31, 2008 and cash deposits required relating to workers’ compensation with the State of Washington. Cash generated from investing activities in All Other in 2009 included the return of a portion the 2008 deposits. Cash inflow in 2007 comparedwas related to 2006the release of restricted funds that we had on deposit as financial assurance for workers’ compensation claims from the State of Washington.
Financing Activities
All Other —Cash used in financing activities in 2009 was $56.9 million. The cash outflow was primarily related to the repayment of net borrowings under our revolving credit facility of $36.0 million and 2006 compared$19.6 million in cash dividends paid to 2005 isstockholders. Cash used in financing activities was $2.9 million in 2008. The cash outflow was primarily related to $28.1 million used in share repurchases and $17.2 million in cash dividends paid to shareholders, partially offset by $36.0 million of net borrowings under our revolving credit facility and $7.0 million of borrowing under a note payable (see “Debt and Capital” below). Cash used in financing activities in 2007 was primarily related to a $50.0 million repayment of the term loan and $7.4 million in cash dividends paid to shareholders.
Sources of Liquidity
     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 funds generated from the expected results of operations, together with available cash and cash equivalents and borrowing availability under our revolving credit facility, will be sufficient to finance expansion plans and strategic initiatives, which could include acquisitions, for at least the next fiscal year. There can be no assurance, however, 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.
     Under the revolving credit facility, we are able to borrow (or obtain letters of credit) from time-to-time in an aggregate amount equal to the lesser of $265 million or a borrowing base comprised of eligible accounts receivable, eligible inventory and certain eligible machinery, equipment and real estate, reduced by certain reserves, all as specified in the revolving credit facility. In addition, of the aggregate amount available under the revolving credit facility, up to $60 million may be utilized for letters of credit. The revolving credit facility matures in July 2011, at which time all principal amounts outstanding thereunder will be due and payable. Borrowings under the revolving credit facility bear interest at a rate equal to higher capital expenditureseither a base prime rate or LIBOR, at our Trentwoodoption, plus a specified variable percentage determined by reference to the then remaining borrowing availability under the revolving credit facility. The revolving credit facility may, subject to certain conditions and the agreement of lenders thereunder, be increased up to $275 million. At December 31, 2009, based upon the borrowing base determination in Spokane, WA. Refereffect as of that date, we had $171 million available under the revolving credit facility, of which $10 million was being used to “support outstanding letters of credit, leaving $161 million of availability.
     As of February 15, 2010, we had $193.5 million available for borrowings and letters of credit under the revolving credit facility, of which $10.0 million was being used to support outstanding letters of credit, leaving $183.5 million of availability. No borrowings were outstanding as of February 15, 2010 under the revolving credit facility.
     Amounts owed under the revolving credit facility may be accelerated 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. The revolving credit facility is secured by a first priority lien on substantially all of our assets and the assets of our domestic operating subsidiaries that are also borrowers thereunder. The revolving credit facility, as amended, places restrictions on our ability and certain of our subsidiaries to, among other things, incur debt, create liens, make investments, pay dividends, repurchase stock, sell assets, undertake transactions with affiliates and enter into unrelated lines of business.

43

Capital Expenditures” below for additional information.
Corporate and Other —Cash provided in investing activities for Corporate and Other was $9 million in 2007. This is related to the release of restricted funds that we had on deposit as financial assurance for workers’ compensation claims from the State of Washington.
Financing Activities
Corporate and Other —Cash used in 2007 was primarily related to a $50 million repayment of the term loan and approximately $7 million in cash dividends paid to shareholders. Cash provided in 2006 was primarily related to drawing upon the $50 million term loan facility subsequent to emergence from chapter 11 bankruptcy. Cash used in 2005 primarily relates to net cash used by Discontinued Operations of approximately $387 million.
Sources of Liquidity
     
Our most significant sources of liquidity are funds generated by operating activities, and available cash and cash equivalents.equivalents, and borrowing availability under our revolving credit facility. We believe funds generated from the expected results of operations, together with available cash and cash equivalents and borrowing availability under our revolving credit facility, will be sufficient to finance anticipated expansion plans and strategic initiatives, which could include acquisitions, for at least the next fiscal year. In addition, our revolving credit facility is available for additional working capital needs or investment opportunities. There can be no assurance, however, 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.
     
In December 2007, we expanded our revolving line of credit to $265 million. At December 31, 2007, we could borrow approximately $239.6 million under this facility. Under the revolving credit facility, we are able to borrow (or obtain letters of credit) from time to timetime-to-time in an aggregate amount equal to the lesser of $265 million andor a borrowing base comprised of eligible accounts receivable, eligible inventory and certain eligible machinery, equipment and real estate, reduced by certain reserves, all as specified in the revolving credit facility. In addition, of the aggregate amount available under the revolving credit facility, up to $60 million may be utilized for letters of credit. The revolving credit facility has a five-year term and matures in July 2011, at which time all principal amounts outstanding thereunder will be due and payable. Borrowings under the revolving credit facility bear interest at a rate equal to either a base prime rate or LIBOR, at our option, plus a specified variable percentage determined by reference to the then remaining borrowing availability under the revolving credit facility. The revolving credit facility may, subject to certain conditions and the agreement of lenders thereunder, be increased up to $275 million. At December 31, 2009, based upon the borrowing base determination in effect as of that date, we had $171 million available under the revolving credit facility, of which $10 million was being used to support outstanding letters of credit, leaving $161 million of availability.


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     As of February 15, 2010, we had $193.5 million available for borrowings and letters of credit under the revolving credit facility, of which $10.0 million was being used to support outstanding letters of credit, leaving $183.5 million of availability. No borrowings were outstanding as of February 15, 2010 under the revolving credit facility.

Amounts owed under the revolving credit facility may be accelerated upon the occurrence of various events of default set forth in the agreement, including, without limitation, the failure to make principal or interest payments when due and breaches of covenants, representations and warranties set forth in the agreement.
warranties. The revolving credit facility is secured by a first priority lien on substantially all of our assets and the assets of our USdomestic operating subsidiaries that are also borrowers thereunder. The revolving credit facility, as amended, places restrictions on our ability and certain of our subsidiaries to, among other things, incur debt, create liens, make investments, pay dividends, repurchase stock, sell assets, undertake transactions with affiliates and enter into unrelated lines of business. At January 31, 2008, there were no borrowings outstanding and approximately $12.7 million of outstanding letters of credit under the revolving credit facility.
Capital Expenditures
A component of our long-term strategy is our capital expenditure program including our organic growth initiatives.
We continue to fund our $139 million heat treat plate expansion project at our Trentwood facility in Spokane, Washington, the majority of which is now fully operational. This project significantly increases our heat treat plate production capacity and augments our product offering by increasing the thickness of heat treat stretched plate we can produce for aerospace and defense and general engineering applications. Approximately $112.7 million of spending on this project was incurred through 2007. Much of the capital spending related to the last phase of the heat treat plate project, a $34 million follow-on investment announced in June 2007, will carry over to 2008.
In 2007, we announced a $91 million investment program in our rod, bar and tube value stream including a facility expected to be located in Kalamazoo, Michigan as well as improvements at three existing extrusion and drawing facilities. This investment program is expected to significantly improve the capabilities and efficiencies of our rod and bar and seamless extruded and drawn tube operations and enhance the market position of such products. We expect the facility in Kalamazoo, Michigan to be equipped with two extrusion presses and a remelt operation. Completion of these investments is expected to occur by late 2009. Approximately $7 million of spending on these projects was incurred in 2007. Management estimates that approximately an additional $30 million to $35 million will be incurred in 2008 and the remainder will be incurred in 2009.
In February 2008, we announced $14 million of additional programs that will enhance Kaiser Select® capabilities in our Tulsa, Oklahoma and Sherman, Texas extrusion plants and significantly reduce energy consumption at one of our casting units in our Trentwood facility. We expect the majority of these additional programs to be completed during 2008.
The remainder of our capital spending in 2007 was spread among all manufacturing locations on projects expected to reduce operation costs, improve product quality or increase capacity.
The following table presents our capital expenditures, net of accounts payable, for each of the past three fiscal years (in millions of dollars):
                  
         Predecessor 
     Year Ended December 31, 2006    
     Period from
   Period from
    
  Year Ended
  July 1, 2006 through
   January 1, 2006
  Year Ended
 
  December 31,
  December 31,
   to July 1,
  December 31,
 
  2007  2006   2006  2005 
Heat treat expansion project $41  $26   $22  $18 
Rod, bar and tube value stream investment  7   —    —   — 
Other  17   10    8   13 
Capital expenditures in accounts payable  (3)  (6)   (2)  — 
                  
Total capital expenditures, net of accounts payable $62  $30   $28  $31 
                  


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Total capital expenditures for Fabricated Products are currently expected to be in the $80 million to $90 million range for 2008 and are expected to be funded using cash from operations. Capital expenditures in 2008 will primarily be comprised of (a) the remainder of the follow-on heat treat plate investment noted above, (b) additional spending related to the $91 million investment program discussed above, and (c) the $14 million of investment programs also noted above. We anticipate the remainder of the 2008 capital spending to be spread among all manufacturing locations on projects expected to reduce operating costs, improve product quality, increase capacity or enhance operational security. We anticipate capital spending in 2009 on currently approved capital projects and maintenance activities to be in the $60 million to $70 million range.
The level of capital expenditures may be adjusted from time to time depending on our business plans, price outlook for fabricated aluminum products, our ability to maintain adequate liquidity and other factors. No assurances can be provided as to the timing or success of any such expenditures.
Debt and Capital
Concurrent with the execution of the revolving credit facility on July 6, 2006 discussed in theSources of Liquiditysection
     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 funds generated from the expected results of operations, together with available cash and cash equivalents and borrowing availability under our revolving credit facility, will be sufficient to finance expansion plans and strategic initiatives, which could include acquisitions, for at least the next fiscal year. There can be no assurance, however, that we will continue to generate cash flows at or above current levels or that we entered intowill be able to maintain our ability to borrow under our revolving credit facility.
     Under the revolving credit facility, we are able to borrow (or obtain letters of credit) from time-to-time in an aggregate amount equal to the lesser of $265 million or a term loan facility with a groupborrowing base comprised of lenders that provided for a $50 million term loan guaranteedeligible accounts receivable, eligible inventory and certain eligible machinery, equipment and real estate, reduced by certain reserves, all as specified in the revolving credit facility. In addition, of our domestic operating subsidiaries.the aggregate amount available under the revolving credit facility, up to $60 million may be utilized for letters of credit. The term loanrevolving credit facility was fully drawn on August 4, 2006. The term loan facility had a five-year term expiringmatures in July 2011, at which time all principal amounts outstanding thereunder wouldwill be due and payable. Borrowings under the term loanrevolving credit facility borebear interest at a rate equal to either a premium over a base prime rate or a premium over LIBOR, at our option.option, plus a specified variable percentage determined by reference to the then remaining borrowing availability under the revolving credit facility. The revolving credit facility may, subject to certain conditions and the agreement of lenders thereunder, be increased up to $275 million. At December 31, 2009, based upon the borrowing base determination in effect as of that date, we had $171 million available under the revolving credit facility, of which $10 million was being used to support outstanding letters of credit, leaving $161 million of availability.
     As of February 15, 2010, we had $193.5 million available for borrowings and letters of credit under the revolving credit facility, of which $10.0 million was being used to support outstanding letters of credit, leaving $183.5 million of availability. No borrowings were outstanding as of February 15, 2010 under the revolving credit facility.
     Amounts owed under the revolving credit facility may be accelerated 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. The revolving credit facility is secured by a first priority lien on substantially all of our assets and the assets of our domestic operating subsidiaries that are also borrowers thereunder. The revolving credit facility, as amended, places restrictions on our ability and certain of our subsidiaries to, among other things, incur debt, create liens, make investments, pay dividends, repurchase stock, sell assets, undertake transactions with affiliates and enter into unrelated lines of business.

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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, net of accounts payable, for each of the past three fiscal years (in millions of dollars):
             
  Year Ended  Year Ended  Year Ended 
  December 31,  December 31,  December 31, 
  2009  2008  2007 
Kalamazoo, Michigan Facility (1) $47  $20  $3 
Spokane, Washington facility (2)  5   36   51 
Purchase of real property of our Los Angeles, California facility (3)  —   10   — 
Other (4)  7   28   11 
Capital expenditures in accounts payable  —   (1)  (3)
          
Total capital expenditures, net of accounts payable $59  $93  $62 
          
(1)The Kalamazoo, Michigan facility is expected to be equipped with two extrusion presses and a remelt operation. We expect it to 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 products growth for automotive applications. During 2009, we financed a portion of our capital spending at the Kalamazoo, Michigan facility through an operating lease. We estimate that an additional $25 million to $30 million will be incurred in connection with this investment program, some of which may be financed by leasing transactions, and expect the completion of this investment program in 2010.
(2)Inclusive of the $139 million heat treat plate expansion project at our Trentwood facility in Spokane, Washington. This project, completed in the fourth quarter of 2008, significantly increased our heat treat plate production capacity and augmented our product offerings by increasing the thickness of heat treat stretched plate we can produce for aerospace, defense and general engineering applications.
(3)During 2008, we purchased for $10 million the real property of our Los Angeles, California facility, which we previously leased.
(4)Other capital spending 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 for Fabricated Products are currently expected to range from $50 million to $60 million for all of 2010 and are expected to be funded using cash from operations, borrowings under our revolving credit facility, or other third party financing sources.
     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.
Debt
     On December 13, 2007,19, 2008, we executed a promissory note (the “Note”) in the term loan was paidamount of $7.0 million in full without incurring any pre-payment penalties.
connection with the purchase of real property of our Los Angeles, California facility. Interest is payable on the unpaid principal balance of the Note monthly in arrears on the outstanding principal balance at the prime rate, as defined in the Note, plus 1.5%, in no event to exceed 10% per annum, on the first day of each month. A principal payment of $3.5 million is due February 1, 2012 and the remaining principal of $3.5 million is due on February 1, 2013. The Note is secured by the deed of trust on the property.
Dividends
     
In June 2007, our Board of Directors approvedinitiated the declaration of regular quarterly cash dividends to holders of our common stock, including the holders of restricted stock. Such dividend declarations also result in the payment of a regulardividend equivalents to the holders of certain restricted stock units and the holders of performance shares with respect to one half of the performance shares. Dividends

44

declared were $.18 per common share per quarter until June 2008, at which time our Board of Directors increased the quarterly cash dividend to $.24 per common share per quarter. Total cash dividends (and dividend equivalents) paid in 2009, 2008 and 2007 were $.96 per share (or $19.6 million), $.84 per common share (or $17.2 million) and $.36 per common share (or $7.4 million), respectively.
     In January 2010, our Board of Directors declared another quarterly cash dividend of $.18 per common share. In 2007 we declared and paid a total of approximately $7.4 million, or $.36$.24 per common share, in cash dividends under this program. Additionally, on December 11, 2007, we declared a third dividend of $3.7or $4.9 million, or $.18 per common share, to stockholders of record at the close of business on January 25, 2008,2010, which was paid on or about February 15, 2008 bringing the total dividends declared for 2007 to approximately $11.1 million or $0.54 per common share.12, 2010.
     Further declaration and payment of dividends, if any, will be at the discretion of the Board of Directors and will be dependent upon our results of operations, financial condition, cash requirements, future prospects and other factors. We can give no assurance that any dividends will be declared or paid in the future. Our revolving credit facility, as amended on January 9, 2009, restricts our ability to pay dividends. We may pay cash dividends only if we maintain $100 million in borrowing availability thereunder and are not in default and would not be in default as a result of the dividend payment, and such dividends cannot exceed $25 million during any fiscal year.
Capital StructureStock Repurchase Plan
     
Successor:  OnIn June 2008, our Board of Directors authorized the July 6, 2006 effective daterepurchase of up to $75 million of our Plan, pursuantcommon shares, with repurchase transactions to the Plan, all equity interestsoccur in Kaiser outstanding immediately prioropen-market or privately negotiated transactions at such times and prices as management deemed appropriate and to such date were cancelled without consideration and issued 20,000,000 new shares of common stock to a third-party disbursing agent for distribution in accordancebe funded with our Plan.excess liquidity after giving consideration to internal and external growth opportunities and future cash flows. The repurchase plan may be modified, extended or terminated by our Board of Directors at any time. We repurchased a total of 572,706 common shares at the weighted-average price of $49.05 per share under this repurchase plan. As of December 31, 2009, $46.9 million remained available for repurchasing under the existing repurchase authorization.
     Our revolving credit facility, as amended on January 9, 2009, prohibits us from making further share repurchases. As a result, we can no longer repurchase our common shares under our stock repurchase plan or otherwise, or withhold common shares to satisfy employee minimum statutory withholding obligations in connection with the vesting of equity awards under our compensation programs, without lender approval.
Restrictions Related to Equity Capital
     As we discussed in Note 9 of Notes to Consolidated Financial Statements included in Item 8. “Financial Statements and Supplementary Data” and elsewhere in this Report, there are restrictions on the transfer of our common stock.shares. See “Other Information” above for additional information on the restrictions and related effects on our equity capital. In addition, under our revolving credit facility, there are restrictions on ability to purchaseas amended, prohibits us from repurchasing our common stock and limitations onlimits our ability to pay dividends.
Predecessor:  Prior to July 6, 2006, effective date of our Plan, MAXXAM Inc. and one of its wholly owned subsidiaries collectively owned approximately 63% of our common stock, with the remaining approximately 37% being publicly held. However, as discussed in Note 19 of Notes to Consolidated Financial Statements included in Item 8. “Financial Statements and Supplementary Data”, pursuant to our Plan, all of the pre-emergence equity interests in Kaiser were cancelled without consideration upon our emergence from chapter 11 bankruptcy on July 6, 2006.
Environmental Commitments and Contingencies
     
We are subject to a number of environmental laws and regulations, to fines or penalties assessed for alleged breaches of the environmental laws and regulations, and to claims and litigation based upon such laws.laws and regulations. Based on our evaluation of these and other environmental matters, we have established environmental accruals of $7.7$9.7 million at December 31, 2007.2009 of which $6.2 million is related to our Trentwood facility in Spokane, Washington. However, we believe that it is reasonably possible that changes in various factors could cause costs associated with these environmental matters to exceed current accruals by amounts that could be, in the aggregate, up to an


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estimated $15.5$16.9 million, primarily in connection with our ongoing efforts to address the historical use of oils containing polychlorinated biphenyls, or PCBs, at the Trentwood facility in Spokane, Washington where we are working with regulatory authorities and performing studies and remediation pursuant to several consent orders with the State of Washington.
Contractual Obligations, Commercial Commitments and Off-Balance Sheet and Other Arrangements
Contractual Obligations and Commercial Commitments
     
We are obligated to make future payments under various contracts such as long-term purchase obligations and lease agreements. We have grouped these contractual obligations into operating activities, investing activities and financing activities in the same manner as they are classified in the Statementour Statements of Consolidated Cash Flows included in Item 8. “Financial Statements and Supplemental Data” in order to provide a better understanding of the nature of the obligations and to provide a basis for comparison to historical information.

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The following table provides a summary of our significant contractual obligations at December 31, 20072009 (dollars in millions):
                         
              Payments Due by Period 
                      2014 and 
  Total  2010  2011  2012  2013  Thereafter 
Operating activities:                        
Purchase obligations(1) $220.8  $209.1  $1.4  $1.4  $1.4  $7.5 
Operating leases(1)  60.6   6.6   6.1   5.7   4.8   37.4 
Environmental liability(1)  9.7   3.9   2.6   .9   .9   1.4 
Investing activities:                        
Capital equipment(2)  4.8   4.7   .1   —   —   — 
Financing activities:                        
Note payable  7.0   —   —   3.5   3.5   — 
Other:                        
Standby letters of credit(3)  10.0                     
Uncertain tax liabilities (4)  14.5   1.0                 
                   
Total contractual obligations( 5) $327.4  $225.3  $10.2  $11.5  $10.6  $46.3 
                   
                         
        Payments Due by Period 
                 2012 and
 
  Total  2008  2009  2010  2011  Thereafter 
 
Operating activities:                        
Operating leases $10.7   3.8   3.5   2.0   .9   .5 
Purchase obligations(1)  24.8   12.5   1.2   1.2   1.2   8.7 
Deferred revenue arrangements(2)  1.5   1.5   —   —   —   — 
Investing activities:                        
Capital equipment(3)  .4   .4   —   —   —   — 
Financing activities:                        
Dividends to shareholders(4)  3.7   3.7   —   —   —   — 
Other:                        
Standby letters of credit(5)  14.1                     
Uncertain tax liabilities (FIN 48)(6)  26.5                     
                         
Total contractual obligations(7)     $21.9  $4.7  $3.2  $2.1  $9.2 
                         
 
(1)We have various contracts with suppliers of aluminum that require us to purchase minimum quantities of aluminum in future years at a price to be determined at the time of purchase primarily based on the underlying metal price at that time. Amounts presented in the table exclude such contracts as it is not possible to determine what the cost of the commitments will be at the time of payment. We believe the minimum quantities are lower than our current requirementsSee “Obligations for aluminum.Operating Activities” below.
 
(2)See “Obligations for operating activities.”Investing Activities” below.
 
(3)See “Obligations for investing activities.”
(4)See “Obligations for financing activities.”
(5)This amount represents the total amount committed under standby letters of credit, substantially all of which expire within approximately twelve12 months. The letters of credit relate primarily to workers’ compensation, environmental and other activities. As the amounts under these letters of credit are contingent on nonpayment to third parties, it is not practical to present annual payment information.
 
(6)(4)At December 31, 2007,2009, we had uncertain tax positions which ultimately could result in a tax payment.payments. As the amount of ultimate tax paymentpayments beyond 2010 is contingent on the tax authorities’ assessment, it is not practical to present annual payment information.
 
(7)(5)Total contractual obligations exclude future annual variable cash contributions to the VEBAs, which cannot be determined at this time. See “Off-Balance Sheet and Other Arrangements” below for a summary of possible annual variable cash contribution amounts at various levels of earnings and cash expenditures.


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Obligations for operating activitiesOperating Activities
     
Cash outlays for operating activities primarily consist primarily of purchase obligations with respect to our primary aluminum, other raw materials, energy and operating leases.
     We have various contracts with suppliers of aluminum that require us to purchase minimum quantities of aluminum in future years at a price to be determined at the time of purchase based primarily on the underlying metal price at that time. Amounts included in the table are based on minimum quantities at the metal price at December 31, 2009. We believe the minimum quantities are lower than our current requirements for aluminum. Actual quantities and actual metal prices at the time of purchase could be different.
     Operating leases represent multi-year obligations for certain manufacturing facilities, warehousing, , office space and equipment. Deferred revenue arrangements relate to commitment fees received from customers for future delivery of products over
     Environmental liability represents the specified contract period. While these obligations are not expected to result in cash payments, they represent contractual obligations for which we would be obligated if the specified product deliveries could not be made. Purchase obligations represent raw-material, energy and other purchase obligations.
environmental accrual at December 31, 2009.
Obligations for investing activitiesInvesting Activities
     
Capital project spending included in the preceding table represents non-cancelable capital commitments as of December 31, 2007.2009. We expect capital projects to be funded through cash from our operations.operations, borrowing under our revolving credit facility or other financing sources.

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Obligations for financing activitiesFinancing Activities
     
Cash outlays for financing activities consist of dividends to shareholders. In June 2007, our Boardobligations under long term debt. As noted above, as of Directors initiated the paymentDecember 31, 2009, we had zero borrowings outstanding under our revolving credit facility and $7.0 million of a regular quarterly cash dividend of $.18 per common share. In 2007 we declared and paid a total of approximately $7.4 million, or $.36 per common share, in cash dividends under this program. On December 11, 2007, the Company declared a third dividend of $3.7 million, or $.18 per common share, to stockholders of record at the close of business on January 25, 2008, which was paid on February 15, 2008.
note payable.
Off-Balance Sheet and Other Arrangements
     
We havehad agreements to supply alumina to and to purchase aluminum from Anglesey.Anglesey through September 30, 2009, when the power contract expired. Both the alumina sales agreement and primary aluminum purchase agreement arewere tied to primary aluminum prices. We currently purchase secondary aluminum from Anglesey based on orders from customers, in proportion to our ownership interest, at prices tied to the market price of primary aluminum.
     
Our employee benefit plans include the following:
 • We are obligated to make monthly contributions of one dollar$1.00 per hour worked by each bargaining unit employee to the appropriate multi-employer pension plans sponsored by the USW and International Association of MachinistsIAM and certain other unions at six of our production facilities. This obligation came into existence in December 2006 for fourcertain of our production facilities, uponexcept for a pension plan sponsored by the terminationUSW, to which we are obligated to make monthly contributions of four defined benefit plans. The arrangement for the other two locations came into existence during the first quarter$1.25 per hour worked by each bargaining unit employee at our Newark, Ohio and Spokane, Washington facilities starting July 2010 through July 2014, at which time we will be obligated to make monthly contributions of 2005.$1.50 per hour worked by each bargaining unit employee at our Newark, Ohio and Spokane, Washington facilities. We currently estimate that contributions will range from $1$2 million to $3$4 million per year.year through 2013.
 
 • We have a defined contribution 401(k) savings plan for hourly bargaining unit employees at five of our production facilities. We are required to make contributions to this plan for active bargaining unit employees at four of these production facilities that will rangeranging from (in whole dollars) $800 to $2,400 per employee per year, depending on the employee’s ageand/or service. This arrangement came into existence in December 2004 for two production facilities upon the termination of one defined benefit plan. The arrangement for the other three locations came into existence during December 2006.age. We currently estimate that contributions to such plans will range from $1 million to $3 million per year.
 
 • We have a defined benefit plan for our salaried employees at our production facility in London, Ontario with annual contributions based on each salaried employee’s age and years of service. At December 31, 2009, approximately 55% of the plan assets are invested in equity securities, 40% of plan assets are invested in debt securities and the remaining plans assets are invested in short term securities. The Company’s investment committee reviews and evaluates the investments portfolio. The long-term asset mix target allocation is approximately 60% in equity securities and 36% in debt securities with the remaining assets in short term securities.
 
 • We have a defined contribution 401(k) savings plan for salaried and non-bargaining unitcertain hourly employees providing for a concurrent match of up to 4% of certain contributions dollar for dollar on the first four percent of compensation made by employees plus an annual contribution of between 2% and 10% of their compensation depending on their age and years of service. All new hires after January 1, 2004 receive a fixed 2% contribution.contribution annually. We currently estimateestimates that contributions to such plan will range from $1$4 million to $3$6 million per year.
 
 • We have a non-qualified defined contribution restoration plan for key employees who would otherwise suffer a loss of benefits under our defined contribution 401(k) savings plan as a result of the limitations by the Code.


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 • We have an annual variable cash contribution to the Salaried VEBA underand Union VEBA pursuant to various agreements reached during our chapter 11 bankruptcy.with the VEBAs. Under these agreements, the amount to be contributed to the VEBAs will be 10% of the first $20 million of annual cash flow (as defined; but generally, earnings before interest, taxes and depreciation and amortization (“EBITDA”) less cash payments for, among other things, interest, income taxes and capital expenditures), plus 20% of annual cash flow, as defined, in excess of $20 million. OurIn connection with the renegotiation and entry of a labor agreement with the USW in regard to employees of our Newark, Ohio and Spokane, Washington facilities on January 20, 2010, we agreed to extend our obligation to make annual variable cash contributions to the Union VEBA terminates for periods beginning after December 31, 2012.to September 30, 2017. Under these agreements the aggregate annual payments may not exceed $20 million and are also limited (with no carryover to future years) to the extent that the payments would cause our liquidity to be less than $50 million. Such amounts are determined on an annual basis and payable upon the earlier of (a)within 120 days following the end of fiscal year, or within 15 days following the date on which we file our 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 our annual financial statements)., whichever is earlier. At December 31, 2009, an annual contribution of $2.4 million was accrued and is payable in the first quarter of 2010.
The following table shows (in millions of dollars) the estimated amount of variable VEBA payments that would occur under these agreements at differing levels of earnings before depreciation, interest, income taxes (“EBITDA”) and cash payments in respect of, among other items, interest, income taxes and capital expenditures. The table below does not consider the liquidity limitation and certain other factors that could impact the amount of variable VEBA payments due and, therefore, should be considered only for illustrative purposes.
                 
  Cash Payments for
 
  Capital Expenditures, Income Taxes,
 
  Interest Expense, etc. 
EBITDA
 $25.0  $50.0  $75.0  $100.0 
 
$20.0 $—  $—  $—  $— 
 40.0  1.5   —   —   — 
 60.0  5.0   1.0   —   — 
 80.0  9.0   4.0   .5   — 
100.0  13.0   8.0   3.0   — 
120.0  17.0   12.0   7.0   2.0 
140.0  20.0   16.0   11.0   6.0 
160.0  20.0   20.0   15.0   10.0 
180.0  20.0   20.0   19.0   14.0 
200.0  20.0   20.0   20.0   18.0 
 The following table shows (in millions of dollars) the estimated amount of variable VEBA payments that would occur under these agreements at differing levels of EBITDA and cash payments in respect of, among other items, interest, income taxes and capital expenditures. The table below does not consider the liquidity

47

limitation and certain other factors that could impact the amount of variable VEBA payments due and, therefore, should be considered only for illustrative purposes.
                   
        Cash Payments for    
    Capital Expenditures, Income Taxes,
        Interest Expense, etc.   
EBITDA $25.0 $50.0 $75.0 $100.0
$20.0  $—  $—  $—  $— 
 40.0   1.5   —   —   — 
 60.0   5.0   1.0   —   — 
 80.0   9.0   4.0   .5   — 
 100.0   13.0   8.0   3.0   — 
 120.0   17.0   12.0   7.0   2.0 
 140.0   20.0   16.0   11.0   6.0 
 160.0   20.0   20.0   15.0   10.0 
 180.0   20.0   20.0   19.0   14.0 
 200.0   20.0   20.0   20.0   18.0 
• We have a short term incentive compensation plan for certain members of management, payable in cash which isand based primarily on earnings, adjusted for certain safety and performance factors. Most of our production facilities have similar programs for both hourly and salaried employees.
 
 •We have a stock-based long-term incentive planOn July 6, 2006, the 2006 Equity and Performance Incentive Plan (as amended, the “Equity Incentive Plan”) became effective. Under the Equity Incentive Plan, awards are granted for certain members of management, our directors, and our directors. Asdirectors emeritus, as more fully discussed in Note 1110 of Notes to Consolidated Financial Statements, included in Item 8,8. “Financial Statements and Supplementary Data,Data.” an initial, emergence-related award was made under this program in the second half of 2006. Awards were alsohave been made in April and June 2007each calendar year, since inception of the Equity Incentive Plan, and additional awards are expected to be made in 2010 and future years.
•We have outstanding letters of credit of $10.0 million under our revolving credit facility as of December 31, 2009.
Critical Accounting Estimates
     
Our consolidated financial statements are prepared in accordance with United States Generally Accepted Accounting Principles (“GAAP”).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 and expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance


49

with United States GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.
     
Our significant accounting policies are discussed in Note 1 “Summary of Significant Accounting Policies, of Notes to Consolidated Financial Statements” included in Item 8,8. “Financial Statements and Supplementary Data.” Management believes that the following accounting estimates are the most critical to aid in fully understanding and evaluating our reported financial results, and require management’s most difficult, subjective or complex judgments, resulting from the need to make estimates about the effects of matters that are inherently uncertain. Management has reviewed these critical accounting estimates and related disclosures with the Audit Committee of our Board.Board of Directors.
Potential Effect if Actual Results
DescriptionJudgments and UncertaintiesDiffer From Assumptions
Application of fresh start accounting.
Upon emergence from chapter 11 bankruptcy, we applied “fresh start” accounting to our consolidated financial statements as required bySOP 90-7. As such, in July 2006, we adjusted stockholders’ equity to equal the reorganization value of the entity at emergence. Additionally, items such as accumulated depreciation, accumulated deficit and accumulated other comprehensive income (loss) were reset to zero. We allocated the reorganization value to our individual assets and liabilities based on their estimated fair value at the emergence date based, in part, on information from a third party appraiser. Such items as current liabilities, accounts receivable and cash reflected values similar to those reported prior to emergence. Items such as inventory, property, plant and equipment, long-term assets and long-term liabilities were significantly adjusted from amounts previously reported. Because fresh start accounting was adopted at emergence and because of the significance of liabilities subject to compromise that were relieved upon emergence, meaningful comparisons between the historical financial statements and the financial statements from and after emergence are difficult to make.We determine fair value using widely accepted valuation techniques, including discounted cash flow and market multiple analyses. These types of analyses contain uncertainties because they require management to make assumptions and to apply judgment to estimate industry economic factors and the profitability of future business strategies.Although we believe that the judgments and estimates discussed herein are reasonable, if actual results are not consistent with our estimates or assumptions, we may be exposed to an impairment charge that could be significant.


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    Potential Effect if Actual Results
Description Judgments and Uncertainties Differ From Assumptions
Our judgments and estimates with respect to commitments and contingencies.
    
Valuation of legal and other contingent claims is subject to a great deal of judgment and substantial uncertainty. Under United States GAAP, companies are required to accrue for contingent matters in their financial statements only if both (i) the amount of any potential loss is both “probable” and (ii) the amount (or a range) of possibleprobable loss is “estimatable.” In reaching aIn estimating the amount of any loss, in many instances a single estimation of the loss may not be possible. Rather, we may only be able to estimate a range for possible losses. In such event, GAAP requires that a liability be established for at least the minimum end of the range assuming that there is no other amountAlthough we believe that the judgments and estimates discussed herein are reasonable, actual results could differ, and we may be exposed to losses or gains that could be material if different than those reflected in our accruals. To the extent we prevail in matters for which reserves have been established or are required to pay amounts in

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Potential Effect if Actual Results
DescriptionJudgments and UncertaintiesDiffer From Assumptions
determination of the probability of an adverse ruling in respect of a matter, we typically consult outside experts. However, any such judgments reached regarding probability are subject to significant uncertainty. We may, in fact, obtain an adverse ruling in a matter that we did not consider a “probable” loss or “estimatable” and which, therefore, was not accrued for in our financial statements. Additionally, facts and circumstances in respect of a matter can change causing key assumptions that were used in previous assessments of a matter to change. It is possible that amounts at risk in respect of one matter may be “traded off” against amounts under negotiations in a separate matter. In estimating the amount of any loss, in many instances a single estimation of the loss may not be possible. Rather, we may only be able to estimate a range for possible losses. In such event, United States GAAP requires that a liability be established for at least the minimum end of the range assuming that there is no other amount which is more likely to occur. Although we believe that the judgments and estimates discussed herein are reasonable, actual results could differ, and we may be exposed to losses or gains that could be material if different than those reflected in our accruals.
To the extent we prevail in matters for which reserves have been established or are required to pay amounts in excess of our reserves, our future results from operations could be materially affected.


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Our judgments and estimates in respect of defined benefit plans.
    
    Potential Effect if Actual Results
DescriptionJudgments and UncertaintiesDiffer From Assumptions
Our judgments and estimates in respect of our employee defined benefit plans. 
At December 31, 20072009, we had two defined benefit postretirement medical plans (the postretirement medical plans maintained by the VEBAs which we are required to reflect on our financial statements)statements despite our limited obligations to the VEBAs in regard to those plans) and a pension plan for our Canadian plant. Liabilities and expenses for pension and other postretirement benefits are determined using actuarial methodologies and incorporate significant assumptions, including the rate used to discount the future estimated liability, the long-term rate of return on plan assets, and several assumptions relating to the employee workforce (salary(i.e., salary increases, medical costs, retirement age, and mortality). The most significant assumptions used in determining the estimated year-end obligations were the assumed discount rate, long-term rate of return (“LTRR”) and the assumptions regarding future medical cost increases (Seeincreases.

In addition to the above assumptions used in the actuarial valuation, changes in plan provisions could also have a material impact on the net funded status of the VEBAs. Our only obligation to the VEBAs is to pay the annual variable contribution amount and we have no control over the plan provisions. We rely on information provided to us by the VEBA administrators with respect to specific plan provisions such as annual benefits paid.

See Note 10).9 of Notes to Consolidated Financial Statements included in Item 8. “Financial Statements and Supplementary Data” for additional information in respect of the benefit plans.		 Since recorded obligations represent the present value of expected pension and postretirement benefit payments over the life of the plans, decreases in the discount rate (used to compute the present value of the payments) would cause the estimated obligations to increase. Conversely, an increase in the discount rate would cause the estimated present value of the obligations to decline. The LTRR on plan assets reflects an assumption regarding what the amount of earnings would be on existing plan assets (before considering any future contributions to the plans). Increases in the assumed LTRR would cause the projected value of plan assets available to satisfy pension and postretirement obligations to increase, yielding a reduced net expense in respect of these obligations. A reduction in the LTRR would reduce the amount of projected net assets available to satisfy pension and postretirement obligations and, thus, cause the net expense in respect of these obligations to increase. As the assumed rate of increase in medical costs goes up, so does the net projected obligation. Conversely, if the rate of increase was assumed to be smaller, the projected obligation would decline.

A change in plan provisions would cause the estimate obligations to change. An increase in annual paid benefits would increase the estimated present value of the obligations and conversely, a decrease in annual paid benefits would decrease the present value of the obligations.		 The rate used to discount future estimated liabilities is determined considering the rates available at year end on debt instruments that could be used to settle the obligations of the plan. A change in the discount rate of 1/4 of 1% would impact the accumulated pension benefit obligations by approximately $.2 million, $1.3 million and $7.0$6 million in relation to the Canadian pension plan, the Salaried VEBA that provides benefits for eligible salaried retirees and their surviving spouses and eligible dependents (the “Salaried VEBA”) and the Union VEBA, respectively, and have an immaterial impact to net income in 2008.2010 expense by $.5 million.

The long-term rate of returnLTRR on plan assets is estimated by considering historical returns and expected returns on current and projected asset allocations. A change in the assumption for the long-term rate of returnLTRR on plan assets of 1/4 of 1% would impact net incomeexpense by approximately zero, $.2$.1 million and $.9 million in 20082010 in relation to the Canadian pension plan, the Salaried VEBA and the Union VEBA, respectively.

An increase in the health care trend rate of 1/4 of 1% would increase the accumulated benefit obligations of the Union VEBA by approximately $6.7$5.0 million and net incomeincrease 2010 expense by $.6 million in 2008 and$.9 million. Conversely, a decrease in the health care trend rate of 1/4 of 1% would decrease accumulated benefit obligations of the Union VEBA by approximately $7.0$6.2 million and net incomedecrease 2010 expense by $.5 million$1.0 million.

A change of $250 in 2008.annual benefits per participant would change the estimated present value of the obligations of the Salaried VEBA by $8.7 million.


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    Potential Effect if Actual Results
Description Judgments and Uncertainties Differ From Assumptions
Our judgments and estimates in respect to environmental commitments and contingencies.
    
We are subject to a number of environmental laws and regulations, to fines or penalties assessed for alleged breaches of such laws and regulations and to claims and litigation based upon such laws and regulations. Based on our evaluation of environmental matters, we have established environmental accruals, primarily related to potential solid waste disposal and soil and groundwater remediation matters. These environmental accruals represent our estimate of costs reasonably expected to be incurred on a going concern basis in the ordinary course of business based on presently enacted laws and regulations, currently available facts, existing technology and our assessment of the likely remediation action to be taken.

See Note 11 of Notes to Consolidated Financial Statements included in Item 8. “Financial Statements and Supplementary Data” for additional information in respect of environmental contingencies.		 Making estimates of possible environmental remediation costs is subject to inherent uncertainties. As additional facts are developed and definitive remediation plans and necessary regulatory approvals for implementation of remediation are established or alternative technologies are developed, changes in these and other factors may result in actual costs exceeding the current environmental accruals. Although we believe that the judgments and estimates discussed herein are reasonable, actual results could differ, and we may be exposed to losses or gains that could be material if different than those reflected in our accruals.

To the extent we prevail in matters for which reserves have been established, or are required to pay amounts in excess of our reserves, our future results from operations could be materially affected.
See Note 12 of Notes to Consolidated Financial Statements in Item 8. “Financial Statements and Supplementary Data” for additional information in respect of environmental contingencies.    


53

Our judgments and estimates in respect of conditional asset retirement obligations.
    
    Potential Effect if Actual Results
DescriptionJudgments and UncertaintiesDiffer From Assumptions
Our judgments and estimates in respect of conditional asset retirement obligations. 
We recognize conditional asset retirement obligations (CAROs)(“CAROs”) related to legal obligations associated with the normal operations of certain of our facilities. These CAROs consist primarily of incremental costs that would be associated with the removal and disposal of asbestos (all of which is believed to be fully contained and encapsulated within walls, floors, ceilings or piping) of certain of the older facilities if such facilities were to undergo major renovation or be demolished. NoThere are currently plans currently exist for any such renovation or demolition of suchcertain facilities and the Company’sour current assessment is that certain immaterial CAROs could be triggered in the next seven years. Other locations, in which there are no current plans for renovations or demolitions, the most probable scenarios are that no such CAROscenario is those related CARO’s would not be triggered for 20 or more years, if at all.
Under current accounting guidelines, liabilities and costs for CAROs must be recognized in a company’s financial statements even if it is unclear when or if the CARO will be triggered. If it is unclear when or if a CARO will be triggered, companies are required to use probability weighting for possible timing scenarios to determine the probability weighted amounts that should be recognized in the company’s financial statements.		 The estimation of CAROs is subject to a number of inherent uncertainties including: (1) the timing of when any such CARO may be incurred, (2) the ability to accurately identify all materials that may require special handling or treatment, (3) the ability to reasonably estimate the total incremental special handling and other costs, (4) the ability to assess the relative probability of different scenarios which could give rise to a CARO, and (5) other factors outside a company’s control including changes in regulations, costs and interest rates. As such, actual costs and the timing of such costs may vary significantly from the estimates, judgments and probable scenarios we considered, which could, in turn, have a material impact on our future financial statements. Although we believe that the judgments and estimates discussed herein are reasonable, actual results could differ, and we may be exposed to losses or gains that could be material if different than those reflected in our accruals.
Under current accounting guidelines, liabilities and costs for CAROs must be recognized in a company’s financial statements even if it is unclear when or if the CARO will be triggered. If it is unclear when or if a CARO will be triggered, companies are required to use probability weighting for possible timing scenarios to determine the

50

Potential Effect if Actual Results
DescriptionJudgments and UncertaintiesDiffer From Assumptions
probability weighted amounts that should be recognized in the company’s financial statements.
See Note 54 of Notes to Consolidated Financial Statements included in Item 8. “Financial Statements and Supplementary Data” for additional information in respect of environmental contingencies.    


54

     
Long Lived Assets.
   Potential Effect if Actual Results
DescriptionJudgments and UncertaintiesDiffer From Assumptions
 
Long Lived Assets    
Long-lived assets other than goodwill and indefinite-lived intangible assets, which are separately tested for impairment, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. When evaluating long-lived assets for potential impairment, we first compare the carrying value of the asset to the asset’s estimated future cash flows (undiscounted and without interest charges). If the estimated future cash flows are less than the carrying value of the asset, we calculate an impairment loss. The impairment loss calculation compares the fair value, which may be based on estimated future cash flows (discounted and with interest charges). We recognize an impairment loss if the amount of the asset’s carrying value exceeds the assets estimated fair value. If we recognize an impairment loss, the adjusted carrying amount of the asset becomes its new cost basis. For a depreciable long-lived asset, the new cost basis will be depreciated (amortized) over the remaining useful life of that asset. Our impairment loss calculations would contain uncertainties because they require management to make assumptions and apply judgment to estimate future cash flows and asset fair values, including forecasting useful lives of the assets and selecting the discount rate that reflects the risk inherent in future cash flows. We have not made any material changes in our impairment loss assessment methodology during the past three fiscal years.

We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate long-lived asset impairment losses. However, if actual results are not consistent with our estimates and assumptions used in estimating future cash flows and asset fair values, we may be exposed to further losses from impairment charges that could be material.


55

     
Income Tax Provision.
   Potential Effect if Actual Results
DescriptionJudgments and UncertaintiesDiffer From Assumptions
 
Income Tax Provision.    
We have substantial tax attributes available to offset the impact of future income taxes. We have a process for determining the need for a valuation allowance with respect to these attributes. The process includes an extensive review of both positive and negative evidence including our earnings history, future earnings, adverse recent occurrences, carry forward periods, an assessment of the industry and the impact of the timing differences. At the conclusion of this process in 2007, we determined we met the “more likely than not” criteria to recognize the vast majority of our tax attributes. The benefit associated with the reduction of the valuation allowance, previously recorded against these tax attributes, was recorded as an adjustment to Stockholders’ equity rather than as a reduction of income tax expense.

We expect to record a full statutory tax provision in future periods and, therefore, the benefit of any tax attributes realized will only affect future balances sheets and statements of cash flows.
In accordance with United States GAAP, financial statements for interim periods include an income tax provision based on the effective tax rate expected to be incurred in the current year.		 Inherent within the completion of our assessment of the need for a valuation allowance, we made significant judgments and estimates with respect to future operating results, timing of the reversal of deferred tax assets and our assessment of current market and industry factors. In order to determine the effective tax rate to apply to interim periods, estimates and judgments are made (by taxable jurisdiction) as to the amount of taxable income that may be generated, the availability of deductions and credits expected and the availability of net operating loss carry forwards or other tax attributes to offset taxable income.

Making such estimates and judgments is subject to inherent uncertainties given the difficulty predicting such factors as		Although we believe that the judgments and estimates discussed herein are reasonable, actual results could differ, and we may be exposed to losses or gains that could be material.

A change in our effective tax rate by 1% would have had an impact of approximately $1.2 million to net income for the year ended December 31, 2009.

51

Potential Effect if Actual Results
DescriptionJudgments and UncertaintiesDiffer From Assumptions
provision in future periods and, therefore, the benefit of any tax attributes realized will only affect future balances sheets and statements of cash flows.

In accordance with GAAP, financial statements for interim periods include an income tax provision based on the effective tax rate expected to be incurred in the current year.		future market conditions, customer requirements, the cost for key inputs such as energy and primary aluminum, overall operating efficiency and many other items. However, if among other things, (1) actual results vary from our forecasts due to one or more of the factors cited above or elsewhere in this Report, (2) income is distributed differently than expected among tax jurisdictions, (3) one or more material events or transactions occur which were not contemplated, (4) other uncontemplated transactions occur, or (5) certain expected deductions, credits or carry forwards are not be available, it is possible that the effective tax rate for a year could vary materially from the assessments used to prepare the interim consolidated financial statements. See Note 98 of Notes to Consolidated Financial Statements included in Item 8. “Financial Statements and Supplementary Data” for additional discussion of these matters. Although we believe that the judgments and estimates discussed herein are reasonable, actual results could differ, and we may be exposed to losses or gains that could be material.
A change in our effective tax rate by 1% would have had an impact of approximately $1.8 to net income for the year ended December 31, 2007.


56

 
Tax Contingencies.
    
    Potential Effect if Actual Results
DescriptionJudgments and UncertaintiesDiffer From Assumptions
Tax Contingencies. 
We adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109 (“FIN 48”) at emergence. The adoption of FIN 48 did not have a material impact on our financial statements.
In accordance with FIN 48, we use a “more likely than not” threshold for recognition of tax attributes that are subject to uncertainties and measure reserves in respect of such expected benefits based on their probability as prescribed by FIN 48.probability. A number of years may elapse before a particular matter, for which we have established a reserve, is audited and fully resolved or clarified. We adjust our FIN 48tax reserve and income tax provision in the period in which actual results of a settlement with tax authorities differs from our established reserve, the statute of limitations expires for the relevant tax authority to examine the tax position or when more information becomes available. See Note 8 of Notes to Consolidated Financial Statements included in Item 8. “Financial Statements and Supplementary Data” for additional information in respect of the recognition of tax attributes.		 Our FIN 48 reserve containsfor contingent tax liabilities reflects uncertainties because management is required to make assumptions and to apply judgment to estimate the exposures associated with our various filing positions.

Our effective income tax rate is also affected by changes in tax law, the tax jurisdiction of new plants or business ventures, the level of earnings and the results of tax audits.		 Although management believes that the judgments and estimates discussed herein are reasonable, actual results could differ, and we may be exposed to losses or gains that could be material.

To the extent we prevail in matters for which reserves have been established, or are required to pay amounts in excess of our reserves, our effective income tax rate in a given financial statement period could be materially affected. An unfavorable tax settlement could require use of our cash and would result in an increase in our effective income tax rate in the period of resolution. A favorable tax settlement would be recognized as a reduction in our effective income tax rate in the period of resolution.

Our liability related to uncertain tax positions at December 31, 2009 was $14.5 million.
Inventory Valuation
We value our inventories at the lower of cost or market value. For the Fabricated Products segment, finished products, work in process and raw material inventories are stated on LIFO basis and other inventories, principally operating supplies and repair and maintenance parts, are stated at average cost.Our estimate of market value of our inventories contains uncertainties because management is required to make assumptions and to apply judgment to estimate the selling price of our inventories, costs to complete our inventories and normal profit margin.Although we believe that the judgments and estimates discussed herein are reasonable, actual results could differ, and we may be exposed to losses or gains that could be material.

A change in our effective tax ratenormal profit margin by 1%

52

Potential Effect if Actual Results
DescriptionJudgments and UncertaintiesDiffer From Assumptions
All inventories in All Other are stated on the first-in, first-out basis. Inventory costs consist of material, labor and manufacturing overhead, including depreciation. Abnormal costs, such as idle facility expenses, freight, handling costs and spoilage, are accounted for as current period charges. We determine the market value of our inventories based on the current replacement cost, by purchase or by reproduction, except that it does not exceed the net realizable value and it is not less than net realizable value reduced by an approximate normal profit margin.Making such estimates and judgments is subject to inherent uncertainties given the difficulty predicting such factors as future commodity prices and market conditions.would have had an impact of approximately $2.2 million on income before income taxes for the year ended December 31, 2009.

A change in our selling price by 1% would have had an impact of approximately $1.8 to net$.1 million on income before income taxes for the year ended December 31, 2007.
Predecessor:
Our critical accounting policies after emergence from chapter 11 bankruptcy will, in some cases, be different from those before emergence. Many of the significant judgments affecting our financial statements relate to matters related to chapter 11 bankruptcy proceedings or liabilities that were resolved pursuant to our Plan. Where critical accounting policies before emergence were the same as current policiesand/or no unique circumstances existed, the policies are not repeated below.
1. Predecessor Reporting While in Reorganization.
Our consolidated financial statements as of and for dates and periods prior to July 1, 2006, were prepared on a “going concern” basis in accordance withSOP 90-7 and did not include the impacts of our Plan including adjustments relating to recorded asset amounts, the resolution of liabilities subject to compromise and the cancellation of the interests of our pre-emergence stockholders. Adjustments related to our Plan materially affected the consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data” as more fully shown in the opening July 1, 2006 balance sheet presented in Note 2 of Notes to Consolidated Financial Statements included in Item 8. “Financial Statements and Supplementary Data”.
In addition, during the course of the chapter 11 bankruptcy proceedings, there were material impacts including:
• Additional filing date claims were identified through the proof of claim reconciliation process and arose in connection with actions taken by us in the chapter 11 bankruptcy proceedings. For example, while we considered rejection of the Bonneville Power Administration, or BPA, contract to be2009.

A change in our best long-term interests,cost to complete by 1% would have had an impact of approximately $.6 million on income before income taxes for the rejection resulted in an approximate $75 million claim by the BPA. In the second quarter of 2006, an agreement with the BPA was approved by the Bankruptcy Court under which the claim was settled for a pre-petition claim of $6.1 million.year ended December 31, 2009.


57

• The amount of pre-filing date claims ultimately allowed by the Bankruptcy Court in respect of contingent claims and benefit obligations was materially different from the amounts reflected in our consolidated financial statements.
• As more fully discussed below, changes in business plans precipitated by the chapter 11 bankruptcy proceedings resulted in significant charges associated with the disposition of assets.
2. Our judgments and estimates with respect to commitments and contingencies.
Valuation of legal and other contingent claims is subject to judgment and substantial uncertainty. Under United States GAAP, companies are required to accrue for contingent matters in their financial statements only if the amount of any potential loss is both “probable” and the amount or range of possible loss is “estimatable.” In reaching a determination of the probability of adverse rulings, we typically consult outside experts. However, any judgments reached regarding probability are subject to significant uncertainty. We may, in fact, obtain an adverse ruling in a matter that it did not consider a “probable” loss and which was not accrued for in our financial statements. Additionally, facts and circumstances causing key assumptions that were used in previous assessments are subject to change. It is possible that amounts at risk in one matter may be “traded off” against amounts under negotiation in a separate matter. Further, in many instances a single estimation of a loss may not be possible. Rather, we may only be able to estimate a range for possible losses. In such event, United States GAAP requires that a liability be established for at least the minimum end of the range assuming that there is no other amount which is more likely to occur.
Prior to our emergence from chapter 11 bankruptcy, we had two potentially material contingent obligations that were subject to significant uncertainty and variability in their outcome: (1) the USW unfair labor practice claim and (2) the net obligation in respect of personal injury-related matters.
As more fully discussed in Note 24 of Notes to Consolidated Financial Statements included in Item 8. “Financial Statements and Supplementary Data”, we accrued an amount in the fourth quarter of 2004 for the USW unfair labor practice matter. We did not accrue any amount prior to the fourth quarter of 2004 because we did not consider the loss to be “probable.” Our assessment had been that the possible range of loss in this matter ranged from zero to $250 million based on the proof of claims filed (and other information provided) by the National Labor Relations Board, or NLRB, and the USW in connection with our chapter 11 bankruptcy proceedings. While we continued to believe that the unfair labor practice charges were without merit, during January 2004, we agreed to allow a claim in favor of the USW in the amount of the $175 million as a compromise and in return for the USW agreeing to substantially reduce or eliminate certain benefit payments as more fully discussed in Note 24 of Notes to Consolidated Financial Statements included in Item 8. “Financial Statements and Supplementary Data”. However, this settlement was not recorded at that time because it was still subject to Bankruptcy Court approval. The settlement was ultimately approved by the Bankruptcy Court in February 2005 and, as a result of the contingency being removed with respect to this item (which arose prior to the December 31, 2004 balance sheet date), a non-cash charge of $175 million was reflected in our consolidated financial statements at December 31, 2004.
Also, as more fully discussed in Note 24 of Notes to Consolidated Financial Statements included in Item 8. “Financial Statements and Supplementary Data”, we were one of many defendants in personal injury claims by a large number of persons who assert that their injuries were caused by, among other things, exposure to asbestos during, or as a result of, their exposure to products containing asbestos last produced or sold by us more than 20 years ago. We have also previously disclosed that certain other personal injury claims had been filed in respect of alleged pre-filing date exposure to silica and coal tar pitch volatiles. Due to the chapter 11 bankruptcy proceedings, existing lawsuits in respect of all such personal injury claims were stayed and new lawsuits could not be commenced against us. Our June 30, 2006 financial statements included a liability for estimated asbestos-related costs of $1,115 million, which represented our estimate of the minimum end of a range of costs. The upper end of our estimate of costs was approximately $2,400 million and we were aware that certain constituents had asserted that they believed that actual costs could exceed the top end of our estimated range, by a potentially material amount. No estimation of our liabilities in respect of such matters occurred as a part of our Plan. However, given that our Plan was implemented in July 2006, all such obligations in respect of these personal injury claims have been resolved and will not have a continuing effect on our financial condition after emergence.


58

Our June 30, 2006 financial statements included a long-term receivable of $963.3 million for estimated insurance recoveries in respect of personal injury claims. We believed that, prior to the implementation of our Plan, recovery of this amount was probable (if our Plan was not approved) and additional amounts were recoverable in the future if additional liability was ultimately determined to exist. However, we could not provide assurance that all such amounts would be collected. However, as our Plan was implemented in July 2006, the rights to the proceeds from these policies have been transferred (along with the applicable liabilities) to certain personal injury trusts set up as a part of our Plan and we have no continuing interests in such policies.
3. Our judgments and estimates related to employee benefit plans.
Pension and postretirement medical obligations included in the consolidated financial statements at June 30, 2006 and at prior dates were based on assumptions that were subject to variation from year to year. Such variations can cause our estimate of such obligations to vary significantly. Restructuring actions relating to our exit from most of our commodities businesses also had a significant impact on the amount of these obligations.
For pension obligations, the most significant assumptions used in determining the estimated year-end obligation were the assumed discount rate and LTRR on pension assets. Since recorded pension obligations represent the present value of expected pension payments over the life of the plans, decreases in the discount rate used to compute the present value of the payments cause the estimated obligations to increase. Conversely, an increase in the discount rate would cause the estimated present value of the obligations to decline. The LTRR on pension assets reflected our assumption regarding what the amount of earnings would be on existing plan assets before considering any future contributions to the plans. Increases in the assumed LTRR would cause the projected value of plan assets available to satisfy pension obligations to increase, yielding a reduced net pension obligation. A reduction in the LTRR would reduce the amount of projected net assets available to satisfy pension obligations and, thus, cause the net pension obligation to increase.
For postretirement obligations, the key assumptions used to estimate the year-end obligations were the discount rate and the assumptions regarding future medical costs increases. The discount rate affected the postretirement obligations in a similar fashion to that described above for pension obligations. As the assumed rate of increase in medical costs went up, so did the net projected obligation. Conversely, as the rate of increase was assumed to be smaller, the projected obligation declined.
Since our largest pension plans and the post-retirement medical plans were terminated in 2003 and 2004, the amount of variability in respect of such plans was substantially reduced. However, there were five remaining defined benefit pension plans that were still ongoing pending the resolution of certain litigation with the PBGC. We prevailed in the litigation against the PBGC in August 2006 upholding earlier decisions, and four of these remaining plans were terminated in December 2006 pursuant to an agreement reached with PBGC.
Given that all of our significant benefit plans after the emergence date are defined contribution plans or have limits on the amounts to be paid, our future financial statements will not be subject to the same volatility as our financial statements prior to emergence and the termination of the plans.
4. Our judgments and estimates related to environmental commitments and contingencies.
We are subject to a number of environmental laws and regulations, to fines or penalties that may be assessed for alleged breaches of such laws and regulations, and toclean-up obligations and other claims and litigation based upon such laws and regulations. We have in the past been and may in the future be subject to a number of claims under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments Reauthorization Act of 1986, or CERCLA.
Based on our evaluation of these and other environmental matters, we have established environmental accruals, primarily related to investigations and potential remediation of the soil, groundwater and equipment at our current operating facilities that may have been adversely impacted by hazardous materials, including PCBs. These environmental accruals represent our estimate of costs reasonably expected to be incurred on a going concern basis in the ordinary course of business based on presently enacted laws and regulations, currently available facts, existing technology and our assessment of the likely remedial action to be taken. However, making estimates of possible environmental costs is subject to inherent uncertainties. As additional facts are developed and definitive remediation plans and necessary regulatory approvals for implementation of remediation are established or alternative technologies are developed, actual costs may exceed the current environmental accruals.


59

New Accounting Pronouncements
     
TheFor a discussion of all recently adopted and recently issued but not yet adopted accounting pronouncements, see the section “New Accounting Pronouncements” from Note 1 of Notes to Consolidated Financial Statements included in Item 8. “Financial Statements and Supplementary Data” is incorporated herein by reference.Data.”
Item 7A.Quantitative and Qualitative Disclosures About Market Risk
     
Our operating results are sensitive to changes in the prices of alumina, primary aluminum and fabricated aluminum products, and also depend to a significant degree upon the volume and mix of all products sold. As discussed more fully in Note 1312 of Notes to Interim Consolidated Financial Statements included in Item 8. “Financial Statements and Supplementary Data,” we have historically have utilized hedging transactions to lock-in a specified price or range of prices for certain products which we sell or consume in our production process and to mitigate our exposure to changes in foreign currency exchange rates.
rates and energy prices.
Sensitivity
     
PrimaryPrimary/Secondary Aluminum.  Our shareAs a result of primarythe full curtailment of Anglesey’s smelting operations at September 30, 2009 and the commencement of secondary aluminum production from Anglesey is approximately 150 million pounds annually. Becauseremelt and casting operations discussed in Part I, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (see “Results of Operations— Segment Information — All Other”) of this Report, we purchase alumina for Anglesey at prices linkedbelieve our exposure to primary aluminum prices, only a portion ofprice risk, with respect to our net revenues associated with Anglesey is exposedincome and cash flow related to price risk. We estimate the net portion of our share of Anglesey production, exposed to primary aluminum price risk to be approximately 100 million pounds annually (before considering income tax effects).has largely been eliminated.
     
Our pricing of fabricated aluminum products is generally intended to lock-in a conversion margin (representing the value added from the fabrication process(es)) and to pass metal price risk on toonto customers. However, in certain instances, we do enter into firm price arrangements. In such instances, we do have price risk on anticipated primary aluminum purchases in respect of the customer orders. We currently use third party hedging instruments to limit exposure to primary aluminum price risks related to substantially all fabricated products firm price arrangements, which may have an adverse effect on our financial position, results of operations and cash flows.
Total fabricated products shipments during 2007, the period from January 1, 2006 to July 1, 2006, the period from July 1, 2006 to December 31, 20062009, 2008 and 20052007 for which we had price risk were (in millions of pounds) 162.7, 228.3 and 239.1, 103.9, 96.0 and 155.0, respectively.
During the last three years, the volume of fabricated products shipments with underlying primary aluminum price risk was at least as much as our net exposure to primary aluminum price risk at Anglesey. As such, we consider our access to Anglesey production overall to be a “natural” hedge against fabricated products firm metal-price risks. However, since the volume of fabricated products shipped under firm prices may not match up on amonth-to-month basis with expected Anglesey-related primary aluminum shipments and to the extent that firm price contracts from our Fabricated Products business unit exceed the Anglesey related primary aluminum shipments, we may use third party hedging instruments to eliminate any net remaining primary aluminum price exposure existing at any time.
At December 31, 2007, the Fabricated Products segment held2009, 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 period 20082010 through 2012 totaling approximately (in millions of pounds): 2008 — 161; 2009 — 89; 2010 — 86;80.3, 2011 — 7778.8 and 2012 — 8.13.4.
     
Foreign Currency.We, from time to time, will 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 and for cash commitments for equipment purchases.
     Because we do not anticipate recognition of equity income or losses relating to our investment in Anglesey for at least the Anglesey-related commitmentnext 12 months, and because we expect to purchase and sell our share of Anglesey secondary aluminum production under pricing mechanisms that we fund in Pound Sterling. We estimate that, before consideration of any hedging activities, a US $0.01 increase (decrease) in the value ofare intended to eliminate metal price risk and currency exchange risk, the Pound Sterling results in an approximate $.4 million (decrease) increase in our annual pre-tax operating income.
From timeexchange exposure related to timeAnglesey’s earnings is effectively eliminated in the ordinary course of business, we enter into hedging transactions for Pound Sterling. As of December 31, 2007, we had forward purchase agreements for a total of 4.2 million Pound Sterling for the months of November and December 2008.near-term.
     
Energy.We are exposed to energy price risk from fluctuating prices for natural gas. 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 pre-tax operating resultscosts by approximately $4.0$3.4 million.

53

     
We, from time to timetime-to-time, in the ordinary course of business, enter into hedging transactions with major suppliers of energy and energy-related financial investments. As of December 31, 2007,2009, our exposure to increasesfluctuations in natural gas prices had been substantially limited for approximately 87%48% of the expected natural gas purchases for January 2008 through March 2008,2010, approximately 13%48% of the expected natural gas purchases for April 2008 through June 20082011 and approximately 1%47% of the expected natural gas purchases for July 2008 through September 2008.2012.


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Item 8.Financial Statements and Supplementary Data
Item 8.Financial Statements and Supplementary Data
   
  Page
Management’s Report on the Financial Statements and Internal Control Over Financial Reporting
 6256
Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements
 6457
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
 6557
Consolidated Balance Sheets
 6658
Statements of Consolidated Income (Loss)
 6759
Statements of Consolidated Stockholders’ Equity and Comprehensive Income (Loss)
 6862
Statements of Consolidated Cash Flows
 7063
Notes to Consolidated Financial Statements
 7164
Quarterly Financial Data (Unaudited)
 119
Five-Year Financial Data
12097


6155

 

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
Management’s Report on the Financial Statements
     
Our management is responsible for the preparation, integrity and objectivity of the accompanying consolidated financial statements and the related financial information. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and necessarily include certain amounts that are based on estimates and informed judgments. Our management also prepared the related financial information included in this Annual Report onForm 10-K and is responsible for its accuracy and consistency with the financial statements.
     
The consolidated financial statements have been audited by Deloitte & Touche LLP for the years ended December 31, 2007, the period from July 1, 2006 through December 31, 2006, the period from January 1, 2006 to July 1, 20062009, 2008 and 2005,2007, an independent registered public accounting firm who conducted their audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). The independent registered public accounting firms’ responsibility is to express an opinion as to the fairness with which such financial statements present our financial position, results of operations and cash flows in accordance with accounting principles generally accepted in the United States.
Management’s Report on Internal Control Over Financial Reporting
     
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined inRule 13a-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is designed under the supervision of our principal executive officer and principal financial officer, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States and include those policies and procedures that:
     
(1) Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and the dispositions of our assets;
     
(2) Provide reasonable assurance that our transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States, and that our receipts and expenditures are being made only in accordance with authorizations of our management and Board of Directors; and
     
(3) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
     
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.


62

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we assessed the effectiveness of our internal control over financial reporting as of December 31, 2007,2009, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) inInternal Control — Integrated Framework.Based on its assessment, management has concluded that our internal control over financial reporting was effective as of December 31, 2007. Based on management’s assessment and those criteria, management believes that we maintained effective internal control over financial reporting as of December 31, 2007.2009. Deloitte & Touche LLP, the independent registered public accounting firm that audited our consolidated financial statements for the year ended December 31, 2007,2009. included in Item 8, “Financial Statements and Supplementary Data,” of this Annual Report onForm 10-K, has issued an audit report on the effectiveness of our internal control over financial reporting.
   
/s/ Jack A. Hockema /s/ Joseph P. BellinoDaniel J. Rinkenberger
   
President and Chief Executive Officer ExecutiveSenior Vice President and Chief Financial Officer
(Principal Executive Officer) (Principal Financial Officer)


6356

 

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON THE
CONSOLIDATED FINANCIAL STATEMENTS
To the Board of Directors and Stockholders of

Kaiser Aluminum Corporation
Foothill Ranch, California
We have audited the accompanying consolidated balance sheets of Kaiser Aluminum Corporation and subsidiaries (the “Company”) as of December 31, 20072009 and 2006 (Successor Company balance sheets),2008, and the related consolidated statements of income (loss), stockholders’ equity (deficit) and comprehensive income (loss), and cash flows for each of the yearthree years ended December 31, 2007 (Successor Company operations),2009. We also have audited the period from July 1, 2006 toCompany’s internal control over financial reporting as of December 31, 2006 (Successor Company operations),2009, based on criteria established in Internal Control — Integrated Framework issued by the period from January 1, 2006 to July 1, 2006 (Predecessor Company operations)Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for the year ended December 31, 2005 (Predecessor Company operations). These financial statements are the responsibilityits assessment of the Company’s management.effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on thethese financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesmisstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includesstatements, assessing the accounting principles used and significant estimates made by management, as well asand evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 1 to the consolidated financial statements, the Company emerged from bankruptcy on July 6, 2006. In connection with its emergence, the Company adopted fresh-start reporting pursuant to American Institute of Certified Public Accountants Statement of Position90-7,Financial Reporting by Entities in Reorganization under the Bankruptcy Code, as of July 1, 2006. As a result, the consolidated financial statements of the Successor Company are presented on a different basis than those of the Predecessor Company and, therefore, are not comparable.
In our opinion, the Successor Company consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2007 and 2006, and the results of its operations and its cash flows for the year ended December 31, 2007 and period from July 1, 2006 to December 31, 2006, in conformity with accounting principles generally accepted in the United States of America. Further, in our opinion, the Predecessor Company consolidated financial statements referred to above present fairly, in all material respects, and the results of its operations and its cash flows for the period from January 1, 2006 to July 1, 2006 and for the year ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2007, based on the criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 25, 2008 expressed an unqualified opinion on the Company’s internal control over financial reporting.
/s/  DELOITTE & TOUCHE LLP
Costa Mesa, California
February 25, 2008


64

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Kaiser Aluminum Corporation
Foothill Ranch, California
We have audited the internal control over financial reporting of Kaiser Aluminum Corporation and subsidiaries (the “Company”) as of December 31, 2007, based on criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectivenessOur audit of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, andrisk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit providesaudits provide a reasonable basis for our opinion.
opinions.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As discussed in Note 1 to the accompanying consolidated financial statements, the Company adopted Financial Accounting Standards Board (FASB) Staff Position Emerging Issues Task Force 03-6-1,Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities, (FASB Accounting Standards Codification Topic 260) using a retrospective application method. Also, as discussed in Note 15 to the consolidated financial statements, the Company realigned its reporting segments during the year ended December 31, 2009.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Kaiser Aluminum Corporation and subsidiaries as of December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007,2009, based on the criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2007, of the Company, and our report dated February 25, 2008, expressed an unqualified opinion on those financial statements.
/s/  DELOITTE & TOUCHE LLP


Costa Mesa, California

February 25, 200823, 2010


6557

 

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
         
  December 31,
  December 31,
 
  2007  2006 
  (In millions of dollars, except share amounts) 
 
ASSETS
Current assets:        
Cash and cash equivalents $68.7  $50.0 
Receivables:        
Trade, less allowance for doubtful receivables of $1.4 and $2.0  96.5   98.4 
Due from affiliate  9.5   1.3 
Other  6.3   6.3 
Inventories  207.6   188.1 
Prepaid expenses and other current assets  66.0   40.8 
         
Total current assets  454.6   384.9 
Investments in and advances to unconsolidated affiliate  41.3   18.6 
Property, plant, and equipment — net  222.7   170.3 
Net assets in respect of VEBAs  134.9   40.7 
Deferred tax assets — net  268.6   — 
Other assets  43.1   40.9 
         
Total $1,165.2  $655.4 
         
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:        
Accounts payable $70.1  $73.2 
Accrued salaries, wages, and related expenses  40.1   39.4 
Other accrued liabilities  36.6   47.6 
Payable to affiliate  18.6   16.2 
         
Total current liabilities  165.4   176.4 
Long-term liabilities  57.0   58.3 
Long-term debt  —   50.0 
         
   222.4   284.7 
Commitments and contingencies        
Stockholders’ equity:        
Common stock, par value $.01, 45,000,000 shares authorized; 20,580,815 shares issued and outstanding at December 31, 2007; 20,525,660 shares issued and outstanding at December 31, 2006  .2   .2 
Additional capital  948.9   487.5 
Retained earnings  116.1   26.2 
Common stock owned by Union VEBA subject to transfer restrictions, at reorganization value, 4,845,465 shares at December 31, 2007 and 6,291,945 shares at December 31, 2006  (116.4)  (151.1)
Accumulated other comprehensive income  (6.0)  7.9 
         
Total stockholders’ equity  942.8   370.7 
         
Total $1,165.2  $655.4 
         
         
  December 31,  December 31, 
  2009  2008 
  (In millions of dollars, except share amounts) 
ASSETS
        
Current assets:        
Cash and cash equivalents $30.3  $.2 
Receivables:        
Trade, less allowance for doubtful receivables of $.8 at both December 31, 2009 and 2008  83.7   98.5 
Due from affiliate  .2   11.8 
Other  2.2   17.5 
Inventories  125.2   172.3 
Prepaid expenses and other current assets  59.1   128.4 
       
Total current assets  300.7   428.7 
Property, plant, and equipment — net  338.9   296.7 
Net asset in respect of VEBA  127.5   56.2 
Deferred tax assets — net  277.2   313.3 
Other assets  41.2   50.5 
       
Total $1,085.5  $1,145.4 
       
LIABILITIES AND STOCKHOLDERS’ EQUITY
        
Current liabilities:        
Accounts payable $49.0  $52.4 
Accrued salaries, wages, and related expenses  33.1   41.2 
Other accrued liabilities  32.1   113.9 
Payable to affiliate  9.0   27.5 
       
Total current liabilities  123.2   235.0 
Net liability in respect of VEBA  .3   14.0 
Long-term liabilities  53.7   65.3 
Revolving credit facility and other long-term debt  7.1   43.0 
       
   184.3   357.3 
Commitments and contingencies        
Stockholders’ equity:        
Common stock, par value $.01, 90,000,000 shares authorized at December 31, 2009 and at December 31, 2008; 20,276,571 shares issued and outstanding at December 31, 2009; 20,044,913 shares issued and outstanding at December 31, 2008  .2   .2 
Additional capital  967.8   958.6 
Retained earnings  85.0   34.1 
Common stock owned by Union VEBA subject to transfer restrictions, at reorganization value, 4,845,465 shares at both December 31, 2009 and December 31, 2008  (116.4)  (116.4)
Treasury stock, at cost, 572,706 shares at December 31, 2009 and 2008  (28.1)  (28.1)
Accumulated other comprehensive loss  (7.3)  (60.3)
       
Total stockholders’ equity  901.2   788.1 
       
Total $1,085.5  $1,145.4 
       
The accompanying notes to consolidated financial statements are an integral part of these statements.


6658

 

72KAISERKAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED INCOME (LOSS)
                  
         Predecessor 
     Year Ended
    
     December 31, 2006    
     July 1, 2006
        
  Year Ended
  through
   January 1,
  Year Ended
 
  December 31,
  December 31,
   2006 to
  December 31,
 
  2007  2006   July 1, 2006  2005 
  (In millions of dollars, except share and per share amounts) 
Net sales $1,504.5  $667.5   $689.8  $1,089.7 
                  
Costs and expenses:                 
Cost of products sold excluding depreciation  1,251.1   580.4    596.4   951.1 
Depreciation and amortization  11.9   5.5    9.8   19.9 
Selling, administrative, research and development, and general  73.1   35.5    30.3   50.9 
Other operating (benefits) charges, net  (13.6)  (2.2)   .9   8.0 
                  
Total costs and expenses  1,322.5   619.2    637.4   1,029.9 
                  
Operating income  182.0   48.3    52.4   59.8 
Other income (expense):                 
Interest expense (excluding unrecorded contractual interest expense of $47.4 for the period from January 1, 2006 to July 1, 2006 and $95.0 in 2005)  (4.3)  (1.1)   (.8)  (5.2)
Reorganization items  —   —    3,090.3   (1,162.1)
Other income (expense) — net  4.7   2.7    1.2   (2.4)
                  
Income (loss) before income taxes and discontinued operations  182.4   49.9    3,143.1   (1,109.9)
Provision for income taxes  (81.4)  (23.7)   (6.2)  (2.8)
                  
Income (loss) from continuing operations  101.0   26.2    3,136.9   (1,112.7)
                  
Discontinued operations:                 
Income (loss) from discontinued operations, net of income taxes, including minority interests  —   —    4.3   (2.5)
Gain from sale of commodity interests  —   —    —   366.2 
                  
Income from discontinued operations  —   —    4.3   363.7 
                  
Cumulative effect on years prior to 2005 of adopting accounting for conditional asset retirement obligations  —   —    —   (4.7)
                  
Net income (loss) $101.0  $26.2   $3,141.2  $(753.7)
                  
Earnings per share — Basic:                 
Income (loss) from continuing operations $5.05  $1.31   $39.37  $(13.97)
                  
Income from discontinued operations $—  $—   $.05  $4.57 
                  
Loss from cumulative effect on years prior to 2005 of adopting accounting for conditional asset retirement obligations $—  $—   $—  $(.06)
                  
Net income (loss) $5.05  $1.31   $39.42  $(9.46)
                  
Earnings per share — Diluted (same as Basic for Predecessor):                 
Income from continuing operations $4.97  $1.30          
                  
Income from discontinued operations $—  $—          
                  
Net income $4.97  $1.30          
                  
Weighted average shares outstanding (000):                 
Basic  20,014   20,003    79,672   79,675 
                  
Diluted  20,308   20,089    79,672   79,675 
                  
             
  Year Ended  Year Ended  Year Ended 
  December 31,  December 31,  December 31, 
  2009  2008  2007 
  (In millions of dollars, except share and per share amounts)
Net sales $987.0  $1,508.2  $1,504.5 
          
Costs and expenses:            
Costs of products sold:            
Cost of products sold, excluding depreciation, amortization and other items  766.4   1,400.7   1,251.1 
Lower of cost or market inventory write-down  9.3   65.5   — 
Impairment of investment in Anglesey  1.8   37.8   — 
Restructuring costs and other charges  5.4   8.8   — 
Depreciation and amortization  16.4   14.7   11.9 
Selling, administrative, research and development, and general  69.9   73.1   73.1 
Other operating benefits, net  (.9)  (1.4)  (13.6)
          
Total costs and expenses  868.3   1,599.2   1,322.5 
          
Operating income (loss)  118.7   (91.0)  182.0 
Other income (expense):            
Interest expense  —   (1.0)  (4.3)
Other (expense) income — net  (.1)  .7   4.7 
          
Income (loss) before income taxes  118.6   (91.3)  182.4 
Income tax (provision) benefit  (48.1)  22.8   (81.4)
          
Net income (loss) $70.5  $(68.5) $101.0 
          
Earnings per share — Basic (Note 14):            
Net income (loss) per share $3.51  $(3.45) $4.91 
          
Earnings per share — Diluted (Note 14):            
Net income (loss) per share $3.51  $(3.45) $4.91 
          
Weighted average number of common shares outstanding (000):            
Basic  19,639   19,980   20,014 
          
Diluted  19,639   19,980   20,014 
          
The accompanying notes to consolidated financial statements are an integral part of these statements.


6759

 

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED STOCKHOLDERS’ EQUITY AND
COMPREHENSIVE INCOME (LOSS) — Predecessor
                         
           Common
       
           Stock
       
           Owned by
       
           Union
  Accumulated
    
           VEBA
  Other
    
        Retained
  Subject to
  Comprehensive
    
  Common
  Additional
  Earnings
  Transfer
  Income
    
  Stock  Capital  (Deficit)  Restriction  (Loss)  Total 
  (In millions of dollars) 
 
BALANCE, December 31, 2004 $.8  $538.0  $(2,917.5) $—  $(5.5) $(2,384.2)
Net loss  —   —   (753.7)  —   —   (753.7)
Minimum pension liability adjustment  —   —   —   —   (3.2)  (3.2)
Unrealized net decrease in value of derivative instruments arising during the year  —   —   —   —   (.3)  (.3)
Reclassification adjustment for net realized losses on derivative instruments included in net loss  —   —   —   —   .2   .2 
                         
Comprehensive income (loss)                      (757.0)
                         
BALANCE, December 31, 2005  .8   538.0   (3,671.2)  —   (8.8)  (3,141.2)
                         
Net Income (same as Comprehensive income)  —   —   35.9   —   —   35.9 
                         
BALANCE, June 30, 2006  .8   538.0   (3,635.3)  —   (8.8)  (3,105.3)
Cancellation of Predecessor common stock  (.8)  .8   —   —   —   — 
Issuance of Successor common stock (20,000,000 shares) to creditors  .2   480.2   —   —   —   480.4 
Common stock owned by Union VEBA subject to transfer restrictions, at reorganization value, 6,291,945 shares  —   —   —   (151.1)  —   (151.1)
Plan and fresh start adjustments  —   (538.8)  3,635.3   —   8.8   3,105.3 
                         
BALANCE, July 1, 2006 $.2  $480.2  $—  $(151.1) $—  $329.3 
                         
                             
                  Common       
                  Stock       
                  Owned by       
                  Union       
                  VEBA  Accumulated    
                  Subject to  Other    
  Common  Common  Additional  Retained  Transfer  Comprehensive    
  Shares  Stock  Capital  Earnings  Restriction  Income (Loss)  Total 
          (In millions of dollars, except for shares)         
BALANCE, December 31, 2006  20,525,660   .2   487.5   26.2   (151.1)  7.9   370.7 
Net income      —   —   101.0   —   —   101.0 
Foreign currency translation adjustment      —   —   —   —   (3.7)  (3.7)
Benefit plan adjustments not recognized in earnings      —   —   —   —   (10.2)  (10.2)
                            
Comprehensive income                          87.1 
Removal of transfer restrictions on 1,446,480 shares of common stock owned by Union VEBA, net of income taxes of $9.9      —   48.2   —   34.7   —   82.9 
Recognition of pre-emergence tax benefits in accordance with fresh start accounting (including release of valuation allowance of $343.0 and current year tax benefits of $14.1 and $62.2 for the quarter and year ended December 31, 2007, respectively)      —   404.5   —   —   —   404.5 
Equity compensation recognized by an unconsolidated affiliate      —   .3   —   —   —   .3 
Cancellation of common stock held by employees on vesting of restricted stock  (8,346)  —   (.7)  —   —   —   (.7)
Issuance of common stock to directors in lieu of annual retainer fees  3,877   —   .3   —   —   —   .3 
Issuance of restricted stock to employees and directors  61,662   —   —   —   —   —   — 
Issuance of common stock to employees upon vesting of restricted stock units  1,232   —   —   —   —   —   — 
Cancellation of restricted stock upon forfeiture  (3,270)  —   —   —   —   —   — 
Cash dividends on common stock ($.54 per share)      —   —   (11.1)  —   —   (11.1)
Amortization of unearned equity compensation (including unearned equity compensation of $2.3 for the quarter ended December 31, 2007)      —   8.8   —   —   —   8.8 
                      
BALANCE, December 31, 2007  20,580,815  $.2  $948.9  $116.1  $(116.4) $(6.0) $942.8 
                      
The accompanying notes to consolidated financial statements are an integral part of these statements.


6860

 

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED STOCKHOLDERS’ EQUITY AND
COMPREHENSIVE INCOME — Successor(LOSS)
                             
              Common
       
              Stock
       
              Owned by
       
              Union
       
              VEBA
  Accumulated
    
              Subject to
  Other
    
  Common
  Common
  Additional
  Retained
  Transfer
  Comprehensive
    
  Shares  Stock  Capital  Earnings  Restriction  Income (Loss)  Total 
  (In millions of dollars, except for shares) 
 
BALANCE, July 1, 2006  20,000,000  $.2  $480.2  $—  $(151.1) $—  $329.3 
Net income      —   —   26.2   —   —   26.2 
Benefit plan adjustments not recognized in earnings      —   —   —   —   7.9   7.9 
                             
Comprehensive income                          34.1 
Issuance of common stock to directors in lieu of annual retainer fees  4,273   —   .2   —   —   —   .2 
Recognition of pre-emergence tax benefits in accordance with fresh start accounting      —   3.3   —   —   —   3.3 
Issuance of restricted stock to employees and directors  521,387   —   —   —   —   —   — 
Amortization of unearned equity compensation      —   3.8   —   —   —   3.8 
                             
BALANCE, December 31, 2006  20,525,660   .2   487.5   26.2   (151.1)  7.9   370.7 
                             
Net income      —   —   101.0   —   —   101.0 
Foreign currency translation adjustment      —   —   —   —   (3.7)  (3.7)
Benefit plan adjustments not recognized in earnings      —   —   —   —   (10.2)  (10.2)
                             
Comprehensive income                          87.1 
Removal of transfer restrictions on 1,446,480 shares of common stock owned by Union VEBA, net of income taxes of $9.9      —   48.2   —   34.7   —   82.9 
Recognition of pre-emergence tax benefits in accordance with fresh start accounting (including release of valuation allowance of $343.0 and current year tax benefits of $14.1 and $62.2 for the quarter and year ended December 31, 2007, respectively)      —   404.5   —   —   —   404.5 
Equity compensation recognized by an unconsolidated affiliate      —   .3   —   —   —   .3 
Cancellation of common stock held by employees on vesting of restricted stock  (8,346)  —   (.7)  —   —   —   (.7)
Issuance of common stock to directors in lieu of annual retainer fees  3,877   —   .3   —   —   —   .3 
Issuance of restricted stock to employees and directors  61,662   —   —   —   —   —   — 
Issuance of common stock to employees upon vesting of restricted stock units  1,232   —   —   —   —   —   — 
Cancellation of restricted stock upon forfeiture  (3,270)  —   —   —   —   —   — 
Cash dividends on common stock      —   —   (11.1)  —   —   (11.1)
Amortization of unearned equity compensation (including unearned equity compensation of $2.3 for the quarter ended December 31, 2007)      —   8.8   —   —   —   8.8 
                             
   20,580,815  $.2  $948.9  $116.1  $(116.4) $(6.0) $942.8 
                             
                                 
                  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 
          (In millions of dollars, except for shares)         
BALANCE, December 31, 2007  20,580,815  $.2  $948.9  $116.1  $(116.4) $—  $(6.0) $942.8 
Net loss  —   —   —   (68.5)  —   —   —   (68.5)
Tax effect of prior year pension adjustments  —   —   (.7)  —   —   —   .7   — 
Defined benefit plans adjustments:                                
Net actuarial loss arising during the period (net of tax of $34.3)  —   —   —   —   —   —   (55.4)  (55.4)
Prior service cost arising during the period (net of tax of 3.4)  —   —   —   —   —   —   (5.5)  (5.5)
Less: amortization of prior service cost (net of tax of (.3))  —   —   —   —   —   —   .5   .5 
Less: amortization of net actuarial loss (net of tax of (.1))  —   —   —   —   —   —   .2   .2 
Foreign currency translation adjustment, net of tax of $0  —   —   —   —   —   —   5.2   5.2 
                                
Comprehensive loss                              (123.5)
Recognition of pre-emergence tax benefits in accordance with fresh start accounting  —   —   1.9   —   —   —   —   1.9 
Equity compensation recognized by an unconsolidated affiliate (net of tax of .1)  —   —   (.1)  —   —   —   —   (.1)
Capital distribution by unconsolidated affiliate to its parent company (net of tax of $.6)  —   —   (.9)  —   —   —   —   (.9)
Issuance of non-vested shares to employees  52,970   —   —   —   —   —   —   — 
Issuance of common shares to directors  3,689   —   .2   —   —   —   —   .2 
Issuance of common shares to employees upon vesting of restricted stock units and performance shares  1,521   —   —   —   —   —   —   — 
Cancellation of employee non-vested shares  (9,953)  —   —   —   —   —   —   — 
Cancellation of shares to cover employees’ tax withholdings upon vesting of non-vested shares  (11,423)  —   (.7)  —   —   —   —   (.7)
Cash dividends on common stock ($.66 per share)  —   —   —   (13.5)  —   —   —   (13.5)
Repurchase of common stock  (572,706)  —   —   —   —   (28.1)  —   (28.1)
Excess tax benefit upon vesting of non-vested shares and dividend payment on unvested shares expected to vest  —   —   .1   —   —   —   —   .1 
Amortization of unearned equity compensation  —   —   9.9   —   —   —   —   9.9 
                         
                                 
BALANCE, December 31, 2008  20,044,913  $.2  $958.6  $34.1  $(116.4) $(28.1) $(60.3) $788.1 
                      ��  
The accompanying notes to consolidated financial statements are an integral part of these statements.


6961

 

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CASH FLOWSSTOCKHOLDERS’ EQUITY AND
COMPREHENSIVE INCOME (LOSS)
                  
         Predecessor 
     Year Ended
    
     December 31, 2006    
     July 1,
   January 1,
    
     2006
   2006
    
  Year Ended
  through
   to
  Year Ended
 
  December 31,
  December 31,
   July 1,
  December 31,
 
  2007  2006   2006  2005 
  (In millions of dollars) 
Cash flows from operating activities:                 
Net income (loss) $101.0  $26.2   $3,141.2  $(753.7)
Less net income from discontinued operations  —   —    4.3   363.7 
                  
Net income (loss) from continuing operations, including loss from cumulative effect of adopting change in accounting in 2005  101.0   26.2    3,136.9   (1,117.4)
Adjustments to reconcile net income(loss) from continuing operations to net cash used by continuing operations:                 
Recognition of pre-emergence tax benefits in accordance with fresh start accounting  62.2   3.3    —   — 
Non-cash charges in reorganization items in 2005  —   —    —   1,131.5 
Depreciation and amortization (including deferred financing costs of $2.1, $.3, $.9 and $4.4 , respectively)  14.0   5.7    10.7   24.3 
Deferred income taxes  —   3.0    (.7)  (.4)
Non-cash equity compensation  9.1   4.0    —   — 
Gain on discharge of pre-petition obligations and fresh start adjustments  —   —    (3,110.3)  — 
Payments pursuant to plan of reorganization  —   —    (25.3)  — 
Net non-cash (benefit) charges in other operating (benefits) charges, net and LIFO charges (benefits)  (18.9)  3.3    21.7   9.3 
Loss from cumulative effect on years prior to 2005 of adopting accounting for conditional asset retirement obligations  —   —    —   4.7 
(Gains)/losses on sale and disposition of property, plant and equipment  .6   —    (1.6)  (.2)
Equity in (income) loss of unconsolidated affiliates, net of distributions  (22.4)  (7.5)   (10.1)  1.5 
Decrease (increase) in trade and other receivables  (6.3)  14.5    (18.3)  9.3 
Increase in inventories, excluding LIFO adjustments and other non-cash operating items  (5.5)  (19.4)   (29.5)  (18.7)
Decrease (increase) in prepaid expenses and other current assets  33.8   (7.1)   (14.5)  — 
(Decrease) increase in accounts payable  (6.2)  13.1    5.7   (2.5)
(Decrease) increase in other accrued liabilities  (14.8)  (12.7)   4.7   (14.9)
(Decrease) increase in payable to affiliates  2.4   (16.8)   18.2   .1 
(Decrease) increase in accrued income taxes  (1.4)  5.9    .2   (3.9)
Net cash impact of changes in long-term assets and liabilities  (7.8)  (4.6)   (8.0)  (25.0)
Benefit plan adjustments not recognized in earnings  (10.2)  7.9    —   — 
Net cash provided by discontinued operations  —   —    8.5   17.9 
Other  —   —    —   1.3 
                  
Net cash (used) provided by operating activities  129.6   18.8    (11.7)  16.9 
                  
Cash flows from investing activities:                 
Capital expenditures, net of accounts payable of $3.1, $5.8, $1.6 and $0, respectively  (61.8)  (30.0)   (28.1)  (31.0)
Net proceeds from dispositions: real estate in 2006 and 2005  —   —    1.0   .9 
Decrease in restricted cash  9.2   —    —   — 
Net cash provided by discontinued operations; primarily proceeds from sale of commodity interests in 2005  —   —    —   401.4 
                  
Net cash (used) provided by investing activities  (52.6)  (30.0)   (27.1)  371.3 
                  
Cash flows from financing activities:                 
Borrowings under Term Loan Facility  —   50.0    —   — 
Financing costs  (.2)  (.8)   (.2)  (3.7)
Cash dividend paid to shareholders  (7.4)  —    —   — 
Retirement of common stock  (.7)  —    —   — 
Repayment of debt  (50.0)  —    —   (1.7)
Decrease (increase) in restricted cash  —   —    1.5   (1.5)
Net cash used by discontinued operations: primarily increase in restricted cash in 2005  —   —    —   (387.2)
                  
Net cash (used) provided by financing activities  (58.3)  49.2    1.3   (394.1)
                  
Net increase (decrease) in cash and cash equivalents during the period  18.7   38.0    (37.5)  (5.9)
Cash and cash equivalents at beginning of period  50.0   12.0    49 .5   55.4 
                  
Cash and cash equivalents at end of period $68.7  $50.0   $12.0  $49.5 
                  
                  
                                 
                  Common           
                  Stock           
                  Owned by           
                  Union           
                  VEBA      Accumulated    
  Common              Subject to      Other    
  Shares  Common  Additional  Retained  Transfer  Treasury  Comprehensive    
  Outstanding  Stock  Capital  Earnings  Restriction  Stock  Loss  Total 
          (In millions of dollars, except for shares)         
BALANCE, December 31, 2008  20,044,913  $.2  $958.6  $34.1  $(116.4) $(28.1) $(60.3) $788.1 
Net income  —   —   —   70.5   —   —   —   70.5 
Defined benefit plans adjustments:                                
                                 
Net actuarial gain arising during the period (net of tax of $(43.2))  —   —   —   —   —   —   71.4   71.4 
Prior service cost arising during the period (net of tax of $12.2)  —   —   —   —   —   —   (20.2)  (20.2)
Less: amortization of prior service cost (net of tax of $(.6))  —   —   —   —   —   —   .9   .9 
Less: amortization of net actuarial gain (net of tax of $(1.4))  —   —   —   —   —   —   2.4   2.4 
Foreign currency translation adjustment, net of tax of $0  —   —   —   —   —   —   (1.5)  (1.5)
                                
Comprehensive income                              123.5 
Issuance of non-vested shares to employees  196,829   —   —   —   —   —   —   — 
Capital distribution by unconsolidated affiliate to its parent company  —   —   (.1)  —   —   —   —   (.1)
Issuance of common shares to employees in lieu of cash bonus  15,674   —   .3   —   —   —   —   .3 
Issuance of common shares to directors  3,734   —   .1   —   —   —   —   .1 
Issuance of common shares to employees upon vesting of restricted stock units and performance shares  21,089   —   —   —   —   —   —   — 
Cancellation of employee non-vested shares  (5,668)  —   —   —   —   —   —   — 
Cash dividends on common stock ($.96 per share)  —   —   —   (19.6)  —   —   —   (19.6)
Excess tax deficiency upon vesting of non-vested shares and dividend payment on unvested shares expected to vest  —   —   (.1)  —   —   —   —   (.1)
Amortization of unearned equity compensation  —   —   9.0   —   —   —   —   9.0 
                         
BALANCE, December 31, 2009  20,276,571  $.2  $967.8  $85.0  $(116.4) $(28.1) $(7.3) $901.2 
                         
The accompanying notes to consolidated financial statements are an integral part of these statements.


7062

 

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
             
  Year Ended  Year Ended  Year Ended 
  December 31,  December 31,  December 31, 
  2009  2008  2007 
  (In millions of dollars) 
Cash flows from operating activities:            
             
Net income (loss) $70.5  $(68.5) $101.0 
Adjustments to reconcile income (loss) to net cash provided (used) by operating activities:            
Recognition of pre-emergence tax benefits in accordance with fresh start accounting  —   —   62.2 
Excess tax charges (benefit) upon vesting of non-vested shares and dividend payment on unvested shares expected to vest  .1   (.1)  — 
Depreciation and amortization (including deferred financing costs of zero, $.2, and $2.1, respectively)  16.4   14.9   14.0 
Deferred income taxes  47.3   (31.0)  — 
Non-cash equity compensation  9.1   10.1   9.1 
Net non-cash (benefit) charges in other operating (benefits) charges, net, LIFO charges (benefits) and lower of cost or market inventory write-down  18.0   57.7   (18.9)
Non-cash unrealized (gains) losses on derivative positions  (80.5)  87.1   (9.6)
Amortization of option premiums  5.5   —   1.5 
Non-cash impairment charges  2.3   42.1   — 
Other non-cash changes in assets and liabilities  5.5   (.3)  (2.5)
Losses/(gains) on sale and disposition of property, plant and equipment  .1   (.1)  .6 
Equity in (income) loss of unconsolidated affiliates, net of distributions  (1.9)  1.8   (22.4)
Decrease (increase) in trade and other receivables  30.1   (13.2)  1.9 
Decrease (increase) in receivable from affiliates  11.6   (2.3)  (8.2)
Decrease (increase) in inventories, excluding LIFO adjustments, lower of cost or market inventory write-down and other non-cash operating items  29.1   (22.7)  (5.5)
(Increase) decrease in prepaid expenses and other current assets  (2.0)  (7.0)  5.5 
Decrease in accounts payable  (2.5)  (18.9)  (6.2)
(Decrease) increase  in other accrued liabilities  (19.8)  7.1   4.0 
(Decrease) increase  in payable to affiliates  (18.5)  8.9   2.4 
Decrease in accrued income taxes  —   (.4)  (1.4)
Net cash impact of changes in long-term assets and liabilities  7.3   (18.3)  2.1 
          
Net cash provided  by operating activities  127.7   46.9   129.6 
          
Cash flows from investing activities:            
Capital expenditures, net of change in accounts payable of $(.9), $1.2, and $3.1, respectively  (59.2)  (93.2)  (61.8)
Net proceeds from dispositions of property, plant and equipment  —   1.6   — 
Decrease (increase) in restricted cash  18.5   (20.9)  9.2 
          
Net cash used by investing activities  (40.7)  (112.5)  (52.6)
          
Cash flows from financing activities:            
Financing costs  (1.2)  —   (.2)
Borrowings under the revolving credit facility  111.6   171.5   — 
Repayment of borrowings under the revolving credit facility  (147.6)  (135.5)  — 
Borrowings under note payable  —   7.0   — 
Repayment of term loan  —   —   (50.0)
Cash dividend paid to shareholders  (19.6)  (17.2)  (7.4)
Retirement of common stock  —   (.7)  (.7)
Repurchase of common stock  —   (28.1)  — 
Excess tax (charges) benefit upon vesting of non-vested shares and dividend payment on unvested shares expected to vest  (.1)  .1   — 
          
Net cash used by financing activities  (56.9)  (2.9)  (58.3)
          
Net increase (decrease) in cash and cash equivalents during the period  30.1   (68.5)  18.7 
Cash and cash equivalents at beginning of period  .2   68.7   50.0 
          
Cash and cash equivalents at end of period $30.3  $.2  $68.7 
          
The accompanying notes to consolidated financial statements are an integral part of these statements.

63

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions of dollars, except share amounts)amounts and where indicated)
1. Summary of Significant Accounting Policies
     
The accompanying financial statements include the financial statements of Kaiser Aluminum Corporation (“the Company”) both before and after emergence from chapter 11 bankruptcy. Financial information related to the Company after emergence is generally referred to throughout this Report as “Successor” information. Information of the Company before emergence is generally referred to as “Predecessor” information. The financial information of the Successor entity is not comparable to that of the Predecessor given the impacts of the Plan, implementation of fresh start reporting and other factors as more fully described below.
The Notes to Consolidated Financial Statements are grouped into two categories: (1) those primarily affecting the Successor entity (Notes 1 through 17) and (2) those primarily affecting the Predecessor entity (Notes 18 through 24).
SUCCESSOR
1.  Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation.The consolidated financial statements includeconsolidate the financial statements of the Company and its wholly owned subsidiaries. Investmentssubsidiaries and are prepared in 50%-or-less-owned entities are accounted for primarily by the equity method. The only such affiliate for the periods covered by this report was Anglesey Aluminium Limitedaccordance with United States generally accepted accounting principles (“Anglesey”US GAAP”). Intercompany balances and transactions are eliminated.
The Company’s emergence from chapter 11 bankruptcy and adoption of fresh start accounting resulted in See Note 3 for a new reporting entity for accounting purposes. Although the Company emerged from chapter 11 bankruptcy on July 6, 2006 (the “Effective Date”), the Company adopted “fresh start” accounting as required by the American Institute of Certified Professional Accountants Statement of Position90-7(“SOP 90-7”),Financial Reporting by Entities in Reorganization Under the Bankruptcy Code, effective asdescription of the beginning of business on July 1, 2006. As such, it was assumed thatCompany’s accounting for its 49%, non-controlling ownership interest in Anglesey Aluminium Limited (“Anglesey”). References to specific US GAAP in this Report cite topics within the emergence was completed instantaneously at the beginning of business on July 1, 2006 such that all operating activities during the period from July 1, 2006 through December 31, 2006 are reported as applying to the Successor. The Company believes that this is a reasonable presentation as there were no material transactions between July 1, 2006 and July 6, 2006 that were not related to Kaiser’s Second Amended Plan of Reorganization (the “Plan”Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). Due to the implementation of the Plan, the application of fresh start accounting and changes in accounting policies and procedures, the financial statements of the Successor are not comparable to those of the Predecessor.
     
The Predecessor Statement of Consolidated Cash Flows for the period January 1, 2006 to July 1, 2006 includes Plan-related payments of $25.3 made between July 1, 2006 and July 6, 2006.
Use of Estimates in the Preparation of Financial Statements.The preparation of financial statements in accordance with United States Generally Accepted Accounting Principles (“GAAP”)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 operation.operations.
     
Recognition of Sales.Sales are generally recognized on a gross basis, when title, ownership and risk of loss pass to the buyer and collectibilitycollectability 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 of inventory loss and metal prices and foreign currency exchange rate fluctuation. As the Company is, in substance, acting as the agent in the sales arrangement of the secondary aluminum products, the sales 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, 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 commitment under existing contracts. These agreements may have terms or impact periods exceeding one year.
     Certain of the capacity reservation and 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 capacity reservation. Accordingly, the Company may recognize revenue prior to billing reservation fees. For commitment deferral agreements, the Company recognizes revenue upon the earlier occurrence of the related sale of product or the end of the commitment period. At December 31, 2009 and 2008, the Company had $.3 and $.1 of unbilled receivables, respectively, included within Trade receivables on the Company’s Consolidated Balance Sheets. In connection with other agreements, the Company may collect funds from customers in advance of the periods for which (i) the production capacity is reserved, (ii) commitments are deferred, (iii) commitments are reduced or (iv) performance is completed, in which event the recognition of revenue is deferred until such time as the fee is earned. Any unearned fees are included within Other accrued liabilities or Long-term liabilities, as appropriate, on the Company’s Consolidated Balance Sheets (see Note 6). At December 31, 2009, the Company had deferred revenues of $15.5 relating to these agreements, of which $6.8 was included in Other accrued liabilities and $8.7 was included in Long-term liabilities. Deferred revenues are expected to be recognized in earnings through 2013.
Earnings per Share.ASC Topic 260,Earnings Per Share, defines unvested stock-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) as participating securities and requires inclusion of such securities in the computation of earnings per share pursuant to the two-class method. Topic 260 mandates the application of the foregoing principles to all financial statements issued for fiscal years beginning after December 2008 and requires retrospective application. Upon adoption, the Company retrospectively adjusted its earnings per share data, resulting in a $.02 and $.14 per share reduction in basic earnings per common share for the years ended December 31, 2008 and 2007, respectively. The retrospective

64

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
adjustments resulted in a $.02 and $.06 per share reduction in diluted earnings per common share for the years ended December 31, 2008 and 2007, respectively (see Note 14).
     Basic earnings per share is computed by dividing distributed and undistributed earnings allocable to common shares by the weighted averageweighted-average number of common shares outstanding during the applicable period. The shares owned by a voluntary employee beneficiary association (“VEBA”) for the benefit of certain union retirees, their surviving spouses and eligible dependents (the “Union VEBA”) that are subject to transfer restrictions, while treated in the Consolidated Balance


71

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Sheets as being similar to treasury stock (i.e., as a reduction in Stockholders’ equity), are included in the computation of basic shares outstanding in the StatementStatements of Consolidated Income because such shares were irrevocably issued and have full dividend and voting rights.
Diluted earnings per share is computed by dividingcalculated as the more dilutive result of computing earnings byper share under (i) the sum of (a)treasury stock method or (ii) the weighted average number of common shares outstanding during the period and (b) the dilutive effect of potential common share equivalents consisting of non-vested common shares, restricted stock units and stock optionstwo-class method (see Note 15)14).
     
Stock-Based Employee Compensation.  The Company accountsStock based compensation is provided to certain employees, directors and a director emeritus, and is accounted for stock-based employee compensation plans at fair value.value, pursuant to the requirements of ASC Topic 718,Compensation – Stock Compensation. The Company measures the cost of employee 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 thean award is recognized as an expense over the period that the employeerecipient provides service for the award. The Company has elected to amortize compensation expense for equity awards with gradinggraded vesting using the straight line method. During the year ended December 31,The Company recognized compensation expense for 2009, 2008 and 2007 of $8.2, $9.9 and period from July 1, 2006 through December 31, 2006, $9.1, million and $4.0 of compensation cost, respectively, was recognized in connection with vested awards and non-vested stock, and restricted stock units issuedand stock options (see Note 10).
     The Company grants performance shares to executive officers and other key employees in connection with its long term incentive (“LTI”) programs. These awards are subject to performance requirements pertaining to the Company’s economic value added (“EVA”) performance, measured over a three year performance period. EVA is a measure of the excess of the Company’s pretax operating income for a particular year over a pre-determined percentage of the net assets of the immediately preceding year, as defined in the LTI program. The number of performance shares, if any, that will ultimately vest and directorsresult in the issuance of common shares depends on the average annual EVA achieved for the specified 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 performance periods on a ratable basis. The Company recognized compensation expense for 2009, 2008 and 2007 of $.9, $.2 and zero, respectively, in connection with the performance shares.
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. During 2009 and 2008, the Company recorded $5.4 and $8.8, respectively, of restructuring costs and other charges relating to employee termination and other personnel costs, and contract termination and other facility-related activities, in connection with the Company’s closure of its Tulsa, Oklahoma extrusion facility, significant reduction of operations at its Bellwood, Virginia facility, and reduction of personnel in other locations (see Note 11)16).
     
Other Income (Expense), net.Amounts included in Other income (expense), other than interest expense in 2009, 2008 and reorganization items in 2007 2006 and 2005, included the following pre-tax gains (losses):following:
             
  Year Ended  Year Ended  Year Ended 
  December 31,  December 31,  December 31, 
  2009  2008  2007 
Interest income $.1  $1.7  $5.3 
All other, net  (.2)  (1.0)  (.6)
          
  $(.1) $.7  $4.7 
          

65

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
     
                 
        Predecessor 
     July 1, 2006
  January 1,
    
  Year Ended
  through
  2006
  Year Ended
 
  December 31,  December 31,
  to July 1,
  December 31, 
  2007  2006  2006  2005 
 
Interest income(a) $5.3  $2.0  $—  $— 
All other, net  (.6)  .7   1.2   (2.4)
                 
  $4.7  $2.7  $1.2  $(2.4)
                 
(a)In accordance with S0P90-7, interest income during the pendency of the chapter 11 reorganization proceedings was treated as a reduction of reorganization expense.
Income Taxes.Deferred income taxes reflect the future tax effect of temporary differences between the carrying amount of assets and liabilities for financial and income tax reporting and are measured by applying statutory tax rates in effect for the year during which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent it is more likely than not that the deferred tax assets will not be realized.
Although the Company had approximately $981 of tax attributes, including the net operating loss (“NOL”) carryforwards, available at December 31, 2006 to offset the impact of future income taxes, the Company did not meet the “more likely than not” criteria for recognition of such attributes at December 31, 2006 primarily because the Company did not have sufficient history of paying taxes. As such, the Company recorded a full valuation allowance against the amount of tax attributes available and no deferred tax asset was recognized. The benefit associated with any reduction of the valuation allowance was first utilized to reduce intangible assets with any excess being recorded as an adjustment to Stockholders’ equity rather than as a reduction of income tax expense. During the fourth quarter of 2007, after the completion of a robust analysis of expected future taxable income and other factors, the Company concluded that it had met the “more likely than not” criteria for recognition of its deferred tax assets and as a result released the vast majority of the valuation allowance as of December 31, 2007. In accordance with fresh start accounting, the release of the valuation allowance was recorded as an adjustment to Stockholders’ equity rather than through the income statement (see Note 9). The Company currently maintains a valuation allowance on deferred tax assets that did not meet the “more likely than not” recognition criteria which are


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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
related to state NOL carryforwards and general business credits that the Company believes will more likely than not expire unused.
In accordance withSOP 90-7, the Company adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48,ASC Topic 740,Accounting for Uncertainty in Income Taxes an interpretation of FASB Statement No. 109(“FIN 48”) at emergence. In accordance with FIN 48,, the Company uses a “more likely than not” threshold for recognition of tax attributes that are subject to uncertainties and measures any reserves in respect of such expected benefits based on their probability as prescribedprobability. Deferred tax assets are reduced by FIN 48.a valuation allowance to the extent it is more likely than not that the deferred tax assets will not be realized (see Note 8).
     
Cash and Cash Equivalents.The Company considers only those short-term, highly liquid investments with original maturities of 90 days or less when purchased to be cash equivalents. The Company’s cash equivalents consist primarily of funds in money market accounts and other highly liquid investments, which are classified within Level 1 of the fair value hierarchy. The money market funds included in cash and cash equivalents at December 31, 2009 and 2008 were $29.4 million and zero, respectively.
     
Restricted Cash.The Company is required to keep certain amounts on deposit relating to workers’ compensation, collateral for certainderivative contracts, letters of credit and other agreements totaling $15.9agreements. Such amounts totaled $18.3 and $25.2$36.8 at December 31, 20072009 and 2006,December 31, 2008, respectively. On July 17, 2007, the State of Washington reduced the amount the Company is required to have on deposit with the State by approximately $9.5. The remaining $7.7 on deposit with the State of Washington represents the deposit required to serve as collateral for existing workers’ compensation claims. Of the restricted cash balance at December 31, 2007balances, $.9 and 2006, $1.5 and $1.7, respectively are$1.4 were considered short term and are included in Prepaid expenses and other current assets; $14.4assets on the Consolidated Balance Sheets at December 31, 2009 and $23.5, respectively, areDecember 31, 2008, respectively; and $17.4 and $35.4 were considered long term and are included in Other assets on the balance sheetConsolidated Balance Sheets at December 31, 2009 and December 31, 2008, respectively. Included in long term restricted cash at December 31, 2009 and December 31, 2008 was zero and $17.2, respectively, of margin call deposits with the Company’s counterparties (see Note 7)6).
     Trade Receivables and Allowance for Doubtful Accounts.Trade receivables 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 on 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 bad debt expense in the period of payment.
Inventories.Inventories are stated at the lower of cost or market value. FinishedFor the Fabricated Products segment (see Note 2), finished products, work in process and raw material inventories are stated on thelast-in, first-out (“LIFO”) basis. Otherbasis and 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 (see(See Note 3)2).
     
Shipping and Handling Costs.Shipping and handling costs are recorded as a component of Cost of products sold excluding depreciation.
     
Advertising Costs.Advertising costs, which are included in Selling, administrative, research and development, and general, are expensed as incurred. Advertising costs for the year ended December 31,2009, 2008, and 2007 for the period from July 1, 2006 through December 31, 2006were $.4, $.3, and the period from January 1, 2006 to July 1, 2006 and for the year ended December 31, 2005 were $.6, $.1, zero and $.2, respectively.
     Research and Development Costs.Research and development costs, which are included in Selling, research and development, and general, are expensed as incurred. Research and development costs for 2009, 2008 and 2007, were $4.4, $4.8, and $3.0, respectively.
Depreciation.Depreciation is computed principally using the straight-line method at rates based on the estimated useful lives of the various classes of assets. The principal estimated useful lives, are as follows:
     
  Useful Life 
  (Years)
 
Land improvements  3-7 
Buildings  15-35 
Machinery and equipment  2-22 
Upon emergence from reorganization, the accumulated depreciation was reset to zero as a result of applying fresh start accounting to its consolidated financial statements as required bySOP 90-7. The new lives and carrying values assigned to the individual assets and the application of fresh start accounting (see Notes 2 and 6) will cause future depreciation expense to be different than the historical depreciation expense of the Predecessor.     Depreciation expense relating to Fabricated Products is not included in Cost of products sold, excluding depreciation, amortization and other items, but is shown separatelyincluded in Depreciation and amortization on the Statements of Consolidated Income (Loss).
     
Major Maintenance Activities.  Substantially allAll of the major maintenance costs are accounted for using the direct expensing method.


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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
     
Leases.For leases that contain predetermined fixed escalations of the minimum rent, the Company recognizes the related rent expense on a straight-line basis from the date we takeit takes possession of the property to the end of the initial lease term. The Company records any difference between the straight-line rent amounts and the amount payable under the lease as part of deferred rent, in accrued liabilities or Other long term liabilities, as appropriate. Deferred rent for all periods presented was not material.
     
Capitalization of Interest.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.
     
Deferred Financing Costs.Costs incurred to obtain debt financing are deferred and amortized over the estimated term of the related borrowing. Such amortization is included in Interest expense.expense which could be capitalized as part of construction in progress. The amounts capitalized as construction in progress were $.7 million for 2009 and zero for 2008 and 2007. Deferred financing costs included in other assets at December 31, 20072009 and 20062008 were $.9$1.1 and $2.8,$.7, respectively.
     
Foreign Currency.  The CompanyOne of the Company’s foreign subsidiaries uses the United Stateslocal currency as its functional currency, its assets and liabilities are translated at exchange rates in effect at the balance sheet date, and its statement of operations is translated at weighted average monthly rates of exchange prevailing during the year. Resulting translation adjustments are recorded directly to a separate component of stockholders’ equity in accordance with ASC Topic 830,Foreign Currency Matters. Where the U.S. dollar asis the functional currency forof a foreign facility or subsidiary, re-measurement adjustments are recorded in other income. At both December 31, 2009 and 2008, the amount of translation adjustment relating to the foreign subsidiary using local currency as its foreign operations.functional currency was immaterial.
     
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.rates and energy prices. 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 boardBoard of directors.Directors. Hedging transactions are executed centrally on behalf of all of the Company’s business segments to minimize transaction costs, monitor consolidated net exposures and allow for increased responsiveness to changes in market factors.
     
The Company recognizes all derivative instruments as assets or liabilities in its balance sheet and measures those instruments at fair value by “marking-to-market” all of its hedging positions at each period-end (see Note 13)12). The Company does not meet the documentation requirements for hedge (deferral) accounting under Statement of Financial Accounting Standards No. 133,ASC Topic 815,Accounting for Derivative InstrumentsDerivatives and Hedging Activities(“SFAS No. 133”). Changes in the market value of the Company’s open derivative positions resulting from the mark-to-market process are reflected in Net income.Cost of products sold, excluding depreciation, amortization and other items.
     
Conditional Asset Retirement Obligations.Concentration of credit risk.  Effective December 31, 2005,Financial arrangements which potentially subject the Company adopted FASB Interpretation No. 47 (“FIN 47”),Accountingto concentrations of credit risk consist of metal, currency and natural gas derivative contracts and arrangements related to its cash equivalents.
     If the market value of 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 of the threshold to the Company. Such cash collateral transferred to the Company by the counterparties is accounted for as Long term liabilities. Conversely, if the market value of the net derivative positions falls below a specified threshold, the Company is required to transfer cash collateral below the threshold to the counterparty. Such cash collateral transferred to the counterparties by the Company is accounted for as long term restricted cash within Other assets. 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, in accordance with its loan covenants, places its cash in money market funds with high credit quality financial institutions which invest primarily in commercial paper of prime quality, short term repurchase agreements, and U.S. government agency notes. The Company has not experienced losses on its temporary cash investments.
Conditional Asset Retirement Obligations an interpretation of FASB Statement No. 143 (“SFAS No. 143”)retroactive to the beginning of 2005. Pursuant to SFAS No. 143 and FIN 47, companies are required to estimate incremental costs for special handling, removal and disposal costs of materials that may or will give rise to conditional asset retirement obligations (“CAROs”) and then discount the expected costs back to the current year using a credit adjusted risk free rate. Under the guidelines clarified in FIN 47, liabilities and costs for CAROs must be recognized in a company’s financial statements even if it is unclear when or if the CARO may/will be triggered. If it is unclear when or if a CARO will be triggered, companies are required to use probability weighting for possible timing scenarios to determine the probability weighted amounts that should be recognized in the company’s financial statements. .The Company evaluated FIN 47 and determined that it has CAROs 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) of certain of the older plants if such plants were to undergo major renovation or be demolished. The retroactive applicationCompany, in accordance with ASC Topic 410,Asset Retirement and Environmental Obligations, estimates incremental costs for special handling, removal and disposal costs of FIN 47 resulted inmaterials that may or will give rise to CAROs and then discounts the Company recognizing, retroactiveexpected costs back to the beginning of 2005, the following in the fourth quarter of 2005: (i)current year using a charge of approximately $2.0 reflecting the cumulative earnings impact of adopting FIN 47, (ii) an increase in Property, plantcredit adjusted risk free rate. The Company recognizes liabilities and equipment of $.5 and (iii) offsetting the amounts in (i) and (ii), an increase in Long-term liabilities of approximately $2.5. In addition, pursuant to FIN 47 there was an immaterial amount of incremental depreciation expense recorded (in Depreciation and amortization)costs for the year ended December 31, 2005 as a result of the retroactive increase inCAROs even if it is unclear when or if CAROs may/will be triggered. When it


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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Property, plant and equipment (discussedis unclear when or if CAROs will be triggered, the Company uses probability weighting for possible timing scenarios to determine the probability weighted amounts that should be recognized in (ii) above) and there was an incremental $.2 of non-cash charges (in Cost of products sold) to reflect the accretion of the liability recognized at January 1, 2005 (discussed in (iii) above) to the estimated fair value of the CARO of $2.7 at December 31, 2005.Company’s financial statements.
     
The Company’s estimates and judgments that affect the probability weighted estimated future contingent cost amounts did not materially change during the year ended December 31, 2007. However,2009 (see Note 4). At December 31, 2009 and 2008, the Company had $3.5 and $3.3 of CARO liabilities, respectively, included in Long term liabilities, on its Consolidated Balance Sheets.
Realization of Excess Tax Benefits.Beginning on January 1, 2008, the Company made an accounting policy election to follow the tax law ordering approach in assessing the realization of excess tax benefits related to stock-based awards. Under the tax law ordering approach, realization of excess tax benefits is determined based on the ordering provisions of the tax law. Current year deductions, which include the tax benefits from current year stock-based award activities, are used first before using the Company’s net operating loss (“NOL”) carryforwards from prior years. Under this method, Additional capital would be credited when an excess tax benefit is realized, creating an additional paid in capital pool, to absorb potential future tax deficiencies resulting from stock-based award activities.
Fair Value Measurements.The Company applies the provisions of ASC Topic 820,Fair Value Measurements and Disclosures, in measuring the fair value of its derivative contracts (see Note 12) and plan assets invested by the Company’s defined benefit plans (see Note 9).
     Fair value is defined as the price that would be received to sell an asset or paid to transfer a revision was madeliability in an orderly transaction between market participants at the measurement date. ASC Topic 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:
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 (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 estimated timing for certain future contingent costs during the year ended December 31, 2007 which resulted in an incremental charge of approximately $.1 (see Note 5).fair value measurement and unobservable.
     
Anglesey (see Note 4) also recorded CARO liabilities of approximately $15.0 in its financial statements as of December 31, 2005. During the first quarter of 2007, based on a new surveyor’s report and new environmental related regulations enacted in Wales, Anglesey increased its CARO liability by approximately $9.0. The treatment applied by Anglesey was not consistent with the principles of SFAS No. 143 or FIN 47. Accordingly, the Company adjusted Anglesey’s recording of the CARO to comply with United States GAAP treatment (see Note 5).
New Accounting Pronouncements.  Statement of Accounting Standards
Recently adopted accounting pronouncements:
     FASB Staff Position (“FSP”) No. 141 (revised 2007),SFAS 132(R)-1,Business CombinationsEmployers’ Disclosures about Postretirement Benefit Plan Assets(“FSP SFAS No. 141R”132(R)-1”) was issued in December 2007. 2008. FSP FAS 132(R)-1 amended FASB Statement No. 132 (revised 2003),Employers’ Disclosures about Pensions and Other Postretirement Benefits,(“SFAS No. 141R establishes principles and requirements for how the acquirer132(R)”), to provide guidance on an employer’s disclosures about plan assets of a business recognizesdefined benefit pension or other postretirement plan. The additional disclosure requirements under this FSP, now codified within ASC Topic 715,Compensation – Retirement Benefits, include expanded disclosures about an entity’s investment policies and measures in its financial statementsstrategies, the identifiablecategories of plan assets, acquired, the liabilities assumed,concentrations of credit risk and any noncontrolling interest in the acquiree. SFAS No. 141R also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable usersfair value measurements of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141R isplan assets. The new disclosure requirements are effective for the Company in its fiscal year beginning January 1, 2009. The Company is currently evaluating what impact, if any, this pronouncement will have on its consolidated financial statements.
Statement of Accounting Standards No. 160,Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51(“SFAS No. 160”) was issued in December 31, 2007. SFAS No. 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS No. 160 is effective for the Company in fiscal years beginning January 1,ending after December 15, 2009. The adoption of SFAS No. 160 is not currently expected to have a material impact onAccordingly, the Company’s consolidated financial statements.
Emerging Issues Task Force issue06-11,Tax benefit on dividend payment Accounting for Income Tax Benefits of Dividends on Share-Based Payment Award,(“Issue06-11”) was issuedadditional required disclosures are reflected in June 2007.Issue 06-11 applies to share-based payment arrangements with dividend protection features that entitle employees to receive (a) dividends on equity-classified nonvested shares, (b) dividend equivalents on equity-classified nonvested share units, or (c) payments equal to the dividends paid on the underlying shares while an equity-classified share option is outstanding, when those dividends or dividend equivalents are charged to retained earnings under Statement of Accounting Standards No. 123 (revised 2004),Share-Based Payments (“SFAS No. 123R”) and result in an income tax deduction for the employer. The Task Force reached a consensus that a realized income tax benefit from dividends or dividend equivalents that are charged to retained earnings and are paid to employees for equity classified nonvested equity shares, nonvested equity share units, and outstanding equity share options should be recognized as an increase to additional paid-in capital. The amount recognized in additional paid-in capital for the realized income tax benefit from dividends on those awards should be included in the pool of excess tax benefits available to absorb tax deficiencies on share-based payment awards (as described in Statement 123(R)). The consensus inIssue 06-11 is effective for the Company for income tax benefits that result from dividends on equity-classified employee share-based payment awards that are declared in fiscal years beginning January 1, 2008. The Company is currently evaluating what impact, if any, this pronouncement will have on its consolidated financial statements.Report (see Note 9).


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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
     
Statement of FinancialFASB Accounting Standards Update (“ASU”) No. 159,2009-12,The Fair Value OptionMeasurements and Disclosures (Topic 820)—Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)was issued in October 2009. This ASU amends Subtopic 820-10,Fair Value Measurements and Disclosures-Overall,to permit a reporting entity to measure the fair value of certain investments on the basis of the net asset value per share of the investment (or its equivalent). This ASU also requires new disclosures, by major category of investments, about the attributes included in applicable investments. The guidance in this ASU is effective for Financial Assetsinterim and Financial Liabilities, including an amendment of FASB Statementannual periods ending after December 15, 2009. Accordingly, the Company adopted the guidance in this ASU for the annual period ended December 31, 2009 (see Note 9).
Recently issued accounting pronouncements not yet adopted:
     ASU No. 1152010-06,Fair Value Measurements and Disclosures (Topic 820)—Improving Disclosures about Fair Value Measurements(“SFAS No. 159”ASU 2010-06”) was issued in February 2007January 2010. This ASU amends ASC Subtopic 820-10,Fair Value Measurements and will become effectiveDisclosures—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. This ASU also clarifies existing disclosures over the level of disaggregation in which a reporting entity should provide fair value measurement disclosures for the Company on January 1, 2008. SFAS No. 159 permits entities the option to measure many financial instruments and certain other items at fair value. Unrealized gains and losses in respecteach class of assets and liabilities for which theliabilities. This ASU further requires additional disclosures about valuation techniques and inputs used to measure fair value option has been electedfor both recurring and nonrecurring fair value measurements. ASU 2010-06 will be reportedeffective 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 earnings. Selectionthe rollforward of the fair value option is irrevocable and can be applied on a partial basis, i.e., to some but not all similar financial assets or liabilities. The Company has determined that it will not elect the fair value option under SFAS No. 159 for any of its financial assets and liabilities for which SFAS No. 159 allowed such an election to be made.
Statement of Financial Accounting Standards No. 157,Fair Value Measurements(“SFAS No. 157”) was issuedactivity in September 2006 to increase consistency and comparability inLevel 3 fair value measurements, and to expand their disclosures. The new standard includes a definition of fair value as well as a frameworkwhich are effective for measuring fair value. The provisions of this standard apply to other accounting pronouncements that require or permit fair value measurements. SFAS No. 157 does not require any new fair value measurements. SFAS No. 157 is effective with fiscal years beginning after NovemberDecember 15, 2007 and should be applied prospectively, except for certain financial instruments where it must be applied retrospectively as a cumulative-effect adjustment to the balance of opening retained earnings in the year of adoption. In November 2007, the FASB agreed to a one-year deferral of SFAS No. 157’s fair-value measurement requirements for nonfinancial assets and liabilities that are not required or permitted to be measured at fair value on a recurring basis. The FASB also intends to clarify disclosure requirements about the fair-value measurements of pension plan assets by plan sponsors and will develop additional guidance on how SFAS No. 157 applies to measurements of liabilities.2010. The Company expects to adopt ASU 2010-06 for the quarter ending March 31, 2010 and does not currently anticipate thatexpect the adoption of this standard willto have a material impact on its consolidated financial statements.
Significant accounting policies of the Predecessor are discussed in Note 18.
2.  Emergence from Reorganization Proceedings.
Summary.  As more fully discussed in Note 19, from the first quarter of 2002 to June 30, 2006, the Company and 25 of its subsidiaries operated under chapter 11 of the United States Bankruptcy Code (the “Code”) under the supervision of the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”).
As also outlined in Note 19, Kaiser and its debtor subsidiaries which included all of the Company’s core fabricated products facilities and a 49% interest in Anglesey which owns a smelter in the United Kingdom, emerged from chapter 11 on Effective Date pursuant to the Plan. Four subsidiaries not related to the Fabricated Products operations were liquidated in December 2005. Pursuant to the Plan, all material pre-petition debt, pension and postretirement medical obligations and asbestos and other tort liabilities, along with other pre-petition claims (which in total aggregated to approximately $4.4 billion in the June 30, 2006 consolidated financial statements) were addressed and resolved. Pursuant to the Plan, the equity interests of all of Kaiser’s pre-emergence stockholders were cancelled without consideration. The equity of the newly emerged Kaiser was issued and delivered to a third-party disbursing agent for distribution to claimholders pursuant to the Plan.
Impacts on the Opening Balance Sheet After Emergence.  As a result of the Company’s emergence from chapter 11, the Company applied “fresh start” accounting to its opening July 2006 consolidated financial statements as required bySOP 90-7. As such, the Company adjusted its stockholders’ equity to equal the reorganization value at the Effective Date. Items such as accumulated depreciation, accumulated deficit and accumulated other comprehensive income (loss) were reset to zero. The Company allocated the reorganization value to its individual assets and liabilities based on their estimated fair value. Items such as current liabilities, accounts receivable, and cash reflected values similar to those reported prior to emergence. Items such as inventory, property, plant and equipment, long-term assets and long-term liabilities were significantly adjusted from amounts previously reported. Because fresh start accounting was applied at emergence and because of the significance of liabilities subject to compromise that were relieved upon emergence, comparisons between the historical financial statements and the financial statements from and after emergence are difficult to make.


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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
2. Inventory.
     
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following shows the impacts of the Plan and the adoption of fresh start accounting on the opening balance sheet of the new reporting entity.
                 
           Adjusted
 
     Plan
  Fresh Start
  Balance
 
  Historical  Adjustments(a)  Adjustments(b)  Sheet 
 
ASSETS
Current assets:                
Cash and cash equivalents $37.3  $(25.3) $—  $12.0 
Receivables:                
Trade, less allowance for doubtful receivables  114.1   —   .7   114.8 
Other  5.7   —   —   5.7 
Inventories  123.1   —   48.9   172.0 
Prepaid expenses and other current assets  34.0   (.3)  —   33.7 
                 
Total current assets  314.2   (25.6)  49.6   338.2 
Investments in and advances to unconsolidated affiliate  22.7   (.3)  (11.3)  11.1 
Property, plant, and equipment — net  242.7   (4.1)  (98.9)  139.7 
Personal injury-related insurance recoveries receivable  963.3   (963.3)  —   — 
Intangible assets  11.4   (11.7)  12.6   12.3 
Net assets in respect of VEBAs  —   33.2(c)  —   33.2 
Other assets  43.6   2.1   (.8)  44.9 
                 
Total $1,597.9  $(969.7) $(48.8) $579.4 
                 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities not subject to compromise —                
Current liabilities:                
Accounts payable $56.1  $(.5) $(1.8) $53.8 
Accrued interest  1.1   (1.1)  —   — 
Accrued salaries, wages, and related expenses  37.0   (4.1)  .7   33.6 
Other accrued liabilities  61.0   (1.8)  —   59.2 
Payable to affiliate  33.0   —   —   33.0 
Long-term debt — current portion  1.1   (1.1)  —   — 
Discontinued operations’ current liabilities  1.5   —   —   1.5 
                 
Total current liabilities  190.8   (8.6)  (1.1)  181.1 
Long-term liabilities  49.0   17.5   2.5   69.0 
Long-term debt  1.2   (1.2)  —   — 
Discontinued operations’ liabilities (liabilities subject to compromise)  73.5   (73.5)  —   — 
                 
   314.5   (65.8)  1.4   250.1 
Liabilities subject to compromise  4,388.0   (4,388.0)  —   — 
Minority interests  .7   (.7)  —   — 
Commitments and contingencies Stockholders’ equity:                
Common stock  .8   .2(d)  (.8)  .2 
Additional capital  538.0   480.2(d)  (538.0)  480.2 
Common stock owned by Union VEBA subject to transfer restrictions  —   (151.1)(c)  —   (151.1)
Accumulated deficit  (3,635.3)  3,155.5(e)  479.8(f)  — 
Accumulated other comprehensive income (loss)  (8.8)  —   8.8   — 
                 
Total stockholders’ equity (deficit)  (3,105.3)  3,484.8   (50.2)  329.3 
                 
Total $1,597.9  $(969.7) $(48.8) $579.4 
                 


77

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(a)Reflects impacts on the Effective Date of implementing the Plan, including the settlement of liabilities subject to compromise and related payments, distributions of cash and new shares of common stock and the cancellation of predecessor common stock (see Note 19). Includes the reclassification of approximately $21.0 from Liabilities subject to compromise to Long-term liabilities in respect of certain pension and benefit plans retained by the Company pending the outcome of the litigation with the Pension Benefit Guaranty Corporation (“PBGC”) as more fully discussed in Note 12.
(b)Reflects the adjustments to reflect “fresh start” accounting. These include the write up of Inventories (see Note 3) and Property, plant and equipment to their appraised values and the elimination of Accumulated deficit and Additional paid in capital. The fresh start adjustments for intangible assets and stockholders’ equity are based on a third party appraisal report.
In accordance with United States GAAP, the reorganization value is allocated to individual assets and liabilities by first allocating value to current assets, current liabilities, monetary and similar long-term items for which specific market values are determinable. The remainder is allocated to long-term assets such as property, plant and equipment, equity investments, identified intangibles and unidentified intangibles (e.g. goodwill). To the extent that there is insufficient value to allocate to long-term assets after first allocating to the current, monetary and similar items, such shortfall is first used to reduce unidentified intangibles to zero and then to proportionately reduce the amount allocated to property, plant and equipment, equity investments and identified intangibles based on the initial (pre-reorganization value allocation) assessed fair value. In allocating the reorganization value, the Company determined that the value of the long-term assets exceeded the amount of reorganization value available to be allocated to such items by approximately $187.2. Such excess value was allocated to Property, plant and equipment, Investment in unconsolidated affiliate and Identified intangibles in the following amounts based on initial fair value assessments determined by a third party appraisal:
             
  Appraised Value
 Allocation of
 Opening Balance
  Based on Third
 Reorganization
 Sheet Amount at
  Party Appraisal Value Shortfall July 1, 2006
 
Property, plant and equipment $299.8  $(160.1) $139.7 
Investment in and advances to unconsolidated affiliate $24.0  $(12.9) $11.1 
Identified intangibles $26.5  $(14.2) $12.3 
(c)As more fully discussed in Note 10, after discussions with the staff of the Securities and Exchange Commission, the Company concluded that, while the Company’s only obligations in respect of two VEBAs is an annual variable contribution obligation based primarily on earnings and capital spending, the Company should account for the VEBAs as defined benefit postretirement plans with a cap.
(d)Reflects the issuance of new common stock to pre-petition creditors.
(e)Reflects gain extinguishment of obligations from implementation of the Plan.
(f)Reflects fresh start loss of $47.4 and elimination of retained deficit.


78

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
3.  Inventory.
Inventories consist of the following:
                
 December 31,
 December 31,
  December 31, December 31, 
 2007 2006  2009 2008 
Fabricated Products —        
Fabricated Products segment — 
Finished products $68.6  $61.1  $40.4 $52.7 
Work in process  76.9   72.8  44.9 57.5 
Raw materials  49.5   42.0  27.1 48.1 
Operating supplies and repairs and maintenance parts  12.5   12.1  12.8 13.2 
          
  207.5   188.0  125.2 171.5 
Commodities — Primary Aluminum  .1   .1 
 
All Other — 
Primary aluminum, commodity grade aluminum sow, ingot and billet — .8 
          
 $207.6  $188.1  $125.2 $172.3 
          
As stated in Note 1, the Company determines cost for substantially all of its product inventories on a LIFO basis. All Predecessor LIFO layers were eliminated in connection with the application of fresh start accounting. The Company applies LIFO differently than the Predecessor did in that it views each quarter on a standalone year-to-date basis for computing LIFO; whereas the Predecessor recorded LIFO amounts with a view to the entire fiscal year which, with certain exceptions, tended to result in LIFO charges being recorded in the fourth quarter or the second half of the year.     The Company recorded a net non-cash LIFO benefitcharge (benefit) of approximately $14.0$8.7, $(7.5) and $(14.0) during the year ended December 31,2009, 2008 and 2007, and net non-cash LIFO charges of $3.3, $21.7 and $9.3 for the period from July 1, 2006 through December 31, 2006, the period from January 1, 2006 to July 1, 2006 and the year ended December 31, 2005, respectively. These amounts are primarily a result of changes in metal prices.prices and changes in inventory volumes.
     
Pursuant to fresh start accounting, as more fully discussed in Note 2, all inventory amounts at the Effective Date were stated at fair market value. Raw materials and Operating supplies and repairs and maintenance parts were recorded at published market prices including any location premiums. Finished products and Work in process (“WIP”) were recorded at selling price less cost to sell, cost to complete and a reasonable apportionment of the profit margin associated with the selling and conversion efforts. As a result, as reported in Note 2, inventories were increased by approximately $48.9 at the Effective Date.
Given the recent strength in demand for many types of fabricated aluminum products and primary aluminum, the Company has a larger volume of raw materials, WIP and finished goods than is its long term historical average, and the price for such goods that was reflected in the opening inventory balance at the Effective Date, given the application of fresh start accounting, is higher than long term historical averages. As such, withWith the inevitable ebb and flow of business cycles, non-cash LIFO charges and potential lower of cost and market adjustmentsbenefits (charges) will result when inventory levels dropand/and metal prices fluctuate. Further, potential lower of cost or market adjustments can occur when metal prices decline and margins compress. Such adjustments could be materialAt December 31, 2008, due to resultsthe decline in future periods.the London Metal Exchange (“LME”) price of primary aluminum, the Company recorded a $65.5 lower of cost or market inventory write-down to reflect the inventory at market value. During the first quarter of 2009, the Company recorded an additional lower of cost or market inventory write-down of $9.3 due to the continued decline in the LME price of primary aluminum. The write-downs of inventory were recorded 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 net realizable value and it is not less than net realizable value reduced by an approximate normal profit margin. There have been no additional lower of cost or market inventory write-downs following the first quarter of 2009.
3. Investment In and Advances To Unconsolidated Affiliate.
     
4.  Investment In and Advances To Unconsolidated Affiliate.
The Company has a 49%, non-controlling ownership interest in Anglesey, which ownsoperated as an aluminum smelter at Holyhead, Wales. Theuntil September 30, 2009 and commenced remelt and casting of secondary aluminum in the fourth quarter of 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 operation and sells its 49% output to the Company accountsin transactions structured to largely eliminate metal price and currency exchange rate risks with respect to income and cash flow.

69

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
     Prior to the quarter ended September 30, 2009, the Company accounted for its 49% ownership in Anglesey using the equity method. Themethod, under which the Company’s equity in income or loss of Anglesey before income taxes of Anglesey iswas treated as a reduction (increase)or increase in Costcost of products sold gross of our share of United Kingdom corporation tax.sold. The income tax effects of the Company’s equity in income areor loss were included in the Company’s income tax provision.
     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 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 December 31, 2009. Accordingly, the Company did not recognize its share of Anglesey’s net loss 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 event during the next 12 months.
The nuclear plantSummary of Anglesey’s Financial Position (1)
         
  December 31,  December 31, 
  2009  2008 
Current assets(2) $83.0  $125.2 
Non-current assets (primarily property, plant, and equipment, net)  7.9   27.8 
       
Total assets $90.9  $153.0 
       
Current liabilities $90.3  $32.8 
Long-term liabilities  41.7   21.5 
Stockholders’ equity  (41.1)  98.7 
       
Total liabilities and stockholders’ equity $90.9  $153.0 
       
(1)Balance sheet items were translated based on the period end exchange rate.
(2)Includes cash and cash equivalents of $46.9 at December 31, 2009. At December 31, 2008, current assets include a receivable of $57.9 for cash invested with its parent company, Rio Tinto.
Summary of Anglesey’s Operations (1)
             
  Year Ended  Year Ended  Year Ended 
  December 31,  December 31,  December 31, 
  2009  2008  2007 
Net sales $199.0  $312.3  $408.7 
Costs and expenses  (322.2)  (297.4)  (319.7)
Provision (benefit) for income taxes  34.2   (9.9)  (26.0)
          
Net income (loss) $(89.0) $5.0 $63.0 
          
Company’s equity in income (2) $—  $(1.5)  $33.4 
          
Dividends received $—  $3.9  $14.3 
          
(1)Income statement items were translated based on the average exchange rate for the periods.
(2)For the year ended December 31, 2009, the Company had no equity income, as the Company did not recognize its share of Anglesey’s losses, due to suspension of the use of equity method of accounting and the impairment charges the Company recorded during the first half of 2009. The Company’s equity income (loss) differs from 49% of the summary net income from Anglesey in 2008 and 2007 primarily due to (a) share based compensation adjustments of $(2.6) for 2008 and $4.0 for 2007, relating to Anglesey’s separate reimbursement agreement with Rio Tinto under Anglesey’s share based award arrangement and, (b) US GAAP adjustment relating to Anglesey’s CARO in the amounts of $(1.3) for both 2008 and 2007.
     Anglesey operated under a power agreement that suppliesprovided sufficient power to Anglesey is currently slated for decommissioning in late 2010. For Angleseysustain its smelting operations at near-full capacity until the contract expiration at the end of September 2009. Despite Anglesey’s efforts to be ablefind a sustainable alternative to continue its aluminum reduction operations past September 2009, when its current power contract expires, Anglesey will have to secure power at prices that make its aluminum reduction operation viable. No assurances can be provided that Anglesey will be successful in this regard. In addition, given the potential for future shutdown and related costs, Anglesey temporarily suspended dividends during the last half of 2006 and the


7970

 

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
supply needs, no sources of affordable power were 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.
     The Company fully impaired its investment in Anglesey during the fourth quarter of 2008, taking into account the full curtailment of Anglesey’s smelting operations due to its inability to obtain affordable power (which the Company had anticipated as a likely possibility), Anglesey’s cash requirements for redundancy and pension payments, uncertainty with respect to the future of its operations, and the Company’s conclusion at that time that no dividends should be expected from Anglesey in the foreseeable future. In the first half of 2007 while it studied future cash requirements. Based2009, the Company recorded $1.8 in equity in income, which we subsequently impaired to maintain our investment balance at zero.
     In June 2008, Anglesey suffered a significant failure in the rectifier yard that resulted in a localized fire in one of the power transformers. As a result of the fire, Anglesey operated below its production capacity during the latter half of 2008 and incurred incremental costs, primarily associated with repair and maintenance costs, as well as loss of margin due to the outage. Under its property damage and business interruption insurance coverage, Anglesey received insurance settlement payments of approximately 14.0 Pound Sterling in 2008 and 2009. These payments did not have any impact on a reviewthe Company’s results as the Company fully impaired the value of cash anticipatedits share of the insurance proceeds received by Anglesey in 2008 and did not record the 49% share of the 2009 settlement due to be available for future cash requirements, Anglesey removed the temporary suspension of dividendsequity method of accounting in the third quarter of 2009. The Company does not expect to receive any such insurance proceeds paid to Anglesey through the distribution of dividends. However, in December 2009, the Company received a $.6 insurance settlement payment for the loss of premium on the sale of its share of value added aluminum products resulting from the interruption of production caused by the fire.
Through September 30, 2009, the Company and paid dividendsAnglesey had interrelated operations. The Company was responsible for selling alumina to Anglesey in both Augustproportion to its ownership percentage. To meet its obligation to provide alumina to Anglesey, the Company purchased alumina under a contract that provided adequate alumina for Anglesey’s operations through September 2009. Further, the Company was responsible for purchasing primary aluminum from Anglesey in proportion to its ownership percentage, at prices based on the primary aluminum market prices. After the cessation of Anglesey’s smelting operations on September 30, 2009, Anglesey no longer requires alumina for its operations and the Company’s obligation to sell alumina to Anglesey terminated. After such date, the Company purchases secondary aluminum products from Anglesey based on orders from its customers, in proportion to its ownership interest, at prices tied to the market price of primary aluminum.
     Purchases from and sales to Anglesey were as follows:
             
  Year Ended  Year Ended  Year Ended 
  December 31,  December 31,  December 31, 
  2009  2008  2007 
Purchases $91.4  $155.9  $199.3 
Sales  18.1   52.1   50.2 
     At December 31, 2009 and 2008, receivables from Anglesey were $.2 and $11.8, respectively. At December 31, 2009 and December of 2007. Dividends in respect of the Company’s ownership interests totaled $14.3 in 2007 resulting in a reduction of Investment in unconsolidated affiliate. Dividends over the past five years have fluctuated substantially depending on various operational31, 2008, payables to Anglesey were $9.0 and market factors.$27.5, respectively.
     During the last five years, cash dividends received were as follows: 2007—2009 — $0, 2008 —$3.9, 2007 — $14.3, 2006 — $11.8, and 2005 — $9.0, 2004 — $4.5 and 2003 — $4.3. No assurance can be given that Anglesey will not suspend dividends again in$9.0.
     As of July 6, 2006, the future.
Summarydate of Anglesey’s Financial Position
         
  December 31,
  December 31,
 
  2007  2006 
 
Current assets(1) $160.0  $111.7 
Non-current assets (primarily property, plant, and equipment, net)  52.0   51.1 
         
Total assets $212.0  $162.8 
         
Current liabilities $81.1  $62.5 
Long-term liabilities  26.2   30.9 
Stockholders’ equity  104.7   69.4 
         
Total liabilities and stockholders’ equity $212.0  $162.8 
         
(1)Includes cash and cash equivalents of $85.2 and $39.0.
Summary of Anglesey’s Operations
                 
        Predecessor 
  
Year Ended December 31, 2006
 
     July 1, 2006
  January 1, 2006
    
  Year Ended
  through
  to
  Year Ended
 
  December 31,  December 31,
  July 1,
  December 31, 
  2007  2006  2006  2005 
 
Net sales $408.7  $198.1  $170.1  $266.2 
Costs and expenses  (319.7)  (155.2)  (132.1)  (243.9)
Provision for income taxes  (26.0)  (12.2)  (11.2)  (6.7)
                 
Net income $63.0  $30.7  $26.8  $15.6 
                 
Company’s equity in income(1) $33.4  $18.3  $11.0  $4.8 
                 
Dividends received $14.3  $9.1  $2.7  $9.0 
                 
(1)The Company’s equity income differs from the summary net income due to equity method accounting adjustments and applying United States GAAP.
Since the Company’s emergence from chapter 11 reorganization, total equity earnings from Anglesey have been $51.7,proceeding, a difference of which $23.4 of dividends has been distributed, leaving $28.3 in the Company’s retained earnings as of December 31, 2007.
The Company and Anglesey have interrelated operations. The Company is responsible for selling alumina to Anglesey in respect of its ownership percentage. During the first three quarters of 2007, such alumina is purchased at prices that were tied to primary aluminum prices under a contract that expired at the end of the third quarter in 2007. The Company secured a new contract to purchase alumina at comparable prices that expires in August 2009.


80

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company is responsible for purchasing primary aluminum from Anglesey in respect to its ownership percentage at prices tied to primary aluminum market prices.
Purchases from and sales to Anglesey were as follows:
                 
     July 1, 2006
  Predecessor 
  Year Ended
  through
  January 1, 2006
  Year Ended
 
  December 31,
  December 31,
  to
  December 31,
 
  2007  2006  July 1, 2006  2005 
 
Purchases $199.3  $95.0  $82.4  $150.4 
Sales  50.2   24.4   24.9   35.1 
At December 31, 2007 and 2006, the receivables from Anglesey were $9.5 and $1.3, respectively, and payables to Anglesey were $18.6 and $16.2, respectively.
As a result of fresh start accounting, the Company decreased its investment in Anglesey at the Effective Date by $11.6 (see Note 2). The $11.6 differenceexisted between the Company’s share of Anglesey’s equity and the investment amount reflected in the Company’s balance sheet is beingConsolidated Balance Sheet. This difference was amortized (included in Cost of products sold) over the period from July 2006 to September 2009 (the end of Anglesey’s current power contract, and thereby the end of the current power contract.useful life based on the stated term of that contract). The non-cash amortization was approximately $3.6 for both 2008 and $1.82007. The amortization for 2009 was zero, as the year endedCompany’s investment in Anglesey was full impaired, commencing December 31, 2007 and 2006, respectively. At December 31, 2007, the remaining unamortized amount was $6.2.2008.

71

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
     
During the year ended December 31,2008 and 2007, the Company recorded acharges of $(.2) and $.3, chargerespectively, for share-basedstock-based equity compensation for employees of Anglesey who participate in the employee share savings plan of its parent, (“Rio Tinto”). The $.3 hasTinto. These charges have been recognized as a reductionreductions in the equity in earnings of Anglesey for 2008 and 2007. These transactions have been accounted for as capital transactions of Anglesey. As a result, the year ended December 31, 2007.Company recorded $(.2) and $.3 (before considering tax effect) in its Additional capital for 2008 and 2007, respectively, rather than adjusting its Investment in and advances to unconsolidated affiliate. In 2009, no stock-based equity compensation was recorded following the suspension of equity method of accounting.
     In accordance with Accounting Principles Board Opinion No. 18,a separate agreement between Anglesey and Rio Tinto, Anglesey is required to pay to Rio Tinto, in cash, an amount equal to the difference between the share price on the date shares are purchased under the Rio Tinto employee share savings plan and the amount paid by the employees of Anglesey to purchase the shares under the Rio Tinto employee share savings plan. During the first six months of 2009 and during the full year of 2008, Anglesey made payments totaling $.2 and $3.1 to Rio Tinto under this agreement, respectively. The Equity MethodCompany’s 49% ownership share of Accounting for Investments in Common Stock, this transactionthe payments has been accounted for as a capital transaction of Anglesey. Asdistribution resulting in a result,reduction in both the Company increased itsCompany’s Additional capital forand the year ended December 31, 2007 by $.3 rather than adjustvalue of its Investmentinvestment in and advances to unconsolidated affiliate.Anglesey on the Consolidated Balance Sheet.
4. Conditional Asset Retirement Obligations
     
5.  Conditional Asset Retirement Obligations
The Company has conditional asset retirement obligations (“CAROs”)CAROs 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 plants if such plants were to undergo major renovation or be demolished. NoThere are currently plans currently exist for any such renovation or demolition of suchat certain facilities and the Company’smanagement’s current assessment is that certain immaterial CAROs may be triggered during the next seven years. Other locations, in which there are no current plans for renovations or demolitions, the most probable scenarios are that no such significant CAROscenario is those related CAROs would not be triggered for 20 or more years, if at all. Nonetheless, the retroactive application of FASB Interpretation No. 47 (“FIN 47”),Accounting for Conditional Assets Retirement Obligations, an interpretation of FASB Statement No. 143(“SFAS No. 143”) resulted in the Company recognizing a Long-term liability of approximately $2.5 at December 31, 2005.
     
The Company’s estimates and judgments that affect the probability weighted estimated future contingent cost amounts did not materially change during the year ended December 31,2009, 2008 or 2007. However, there was a revisionwere revisions to the estimated timing for certain future contingent costs during the year ended December 31, 20072008 that resulted in a $.1an immaterial charge to Net income. In addition, theThe Company’s results for the year ended December 31,2009, 2008 and 2007 and 2006, included an immaterial incremental amount of depreciation expense associated with CARO-related costs. For 2009, 2008 and an incremental2007, accretion of the estimated liability of $.2CARO liabilities (recorded in Cost of products sold). was $.2, $.3 and $.2, respectively. The estimated fair value of the CARO liabilities at December 31, 20072009 and 2008 was $3.0.$3.5 and $3.3, respectively.
     
Anglesey (see Note 4) also recorded CARO liabilities of approximately $15.0 in its financial statements as of December 31, 2005. During the first quarter of 2007, based on new surveyor’s report and new environmental related regulations enacted in Wales, Anglesey increased its CARO liability by approximately $9.0. The treatment applied by Anglesey was not consistent with the principles of SFAS No. 143 or FIN 47. Accordingly, the Company adjusted Anglesey’s recording of the CARO to comply with United States GAAP treatment. The Company adjusted its


81

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
equity in earnings for Anglesey for the year ended December 31, 2007, the period from January 1, 2006 to July 1, 2006, from July 1, 2006 through December 31, 2006 and the year ended December 31, 2005 by $1.3, $.3, $.3 and $.1, respectively, to reflect the impact of applying United States GAAP with respect to the Anglesey CARO liability.
For purposes of the Company’s fair value estimates with respect to the CARO liabilities, a credit adjusted risk free rate of 7.5% was used.
6.5. Property, Plant and Equipment
     
Property, plant and equipment are recorded at cost. The major classes of property, plant, and equipment are as follows:
         
  December 31,  December 31, 
  2009  2008 
Land and improvements $23.6  $22.8 
Buildings  31.9   29.6 
Machinery and equipment  246.2   211.0 
Construction in progress  83.4   63.3 
       
   385.1   326.7 
Accumulated depreciation  (46.2)  (30.0)
       
Property, plant, and equipment, net $338.9  $296.7 
       
         
  December 31,
  December 31,
 
  2007  2006 
 
Land and improvements $12.9  $12.8 
Buildings  25.2   18.6 
Machinery and equipment  168.7   92.3 
Construction in progress  33.0   51.9 
         
   239.8   175.6 
Accumulated depreciation  (17.1)  (5.3)
         
Property, plant, and equipment, net $222.7  $170.3 
         

72

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
     The major components of Construction in progress were as follows:
Pursuant to fresh start accounting,
         
  December 31,  December 31, 
  2009  2008 
Kalamazoo, Michigan facility (1) $70.0  $23.0 
Spokane, Washington facility (2)  2.7   19.3 
Other (3)  10.7   21.0 
       
Total Construction in progress $83.4  $63.3 
       
(1)The Kalamazoo, Michigan facility is equipped with two extrusion presses and a remelt operation. Completion of this investment program is expected to occur in late 2010.
(2)Inclusive of the $139 heat treat plate expansion project at its Trentwood facility in Spokane, Washington.
(3)Other construction in progress is spread among most of the Company’s manufacturing locations.
     The amount of interest expense capitalized as more fullyconstruction in progress was $2.7, $0.3, and $3.1 for 2009, 2008, and 2007, respectively.
     As discussed in Note 2,16, the Company adjusted its Property, plantimpaired certain assets in connection with the restructuring plans to shut down the Tulsa, Oklahoma facility and equipment to its fair value as adjusted forcurtail operations at the allocation of the reorganization valueBellwood, Virginia location in both 2008 and reset Accumulated depreciation to zero. The fair value of the vast majority of the Company’s Property, plant2009.
     For 2009, 2008 and equipment was based on an independent appraisal with only a small portion being based on management’s estimates. The fair value of the Property, plant and equipment at July 1, 2006 was estimated to be approximately $300.0. However, as a result of the allocation of the reorganization value, the value at July 1, 2006 was reduced to $139.7 (i.e.the net results of the fresh start process, as reported in Note 2, was a net decrease in Property, plant and equipment of $103.0). The amount of depreciation to be recognized by the Company was initially lower than the amount historically recognized by the Predecessor.
Approximately $20.2 of the Construction in progress at December 31, 2007, relates to the Company’s Spokane, Washington facility (seeCommitments— Note 12).
For the year ended December 31, 2007, the period from July 1, 2006 through December 31, 2006, the period from January 1, 2006 to July 1, 2006 and the year ended December 31, 2005, the Company recorded depreciation expense of $11.8, $5.2, $9.7$16.2, $14.6, and $19.6,$11.8, respectively, relating to the Company’s operating facilities in its Fabricated Products segment. An immaterial amount of depreciation expense was also recorded in All Other for all periods.
6. Supplemental Balance Sheet Information
     Trade Receivables.Trade receivables were comprised of the following:
7.  Supplemental Balance Sheet Information
         
  December 31,  December 31, 
  2009  2008 
Billed trade receivables $84.2  $99.2 
Unbilled trade receivables (Note 1)  .3   .1 
       
   84.5   99.3 
Allowance for doubtful receivables  (.8)  (.8)
       
  $83.7  $98.5 
       
     
Prepaid Expenses and Other Current Assets.Prepaid expenses and other current assets were comprised of the following:
         
  December 31,
  December 31,
 
  2007  2006 
 
Current derivative assets (Note 13) $1.5  $29.8 
Current deferred tax assets  59.2   — 
Short term restricted cash  1.5   1.7 
Prepaid expenses  3.8   9.3 
         
Total $66.0  $40.8 
         


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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
         
  December 31,  December 31, 
  2009  2008 
Current derivative assets (Note 12) $7.2  $32.2 
Current deferred tax assets  40.6   84.1 
Option premiums paid  3.1   5.3 
Short term restricted cash  .9   1.4 
Prepaid taxes  4.2   — 
Prepaid expenses  3.1   5.4 
       
Total $59.1  $128.4 
       
     
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Other Assets.Other assets were comprised of the following:
         
  December 31,  December 31, 
  2009  2008 
Derivative assets (Note 12) $18.2  $5.2 
Option premiums paid  1.6   4.6 
Restricted cash  17.4   35.4 
Long term income tax receivable  2.8   4.4 
Other  1.2   .9 
       
Total $41.2  $50.5 
       
         
  December 31,
  December 31,
 
  2007  2006 
 
Derivative assets (Note 13) $27.6  $13.4 
Restricted cash  14.4   23.5 
Other  1.1   4.0 
         
Total $43.1  $40.9 
         

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
     
Other Accrued Liabilities.Other accrued liabilities were comprised of the following:
         
  December 31,
  December 31,
 
  2007  2006 
 
Current derivative liabilities (Note 13) $6.6  $25.4 
Accrued income taxes, taxes payable and FIN 48 liabilities  2.2   9.8 
Accrued bank overdraft — see below  5.4   2.8 
Dividend payable  3.7   — 
Accrued annual VEBA contribution  8.8   — 
Other  9.9   9.6 
         
Total $36.6  $47.6 
         
         
  December 31,  December 31, 
  2009  2008 
Current derivative liabilities (Note 12) $5.1  $79.0 
Option premiums received  1.6   — 
Current portion of income tax liabilities  1.1   11.8 
Accrued income taxes and taxes payable  2.0   1.8 
Accrued book overdraft (uncleared cash disbursements)  3.4   4.0 
Accrued annual VEBA contribution  2.4   4.9 
Accrued freight  2.1   2.1 
Environmental accrual  3.9   3.3 
Deferred revenue  6.8   3.7 
Other  3.7   3.3 
       
Total $32.1  $113.9 
       
     
The accrued bank overdraft balance at December 31, 2007 and 2006 represents uncleared cash disbursements.
Long-term Liabilities.Long-term liabilities were comprised of the following:
         
  December 31,  December 31, 
  2009  2008 
Derivative liabilities (Note 12) $5.3  $24.7 
Option premiums received  1.6   3.2 
Income tax liabilities  13.4   10.0 
Workers’ compensation accruals  14.1   15.9 
Environmental accruals  5.8   6.3 
Asset retirement obligations  3.5   3.3 
Deferred revenue  8.7   .5 
Other long term liabilities  1.3   1.4 
       
Total $53.7  $65.3 
       
         
  December 31,
  December 31,
 
  2007  2006 
 
FIN 48 liabilities $26.5  $12.5 
Workers’ compensation accruals  17.2   17.4 
Environmental accruals  6.0   6.7 
Derivative liabilities (Note 13)  1.9   5.4 
Asset retirement obligations  3.0   2.9 
Other long term liabilities  2.4   13.4 
         
Total $57.0  $58.3 
         
7. Secured Debt and Credit Facilities
     
8.  Secured Debt and Credit Facilities
Secured debtcredit facility and credit facilitieslong term debt consisted of the following:
        
 December 31,
 December 31,
         
 2007 2006  December 31, December 31, 
 2009 2008 
Revolving Credit Facility $—  $—  $— $36.0 
Term Loan Facility  —   50.0 
Other 7.1 7.0 
          
Total  —   50.0  7.1 43.0 
Less — Current portion  —   —  — — 
          
Long-term debt $—  $50.0  $7.1 $43.0 
          
     
On the Effective Date,At December 31, 2009, the Company and certain subsidiaries of the Company entered intohad in place a new Senior Secured Revolving Credit Agreement with a group of lenders providing for a $200.0$265.0 revolving credit facility (the


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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
“Revolving “Revolving Credit Facility”), of which up to a maximum of $60.0 may be utilized for letters of credit. Under the Revolving Credit Facility, the Company is able to borrow (or obtain letters of credit) from time to time in an aggregate amount equal to the lesser of a stated amount initially $200.0 andof $265.0 or a borrowing base comprised of eligible accounts receivable, eligible inventory, and certain eligible machinery, equipment, and real estate, reduced by certain reserves, all as specified in the Revolving Credit Facility. The Revolving Credit Facility has a five-year term and matures in July 2011, at which time all principal amounts outstanding thereunder will be due and payable. Borrowings under the Revolving Credit Facility bear interest at a rate equal to either a base prime rate or LIBOR, at the Company’s option, plus a specified variable percentage determined by reference to the then remaining borrowing availability under the Revolving Credit Facility. The Revolving Credit Facility may, subject to certain conditions and the agreement of lenders thereunder, be increased to up to $275.0 at the request of the Company. During the fourth quarter of 2007, certain conditions were met and the Company and the lenders amended the Revolving Credit Facility, effective December 10, 2007, to increase the stated amount of the credit facility from $200.0 to $265.0.
     
Amounts owed under the Revolving Credit Facility may be accelerated upon the occurrence of various events of default set forth in the agreement, including, without limitation, the failure to make principal or interest payments when due and breaches of covenants, representations, and warranties. The Revolving Credit Facility is secured by a first priority lien on substantially all of the assets of the Company and certain of its U.S.domestic operating subsidiaries that are also borrowers thereunder. The Revolving Credit Facility places restrictions on the ability of the Company and certain of its subsidiaries to, among other things, incur debt, create liens, make investments, pay dividends, repurchase shares, sell assets, undertake transactions with affiliates, and enter into unrelated lines of business. At December 31, 2007,2009, the Company was in full compliance with all covenants related tocontained in the Revolving Credit Facility.
At December 31, 2007, there were no borrowings outstanding under the Revolving Credit Facility and there were approximately $14.1 of outstanding letters of credit.
Concurrent with the execution of the Revolving Credit Facility, the Company also entered into a Term Loan and Guaranty Agreement with a group of lenders (the “Term Loan Facility”). The Term Loan Facility provided for a $50.0 term loan and was guaranteed by the Company and certain of its domestic operating subsidiaries. The Term Loan Facility was fully drawn on August 4, 2006. The Term Loan Facility had a five-year term expiring in July 2011, at which time all principal amounts outstanding thereunder would have been due and payable. Borrowings under the Term Loan Facility bore interest at a rate equal to either a premium over a base prime rate or LIBOR, at the Company’s option. On December 13, 2007, the Company repaid in full the outstanding balance of the Term Loan Facility and the related accrued interest. In connection with the repayment, $1.5 of related deferred financing costs were written off and included in interest expense.
9.  Income Tax Matters
Tax Attributes.  Although the Company had approximately $981 of tax attributes, including the NOL carry-forwards available at December 31, 2006 to offset the impact of future income taxes, the Company did not meet the “more likely than not” criteria for recognition of such attributes primarily because the Company did not have sufficient history of paying taxes. As such, the Company recorded a full valuation allowance against the amount of tax attributes available and no deferred tax asset was recognized. The benefit associated with any reduction of the valuation allowance was first utilized to reduce intangible assets with any excess being recorded as an adjustment to Stockholders’ equity rather than as a reduction of income tax expense. In order to assess whether a valuation allowance was still required at December 31, 2007, the Company executed a process for determining the need for a valuation allowance. The process included extensive review of both positive and negative evidence including the Company’s earnings history; existing contracts and backlog; future earnings; adverse recent occurrences; carry forward periods; an assessment of the industry; loss contingencies; and the impact of timing differences. At the conclusion of this process the Company concluded that it had met the “more likely than not” criteria for recognition of its deferred tax assets and thus released the vast majority of the valuation allowance at December 31, 2007. In


8474

 

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
     
accordance with fresh start accounting, the release of the valuation allowance was taken as an adjustment to Stockholders’ equity rather than through the income statement. The Company maintains a valuation allowance on deferred tax assets that did not meet the “more likely than not” recognition criteria and these assets are primarily state NOL carryforwards that the Company believes will likely expire unused.
At December 31, 2007,2009, based on the borrowing base determination in effect as of that date, the Company had $897.5$171.0 available under the Revolving Credit Facility, of net operating loss carry-forwards availablewhich $10.0 was being used to reduce future cash payments for income taxessupport outstanding letters of credit, leaving $161.0 of availability. There were no borrowings under the Revolving Credit Facility at December 31, 2009, but the interest rate applicable to any borrowings under Revolving Credit Facility would have been 4.75% at December 31, 2009.
Other.As of December 31, 2009, the Company had a promissory note obligation (the “Note”) in the United States. Ofamount of $7.0 in connection with the $897.5purchase of NOL carryforwards, $1.0 relatesreal property of the Los Angeles, California facility in December 2008. Interest is payable on the unpaid principal balance of the Note monthly in arrears at the prime rate, as defined in the Note, plus 1.5%, in no event exceeding 10% per annum. A principal payment of $3.5 will be due on February 1, 2012 and the remaining $3.5 will be due on February 1, 2013. The Note is secured by a deed of trust on the property. For the year ended December 31, 2009, the Company incurred $.4 of interest expense relating to the excess tax benefits from employee restricted stock. Equity will be increased by $1.0 if and when such excess tax benefits are ultimately realized. Such NOL carryfowards expire periodically through 2027.Note, all of which has been capitalized as a part of qualifying construction in progress. Interest expense in 2008 was immaterial. The Company also had $90.1 of other tax attributes including $88.4 of gross alternative minimum tax (“AMT”) credit carry-forwards with an indefinite life, availableinterest rate applicable to offset regular federal income tax requirements. The remainder is general business credits that will expire periodically through 2011.borrowings under the Note was 4.75% at December 31, 2009.
8. Income Tax Matters
     
Pursuant to the Plan, to preserve the NOL carryforwards that may be available to the Company after emergence, on the Effective Date, the Company’s certificate of incorporation was amended and restated to, among other things, include certain restrictions on the transfer of common stock and the Company and the Union VEBA, the Company’s largest stockholder, entered into a stock transfer restriction agreement.
Tax Provision.benefit (provision).Income (loss) before income taxes and minority interests by geographic area (excluding discontinued operations and cumulative effect of change in accounting principle) is as follows:
                
     Predecessor 
   July 1, 2006
     
 Year Ended
 through
 January 1,
 Year Ended
             
 December 31,
 December 31,
 2006 to
 December 31,
  Year Ended Year Ended Year Ended 
 2007 2006 July 1, 2006 2005  December 31, December 31, December 31, 
 2009 2008 2007 
Domestic $127.9  $27.0  $3,082.6  $(1,130.7) $117.8 $(105.9) $127.9 
Foreign  54.5   22.9   60.5   20.8  .8 14.6 54.5 
                
Total $182.4  $49.9  $3,143.1  $(1,109.9) $118.6 $(91.3) $182.4 
                
     
Income taxes are classified as either domestic or foreign, based on whether payment is made or due to the United States or a foreign country. Certain income classified as foreign is also subject to domestic income taxes.


85

     
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The (provision) benefit for income taxes on income (loss) before income taxes and minority interests (excluding discontinued operations and cumulative effect of change in accounting principle) consists of:
                 
  Federal  Foreign  State  Total 
 
2007                
Current $—  $(22.1) $(.4) $(22.5)
Deferred  —   (.5)  —   (.5)
Benefit applied to (increase)/decrease Additional capital/Other comprehensive income  (55.8)  3.9   (6.5)  (58.4)
                 
Total $(55.8) $(18.7) $(6.9) $(81.4)
                 
July 1, 2006 through December 31, 2006                
Current $—  $(9.4) $(.5) $(9.9)
Benefit applied to reduce intangible assets and increase Additional capital  (14.1)  —   (1.3)  (15.4)
Deferred  —   1.6   —   1.6 
                 
Total $(14.1) $(7.8) $(1.8) $(23.7)
                 
   
  Predecessor
   
January 1, 2006 to July 1, 2006                
Current $.9  $(7.9) $(.1) $(7.1)
Deferred  —   .9   —   .9 
                 
Total $.9  $(7.0) $(.1) $(6.2)
                 
2005                
Current $—  $(3.8) $.5  $(3.3)
Deferred  —   .5   —   .5 
                 
Total $—  $(3.3) $.5  $(2.8)
                 
                 
  Federal  Foreign  State  Total 
2009                
Current $.7  $(3.6) $(1.1) $(4.0)
Deferred  (75.9)  .3   (4.1)  (79.7)
Benefit applied to (increase)/decrease Additional capital/Other comprehensive income  29.3   2.7   3.6   35.6 
             
Total $(45.9) $(0.6) $(1.6) $(48.1)
             
2008                
Current $(0.8) $.5  $(1.3) $(1.6)
Deferred  64.3   (.2)  5.5   69.6 
Benefit (provision) applied to (increase)/decrease Additional capital/Other comprehensive income  (33.4)  (6.9)  (4.9)  (45.2)
             
Total $30.1  $(6.6) $(0.7) $22.8 
             
2007                
Current $—  $(22.1) $(.4) $(22.5)
Deferred  —   (.5)  —   (.5)
Benefit applied to (increase)/decrease Additional capital/Other comprehensive income  (55.8)  3.9   (6.5)  (58.4)
             
Total $(55.8) $(18.7) $(6.9) $(81.4)
             
A reconciliation between the (provision) benefit for income taxes and the amount computed by applying the federal statutory income tax rate to income (loss) before income taxes and minority interests (excluding discontinued operations and cumulative effect of change in accounting principle) is as follows:
             
  Year Ended  Year Ended  Year Ended 
  December 31,  December 31,  December 31, 
  2009  2008  2007 
Amount of federal income tax benefit (expense) based on the statutory rate $(41.5) $32.0  $(63.8)
Decrease (increase) in Federal valuation allowances  0.5   (3.9)  — 
Non-deductible compensation expense  (4.7)  —   — 
Non-deductible Expense  (0.5)  (0.3)  (1.6)
State income taxes, net of federal benefit  (1.0)  (0.5)  (4.5)
Foreign income taxes  —   (4.7)  (11.5)
Other  (.9)  0.2   — 
          
(Provision) benefit for income taxes $(48.1) $22.8  $(81.4)
          
                 
        Predecessor 
     July 1, 2006
  January 1,
    
  Year Ended
  through
  2006
  Year Ended
 
  December 31,
  December 31,
  to July 1,
  December 31,
 
  2007  2006  2006  2005 
 
Amount of federal income tax benefit (expense) based on the statutory rate $(63.8) $(17.5) $(1,100.1) $388.5 
Decrease (increase) in valuation allowances(1)  —   —   1,099.3   (379.8)
Non-deductible Expense  (1.6)  —   —   — 
State income taxes, net of federal benefit  (4.5)  (1.2)  —   — 
Foreign income taxes  (11.5)  (4.7)  (.5)  3.9 
Other  —   (.3)  (4.9)  (15.4)
                 
Provision for income taxes $(81.4) $(23.7) $(6.2) $(2.8)
                 
The table above reflects a full statutory U.S. tax provision despite the fact that the Company is only paying AMT in the U.S. and some state income taxes. SeeTax Attributesbelow.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
     
(1)At December 31, 2007 the valuation allowance was $24.8 compared to $503.8 at December 31, 2006. The entire change in the valuation was recorded as an adjustment in Additional capital in accordance with fresh start accounting.
The table above reflects a full statutory U.S. tax provision despite the fact that the Company is only paying AMT in the U.S. in some years. SeeTax Attributesabove.
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 amounts used for income tax purposes. The components of the Company’s net deferred income tax assets (liabilities) are as follows:
         
  December 31,  December 31, 
  2009  2008 
Deferred income tax assets:        
Loss and credit carryforwards $374.2  $390.3 
Pension benefits  0.9   1.9 
Other assets  13.9   52.1 
Inventories and other  26.7   22.1 
Valuation allowances  (18.0)(3)  (29.5)
       
Total deferred income tax assets — net  397.7   436.9 
       
         
Deferred income tax liabilities:        
Property, plant, and equipment  (32.0)  (23.3)
VEBA  (47.9)  (16.2)
       
Total deferred income tax liabilities  (79.9)  (39.5)
       
Net deferred income tax assets $317.8(1) $397.4(2)
       
         
  December 31,
  December 31,
 
  2007  2006 
 
Deferred Income Tax Assets:        
Loss and credit carryforwards $398.1  $442.4 
Pension benefits  3.3   .7 
Other assets  15.3   19.1 
Inventories and other  13.6   61.8 
Valuation allowances  (24.8)  (503.8)
         
Total deferred income tax assets — net  405.5   20.2 
         
Deferred income tax liabilities:        
Property, plant, and equipment  (14.7)  (5.8)
VEBA  (50.8)  (16.0)
Other  (12.2)  (3.0)
         
Total deferred income tax liabilities  (77.7)  (24.8)
         
Net deferred income tax assets (liabilities)(1)(2) $327.8  $(4.6)
         
 
(1)Of the total net deferred income tax assets of $327.8, $59.2$317.8, $40.6 was included in Prepaid expenses and other current assets and $268.6$277.2 was presented as Deferred tax assets, net on the Consolidated Balance Sheet as of December 31, 2007.2009.
 
(2)Due toOf the full valuation allowance in 2006, the Company nettedtotal net deferred income tax assets and deferred tax liabilities, and recorded a net $4.6 of deferred tax liabilities which is$397.4, $84.1 was included in Long-term liabilitiesPrepaid expenses and other current assets and $313.3 was presented as Deferred tax assets, net on the Consolidated Balance Sheet as of December 31, 2006.2008.
(3)The decrease in the valuation allowance is primarily due to a change in the State of Ohio’s tax regime. Ohio phased out their corporate income tax, and has changed to a gross receipts tax. As a result, the deferred tax asset for Ohio net operating losses, and its related valuation allowance, has been reversed at December 31, 2009.
     Tax Attributes.At December 31, 2009, the Company had $858.2 of NOL carryforwards available to reduce future cash payments for income taxes in the United States. Of the $858.2 of NOL carryforwards at December 31, 2009, $1.2 relates to the excess tax benefits from employee restricted stock. Equity will be increased by $1.2 if and when such excess tax benefits are ultimately realized. Such NOL carryforwards expire periodically through 2027. 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, the Company’s certificate of incorporation was amended and restated to, among other things, include certain restrictions on the transfer of the Company’s common stock. Pursuant to the amendment, the Company and the Union VEBA, the Company’s largest stockholder, entered into a stock transfer restriction agreement.
In assessing the realizability of deferred tax assets, 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. Management considers taxable 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, 2007,2009, 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 a valuation allowance of $24.8$18.0 against its deferred tax assets. When recognized, the tax benefits relating to any reversal of thethis valuation allowance will be recorded as an adjustment of Stockholders’ equity rather than as a reduction of income tax expense. Valuation allowance adjustments relatedexpense pursuant to post emergence events will flow through the tax provision.ASC Topic 805.
     
Other.Other. The Company and its subsidiaries file income tax returns in the USU.S. federal jurisdiction and various states and foreign jurisdictions. The Company’s federal income tax return for the 2004 tax year is currently under examination by the Internal Revenue Service. The Company does not expect that the results of this examination will


87

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
have a material effect on its financial condition or results of operations. The Canada Revenue Agency audited and issued assessment notices for 1998 through 2001 for which Notices of

76

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Objection have been filed. The 2002 to 2004 tax years are currently under audit byIn addition, the Canada Revenue Agency. The Company currently does not expectAgency has audited and issued assessment notices for 2002 through 2004, 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 $1.0, including interest, for the 2002 through 2004 income tax audit that is anticipated to be paid against previously accrued tax reserves in the resultsfirst quarter of these examinations will have a material effect on its financial condition or results of operations.2010. Certain past years are still subject to examination by taxing authorities, and the use of NOL carry-forwardscarryforwards in future periods could trigger a review of attributes and other tax matters in years that are not otherwise subject to examination.
     
No USU.S. federal or state liability has been recorded for the undistributed earnings of the Company’s Canadian subsidiariessubsidiary at December 31, 2007.2009. These undistributed earnings are considered to be indefinitely reinvested. Accordingly, no provision for USU.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 USU.S. income tax liability and foreign withholding taxes is not practicable because of the complexities associated with its hypothetical calculation.
     
In accordance with the requirements ofSOP 90-7, the Company adopted the provisions of FIN 48 on July 1, 2006. The Company hashad gross unrecognized tax benefits of $19.7$15.6 and $14.6$15.8 at December 31, 20072009 and 2006,December 31, 2008, respectively. The change during the year ended December 31, 20072009 was primarily due to currency fluctuations, settlements with taxing authorities, and change in tax positions. The change during the year ended December 31, 2008 was primarily due to currency fluctuations and $3.0 of additional unrecognizedchange in tax benefits that were offset by net operating losses.positions. The Company recognizes interest and penalties related to these unrecognized tax benefits in the income tax provision. The Company had $6.2 and $9.4 accrued at December 31, 2009 and December 31, 2008, respectively, for interest and penalties which were included in Long-term liabilities in the Consolidated Balance Sheets. Of the $6.2 of total interest and penalties at December 31, 2009, $0.3 is included in current liabilities in the Consolidated Balance Sheet. During the years ended December 31, 2009 and 2008, the Company recognized reductions of $3.2 and $1.3 in interest and penalties, respectively. During the year ended December 31, 2007 and 2006, the Company recognized approximately $5.1, of which $1.6 was taken as an adjustment to additional capital, and $.5, respectively, in interest and penalties. In 2007,2009, the foreign currency impact on gross unrecognized tax benefits, interest and penalties resulted in a $3.8$2.7 currency translation adjustment that was recorded in Accumulated other comprehensive income (loss), of which $2.7$2.2 related to gross unrecognized tax benefits and $1.1$0.5 related to accrued interest and penalties. Additionally,In 2008, the Company had approximately $10.7 and $4.5 accrued at December 31, 2007 and 2006, respectively, for interest and penalties which were included in Long-term liabilities in the balance sheet. Due to the potential for resolution of a Federal audit of the 2004 tax year, it is reasonably possible that the Company’sforeign currency impact on gross unrecognized tax benefits, balance may changeinterest and penalties resulted in a $5.2 currency translation adjustment that was recorded in Accumulated other comprehensive income (loss), of which $2.9 related to gross unrecognized tax benefits and $2.3 related to accrued interest and penalties. During the year ended December 31, 2008, the Company also reduced unrecognized tax benefits and the related interest and penalties by $.8 and $1.0, respectively, relating to a Canadian pre-emergence exposure. In accordance with ASC Topic 852, the Company recorded the amount in Additional capital rather than in income tax provision. The Company expects its gross unrecognized tax benefits to be reduced by $0.7 within the next twelve months by $2.5. This will not have a material impact on the Company’s earnings.12 months.
     
A summaryreconciliation of activities with respect tochanges in the gross unrecognized tax benefits for the year ended December 31, 2007 is as follows:
             
  December 31,  December 31,  December 31, 
  2009  2008  2007 
Gross unrecognized tax benefits at beginning of period $15.8  $19.7  $14.6 
Gross increases for tax positions of prior years  1.6   1.9   2.5 
Gross decreases for tax positions of prior years  (1.6)  (3.2)  — 
Gross increases for tax positions of current years  0.4   0.3   .2 
Settlements  (2.8)  —   (.3)
Foreign currency translation  2.2   (2.9)  2.7 
          
Gross unrecognized tax benefits at end of period $15.6(1) $15.8(2) $19.7 
          
     
Gross unrecognized tax benefits at December 31, 2006 $14.6 
Gross increases for tax positions of prior years  2.5 
Gross increases for tax positions of current years  .2 
Settlements  (.3)
Foreign currency translation  2.7 
     
Gross unrecognized tax benefits at December 31, 2007(1) $19.7 
     
 
(1)Of the $19.7, $15.8The amount of gross unrecognized tax benefits at December 31, 2009 is recorded as a FIN 48 liability on the balance sheetConsolidated Balance Sheets at December 31, 2009. If and when the amount of such gross unrecognized tax benefits is ultimately recognized, the $15.6 will go through the Company’s income tax provision and thus affect the effective tax rate in Long term liabilitiesfuture periods.
(2)Of the $15.8, $14.1 is recorded as a liability on the Consolidated Balance Sheets and $3.9$1.7 is offset by net operating losses and indirect tax benefits.benefits at December 31, 2008. If and when the $19.7$15.8 ultimately is recognized, $15.8$15.2 will go through the Company’s income tax provision and thus affect the effective tax rate in future periods.
9. Employee Benefits
In connection withPension 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 saleappropriate multi-employer pension plans sponsored by the USW and IAM and certain other unions at certain of the Company’s interests in and related to Queensland Alumina Limited (“QAL”), the Company made payments totaling approximately $8.5our production facilities, except for AMT in the United States (approximately $8.0 of federal AMT and approximately $.5 of state AMT). Such payments were made in the fourth quarter of 2005. Upon completion of the Company’s 2005 federal income tax return, the Company determined that approximately $1.0 of AMT was overpaid and was refundable. The Company applied for the refund in the 2005 federal income tax return filed in September 2006 and received the refund in October 2006. The Company believed that the remainder of the United States AMT amounts paid in respect of the sale of its QAL interests should, in accordance with the Intercompany Settlement Agreement entered into in connection with the Company’s chapter 11 bankruptcy, bea


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
reimbursed to the Company from the funds held by the liquidating trustee for the plan of liquidation of two former subsidiaries of the Company (Kaiser Alumina Australia Corporation and Kaiser Finance Corporation). A claim for reimbursement of $7.2 was made in January 2007. In May 2007, the liquidating trust approved the claim and the Company received the $7.2 reimbursement, which amount was recorded as a benefit in Other operating benefits (charges), net in the second quarter of 2007 (see Note 14).
Income tax matters of the Predecessor are discussed in Note 22.
10.  Employee Benefits
Pension and Similar Plans.  Pensions and similar plans include:
 • Monthlypension plan sponsored by the USW, to which we are obligated to make monthly contributions of one dollar(in whole dollars) $1.25 per hour worked by each bargaining unit employee at our Newark, Ohio and Spokane, Washington facilities starting July 2010 through July 2014, at which time we will be obligated to the appropriate multi-employer pension plans sponsoredmake monthly contributions of (in whole dollars) $1.50 per hour worked by the United Steelworkerseach bargaining unit employee at our Newark, Ohio and International Association of Machinists and certain other unions at six of our productionSpokane, Washington facilities. This obligation came into existence in December 2006 for four of our production facilities upon the termination of four defined benefit plans. The arrangement for the other two locations came into existence during the first quarter of 2005. The CompanyWe currently estimatesestimate that contributions will range from $1$2 to $3$4 per year.year through 2013.
 
 • A defined contribution 401(k) savings plan for hourly bargaining unit employees at five of the Company’s production facilities. The Company is required to make contributions to this plan for active bargaining unit employees at four of these production facilities ranging from (in whole dollars) $800 to $2,400 per employee per year, depending on the employee’s ageand/or service. This arrangement came into existence in December 2004 for two production facilities upon the termination of one defined benefit plan. The arrangement for the other three locations came into existence during December 2006.age. The Company currently estimates that contributions to such plans will range from $1 to $3 per year.
 
 • A defined benefit plan for our salaried employees at the Company’s facility in London, Ontario with annual contributions based on each salaried employee’s age and years of service. 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 non-bargaining unitcertain hourly employees (which we refer to herein as the “Salaried DC Plan”) providing for a concurrent match of up to 4% of certain contributions made by employees plus aan 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.contribution annually. The Company currently estimates that contributions to such plansplan will range from $1$4 to $3$6 per year.
 
 • A non-qualified defined contribution plan for key employees who would otherwise suffer a loss of benefits under the Company’s defined contribution plan as a result of the limitations imposed by the Internal Revenue Code.
     
Postretirement Medical Obligations.As a part of the Company’s chapter 11 reorganization efforts, the Predecessor’sCompany’s postretirement medical plan was terminated in 2004. Participants were given the option of COBRA 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 (UnionVEBA (the Union VEBA or Salaried) VEBA. All pastthe VEBA that provides benefits for certain other eligible retirees and futuretheir surviving spouse and eligible dependents (the “Salaried VEBA”)). Qualifying bargaining unit employees who did not, or were not eligible to, elect COBRA coverage are covered by the Union VEBA. The Salaried VEBA covers all other retirees including employees who retired prior to the 2004 termination of the prior plan or who 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.
     
At emergence, the Salaried VEBA received rights to 1,940,100 shares of the Company’s newly issued common stock. However, prior to the Company’s emergence, the Salaried VEBA sold its rights to approximately 940,200 shares and received net proceeds of approximately $31. The remaining approximately 999,900 shares of the Company’s common stock held by the Salaried VEBA at July 1, 2006 were unrestricted. The Salaried VEBA sold its remaining shares during the second half of 2006.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
At emergence, the Union VEBA had rights to receive 11,439,900 common shares upon the Company’s emergence from chapter 11 bankruptcy. However, prior to the Company’s emergence, the Union VEBA sold its rights to approximately 2,630,000 shares and received net proceeds of approximately $81.
During the first quarter of 2007, 6,281,180 common shares were sold to the public by existing stockholders pursuant to a registered offering. The Company did not sell any shares in, and did not receive any proceeds from, the offering. The Union VEBA was one of the selling stockholders. Of the 3,337,235 shares sold by the Union VEBA in the offering, 819,280 common shares were unable to be sold without the Company’s approval under an agreement restricting the Union VEBA’s ability to sell or otherwise transfer its common shares. However, during the first quarter of 2007, the Union VEBA received approval from the Company to include such shares in the offering.
     
The 819,280 previously restricted shares were treated as a reduction of Stockholders’ equity (at the $24.02 per share reorganization value) in the December 31, 2006 balance sheet. As a result of the relief of the restrictions, during the first quarter of 2007: (i) the value of the 819,280 shares previously restricted was added to VEBA assets at the approximate $58.19 per share price realized by the Union VEBA in the offering (totaling $47.7); (ii) approximately $19.7 of the December 31, 2006 reduction in Stockholders’ equity associated with the restricted shares (common shares owned by Union VEBA subject to restrictions) was reversed and (iii) the difference between the two amounts (approximately $23, net of income taxes of $5) was credited to Additional capital.
     
During the fourth quarter of 2007, the Union VEBA sold an additional 627,200 shares upon the Board of Directors’ approval. The 627,200 shares sold resulted in (i) an increase of $45.1 in VEBA assets at an approximate $72.03 weighted average per share price realized by the Union VEBA, (ii) a reduction of $15.1 in common stock owned by Union VEBA (at the $24.02 per share reorganization value), and (iii) the difference between the two amounts (approximately $25.2, net of income taxes of $4.9) was credited to Additional capital. After the sale, the Union VEBA now ownsowned approximately 23.5%24.2% of the outstanding common stock as of December 31, 2007.2008.

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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
     
The Union VEBA currently owns 4,845,465 shares of the Company’s common stock or approximately 24% of the Company’s issued and outstanding shares of common stock. From January 2007 to January 31, 2010, the stock transfer restriction agreement between the Union VEBA and the Company prohibited the sale of shares of the Company’s common stock owned by the Union VEBA. As of January 31, 2010, the dateUnion VEBA is permitted to sell up to 1,321,485 shares over a twelve month period. On February 1, 2010, the Union VEBA exercised its right under the registration rights agreement with the Company to demand the shelf registration of filingall of this Report, the shares of the Company’s common stock held by the Union VEBA. Subject to certain limited exceptions, the Company is generally required to file the registration statement within 60 days of the demand and has started that process. While the demand delivered by the Union VEBA requested the registration of all shares of the Company’s common stock owned by the Union VEBA, the Union VEBA will continue to be prohibited from selling more than 1,321,485 shares during any twelve month period without the approval of the Company’s Board. 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. Based on recent average weekly trading volumes, the Union VEBA could currently sell approximately 450,000 shares of the Company’s common stock under Rule 144.
     The Company’s only obligation to the VEBAsUnion VEBA and the Salaried VEBA is an annual variable cash contribution. TheUnder this obligation, the amount to be contributed to the VEBAs through September 2017 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 be limited (with no carryover to future years) to the extent that the payments would cause the Company’s liquidity to be less than $50.0. Such amounts are determined on an annual basis and payable upon the earlier of (a)within 120 days following the end of fiscal year, or within 15 days following the date on which the Company files its Annual Report onForm 10-K with the Securities and Exchange Commission (“SEC”(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 annual financial statements). During, whichever is earlier. In connection with the courseentry of a labor agreement with the reorganization process, $49.7 of contributions were madeUSW relating to USW members at the Company’s Newark, Ohio and Spokane, Washington facilities on January 20, 2010, the Company agreed to extend its obligation to make an annual variable cash contribution to the Union VEBA to September 30, 2017.
     Amounts owing by the Company to the VEBAs of which $12.7 was available to reduce post emergence payments that may become due pursuant toare recorded in the annual variable cash requirement. Of this amount, $1.9 was utilized in 2006 and the remaining $10.8 was utilized in 2007. At December 31, 2007, the Company owed the VEBAs $8.8 millionCompany’s Consolidated Balance Sheets under this arrangement which has been recorded in Other accrued liabilities, in the Company’s consolidated balance sheets andwith a corresponding increase in netNet assets in respect of VEBAs. At December 31, 2008, the Company had preliminarily determined that $4.9 was owed to the VEBAs. In March 2009, such amount was paid to the VEBAs (comprised of $.7 to the Salaried VEBA and $4.2 to the Union VEBA), following the final determination of the contribution obligation. As of December 31, 2009, the Company had preliminarily determined that $2.4 was owed to the VEBAs (comprised of $.4 to the Salaried VEBA and $2.0 to the Union VEBA). In addition to contribution obligations, the Company is obligated to pay one-half of the administrative expenses of the Union VEBA, up to $.3 in each successive year, with such cap effective 2008. During 2009, 2008 and 2007, the Company paid $.3, $.3 and $.5, respectively, in administrative expenses of the Union VEBA.
     
For accounting purposes, after discussions with the staff of the SEC, the Company has concluded thattreats the postretirement medical benefits to be paid by the VEBAs and the Company’s related annual variable contribution obligations should be treated 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. As such, whileWhile the Company’s only obligation to the VEBAs is to pay the annual variable contribution amount and the Company has no control over the plan assets, the Company must accountnonetheless accounts for net periodic postretirement benefit costs in accordance with Statement of Financial Accounting Standards No. 106ASC Topic 715,, Employers’ Accounting for PostretirementCompensation — Retirement Benefits, other than Pensions(“SFAS No. 106”) and recordrecords any difference between the assets of each VEBA and its accumulated postretirement benefit obligation (“APBO”) in the Company’s financial statements. Such information


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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
must be obtained from the Salaried VEBA and Union VEBA on a periodic basis. In general, as more fully described below, given the significance of the assets currently available and expected to be available to the VEBAs in the future and the current level of benefits, the cap does not impact the computation of the APBO.accumulated postretirement benefit obligation (“APBO”). However, should the benefit formulas being used by the VEBAs increaseand/or if the assets were to substantially decrease, it is possible that existing assets may be insufficient alone to fund such benefits and that the benefits to be paid in future periods could be reduced to the amount of annual variable contributions reasonably expected to be paid by the Company in those years. Any such limitations would also have to consider any remaining amount of excess pre-emergence VEBA contributions made.
     
Key assumptions made in computing the net obligation of each VEBA and in total at the December 31, 20072009 and 20062008 include:
     
With respect to VEBA assets:
The 4,845,465 shares of the Company’s common stock held by the Union VEBA that were not transferable have been excluded from assets used to compute the net asset or liability of the Union VEBA, and will continue to be excluded until the restrictions lapse. Such shares are being accounted for similar to “treasury stock” in the interim (see Note 1).

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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 •The 4,845,465 shares of the Company’s common stock held by the Union VEBA that were not transferable have been excluded from assets used to compute the net asset or liability of the Union VEBA, and will continue to be excluded until the restrictions lapse. Such shares are being accounted for similar to “treasury stock” in the interim (see Note 1).
• At December 31, 2007,2009 and 2008, neither VEBA held any unrestricted shares of the Company’s common stock. At December 31, 2006, the fair value of the unrestricted shares of common stock held by each VEBA was $55.98 per share.
 
 • Based on the information received from the VEBAs at December 31, 20072009 and 2006,2008, both the Salaried VEBA and Union VEBA assets were invested in various managed proprietary funds. VEBA plan assets are managed by various investment advisors selected by the VEBA trustees, and are not under the control of the Company.
 
 • The Company assumed that the Salaried VEBA would achieve a long term rate of return of approximately 5.50%7.25% and 5.50%4.50% on its assets as of December 31, 20072009 and 2006,2008, respectively. The Company assumed that the Union VEBA would achieve a long term rate of return of approximately 5.50%5.75% and 5.50%5.00% on its assets as of December 31, 20072009 and 2006,2008, respectively. The long-term rate of return assumption is based on the Company’s expectation ofhistorical investment portfolios provided to the investment strategies to be utilizedCompany by the VEBAs’ trustees.
 
 • The annual variable payment obligation is being treated as a funding/contribution policy and not counted as a VEBA asset at December 31, 20072009 for actuarial purposes. However, the amount owed under the funding obligation in relation to the results for the year ended December 31, 20072009 has been accrued and is included within Other accrued liabilities and Net assets in respect of VEBAs.
     
With respect to VEBA obligations:
 • The APBO for each VEBA has been computed based on the level of benefits being provided by each VEBA at December 31, 20072009 and 2006.2008.
 
 • The present value of APBO for eachthe Union VEBA was computed using a discount rate of return of 6.00%5.70% and 5.75%6.00% at December 31, 20072009 and 2006,2008, respectively. The present value of APBO for the Salaried VEBA was computed using a discount rate of return of 5.40% and 6.00% at December 31, 2009 and 2008, respectively.
 
 • Since the Salaried VEBA was paying a fixed annual amount to its constituents at both December 31, 20072009 and 2006,2008, no future cost trend rate increase has been assumed in computing the APBO for the Salaried VEBA.
 
 • For the Union VEBA, which is currently paying certain prescription drug benefits, an initial cost trend rate of 12% has been assumed and the trend rate is assumed to decline to 5% by 2019 at December 31, 2009 and decline to 5% by 2013 at both December 31, 2007 and 2006.2008. The trend rate used by the Company was based on information provided by the Union VEBA and industry data from the Company’s actuaries.


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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
     
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following recapstable presents the net assets of each VEBA as of December 31, 20072009 and 20062008 (such information is also included in the tables required under United StatesUS GAAP below which roll forward the assets and obligations):
                        
 December 31, 2007 December 31, 2006                         
 Union VEBA Salaried VEBA Total Union VEBA Salaried VEBA Total  December 31, 2009 December 31, 2008 
 Union VEBA Salaried VEBA Total Union VEBA Salaried VEBA Total 
APBO $(232.0) $(62.7) $(294.7) $(226.6) $(51.5) $(278.1) $(234.4) $(60.8) $(295.2) $(250.5) $(70.8) $(321.3)
Plan assets  353.6   76.0   429.6   241.4   77.4   318.8  361.9 60.5 422.4 306.7 56.8 363.5 
                          
Net asset $121.6  $13.3  $134.9  $14.8  $25.9  $40.7 
Net asset (liability) $127.5 $(.3) $127.2 $56.2 $(14.0) $42.2 
                          
     
The Company’s results of operations included the following impacts associated with the VEBAs: (a) charges for service rendered by employees; (b) a charge for accretion of interest; (c) a benefit for the return on plan assets; and (d) amortization of net gains or losses on assets, prior service costs associated with plan amendments and actuarial differences. The VEBA-related amounts included in the results of operations are shown in the tables below.
     
Financial Data.
     
Assumptions —The following recapstable presents the key assumptions used and the amounts reflected in the Company’s financial statements with respect to the Successor’s and Predecessor’sCompany’s pension plans and other postretirement benefit plans. In accordance with generally accepted accounting principles,U.S. GAAP, impacts of the changes in the Company’s pension and other postretirement benefit plans discussed above have been reflected in such information.
     
The Company uses a December 31 measurement date for all of its plans.

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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
     
Weighted-average assumptions used to determine benefit obligations as of December 31 and net periodic benefit cost (income) for the years ended December 31 are:
                                 
  Pension Benefits(1) Other Postretirement Benefits
  2009 2008 2007 2009 2008 2007
              Union Salaried Union Salaried  
              VEBA VEBA VEBA VEBA VEBAs
Benefit obligations assumptions:                                
Discount rate  6.70%  7.50%  5.60%  5.70%  5.40%  6.00%  6.00%  6.00%
Rate of compensation increase  3.50%  3.30%  3.75%  —   —   —   —   — 
Net periodic benefit cost assumptions:                                
Discount rate  7.50%  5.60%  5.20%  6.00%  6.00%  6.00%  6.00%  5.75%
Expected return on plan assets  6.00%  5.50%  6.00%  5.75%  7.25%  5.00%  4.50%  5.50%
Rate of compensation increase  3.30%  3.75%  3.00%  —   —   —   —   — 
                         
  Pension Benefits(1)  Medical/Life Benefits(2) 
  2007  2006  2005  2007  2006  2005 
 
Benefit obligations assumptions:                        
Discount rate  5.60%  5.20%  5.50%  6.00%  5.75%  — 
Rate of compensation increase  3.75%  3.00%  3.00%  —   —   — 
Net periodic benefit cost assumptions:                        
Discount rate  5.20%  5.20%  5.75%  5.75%  6.25%  — 
Expected return on plan assets  6.00%  6.00%  8.50%  5.50%  5.50%  — 
Rate of compensation increase  3.00%  3.00%  3.00%  —   —   — 
 
(1)Pension Benefits for 20072009, 2008, and 20062007 primarily represent the defined benefit plan of the Canadian facility. Pension Benefits for 2005 primarily represent the Predecessor’s defined benefit plans that were terminated in December 2006 as more fully discussed above.
(2)Medical /Life Benefits percentages for 2007 and 2006 relate to the VEBAs.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Benefit Obligations and Funded Status— The following table presents the benefit obligations and funded status of the Company’s pension and other postretirement benefit plans as of December 31, 20072009 and 2006,2008, and the corresponding amounts that are included in the Company’s Consolidated Balance Sheets.
                 
           Other Postretirement
  Pension Benefits   Benefits
  2009  2008  2009  2008 
Change in Benefit Obligation:                
Obligation at beginning of year $3.0  $4.9  $321.3  $294.7 
Foreign currency translation adjustment  .5   (.9)  —   — 
Service cost  .1   .2   2.2   1.7 
Interest cost  .3   .2   18.6   17.1 
Plan amendments relating to Salaried VEBA  —   —   32.4   8.8 
Actuarial loss(1) (gain)  .4   (1.1)  (58.3)  18.0 
Benefits paid  (.2)  (.3)  —   — 
Reimbursement from Retiree Drug Subsidy(2)  —   —   2.7   2.0 
Benefits paid by VEBA  —   —   (23.7)  (21.0)
             
Obligation at end of year  4.1   3.0   295.2   321.3 
             
                 
Change in Plan Assets:                
FMV of plan assets at beginning of year  3.1   4.4   363.5   429.6 
Foreign currency translation adjustment  .5   (.7)  —   — 
Actual return (loss) on assets  .4   (.6)  77.5   (51.7)
Employer contributions(3)  .3   .3   2.4   4.6 
Reimbursement from Retiree Drug Subsidy(2)  —   —   2.7   2.0 
Benefits paid  (.2)  (.3)  (23.7)  (21.0)
             
FMV of plan assets at end of year  4.1   3.1   422.4   363.5 
             
Prepaid benefit(4) $—  $.1  $127.2  $42.2 
             
                 
  Pension Benefits  Medical/Life Benefits 
  2007  2006  2007  2006 
 
Change in Benefit Obligation:                
Obligation at beginning of year $4.0  $32.1  $278.1  $1,017.0 
Foreign currency translation adjustment  .8   —   —   — 
Service cost  .2   1.1   1.4   .6 
Interest cost  .2   1.6   15.5   7.9 
Plan amendments relating to Salaried VEBA  —   —   9.2   — 
Curtailments, settlements and amendments — Predecessor plans  —   (28.2)  —   (1,005.6)
Actuarial (gain) loss  —   (1.9)  7.2   14.9 
Benefits paid — Predecessor plans  —   (.7)  —   (11.4)
Benefits paid — Successor plans  (.3)  —   —   — 
Creation of VEBA  —   —   —   262.0 
Reimbursement from Retiree Drug Subsidy(1)  —   —   3.3   — 
Benefits paid by VEBA  —   —   (20.0)  (7.3)
                 
Obligation at end of year  4.9   4.0   294.7   278.1 
                 
Change in Plan Assets:                
FMV of plan assets at beginning of year  3.6   21.5   318.8   — 
Foreign currency translation adjustment  .7   —   —   — 
Actual return on assets  .1   1.0   25.8   30.9 
Employer contributions(2)  .3   1.8   101.7   306.6 
Reimbursement from Retiree Drug Subsidy(1)  —   —   3.3   — 
Assets for which contributions transferred to the PBGC  —   (20.0)  —   — 
Benefits paid(3)  (.3)  (.7)  (20.0)  (18.7)
                 
FMV of plan assets at end of year  4.4   3.6   429.6   318.8 
                 
Accrued (prepaid) benefit liability(4) $.5  $.4  $(134.9) $(40.7)
                 
 
(1)The change in actuarial loss (gain) relating to other postretirement benefit plans in 2009 compared to 2008 is primarily the result of a change in the assumption in participant martial status in the Union VEBA and a change in annual benefit payment per participant in the Salaried VEBA.
(2)In January 2005, the Department of Health and Human Services’ Centers for Medicare and Medicaid Services (CMS) released final regulations governing the Medicare prescription drug benefit and other key elements of the Medicare Modernization Act that went into effect January 1, 2006. The Union VEBA is eligible for the Retiree Drug Subsidy because the plan meets the definition of actuarial equivalence and therefore qualifies for federal subsidies equal to 28% of allowable drug costs. As a result, the Company has measured itsthe Union VEBA’s obligations and costs to take into account this subsidy. This subsidy decreased the accumulated benefit obligation for the Union VEBA by approximately $51.9 at December 31, 2009 and decreased the net periodic benefit cost for 2010 by approximately $4.7, of which $.7 is related to service cost, $2.9 is related to interest cost and $1.1 is related to amortization of net actuarial gain.
 
(2)(3)Employer contributions to Medical/Life benefit plansthe VEBAs in 20072009 consist of $92.8 related to the release of transfer restrictions and subsequent sale of 1,446,480 shares of the Company’s common stock held by the Uniona $2.4 accrued VEBA plus $8.8 owed to the VEBAs, but unpaid,contribution at December 31, 20072009 in respect to the annual variable cash contribution which will be paid in the first quarter of 2008.2010. Employer contributions to Medical/Life benefit plansthe VEBAs in 20062008 consist of $11.4a $4.9 accrued VEBA contribution at December 31, 2008 in respect to the annual variable cash contribution which was paid byin the first quarter of 2009. In addition, the Company reversed $.3 of the 2007 annual VEBA contribution accrual in 2008.
(4)With respect to the $127.2 prepaid benefit relating to the VEBAs before emergenceat December 31, 2009, $127.5 was included in Net Assets in respect of the VEBAs and $295.2$(.3) was included in Net liabilities in respect of value associated with assets received by the VEBA atVEBAs on the Effective Date.Consolidated Balance Sheets. With


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
respect to the $42.2 prepaid benefit relating to the VEBAs at December 31, 2008, $56.2 was included in Net Assets in respect of the VEBAs and $(14.0) was included in Net liabilities in respect of the VEBAs on the Consolidated Balance Sheets.
     
(3)Benefits paid by Medical/Life benefit plans in 2006 consist of $11.4 paid by the VEBAs prior to emergence and $7.3 paid by the VEBAs after the Effective Date.
(4)Accrued benefit liability for the defined benefit pension plan(s) at December 31, 2007 and 2006 were included in Long-term liabilities on the Consolidated Balance Sheet.
The accumulated benefit obligation for all defined benefit pension plans (other than the Terminated Plans) was $4.1$3.7 and $3.6$2.7 at December 31, 20072009 and 2006,2008, respectively. The Company expects to contribute $.3 to the Canadian pension plan in 2010.
     As of December 31, 2009, the net benefits expected to be paid in each of the next five fiscal years and in aggregate for the five fiscal years thereafter are as follows:
                         
      Benefit Payments Due by Period    
  2010  2011  2012  2013  2014  2015-2019 
Pension plan $.2  $.2  $.2  $.2  $.3  $1.8 
Gross VEBA benefit payments  24.7   25.1   25.4   25.6   25.6   125.1 
Anticipated Retiree Drug Subsidy  (3.1)  (3.3)  (3.4)  (3.5)  (3.6)  (18.4)
                   
Total net benefits $21.8  $22.0  $22.2  $22.3  $22.3  $108.5 
                   
The amount of loss which is recognized in the balance sheet (in Accumulated other comprehensive income)income (loss)) associated with the Company’s defined benefit pension plan andas of December 31, 2009 was $.7 primarily related to net actuarial loss. The amount of loss which is recognized in the balance sheet (in Accumulated other comprehensive income (loss)) associated with the Company’s VEBAs that have not been recognized in earnings as of December 31, 2007 were $.42009 was $11.9, of which $48.0 was related to prior service cost and $1.9, respectively.$(36.1) was related to net gain.
     The portion ofamounts in accumulated other comprehensive income, relating to the pension plan and VEBA amountsplans, that have not yet been recognized in earnings at December 31, 20072009 that is expected to be recognized in earnings in 20082009 is $1.2.immaterial. The amounts in accumulated other comprehensive income, relating to the VEBAs, that have not yet been recognized in earnings at December 31, 2009 that is expected to be recognized in earnings in 2009 is $3.7, of which $4.1 is related to amortization of prior service costs and $(.4) is related to amortization of net gain.
Fair value of plan assets
     The 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 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 maturity profiles required from the investment portfolio in light of these demands.
     As noted above, 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 fair value of the plan assets of the VEBAs and 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 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.

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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
     The following tables present the fair value of plan assets of the VEBAs and the Company’s Canadian pension plan at December 31, 2009 and December 31, 2008. The fair value of the VEBAs’ plan assets are based on information made available to us by the VEBA administrators.
                 
      December 31, 2009    
  Level 1  Level 2  Level 3  Total 
Fixed income investments in registered investment companies (1) — VEBAs $—  $223.6  $—  $223.6 
Mortgage backed securities — VEBAs  —   74.9   —   74.9 
Corporate debt securities (2) — VEBAs  —   51.1   —   51.1 
Equity investments in registered investment companies (3) — VEBAs  —   29.8   —   29.8 
United States Treasuries — VEBAs  —   23.6   —   23.6 
Municipal debt securities — VEBAs  —   4.2   —   4.2 
Cash and money market investments(4) — VEBAs  12.0   —   —   12.0 
Investments in registered investment companies (5) — Canadian pension plan  —   4.1   —   4.1 
Asset backed securities — VEBAs  —   .8   —   .8 
             
  $12.0  $412.1  $—  $424.1 
             
                 
      December 31, 2008    
  Level 1  Level 2  Level 3  Total 
Fixed income investments in registered investment companies (1) — VEBAs $—  $185.3  $—  $185.3 
Mortgage backed securities — VEBAs  —   73.4   —   73.4 
Corporate debt securities (2) — VEBAs  —   37.6   —   37.6 
Equity investments in registered investment companies (3) — VEBAs  —   21.5   —   21.5 
United States Treasuries — VEBAs  —   14.2   —   14.2 
Municipal debt securities — VEBAs  —   7.1   —   7.1 
Cash and money market investments(4) — VEBAs  15.6   —   —   15.6 
Investments in registered investment companies (5) — Canadian pension plan  —   3.1   —   3.1 
Asset backed securities — VEBAs  —   3.5   —   3.5 
Real estate investment trust — Union VEBA  —   .4   —   .4 
             
  $15.6  $346.1  $—  $361.7 
             
(1)This category represents investments in various fixed income funds with multiple registered investment companies. Such funds invest in diversified portfolios comprised of (a) marketable fixed income securities such as (i) U.S. Treasury and other government issued debt securities, (ii) mortgage backed securities, (iii) asset backed securities, (iv) corporate bonds, notes and debentures in various sectors, (v) preferred stock, (vi) various deposit accounts and (vii) repurchase agreements and reverse repurchase agreements, (b) higher yielding, non-investment-grade fixed income securities in the high yield market and (c) debt securities of issuers located in countries with new or emerging markets, denominated in U.S. dollars or other foreign currencies. The fair value of assets in this category is estimated using the net asset value per share of the investments.
(2)This category represents investments in fixed income corporate securities in various sectors. Investments in the industrial, financial and utilities sectors in 2009 represented approximately 41%, 44% and 15% of the total portfolio in this category, respectively. Investments in the industrial, financial and utilities sectors in 2008 represented approximately 56%, 28% and 17% of the total portfolio in this category, respectively.
(3)This category represents investments in equity funds that invest in portfolios comprised of (i) equity securities of U.S. companies with a certain market capitalization threshold, (ii) ADRs for securities of non-U.S. issuers and (iii) securities whose principal market is outside of U.S. The fair value of assets in this category is estimated using the net asset value per share of the investments.
(4)This category represents cash and investments in various money market funds.
(5)This category of plan assets are related to the Company’s Canadian pension plan. The plan assets are invested in investment funds that hold a diversified portfolio of U.S and international equity securities and fixed income securities such as corporate bonds, government bonds, mortgage and asset backed securities.

83

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Components of Net Periodic Benefit Cost (Income) —The following table presents the components of net periodic benefit cost (income) for the years ended December 31, 2007, 20062009, 2008, and 2005:2007:
                         
  Pension Benefits  Other Postretirement Benefits 
  2009  2008  2007  2009  2008  2007 
Service cost $.1  $.2  $.2  $2.2  $1.7  $1.4 
Interest cost  .2   .2   .2   18.7   17.1   15.5 
Expected return on plan assets  (.2)  (.2)  (.2)  (21.0)  (20.6)  (19.5)
Amortization of transition asset (1)  —   —   —   —   —   — 
Amortization of prior service cost (2)  —   —   —   1.6   .8   — 
Amortization of net loss  —   .1   —   3.8   .4   — 
                   
Net periodic benefit costs  .1   .3   .2   5.3   (.6)  (2.6)
Defined contribution plans  9.9   11.1   9.9   —   —   — 
                   
  $10.0  $11.4  $10.1  $5.3  $(.6) $(2.6)
                   
 
                         
  Pension Benefits  Medical/Life Benefits 
  2007  2006  2005  2007  2006  2005 
 
Service cost $.2  $1.1  $1.2  $1.4  $.6  $— 
Interest cost  .2   1.6   1.6   15.5   7.9   — 
Expected return on plan assets  (.2)  (1.7)  (1.5)  (19.5)  (7.9)  — 
Amortization of prior service cost  —   —   .1   —   —   — 
Amortization of net loss  —   .3   .4   —   —   — 
                         
Net periodic benefit costs  .2   1.3   1.8   (2.6)  .6   — 
Defined contribution plans  9.9   8.1   7.2   —   —   — 
                         
  $10.1  $9.4  $9.0  $(2.6) $.6  $— 
                         
(1)There was an immaterial amount of transition asset amortization relating to the pension plan(s) for years ended December 31, 2009, 2008 and 2007.
(2)The Company amortizes prior service cost on a straight-line basis over the average remaining years of service to full eligibility for benefits of the active plan participants.
     
The above table excludes pension plan curtailment and settlement costs of $.2 and $6.3 in 2007 and 2006, respectively, and2007. There were no pension plan curtailment and settlement credits of $.7costs in 2005.2009 and 2008.
     
The periodic pension costs associated with the Terminated Plans were zero, $1.1 and $1.6 for the years ended December 31, 2007, 2006 and 2005.


94

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Components of Net Periodic Benefit Cost (Income) and Cash Flow and Charges —The following tables present the components of net periodic pension benefits cost for the years ended December 31, 2007, 20062009, 2008, and 2005:2007:
             
  Year Ended  Year Ended  Year Ended 
  December 31,  December 31,  December 31, 
  2009  2008  2007 
VEBA:            
Service cost $2.2  $1.7  $1.4 
Interest cost  18.7   17.1   15.5 
Expected return on plan assets  (21.0)  (20.6)  (19.5)
Amortization of prior service cost  1.6   .8   — 
Amortization of net loss  3.8   .4   — 
          
   5.3   (.6)  (2.6)
Defined benefit pension plans  .1   .3   .2 
Defined contributions plans  6.9   7.8   6.6 
Multiemployer pension plans  3.0   3.3   3.3 
          
  $15.3  $10.8  $7.5 
          
     
                 
        Predecessor 
     Year Ended December 31, 2006    
     July 1, 2006
       
  Year Ended
  through
  January 1, 2006
  Year Ended
 
  December 31,
  December 31,
  to
  December 31,
 
  2007  2006  July 1, 2006  2005 
 
VEBA:                
Service cost $1.4  $.6  $—  $— 
Interest cost  15.5   7.9   —   — 
Expected return on plan assets  (19.5)  (7.9)  —   — 
                 
   (2.6)  .6   —   — 
Defined benefit pension plans (including service costs of $.2, $.5, $.6 and $1.2)  .2   .5   .8   1.8 
Defined contributions plans  9.9   4.0   4.1   7.2 
Retroactive impact of defined contribution plans adoption included in Other operating charges, net  —   .4   —   6.8 
                 
  $7.5  $5.5  $4.9  $15.8 
                 
The following tables presenttable presents the allocation of these charges (income):
                 
        Predecessor 
     Year Ended December 31, 2006    
     July 1, 2006
       
  Year Ended
  through
  January 1, 2006
  Year Ended
 
  December 31,
  December 31,
  to
  December 31,
 
  2007  2006  July 1, 2006  2005 
 
Fabricated Products segment $9.3  $4.9  $4.5  $8.7 
Corporate segment  (1.8)  .2   .4   .3 
Other operating charges, net (Note 14)  —   .4   —   6.8 
                 
  $7.5  $5.5  $4.9  $15.8 
                 
             
  Year Ended  Year Ended  Year Ended 
  December 31,  December 31,  December 31, 
  2009  2008  2007 
Fabricated Products segment $8.8  $10.1  $9.3 
All Other  6.5   .7   (1.8)
          
  $15.3  $10.8  $7.5 
          
     
For all periods presented, the net periodic benefits relating to the VEBAs are included as a component of Selling, administrative, research and development and general expense within the Corporate segmentAll Other and substantially all of the Fabricated Products segment’s related charges are in Cost of products sold, excluding depreciation, with the balance being in Selling, administrative, research and development and general expense.
An amount of $.8 was accrued at December 31, 2006 in Accrued salaries, wages, and related expenses relating to the retroactive implementation of the remaining defined benefit plans. Of the $.8, $.4 was recorded in Cost of products sold and $.4 was recorded in Other operating charges, net (Note 14). The amount recorded in Other operating charges, net represents a one time payment. This amount was paid in 2007. The amount related to the retroactive implementation of the Salaried DC Plan was paid in July 2005. In September 2005, the Company and the USW amended a prior agreement to provide, among other things, for the Company to contribute per employee amounts to the Steelworkers’ Pension Trust totaling approximately $.9. The amended agreement was approved by the Bankruptcy Court and such amount was recorded in the fourth quarter of 2005.


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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
10. Employee Incentive Plans
     
The Successor also paid benefits applicable to the Predecessor (seeCash and other CompensationLong term incentive plansin Note 11).
     
Employee benefit and incentive plans of the Predecessor are discussed in Note 23.
11.  Employee Incentive Plans
Equity Based Compensation.
General —Upon the Company’s emergence from chapter 11 bankruptcy,. On July 6, 2006, the 2006 Equity and Performance Incentive Plan (the(as amended, the “Equity Incentive Plan”) became effective. Officers and other key employees of the Company or one or more of its subsidiaries, as well as directors and directors emeritus of the Company, are eligible to participate in the Equity Incentive Plan. The Equity Incentive Plan permits the granting of awards in the form of options to purchase common shares, stock appreciation rights, shares of non-vested and vested stock, restricted stock units, performance shares, performance units and other awards. The Equity Incentive Plan will expire on July 6, 2016. No grants will be made after that date, but all grants made on or prior to that date will continue in effect thereafter subject to the terms thereof and of the Equity Incentive Plan. The Company’s Board of Directors may, in its discretion, terminate the Equity Incentive Plan at any time. The termination of the Equity Incentive Plan will not affect the rights of participants or their successors under any awards outstanding and not exercised in full on the date of termination. In December 2008, the Company 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.
     
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, at December 31, 2009, 2,222,222 common shares were initially reserved for issuance under the Equity Incentive Plan.
Compensation charges related to the Equity Incentive Plan, for the year endedand at December 31, 2007 were $9.1, of which $8.9 related to vested and non-vested common shares and restricted stock units and $.2 related to stock options. Compensation charges related to the Equity Incentive Plan for the period from July 1, 2006 to December 31, 2006 were $4.0 all of which related to vested and non-vested common shares. The total charges for all periods were included in Selling, administrative, research and development and general expense.
At December 31, 2007, 1,604,1972009, 815,357 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 in the Corporate and Other business unit, related to the Equity Incentive Plan for 2009, 2008 and 2007 were as follows:
             
  2009  2008  2007 
Service-based vested and non-vested common shares and restricted stock units $7.9  $9.6  $8.9 
Performance shares  .9   .2   — 
Service-based stock options  .3   .3   .2 
          
Total compensation charge $9.1  $10.1  $9.1 
          
     The total income tax benefit recognized in the income statement for stock-based compensation arrangements were $3.4, $3.8, and $3.4, for 2009, 2008 and 2007, respectively.
Non-vested Common Shares, and Restricted Stock Units, and Performance Shares —In June 2007, theThe Company granted 7,281grants non-vested common shares to its non-employee directors.directors, directors emeritus, executives officers and other key employees. The non-vested common shares granted to non-employee directors and a director emeritus are generally subject to a one year vesting requirement that lapses on June 6, 2008.requirement. The fair value of the shares granted of $.5 is being amortized to expense over a one year period on a ratable basis. An additional 3,877 common shares were issued to non-employee directors electing to receive common shares in lieu of all or a portion of their annual retainer fee. The fair value of the shares of $.3, based on the fair value of the shares at date of issuance, was recognized in earnings in the year ended December 31, 2007 as a period expense.
In April 2007, the Company issued 54,381 non-vested common shares and granted 1,260 restricted stock units to executive officers and other key employees. The shares and the restricted stock unitssenior management are generally subject to a three year cliff vesting requirement that lapses on April 3, 2010.requirement. The fair value of thenon-vested common shares issued, after assuming a 5% forfeiture rate, is being amortizedgranted to expense overother key employees are generally subject to a three year period on a ratable basis.graded vesting requirement. In addition to non-vested common shares, the Company also grants restricted stock units to certain employees. The restricted stock units have rights similar to the rights of non-vested common shares and the employee will receive one common share for each restricted stock unit upon the vesting of the restricted stock unit. TheWith the exception of restricted stock units granted under the French sub-plan, restricted stock units vest one third on the first anniversary of the grant date and one third on each of the second and third anniversaries of the date of issuance. Restricted stock units granted under the French sub-plan vest two-thirds on the second anniversary of the grant date and one-third on the third anniversary of the grant date.
The fair value of the non-vested common shares and restricted stock units issued, after assuming a 5% forfeiture rate is beingare based on the grant date market value of the common shares and amortized to expense over the vesting period on a ratable basis.
Upon emergence from chapter 11 reorganization,basis, after assuming an estimated forfeiture rate. From time to time, the Company issued 521,387 shares of non-vestedissues common shares and 3,699 restricted stock units to directors, executive officers and other key employees. The weighted average grant date fair value for non-vested common shares and restricted stock units were $42.31 and $62.0, respectively. No non-vested common shares or restricted stock units vested during 2006. The non-vested common


96

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
shares and restricted stock units issued to executive officers and other key employees are subject to a three year vesting requirement that lapses on various dates in 2009. The non-vested common shares issued to directors were subject to a one year vesting requirement that lapsed on August 1, 2007. An additional 4,273 common shares were issued in 2006 to non-employee directors electing to receive common shares in lieu of all or a portion of their annual retainer fee.fees. The fair value of thethese common shares of $.2,is also based on the fair value of the shares at the date of issuance wasand is immediately recognized in earnings in the year ended December 31, 2006 as a period expense.
     The Company grants performance shares to executive officers and other key employees under the Company’s LTI programs. Awards under existing programs are subject to performance requirements pertaining to the Company’s EVA performance, measured

85

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
over a three year performance period. EVA is a measure of the excess of the Company’s pretax operating income for a particular year over a pre-determined percentage of the net assets of the immediately preceding year. 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 performance periods. The vesting of performance shares and related issuance and delivery of common shares under the 2008-2010 LTI program and 2009-2011 LTI program will occur in 2011 and 2012, respectively.
     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 performance periods on a ratable basis.
The fair value of the non-vested common shares, and restricted stock units, isand performance shares was determined based on the closing trading price of the common shares on the grant date. A summary of the activity with respect to non-vested common shares and restricted stock units for the year ended December 31, 20072009 is as follows:
                                
 Non-Vested
 Restricted
  Non-Vested Restricted 
 Common Shares Stock Units  Common Shares Stock Units 
   Weighted-
   Weighed-
  Weighted- Weighed- 
   Average
   Average
  Average Average 
   Grant-Date
   Grant-Date
  Grant-Date Grant- Date 
 Shares Fair Value Units Fair Value  Shares Fair Value Units Fair Value 
Non-vested shares and restricted stock units at January 1, 2007  521,387  $42.31   3,699  $62.00 
Non-vested shares and restricted stock units at January 1, 2009 553,712 $47.79 2,969 $36.05 
Granted  61,662   79.31   1,260   80.01  196,829 15.62 5,181 13.92 
Vested  (30,708)  43.09   (1,232)  62.00   (490,721) 42.88  (622) 68.60 
Forfeited  (3,270)  53.76   —   —   (5,668) 25.08 — — 
                  
Non-vested shares and restricted stock units at December 31, 2007  549,071  $46.36   3,727  $68.09 
Non-vested shares and restricted stock units at December 31, 2009 254,152 $32.79 7,528 $18.13 
                  
     A summary of the activity with respect to the performance shares for the year ended December 31, 2009 is as follows:
         
  Performance Shares 
      Weighted- 
      Average 
      Grant-Date 
      Fair Value 
  Shares  per Share 
Outstanding at January 1, 2009  89,951  $74.40 
Granted  460,198   14.06 
Vested  (20,467)  24.83 
Forfeited  (21,468)  27.15 
       
Outstanding at December 31, 2009  508,214  $23.75 
       
     Total fair value of shares that vested during 2009, 2008 and 2007 was $21.6, $2.1 and $1.4, respectively. The total fair value for shares granted during 2009, 2008 and 2007 was $9.6, $11.4 and $5.0, respectively.
Under the Equity Incentive Plan, the Company allowshad allowed participants to elect to have the Company withhold common shares to satisfy minimum statutory tax withholding obligations arising on the vesting ofin connection with non-vested shares, and restricted stock units, stock options, and stock options.performance shares. When the Company withholds the shares, it is required to remit to the appropriate taxing authorities the fair value of the shares withheld.withheld and such shares are cancelled immediately. During the year ended December 31, 2007, 8,346 shares (which are included in vested shares in the above tables) were withheld upon the vesting of common shares. During the fourth quarter of 2007, the Board of Directors approved the cancellation2008, 11,423 of such common shares and all future shares withheldwere cancelled as a result of vestingstatutory tax withholding. As a result of non-vestedan amendment to the Revolving Credit Facility in January 9, 2009, the Company can no longer purchase its common shares, and accordingly, can no longer allow participants to satisfy statutory tax withholding in this manner.
     As of December 31, 2009, there was $3.6 of unrecognized gross compensation cost related to the non-vested common shares and the restricted stock units and the exercising$1.0 of stock options. The fair value of the common shares withheld of $.7 has been recorded as a reduction to Additional capital in the year ended December 31, 2007.
As of December 31, 2007, there was $13.5 ofgross unrecognized compensation cost related to the performance shares. The cost related to the non-vested common shares and the restricted stock units. That costunits is expected to be recognized over a weighted-average period of 1.61.5 years and the cost related to the performance shares is expected to be recognized over a weighted-average period of 1.9 years.
     
Stock Options —On April 3, 2007,As of December 31, 2009, the Company grantedhad 22,077 outstanding options to purchase 25,137 of its common shares to executive officersfor executives and other key employees withto purchase its common shares. The options were granted on April 3, 2007 and have a contractual life of ten years. The options vested one-third on April 3, 2008 and one-third on April 3, 2009, and will vest one-third on the third anniversary of the grant date. The weighted-average fair value of the options granted was $39.90. No new options were granted during 2009 or 2008.
     
The fair value of each of the Company’s stock option awards is estimated on the date of grant using a Black-Scholes option-pricing model that uses the assumptions noted in the table below. The fair value of the Company’s stock option awards, which are

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


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The significant weighted average assumptions used in determining the grant date fair value of the option awards granted on April 3, 2007 were as follows:
     
Dividend yield  —%
Volatility rate  45%
Risk-free interest rate  4.59%
Expected option life (years)  6.0 
Prior to April 3, 2007, the Company had no outstanding options to purchase common shares.     A summary of the Company’s stock option activity for the year ended December 31, 20072009 is as follows:
                 
        Weighted-
    
     Weighted-
  Average
    
     Average
  Remaining
  Aggregate
 
  Number of
  Exercise
  Contractual
  Intrinsic
 
  Shares  Price  Life (In years)  Value 
           (In millions) 
 
Outstanding at January 1, 2007  —  $—         
Grants  25,137   80.01         
Forfeited  —   —         
Exercise  —   —         
                 
Outstanding at December 31, 2007  25,137  $80.01   9.25  $— 
                 
Expected to vest at December 31, 2007 (assuming a 5% forfeiture rate)  23,880  $80.01   9.25  $— 
                 
Exercisable at December 31, 2007  —  $—   —  $— 
                 
                 
          Weighted-    
      Weighted-  Average    
      Average  Remaining  Aggregate 
  Number of  Exercise  Contractual  Intrinsic 
  Shares  Price  Life (In years)  Value 
      (In millions)     
Outstanding at January 1, 2009  22,077  $80.01         
Grants  —   —         
Forfeited  —   —         
Exercise  —   —         
               
Outstanding at December 31, 2009  22,077  $80.01   7.25  $— 
             
Fully vested and expected to vest at December 31, 2009 (assuming a 5% forfeiture rate)  22,047  $80.01   7.25  $— 
             
Exercisable at December 31, 2009  15,143  $80.01   7.25  $— 
             
The weighted average fair value of the options granted during the year ended December 31, 2007 was $39.90.     At December 31, 2007,2009, there was $.7$.1 of unrecognized gross compensation costsexpense related to stock options. This cost is expected to be recognized over a weighted-average period of 2.3 years.3 months.
     
CashShort term incentive plans and other Compensation.compensation
     The Company has a short term incentive compensation plan for senior management and certain salaried 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 2009, 2008 and 2007, the Company recorded charges of $6.0, $9.0, and $12.0, respectively, related to the salaried employees’ short term incentive compensation plans. Of the total charges in 2009, 2008, and 2007, $2.8, $2.9, and $3.1, respectively, were included in Cost of products sold and $3.2, $6.1, and $8.9, respectively, were included in Selling, administrative, research and development and general.
• A short term incentive compensation plan for management, payable in cash, which is based primarily on earnings, adjusted for certain safety and performance factors. Most of the Company’s locations also have similar programs for both hourly and salaried employees. During 2007, 2006 and 2005, the Company recorded charges of $12.0, $7.9 and $5.7, respectively, related to these plans. Of the total charges in 2007, 2006 and 2005, $3.1, $2.9 and $3.3, respectively, were included in Cost of products sold and $8.9, $5.0 and $2.4, respectively, were included in Selling, administrative, research and development and general.
     The employment agreement between the Company and its chief executive officer remains effective. Other members of management are now subject to the Company’s severance plan for salaried employees.
• Certain employment agreements between the Company and certain members of management remain effective. Additionally, other members of management continue to retain certain pre-emergence contractual arrangements. In particular, the terms of the change in control agreements survive after the Effective Date for a period ending two years following a change in control, unless superseded by another agreement (see Note 23). The terms of the severance agreements with certain members of management terminated in 2007.
11. Commitments and Contingencies
     
12.  Commitments and Contingencies
Commitments.The Company and its subsidiaries have a variety of financial commitments, including purchase agreements, forward foreign exchange and forward sales contracts (see Note 13)12), and letters of credit and guarantees.(see Note 7). The Company and its subsidiaries also havehad agreements to supply alumina to, and to purchase aluminum from, Anglesey through September 30, 2009 (see Note 4)3). As of December 31, 2007, orders were placed for certain equipmentand/or services intended to augment the heat treat and aerospace capabilities at the Company’s Trentwood facility in Spokane,


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
     
Washington. The Company expects the total costs for such equipment and services to be approximately $139. Approximately $112.7 of such costs were incurred from inception of the Trentwood project through the end of 2007. The balance is expected to be incurred during 2008. As of December 31, 2007, orders were also placed for certain equipment and/or services relating to the $91 rod, bar and tube value stream investment. Approximately $7.3 was incurred from inception of the investment through the end of 2007. The balance is expected to be incurred during 2008 and 2009.
Minimum rental commitments under operating leases at December 31, 2007,2009, are as follows: years ending December 31, 2008 — $3.8; 2009 — $3.5; 2010 — $2.0;$6.6; 2011 — $.9$6.1, 2012 — $5.7 and 20122013 — $4.8 and thereafter — $.5.$37.4. Rental expenses after excluding rental expenses of discontinued operations, were $5.0, $4.0$7.3, $6.3, and $3.6$5.0 for the years ended December 31, 2007, 20062009, 2008, and 2005,2007, respectively.
     
Environmental Contingencies.The Company and its subsidiaries are subject to a number of environmental laws, to fines or penalties assessed for alleged breaches of the environmental laws, and to claims based upon such laws.
     
A substantial portion of theThe Company’s pre-emergence obligations, primarily in respect of non-owned locations, was resolved by the chapter 11 proceedings (see Note 24). The remaining environmental accruals are primarily related to potential solid waste disposal and soil and groundwater remediation matters. The following table presents the changes in such accruals, which are primarily included in Long-term liabilities, for the period from July 1, 2006 through December 31, 2007 (see Note 24 for a table that presents the changes in the environmental accruals for the period from January 1, 2006 to July 1, 2006 and the year ended December 31, 2005).liabilities.
             
  Year Ended  Year Ended  Year Ended 
  December 31,  December 31,  December 31, 
  2009  2008  2007 
Beginning balance $9.6  $7.7  $8.4 
Additional accruals  2.4   5.1   1.1 
Less expenditures  (2.3)  (3.2)  (1.8)
          
Ending balance $9.7  $9.6  $7.7 
          
     
         
     July 1, 2006
 
  Year Ended
  through
 
  December 31,
  December 31,
 
  2007  2006 
 
Beginning balance $8.4  $10.4 
Additional accruals  1.1   .7 
Less expenditures  (1.8)  (2.7)
         
Ending balance $7.7  $8.4 
         
These environmental accruals represent the Company’s undiscounted estimate of costs reasonably expected to be incurred based on presently enacted laws and regulations, currently available facts, existing technology, and the Company’s assessment of the likely remediation action to be taken and are calculated on an undiscounted basis. In the ordinary course, thetaken. The Company expects that these remediation actions will be taken over the next several years and estimates that expenditures to be charged to these environmental accruals will be approximately $1.7 in 2008, $1.8 in 2009, $.7$3.9 in 2010, , $.8$2.6 in 2011, and $2.7$.9 in 2012, $.9 in 2013, and $1.4 in 2014 and thereafter.
     
As additional facts are developed and definitive remediation plans and necessary regulatory approvals for implementation of remediation are established or alternative technologies are developed, changes in these and other factors may result in actual costs exceeding the current environmental accruals. The Company believes that it is reasonably possible that undiscounted costs associated with these environmental matters may exceed current accruals by amounts that could range,be, in the aggregate, up to an estimated $15.5.$16.9. As the resolution of these matters is subject to further regulatory review and approval, no specific assurance can be given as to when the factors upon which a substantial portion of this estimate is based can be expected to be resolved. However, the Company is currently working to resolve certain of these matters.
     
Other Environmental Matters.  The Company has been working with regulatory authorities and performing studies and remediation pursuant to several consent orders with the State of Washington relating to the historical use of oils containing PCBs at our Trentwood facility in Spokane, Washington before 1978. During April 2004, the Company was served with a subpoena for documents and notified by Federal authorities that they were investigating certain environmental compliance issues with respect to the Company’s Trentwood facility in Spokane, Washington. The Company undertook its own internal investigation of the matter through specially retained counsel to


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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ensure that it had all relevant facts regarding Trentwood’s compliance with applicable environmental laws. In early 2007, the Company received a letter from the regulatory authorities confirming that their investigation had been closed.
Resolution of Contingencies with respect to the PBGC.  As more fully described in Note 24, in response to the January 2004 motion to terminate or substantially modify substantially all of the Company’s defined benefit pension plans, the Bankruptcy Court ruled that the Company had met the factual requirements for distress termination as to all of the plans at issue. The PBGC appealed the Bankruptcy Court’s ruling. However, as more fully discussed in Note 24, while the PBGC’s appeal was pending, the Company and the PBGC reached a settlement under which the PBGC agreed to assume the Terminated Plans (as defined below). The Bankruptcy Court approved this settlement in January 2005. The Company believed that all issues in respect of such matters were resolved. However, despite the settlement with the PBGC, the intermediate appellate court proceeded to consider the PBGC’s earlier appeal and issued a ruling dated March 31, 2005 affirming the Bankruptcy Court’s rulings regarding distress termination of all such plans. In July 2005, the Company and the PBGC reached an agreement, which was approved by the Bankruptcy Court in September 2005, under which the PBGC agreement previously approved by the Bankruptcy Court was amended to permit the PBGC to further appeal the intermediate appellate court ruling. Under the terms of the amended PBGC agreement, if the PBGC were to prevail in the further appeal, all aspects of the previously approved PBGC agreement would remain the same. On the other hand, under the amended agreement, if the intermediate appellate court ruling was upheld on further appeal, the PBGC would be required to: (a) approve the distress termination of the remaining defined benefit pension plans; and (b) reduce the amount of the administrative claim to $11.0 (from $14.0). Under the amended agreement, both the Company and the PBGC agreed to take up no further appeals. Pending the final resolution of this matter, the Company’s settlement with the PBGC remained in full force and effect. Upon consummation of the two separate plans of liquidation (collectively, the “Liquidating Plans”) in December 2005, the $11.0 minimum was paid to the PBGC.
In July 2006, the United States Third Circuit Court of Appeals affirmed the intermediate appellate court’s ruling upholding the Bankruptcy Court’s finding that the factual requirements for distress termination of all defined benefit plans had been met. Accordingly, four of the five remaining plans were terminated by the PBGC on December 29, 2006. These four pension plans, together with the pension plans terminated by the PBGC in 2004 and 2003 (see Note 23) are herein after collectively referred to as the “Terminated Plans”. The Terminated Plans were replaced with defined contribution plans as described in Note 10. As a result of the July 2006 ruling, the $3.0 of previously recorded administrative claim included in the Company’s opening balance sheet was credited to Other operating charges, net (see Note 14). The termination of the Terminated Plans in 2006 resulted in a non-cash benefit of approximately $4.2 (reflected in Other operating (benefits) charges, net — see Note 14).
Other Contingencies.The Company and its subsidiaries are involvedparty to various lawsuits, claims, investigations, and administrative proceedings that arise in variousconnection with its past and current operations. The Company evaluates such matters on a 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 Company reserves 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 to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other claims, lawsuits,information, and proceedings relatingevents pertaining to a wide variety of matters related to past or present operations.particular case. While uncertainties are inherent in the final outcome of such matters and it is presently impossible to determine the actual costscost that may ultimately may be incurred, management currently believes that it has sufficiently reserved for such matters and that the ultimate resolution of such uncertainties and the incurrence of such costs shouldpending matters will not have a material adverse effectimpact on the Company’sits consolidated financial position, operating results, of operations, or liquidity.
Commitment12. Derivative Financial Instruments and contingencies of the Predecessor are discussed in Note 24.Related Hedging Programs
     
13.  Derivative Financial Instruments and Related Hedging Programs
In conducting its business, the Company, uses various instruments,from time-to-time, enters into derivative transactions, including forward contracts and options, to manage the risks arising from fluctuations in aluminum prices, energy prices and exchange rates. The Company has historically entered into derivative transactions from time to time to limit its economic (i.e., cash) exposure resulting from (1)(i) metal price risk related to its anticipated sales of primary aluminum and fabricated aluminum products netand the purchase of expected purchase costsmetal used as raw materials for items that fluctuate with aluminum prices, (2)its fabrication operations, (ii) the energy price risk from fluctuating prices for natural gas used in its production process, and (3)(iii) foreign currency requirements with respect to its cash commitments for equipment purchases and with respect to its foreign


100

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
subsidiaries and affiliates.affiliate. As the Company’s hedging activities are generally designed to lock-in a specified price or range of prices, realized gains or losses on the derivative contracts utilized in the hedging activities (excluding the impact of mark-to-market fluctuations on those contracts discussed below) generally offset at least a portion of any losses or gains, respectively, on the transactions being hedged.
hedged at the time the transaction occurs. However, due to mark-to-market accounting, during the life of the derivative contract, significant unrealized, non-cash gains and losses are recorded in the income statement as a reduction or increase in Cost of products sold, excluding depreciation, amortization and other items. The Company’s share of primary aluminum production from Anglesey is approximately 150,000,000 pounds annually. BecauseCompany may also be exposed to margin calls, which the Company purchases alumina for Anglesey at prices linkedtries to primary aluminum prices, only a portionminimize or offset through counterparty credit lines and/or use of options. From time-to-time, the Company may modify the terms of the Company’s net revenues associated with Anglesey are exposed to price risk. The Company estimates the net portion of its share of Anglesey production exposed to primary aluminum price risk to be approximately 100,000,000 pounds annually (before considering income tax effects).derivative contracts based on operational needs.

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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
     
The Company’s pricing of fabricated aluminum products is generally intended to lock-in a conversion margin (representing the value added from the fabrication process(es)) and to pass metal price risk on to its customers. However, in certain instances the Company does enter into firm price arrangements. In such instances, the Company does havehas price risk on its anticipated primary aluminum purchasepurchases in respect of the customer’s order.customers’ 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.
     Total fabricated products shipments during the year ended December 31,2009, 2008 and 2007 the period from January 1, 2006 to July 1, 2006, the period from July 1, 2006 through December 31, 2006 and the year ended December 31, 2005 that contained fixed price terms were (in millions of pounds) 162.7, 228.3, and 239.1, 103.9, 96.0 and 155.0, respectively.
During the last three years, the volume of fabricated products shipments with underlying primary aluminum price risk were at least as much as the Company’s net exposure to primary aluminum price risk at Anglesey. As such, the Company considers its access to Anglesey production overall to be a “natural” hedge against fabricated products firm metal-price risks. However, since the volume of fabricated products shipped under firm prices may not match up on a month-to-month basis with expected Anglesey-related primary aluminum shipments and to the extent that firm price contracts from our Fabricated Products business unit exceed the Anglesey related primary aluminum shipments, the Company may use third party hedging instruments to eliminate any net remaining primary aluminum price exposure existing at any time.
At December 31, 2007,2009, the fabricated productsFabricated Products business held contracts for the delivery of fabricated aluminum products that have the effect of creating price risk on anticipated purchases of primary aluminum during the 20082010 through 20122013 totaling approximately (in millions of pounds): 2008 — 161.4, 2009 — 88.5, 2010 — 86.5,80.3, 2011 — 77.578.8 and 2012 — 8.1.13.4.
     
The following table summarizes the Company’s material derivative positions at December 31, 2007:2009:
                        
   Notional
    Notional  
   Amount of
 Carrying/
  Amount of Carrying/
   Contracts
 Market
  Contracts Market
Commodity
 Period (mmlbs) Value  Period (mmlbs) Value
Aluminum —            
Option purchase contracts  1/11through 12/11   48.9  $12.7 
Aluminum — Option purchase contracts 1/10 through 12/11 101.0 $10.0 
Fixed priced purchase contracts  1/08through 12/12   169.3  $9.6  1/10 through 12/12 149.5 $10.8 
Fixed priced sales contracts  1/08through 12/09   68.6  $(1.0) 1/10 through 12/11 27.8 $(3.8)
Regional premium swap contracts (1) 1/10 through 12/11 152.1 $— 
                        
   Notional
    Notional  
   Amount of
 Carrying/
  Amount of Carrying/
   Contracts
 Market
  Contracts Market
Foreign Currency
 Period (mm) Value  Period (mm) Value
Pounds Sterling —            
Euro — 
Fixed priced purchase contracts  11/08 through 12/08   £4.2  $(.2) 2/10 through 3/10 €.5 $(.1)
Euro Dollars —            
Fixed priced purchase contracts  1/08 through 7/09  €9.3  $.1 
             
      Notional  
      Amount of Carrying/
      Contracts Market
Energy Period (mmbtu) Value
Natural gas —            
Option purchase contracts 8/10 through 12/12  8,700,000  $(.6)
Fixed priced purchase contracts (2) 1/10 through 2/11  1,020,000  $.2 


101

 
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
             
     Notional
    
     Amount of
  Carrying/
 
     Contracts
  Market
 
Energy
 Period  (mmbtu)  Value 
 
Natural gas —            
Fixed priced purchase contracts(a)  1/08 through 9/08   1,120,000  $(.6)
(a)(1)Regional premiums represent the premium over the LME price for primary aluminum which is incurred on the Company’s purchases of primary aluminum.
(2)As of December 31, 2007,2009, the Company’s exposure to increases and decreases in natural gas prices had been substantially limited for approximately 87%48% of the expected natural gas purchases for January 2008 through March 2008,2010, approximately 13%48% of the expected natural gas purchases for April 2008 through June 20082011 and approximately 1%47% of the expected natural gas purchases for July 2008 through September 2008.2012.
     
As more fully discussed in Note 1, theThe Company reflects changes in the marketfair value of its derivative instrumentscontracts on a gross basis in Net income (rather than deferring such gains/losses to the date of the underlying transactions to which the related hedges occur)Consolidated Balance Sheets (see Note 6). Included in Net income (Cost of products sold) for the year ended December 31, 2007 wereBoth realized gains (losses) and unrealized gains (losses) of $(3.6) and $9.7, respectively. Includedon derivative instruments are included in Net income (Cost of product sold) for the period from January 1, 2006 to July 1, 2006 and for the period from July 1, 2006 through December 31, 2006 were realized gains (losses) of $1.6 and $(4.6), respectively, and unrealized gains of $6.1 and $9.0, respectively. Included in Net income (CostCost of products sold)sold, excluding depreciation, amortization and other items, for the year ended December 31, 2005 were realized gainsall periods presented (see Note 1).
     The Company’s derivative contracts are valued at fair value using significant observable and unobservable inputs. Such financial instruments consist of $1.0primary aluminum, natural gas, and unrealized lossesforeign currency contracts. The fair values of $4.1.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 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.

10289

 

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
     The following table presents the Company’s assets and liabilities that are measured and recognized at fair value on a recurring basis classified under the appropriate level of the fair value hierarchy as of December 31, 2009:
14.  Other Operating (Benefits) Charges, Net
                 
  Level 1  Level 2  Level 3  Total 
Derivative assets:                
Aluminum swap contracts $—  $13.5  $—  $13.5 
Aluminum option contracts  —   14.2   —   14.2 
Krona forward contract  —   —   —   — 
Natural gas swap contracts  —   .3   —   .3 
Natural gas option contracts      1.9       1.9 
Midwest premium swap contracts  —   —   .2   .2 
             
Total $—  $29.9  $.2  $30.1 
             
Derivative liabilities:                
Aluminum swap contracts $—  $(6.5) $—  $(6.5)
Aluminum option contracts  —   (4.2)  —   (4.2)
Pound Sterling forward contract  —   —   —   — 
Euro dollar forward contracts      (.1)  —   (.1)
Krona forward contract  —   —   —   — 
Natural gas swap contracts  —   (.1)  —   (.1)
Natural gas option contracts      (2.5)      (2.5)
Midwest premium swap contracts  —   —   (.2)  (.2)
             
Total $—  $(13.4) $(.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, 2009: $(1.1)
Total realized/unrealized losses included in:    
Cost of goods sold excluding depreciation expense  .9 
Purchases, sales, issuances and settlements  .2 
Transfers in and (or) out of Level 3  — 
    
Balance at December 31, 2009 $— 
    
Total gains included in earnings attributable to the change in unrealized losses relating to derivative contracts still held at December 31, 2009: $.6 
    
     The realized and unrealized gains (losses) for 2009, 2008 and 2007 were as follows:
             
  Year Ended Year Ended Year Ended
  December 31, December 31, December 31,
  2009 2008 2007
Realized (losses) gains $(52.6) $10.5  $(3.6)
Unrealized gains (losses)  80.5   (87.1)  9.7 
     All of the Company’s derivative contracts contain credit-risk related contingencies. If the fair value of 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 of the threshold to the Company. Conversely, if the fair value of the net derivative positions falls below a specified threshold, the Company is required to transfer cash collateral below the threshold to the counterparty. At December 31, 2009 and 2008, the Company had zero and $17.2 of margin deposits, respectively, with its counterparties as a result of the credit-risk related contingency features.

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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
13. Other Operating (Benefits) Charges, Net
The (income) loss impact associated with other operating (benefits) charges, net, was as follows:
             
  Year Ended  Year Ended  Year Ended 
  December 31,  December 31,  December 31, 
  2009  2008  2007 
Alternative minimum tax (“AMT”) reimbursement (1) $—  $—  $(7.2)
Professional fees  —   —   (1.1)
Bad debt recoveries relating to pre-emergence write-offs  (.9)  (1.6)  — 
Pension Benefit Guaranty Corporation (“PBGC”) settlement (1)  —   —   (1.3)
Non-cash benefit resulting from settlement of a $5.0 claim by the purchaser of the Gramercy, Louisiana alumina refinery and Kaiser Jamaica Bauxite Company for payment of $.1  —   —   (4.9)
Resolution of contingencies relating to sale of property prior to emergence (2)  —   —   (1.6)
Post emergence Chapter 11 — related items (3)  —   .2   2.6 
Other  —   —   (.1)
          
  $(.9) $(1.4) $(13.6)
          
                 
        Predecessor 
     Year Ended December 31, 2006    
     July 1,
  January 1,
    
     2006
  2006
    
  Year Ended
  through
  to
  Year Ended
 
  December 31,
  December 31,
  July 1,
  December 31,
 
  2007  2006  2006  2005 
 
Reimbursement of amounts paid in connection with sale of Company’s interests in and related to QAL-Corporate:                
AMT (Note 9) $(7.2) $—  $—  $— 
Professional fees  (1.1)  —   —   — 
Pension benefit related to terminated pension plans — Corporate (Notes 10 and 23)  —   (4.2)  —   — 
Resolution of a “pre-emergence” contingency — Corporate (Note 12)  —   (3.0)  —   — 
Pension Benefit Guaranty Corporation (“PBGC”) settlement — Corporate(1)  (1.3)  —   —   — 
Non-cash benefit resulting from settlement of a $5 claim by the purchaser of the Gramercy, Louisiana alumina refinery and Kaiser Jamaica Bauxite Company for payment of $.1 — Corporate  (4.9)  —   —   — 
Resolution of contingencies relating to sale of property prior to emergence — Corporate(2)  (1.6)  —   —   — 
Post emergence Chapter 11 — related items — Corporate(3)  2.6   4.5   —   — 
Charges associated with retroactive portion of contributions to defined contribution plans upon termination of defined benefit plans(4) (Note 10) — Fabricated Products  —   .4   —   6.3 
Corporate  —   —   —   .5 
Other  (.1)  .1   .9   1.2 
                 
  $(13.6) $(2.2) $.9  $8.0 
                 
 
(1)The AMT reimbursement represents a reimbursement from the liquidating trustee for the plan of liquidation of two of the Company’s former subsidiaries in connection with the sale of its interests in and related to a certain discontinued operation in 2005.
(2)The PBGC proceeds consist of a payment related to a settlement agreement entered into with the PBGC in connection with the Company’sour chapter 11 reorganization (Note 12).reorganization.
 
(2)(3)During 2007, certain contingencies related to the sale of the Predecessor’sCompany’s interest in a smelter in Tacoma, Washington were resolved with the buyer. As a result, approximately $1.6 million of the sale proceeds which had been placed into escrow at the time of sale, were released to the Company.us. At the Effective Date,our emergence from chapter 11 bankruptcy, no value had been ascribed to the funds in escrow asbecause they were deemed to be contingent assets at that time.
 
(3)(4)Post-emergencechapter 11-related items include primarily professional fees and expenses incurred after emergence which related directly to the Company’s reorganization and chapter 11 bankruptcy proceedings.
(4)Amount in 2006 represents a one time contribution related to the retroactive implementation of the hourly defined benefit plans. (Note 10)our reorganization.
14. Earnings Per Share
     In recognition of new accounting guidance adopted in 2009, 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. Adoption of this new guidance includes retrospective application of this guidance to prior periods financial statements.
     Basic and diluted earnings per share for 2009, 2008 and 2007 were calculated as follows:
             
  Year Ended  Year Ended  Year Ended 
  December 31,  December 31,  December 31, 
  2009  2008  2007 
Numerator:            
Net income (loss) $70.5  $(68.5) $101.0 
Less: net income attributable to participating securities  (1.6)  (.4)  (2.7)
          
Net income (loss) available to common shareholders $68.9  $(68.9) $98.3 
          
             
Denominator:            
Weighted average common shares outstanding — Basic  19,639,448   19,979,715   20,013,508 
          
Weighted average common shares outstanding — Diluted  19,639,448   19,979,715   20,013,508 
          
Income (loss) per common share:            
Basic $3.51  $(3.45) $4.91 
Diluted $3.51  $(3.45) $4.91 


10391

 

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table provides a detail of net income attributable to participating securities for 2009, 2008 and 2007:
             
Net income attributable to participating securities (1):            
Distributed income $.4  $.4  $.3 
Undistributed income  1.2   —   2.4 
          
Total net income attributable to participating securities $1.6  $.4  $2.7 
          
             
Percentage of undistributed net income apportioned to participating securities  2%  —%  3%
          
15.  (1)Earnings Per ShareNet 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 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 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.
     
BasicIn computing the diluted weighted average common shares outstanding for 2009, 2008 and diluted earnings per share for the year ended December 31, 2007, the period from July 1, 2006 through December 31, 2006,Company used the period from January 1, 2006 to July 1, 2006 andtwo-class method assuming that participating securities are not exercised, vested or converted. The Company included the year ended December 31, 2005 were calculated as follows:
                 
        Predecessor 
     Year Ended December 31, 2006    
  Year Ended
  July 1, 2006
  January 1, 2006
  Year Ended
 
  December 31,
  through
  through
  December 31,
 
  2007  December 31, 2006  July 1, 2006  2005 
 
Numerator:                
Net Income (Loss) from continuing operations $101.0  $26.2  $3,136.9  $(1,112.7)
Income from discontinued operations  —   —   4.3   363.7 
Cumulative effect of accounting adjustment  —   —   —   (4.7)
                 
Net income (Loss) $101.0  $26.2  $3,141.2  $(753.7)
                 
Denominator:                
Weighted average common shares outstanding  20,014   20,003   79,672   79,675 
Effect of dilutive securities:                
Non-vested common shares and restricted stock units  294   86   —   — 
                 
Weighted average common shares outstanding, assuming full dilution  20,308   20,089   79,672   79,675 
                 
Earnings per share — Basic:                
Net Income (Loss) from continuing operations $5.05  $1.31  $39.37  $(13.97)
Income from discontinued operations  —   —   .05   4.57 
Cumulative effect of accounting adjustment  —   —   —   (.06)
                 
Net income (Loss) $5.05  $1.31  $39.42  $(9.46)
                 
Earnings per share — Diluted:                
Net Income (Loss) from continuing operations $4.97  $1.30  $39.37  $(13.97)
Income from discontinued operations  —   —   .05   4.57 
Cumulative effect of accounting adjustment  —   —   —   (.06)
                 
Net income (Loss) $4.97  $1.30  $39.42  $(9.46)
                 
dilutive effect of stock options in calculating the diluted weighted average common shares. Options to purchase 25,137 common shares at an average exercise price of $80.01 per share were outstanding as follows: 22,077 at both December 31, 2009 and 2008 and 25,137 as of December 31, 2007. 552,798 and 525,086 non-vested common shares and restricted stock units were outstanding at December 31, 2007 and 2006, respectively. Diluted income per share reflects theThe potential dilutive effect of options to purchase commonsuch shares was zero for 2009, 2008 and non-vested common shares and restricted stock units using the treasury stock method. Options to purchase 25,137 common shares for the year ended December 31, 2007 were excluded from the weighted average diluted shares computation because their inclusion would have been anti-dilutive. Additionally, for the year ended December 31, 2007 and the period from July 1, 2006 to December 31, 2006, 257,996, and


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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
2007.
     
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
439,732 non-vested common sharesDuring 2009, 2008 and restricted stock units were excluded from the average share computation, respectively, because their inclusion would be anti-dilutive.
In June 2007, the Board of Directors initiated the payment of a regular quarterly cash dividend of $.18 per common share. In 2007, the Company paid a total of approximately $7.4, or $.36$19.6 ($.96 per common share,share), $17.2 ($.84 per common share) and $7.4 ($.36 per common share), respectively, in cash dividends under this program. Additionally, on December 11, 2007, the Company declared a third dividend of $3.7, or $.18 per common share, to stockholders, including the holders of record atrestricted stock, and dividend equivalents to the closeholders of business on January 25, 2008, which was paid on February 15, 2008, bringingrestricted stock units and to the total dividends declared for 2007holders of any performance shares with respect to approximately $11.1 or $0.54 per common share.one half of the performance shares.
     In June 2008, the Company’s Board of Directors authorized the repurchase of up to $75 of the Company’s common shares, with repurchase transactions to occur in open market and privately negotiated transactions at such times and prices as deemed appropriate by management, and to be funded with the Company’s excess liquidity after giving consideration to internal and external growth opportunities and cash flows. Repurchases were not authorized to commence until after July 6, 2008. The Company repurchased 572,706 shares of common stock at a weighted-average price of $49.05 per share during the third quarter of 2008. The total cost of $28.1 is shown on the Consolidated Balance Sheets as Treasury stock. As of December 31, 2009, $46.9 remained available for repurchase under the existing repurchase authorization. The Company is currently prohibited from share repurchases as a result of the amendments to the Revolving Credit Facility (see Note 7).
16.  Segment and Geographical Area Information
15. Segment and Geographical Area Information
     
The Company’s primary line of business is the production of fabricatedsemi-fabricated specialty aluminum products. In addition, the Company also owns a 49% interest in Anglesey, which ownsoperated an aluminum smelter in Holyhead, Wales.Wales until September 2009, when the contract for power supply that enabled smelting operations expired, and thereafter has operated as a secondary aluminum remelt and casting operation.
     
ThePrior to September 30, 2009, the Company’s continuing operations arewere organized and managed by product type and includeincluded two operating segments of the aluminum industry and the corporate segment.industry. The aluminum industry segments include:included Fabricated Products and Primary Aluminum. The Fabricated Products segment sells value-added products such as heat treat aluminum sheet and plate, extrusionsextruded and drawn products, and forgings which are used in a wide range of industrial applications, including for automotive, aerospace and general engineering end-use applications. The Primary Aluminum segment producesproduced, through its interest in Anglesey, and sold commodity grade products as wellwells as value-added products such as ingot and billet for which we received a premium over fluctuating commodity

92

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
market prices, and conducted hedging activities in respect of our exposure to primary aluminum price risk.
     Following the cessation of the smelting operations at Anglesey on September 30, 2009, the Company’s operations were reorganized to consist of one operating segment in the aluminum industry, Fabricated Products. In addition to the Fabricated Products segment, the Company also has three other business units which consist of the Secondary Aluminum, Hedging, and Corporate and Other. The Secondary Aluminum business unit sells value added products such as ingot and billet, produced from Anglesey, for which the Company receives a portion of a premium over normal commodity market prices andprices. The Hedging business unit conducts hedging activities in respect of the Company’s exposure to primary aluminum price risk.and British Pound Sterling exchange rate risks relating to Anglesey’s smelting operations through September 30, 2009. The Corporate and Other business unit provides general and administrative support for the Company’s operations. For purposes of segment reporting under U.S. GAAP, the Company treats the Fabricated Products segment as its own 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.
     The accounting policies of the segmentsFabricated Products segment are the same as those described in Note 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.other expense (income) and income taxes.
     
Financial information by operating segment, excluding discontinued operations, at and for the yearyears ended December 31, 2009, 2008 and 2007 2006 and 2005 isare as follows:
             
  Year Ended  Year Ended  Year Ended 
  December 31,  December 31,  December 31, 
  2009  2008  2007 
Net Sales:            
Fabricated Products $897.1  $1,336.8  $1,298.3 
All Other (1)  89.9   171.4   206.2 
          
  $987.0  $1,508.2  $1,504.5 
          
Equity in income of unconsolidated affiliate:            
All Other (2) $—  $—  $33.4 
          
                  
         Predecessor 
     Year Ended December 31, 2006    
     July 1, 2006
        
  Year Ended
  through
   January 1, 2006
  Year Ended
 
  December 31,
  December 31,
   to
  December 31,
 
  2007  2006   July 1, 2006  2005 
Net Sales:                 
Fabricated Products $1,298.3  $567.2   $590.9  $939.0 
Primary Aluminum  206.2   100.3    98.9   150.7 
                  
  $1,504.5  $667.5   $689.8  $1,089.7 
                  
Equity in income of unconsolidated affiliate:                 
Primary Aluminum $33.4  $18.3   $11.0  $4.8 
                  
Segment Operating Income (Loss):                 
Fabricated Products(1) $169.0  $60.8   $61.2  $87.2 
Primary Aluminum  46.5   10.8    12.4   16.4 
Corporate and Other  (47.1)  (25.5)   (20.3)  (35.8)
Other Operating Benefits (Charges), Net — Note 14  13.6   2.2    (.9)  (8.0)
                  
  $182.0  $48.3   $52.4  $59.8 
                  


105

 
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(1)Operating resultsNet sales in All Other represent net sales relating to Anglesey’s smelting operations prior to September 30, 2009. In connection with Anglesey’s new remelt operation beginning in the fourth quarter of 2009, the Company changed its basis of revenue recognition from gross to net basis (see Note 1). No net revenue was recognized for 2007 includessales of secondary aluminum products under the remelt operations at Anglesey in the fourth quarter of 2009.
(2)Equity in income of unconsolidated affiliate in 2009 was zero as a LIFO inventory benefitresult of $14.0. Operating results for 2006the impairment of Investment in Anglesey during the first half of 2009 and 2005 include LIFO inventory chargesthe suspension of $25.0 and $9.3, respectively.the equity method of accounting during the third quarter of 2009 (see Note 3). Equity in income of unconsolidated affiliate in 2008 was zero as a result of the impairment of Investment in Anglesey.
             
  Year Ended  Year Ended  Year Ended 
  December 31,  December 31,  December 31, 
  2009  2008  2007 
Operating income (loss):            
Fabricated Products(1) (3) $78.2  $53.5  $169.0 
             
All Other (2) (3)  40.5   (144.5)  13.0 
          
  $118.7  $(91.0) $182.0 
Interest expense  —   (1.0)  (4.3)
Other (expense) income, net  (.1)  .7   4.7 
          
Income (loss) before income taxes $118.6  $(91.3) $182.4 
          
                  
         Predecessor 
     Year Ended December 31, 2006    
     July 1, 2006
        
  Year Ended
  through
   January 1, 2006
  Year Ended
 
  December 31,
  December 31,
   to
  December 31,
 
  2007  2006   July 1, 2006  2005 
Depreciation and amortization                 
Fabricated Products $11.8  $5.2   $9.7  $19.6 
Primary Aluminum  —   —    —   — 
Corporate and Other  .1   .3    .1   .3 
                  
  $11.9  $5.5   $9.8  $19.9 
                  
Capital expenditures, net of accounts payable:                 
Fabricated Products $61.7  $29.7   $27.2  $30.6 
Corporate and Other  .1   .3    .9   .4 
                  
  $61.8  $30.0   $28.1  $31.0 
                  
 
         
  December 31,
  December 31,
 
  2007  2006 
 
Investments in and advances to unconsolidated affiliate:        
Primary Aluminum $41.3  $18.6 
         
Segment assets:        
Fabricated Products $486.3  $434.4 
Primary Aluminum  99.1   87.8 
Corporate and Other(1)  579.8   133.2 
         
  $1,165.2  $655.4 
         
(1)CorporateOperating results in Fabricated Products for 2009, 2008 and 2007 included LIFO inventory charge (benefit) of $8.7, $(7.5) and $(14.0), respectively. Also included in the operating results for 2009 and 2008 were lower of cost or market inventory write-down of $9.3 and $65.5, respectively.
(2)Operating results in All Other includesincluded realized and unrealized hedging gains (losses) on the Company’s Pound Sterling and metal derivative positions and impairment charges of the Company’s investment in Anglesey in the amount of $1.8 and of $37.8 in 2009 and 2008, respectively.
(3)Operating results of the Fabricated Products segment and All Other include gains (losses) on intercompany hedging activities. These amounts eliminate in consolidation. Internal hedging gains (losses) in the Fabricated Products segment were $(42.8), $16.9 and $19.8 for 2009, 2008 and 2007, respectively. Conversely, All Other included the same (losses) gains for 2009, 2008 and 2007.

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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
             
  Year Ended  Year Ended  Year Ended 
  December 31,  December 31,  December 31, 
  2009  2008  2007 
Depreciation and amortization            
Fabricated Products $16.2  $14.6  $11.8 
All Other  .2   .1   .1 
          
  $16.4  $14.7  $11.9 
          
             
Capital expenditures, net of change in accounts payable:            
Fabricated Products $58.5  $93.2  $61.7 
All Other  .7   —   .1 
          
  $59.2  $93.2  $61.8 
          
            
  December 31,  December 31, 
  2009  2008 
Segment assets:        
Fabricated Products $457.6  $498.9 
All Other(1)  627.9   646.5 
       
  $1,085.5  $1,145.4 
       
(1)Assets in All Other primarily represents all of the Company’s cash and cash equivalents, derivative assets, net assets in respect of VEBAsVEBA and net deferred income tax assets.
                            
     Predecessor  Year Ended Year Ended Year Ended 
   Year Ended December 31, 2006    December 31, December 31, December 31, 
   July 1, 2006
        2009 2008 2007 
 Year Ended
 through
   January 1, 2006
 Year Ended
 
 December 31,
 December 31,
   to
 December 31,
 
 2007 2006   July 1, 2006 2005 
Income taxes paid:(1)                 
Fabricated Products —                 
Income taxes paid: 
United States $.8  $—   $.2  $—  $4.0 $1.2 $.8 
Canada  2.6   .7    1.0   3.4  8.8 5.2 2.6 
                  
 $3.4  $.7   $1.2  $3.4  $12.8 $6.4 $3.4 
                  
     
(1)Income taxes paid excludes income tax paid by discontinued operations of $18.9 in 2005.


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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Geographical information for net sales, based on country of origin, and long-lived assets follows:
             
  Year Ended  Year Ended  Year Ended 
  December 31,  December 31,  December 31, 
  2009  2008  2007 
Net sales to unaffiliated customers:            
Fabricated Products —            
United States $840.1  $1,242.9  $1,197.0 
Canada  57.0   93.9   101.3 
          
   897.1   1,336.8   1,298.3 
          
             
All Other —            
United Kingdom  89.9   171.4   206.2 
          
   89.9   171.4   206.2 
          
  $987.0  $1,508.2  $1,504.5 
          
                  
         Predecessor 
     Year Ended December 31,    
     July 1, 2006
        
  Year Ended
  through
   January 1, 2006
  Year Ended
 
  December 31,
  December 31,
   to
  December 31,
 
  2007  2006   July 1, 2006  2005 
Net sales to unaffiliated customers:                 
Fabricated Products —                 
United States $1,197.0  $517.0   $532.8  $836.1 
Canada  101.3   50.2    58.1   102.9 
                  
   1,298.3   567.2    590.9   939.0 
                  
Primary Aluminum —                 
United States  —   —    —   2.6 
United Kingdom  206.2   100.3    98.9   148.1 
                  
   206.2   100.3    98.9   150.7 
                  
  $1,504.5  $667.5   $689.8  $1,089.7 
                  

94

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
         
  December 31,  December 31, 
  2009  2008 
Long-lived assets:(1)        
Fabricated Products —        
United States $323.2  $282.0 
Canada  10.9   10.6 
       
   334.1   292.6 
         
All Other —        
United States  4.8   4.1 
       
  $338.9  $296.7 
       
 
         
  December 31,
  December 31,
 
  2007  2006 
 
Long-lived assets:(1)        
Fabricated Products —        
United States $208.3  $155.6 
Canada  10.3   10.6 
         
   218.6   166.2 
Primary Aluminum —        
United Kingdom  41.3   18.6 
Corporate and Other —        
United States  4.1   4.1 
         
  $264.0  $188.9 
         
(1)Long-lived assets includerepresent Property, plant, and equipment, net and Investments in and advances to unconsolidated affiliates.net.
     
The aggregate foreign currency transaction gains (losses) included in determining net income was immaterial for the years ended December 31, 2007, 20062009, 2008 and 2005.2007. Sales to the Company’s largest fabricated products customer accounted for sales of approximately 15%20%, 18%, and 19%15% of total revenue in 2009, 2008, and 2007, 2006 and 2005.respectively. The loss of the customer would have a material adverse effect on the Company taken as a whole. However, in the Company’s opinion, the relationship between the customer and the Company is good and the risk of loss of the customer is remote. Export sales were less thanapproximately 10% of total revenue during the years ended December 31, 2007, 20062009, 2008 and 2005.


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2007.
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
16. Restructuring costs and other charges
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Fourth Quarter 2008 Restructuring
     
17.  Supplemental cash flow information
                  
         Predecessor 
     Year Ended December 31,    
     July 1, 2006
        
  Year Ended
  through
   January 1, 2006
  Year Ended
 
  December 31,
  December 31,
   to
  December 31,
 
  2007  2006   July 1, 2006  2005 
Supplemental disclosure of cash flow information:                 
Interest paid, net of capitalized interest of $3.1, $1.6, $1.0 and $.6, respectively $3.1  $.2   $—  $.7 
                  
Income taxes paid $3.4  $.7   $1.2  $22.3 
Less income taxes paid by discontinued operations  —   —    —   (18.9)
                  
  $3.4  $.7   $1.2  $3.4 
                  
Supplemental disclosure of non-cash transactions:                 
Removal of transfer restrictions on common stock owned by Union VEBA (Note 10) $92.8  $—   $—  $— 
                  
Dividend declared and unpaid $3.7  $—   $—  $— 
                  
Recognition of deferred income tax assets and liabilities due to release of valuation allowance through equity $343.0  $—   $—  $—  
                  
PREDECESSOR
18.  Summary of Significant Accounting Policies
The accompanying consolidated financial statements of the Predecessor were prepared on a “going concern” basis in accordance withSOP 90-7, and do not include the impacts of the Plan including adjustments relating to recorded asset amounts, the resolution of liabilities subject to compromise, or the cancellation of the interests of the Company’s pre-emergence stockholders.
In most instances, but not all, the accounting policies of the Predecessor were the same or similar to those of the Successor. Where accounting policies differed or the Predecessor applied methodologies differently to its financial statement information than that which is used in preparing and presenting Successor financial statement information, discussion has been added to this Report in the appropriate section of the Successor notes.
19.  Reorganization Proceedings
Background.  The Company and 25 of its subsidiaries filed separate voluntary petitions in the Bankruptcy Court for reorganization under chapter 11 of the Code;December 2008, the Company announced plans to close operations at its Tulsa, Oklahoma facility and 16 ofsignificantly reduce operations at its subsidiaries (the “Original Debtors”) filed in the first quarter of 2002 and nine additional subsidiaries (the “Additional Debtors”) filed in the first quarter of 2003.Bellwood, Virginia facility. The Company and its subsidiaries continued to manage their businesses in the ordinary course asdebtors-in-possession subject to the control and administration of the Bankruptcy Court. The Original DebtorsTulsa and the Additional Debtors are collectively referredBellwood facilities primarily produced, extruded rod and bar products sold principally to herein asservice centers for general engineering applications. The closing of operations and workforce reductions were a result of deteriorating economic and market conditions. Approximately 45 employees at the “Debtors”. For purposes of this Report,Tulsa, Oklahoma facility and 125 employees at the term “Filing Date” means with respect to any Debtor, the date such Debtor filed its chapter 11 proceeding.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Original Debtors found it necessary to file the chapter 11 proceedings primarily because of liquidity and cash flow problems ofBellwood, Virginia facility were affected. As a result, the Company and its subsidiaries that arose in late 2001 and early 2002. The Company was facing significant near-term debt maturities at a time of unusually weak aluminum industry business conditions, depressed aluminum prices and a broad economic slowdown that was further exacerbated by the events of September 11, 2001. In addition, the Company had become increasingly burdened by asbestos litigation and growing legacy obligations for retiree medical and pension costs. The confluence of these factors created the prospect of continuing operating losses and negative cash flows, resulting in lower credit ratings and an inability to access the capital markets. The chapter 11 proceedings filed by the Additional Debtors were commenced, among other reasons, to protect the assets held by these Debtors against possible statutory liens that might have arisen and been enforced by the PBGC.
Reorganizing Debtors; Entities Containing the Fabricated Products and Certain Other Operations.  On February 6, 2006, the Bankruptcy Court entered an order (the “Confirmation Order”) confirming the Plan. On May 11, 2006, the District Court for the District of Delaware entered an order affirming the Confirmation Order and adopting the Bankruptcy Court’s findings of fact and conclusions of law regarding confirmation of the Plan. On July 6, 2006, the Plan became effective and was substantially consummated, whereupon the Company emerged from chapter 11.
Pursuant to the Plan, on the Effective Date, the pre-emergence ownership interests in the Company were cancelled without consideration and all material pre-petition claims against the Company and its remaining debtor subsidiaries, including claims in respect of debt, pension and postretirement medical obligations, and asbestosincurred restructuring costs and other tort liabilities (totaling approximately $4.4 billion in the June 30, 2006 consolidated financial statements), were resolved as follows:
(a) Claims in Respectcharges of Retiree Medical Obligations. Pursuant to settlements reached with representatives of hourly and salaried retirees:
• an aggregate of 11,439,900 shares of the Company’s common stock were delivered to the Union VEBA and entities that prior to the Effective Date acquired from the Union VEBA rights to receive a portion of such shares (see Note 10);
• an aggregate of 1,940,100 shares of common stock were delivered to the Salaried VEBA and entities that prior to the Effective Date acquired from the Salaried VEBA rights to receive a portion of such shares (see Note 10); and
• the Company became obligated to make certain contingent annual cash payments of up to $20.0 annually to the VEBAs that fluctuate based on earnings, adjusted for certain cash flow items (see Note 10).
(b) Priority Claims and Secured Claims. All pre-petition priority claims, pre-petition priority tax claims and pre-petition secured claims were paid in full in cash.
(c) Unsecured Claims. With respect to pre-petition unsecured claims (other than the personal injury claims specified below):
• all pre-petition unsecured claims of the PBGC against the Company’s Canadian debtor affiliates were satisfied by the delivery of 2,160,000 shares of common stock and $2.5 in cash; and
• all pre-petition general unsecured claims against the Company and its remaining debtor subsidiaries, other than Canadian debtor subsidiaries, including claims of the PBGC and holders of public debt, were satisfied by the issuance of 4,460,000 shares of common stock to a third-party disbursing agent, with such shares to be delivered to the holders of such claims in accordance with the terms of the Plan (to the extent not constituting convenience claims satisfied with cash payments). Of such 4,460,000 shares of common stock, less than 200,000 shares continue to be held by the third-party disbursing agent as a reserve pending resolution of


109

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
disputed claims; to the extent a holder of a disputed claim is not entitled to shares reserved in respect of such claim, such shares will be distributed to holders of allowed claims.
(d) Personal Injury Claims. Certain trusts (the “PI Trusts”) were formed to receive distributions from the Company, assume responsibility from the Company for personal injury liabilities (including those resulting from alleged pre-petition exposures to asbestos, silica and coal tar pitch volatiles and noise-induced hearing loss), and to make payments in respect of such personal injury claims. The Company contributed to the PI Trusts:
• the rights with respect to proceeds associated with personal injury-related insurance recoveries that were reflected on the Company’s financial statements at June 30, 2006 as a receivable having a value of $963.3 (see Note 24);
• $13.0 in cash, less approximately $.3 advanced prior to the Effective Date, which was paid on the Effective Date;
• the stock of a subsidiary whose primary assets was approximately 145 acres of real estate located in Louisiana and the rights as lessor under a lease agreement for such real property that produces modest rental income; and
• 75% of a pre-petition general unsecured claim against one of the Company’s subsidiaries in the amount of $1.1 billion entitling certain of the PI Trusts to a share of the 4,460,000 shares of common stock distributed to unsecured claimholders.
The PI Trusts assumed all liability and responsibility for the past, pending and future personal injury claims resulting from alleged pre-petition exposures to asbestos, silica and coal tar pitch volatile, and pending noise induced hearing loss personal injury claims. As of the Effective Date, injunctions were entered prohibiting any person from pursuing any claims against the Company or any of its affiliates in respect of such matters.
Cash payments on the Effective Date for priority and secured claims, payments to the PI Trusts, bank and professional fees totaled approximately $29.0 and were funded using existing cash resources.
Liquidating Debtors.  As previously disclosed in prior periods, the Company generated net cash proceeds of approximately $686.8 from the sale of its interests in and related to QAL and Alumina Partners of Jamaica (“Alpart”). The Company’s interests in and related to QAL and Alpart were owned by four of its debtor subsidiaries (the “Liquidating Subsidiaries”) that were subsidiary guarantors of one of the Company’s subsidiaries’ senior and senior subordinated notes. Throughout 2005, the proceeds were held in separate escrow accounts pending distribution to the creditors of the Liquidating Subsidiaries.
On December 20, 2005, the Bankruptcy Court entered an order confirming the two separate joint plans of liquidation (the “Liquidating Plans”) for the Liquidating Subsidiaries. On December 22, 2005, the Liquidating Plans became effective and all restricted cash and other assets held on behalf of or by the Liquidating Subsidiaries, consisting primarily of approximately $686.8 of net cash proceeds from the sale of interests in and related to QAL and Alpart, were transferred to a trustee for subsequent distribution to holders of claims against the Liquidating Subsidiaries in accordance with the terms of the Liquidating Plans. In connection with the Liquidating Plans, the Liquidating Subsidiaries were dissolved and their corporate existence was terminated.
When the Liquidating Plans became effective, substantially all amounts were to be paid to (or received by) the Company from/to the creditors of the Liquidating Subsidiaries pursuant to the Intercompany Agreement, other than certain payments of alternative minimum tax paid by the Company. The Company received $7.2 that was ultimately determined to be due from two of the Liquidating Subsidiaries (Kaiser Alumina Australia Corporation and Kaiser Finance Corporation under the Liquidating Plan (hereafter referred to as the “KAAC/KFC Plan”) during the first half of 2007 in connection with the completion of its 2005 tax return (see Note 9). The Intercompany Agreement also resolved substantially all pre- and post-petition intercompany claims among the Debtors.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The effectiveness of the Liquidating Plans and the dissolution of the Liquidating Subsidiaries did not resolve a dispute between the holders of senior notes and the holders of senior subordinated notes regarding their respective entitlement to certain of the proceeds from the sales by the Liquidating Subsidiaries of interests in QAL and Alpart (the “Senior Note-Sub Note Dispute”). On December 22, 2005, the Bankruptcy Court issued a decision in connection with the Senior Note-Sub Note Dispute, finding (in favor of the senior notes) that the senior subordinated notes were contractually subordinate to the senior notes in regard to certain subsidiary guarantors (particularly the Liquidating Subsidiaries) and that certain parties were not due certain reimbursements. The Bankruptcy Court’s ruling was appealed and in January 2008, the District Court affirmed the Bankruptcy Court’s ruling. The District Court’s ruling has been appealed. The Company cannot predict, however, the ultimate resolution of the Senior Note-Sub Note Dispute on appeal, when any such resolution will occur, or what impact any such outcome will have on distributions to affected note holders under the Liquidating Plans. However, given the Company’s now completed emergence from the chapter 11, the Company does not have any continuing liability in respect of the Senior Note-Sub Note Dispute.
Classification of Liabilities as “Liabilities Not Subject to Compromise” Versus “Liabilities Subject to Compromise.”  Liabilities not subject to compromise include the following:
(1) liabilities incurred after the date each entity filed for reorganization (i.e., its Filing Date);
(2) pre-Filing Date liabilities that were expected to be paid in full, including priority tax and employee claims and certain environmental liabilities; and
(3) pre-Filing Date liabilities that were approved for payment by the Bankruptcy Court and that were expected to be paid (in advance of a plan of reorganization) over the next twelve-month period in the ordinary course of business, including certain employee related items (salaries, vacation and medical benefits), claims subject to a currently existing collective bargaining agreements, and certain postretirement medical and other costs associated with retirees.
Liabilities subject to compromise refer to all other pre-Filing Date liabilities of the Debtors.
Reorganization Items.  Reorganization items are expense or income items that were incurred or realized by the Company because it was in reorganization. These items include, but are not limited to, professional fees and similar types of expenses incurred directly related to the reorganization proceedings, loss accruals or gains or losses resulting from activities of the reorganization process, and interest earned on cash accumulated by the Debtors because they were not paying their pre-Filing Date liabilities. For the year ended December 31, 2006 and 2005, reorganization items were as follows:
             
     Predecessor 
  Year Ended December 31, 2006    
  July 1, 2006
       
  through
  January 1, 2006
  Year Ended
 
  December 31,
  to
  December 31,
 
  2006  July 1, 2006  2005 
 
Gain on plan implementation and fresh start $—  $(3,110.3) $— 
Professional fees  —   21.2   35.2 
Interest income  —   (1.4)  (2.1)
Assigned intercompany claims for benefit of certain creditors  —   —   1,131.5 
Other  —   .2   (2.5)
             
  $—  $(3,090.3) $1,162.1 
             
The Company continued to incur legal and certain other costs related to the emergence from chapter 11 in 2007, the costs are included in Other operating charges (benefits). Additionally, certain professionals were


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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
contractually due certain “success” fees due upon the Company’s emergence from chapter 11 and Bankruptcy Court approval. Approximately $5.0 of such amounts were borne by the Company and were recorded by the Predecessor in connection with emergence and fresh start accounting. The $5.0 was paid in January 2007.
20.  Discontinued Operations
As part of the Company’s plan to divest certain of its commodity assets, the Company sold its interests in and related to QAL in April 2005 for net cash proceeds totaling approximately $401.4. The buyer assumed the Company’s obligations for approximately $60.0 of QAL debt and the Company’s obligation to pay its proportionate share (20%) of debt, operating expenses and certain other costs of QAL. In connection with the sale, the Company also paid a termination fee of $11.0. After considering transaction costs (including the termination fee and a $7.7 deferred charge associated with aback-up bid fee), the transaction resulted in a gain, net of estimated income tax of $7.9, of approximately $366.2. As described in Note 19, a substantial majority of the proceeds from the sale of the Company’s interests in and related to QAL were held in escrow for the benefit of the creditors under the liquidating trust for the KAAC/KFC Plan until the KAAC/KFC Plan was confirmed by the Bankruptcy Court and became effective in December 2005.
In accordance with Statement of Financial Accounting Standards No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets(“SFAS No. 144”), the assets, liabilities, operating results and gains from sale of the QAL have been reported as discontinued operations in the accompanying financial statements.
As previously disclosed$8.8 during the fourth quarter of 2005, the official committee2008, of unsecured creditors (the “UCC”) negotiated a settlement with a third party that had asserted an approximate $67.0 claim for damages against Kaiser Bauxite Company (“KBC”) for rejection of a bauxite supply agreement. Pursuantwhich $4.5 was related to the settlement, among other things, the Company agreedinvoluntary employee terminations and $4.3 related to (a) allow the third party an unsecured pre-petition claim in the amount of $42.1, (b) substantively consolidate KBC with certain of the other Debtors solely for the purpose of treating that claim, and any other pre-petition claim of KBC, under the Plan and (c) modify the Plan to implement the settlement. In consideration of the settlement, the third party, among other things, agreed to not object to the Plan. The settlement was approved by the Bankruptcy Court in January 2006 andasset impairments. During 2009, the Company recorded a chargeadditional charges of $42.1$.8 in connection with these restructuring efforts, consisting primarily of contract termination and facility shut-down costs. Approximately $.3 of such expense represented cash obligations, with the balance represented by non-cash charges. The restructuring efforts initiated during the fourth quarter of 2005 in Discontinued operations and reflected an increase in Discontinued operations liabilities subject to compromise2008 were substantially completed by the same amount.first quarter of 2009. All restructuring costs and other charges in connection with the fourth quarter 2008 restructuring plans were incurred and recorded in the Company’s Fabricated Products segment.
Second Quarter 2009 Restructuring
     
DuringIn May 2009, the Company announced plans to further curtail operations at its Bellwood, Virginia facility to focus solely on drive shaft and seamless tube products and shut down the Bellwood, Virginia facility temporarily during the month of July 2009, in response to planned shutdowns in the automotive industry and continued weak economic and market conditions. In addition, the Company reduced its personnel in certain other locations in the quarter ended June 30, 2009, in an effort to streamline costs. Approximately 85 employees were affected by the reduction in force, principally at the Bellwood, Virginia location. In connection with the foregoing plans, the Company recorded restructuring costs and other charges of $4.6, of which $4.3 were related to involuntary employee terminations and other personnel cost, and $.3 were principally related to a non-cash asset impairment. Of the personnel-related costs incurred, approximately $.8 represented incremental non-cash expense, in connection with the accelerated vesting of previously granted stock-based payments. The restructuring efforts initiated during the second quarter of 2006, the Company recorded a $5.0 charge as a result of an agreement between the Company and the Bonneville Power Administration (“BPA”) related to a rejected electric power contract (see Note 24). This amount is included in Discontinued operations for the period from January 1, 2006 to July 1, 2006.
During the first quarter of 2006, the Company received a $7.5 payment from an insurer in settlement of certain residual claims the Company had in respect of a 2000 incident at its Gramercy, Louisiana alumina refinery (which was sold in 2004). This amount is included in Discontinued operations for the period from January 1, 2006 to July 1, 2006.
Operating activity during the year ended December 31, 2005 consisted almost exclusively of the Company’s interests in and related to QAL, which2009 were sold in April 2005, and related hedging activity.
21.  Debt and Credit Facilities
On February 1, 2006, and again on May 11, 2006, the Bankruptcy Court approved amendments to the Company’s Secured Super-PriorityDebtor-In-Possession Revolving Credit and Guaranty Agreement (the “DIP Facility”) extending its expiration date ultimately to the earlier of the Company’s emergence from chapter 11 or August 31, 2006. The DIP Facility terminated on the Effective Date.
Under the DIP Facility, which provided for a secured, revolving line of credit, the Company and certain of its subsidiaries were able to borrow amounts by means of revolving credit advances and to have issued letters of credit


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(up to $60.0) in an aggregate amount equal to the lesser of $200.0 or a borrowing base comprised of eligible accounts receivable, eligible inventory and certain eligible machinery, equipment and real estate, reduced by certain reserves, as defined in the DIP Facility agreement. At June 30, 2006, there were no outstanding borrowings under the DIP Facility and there were outstanding letters of credit of approximately $17.7 (which on the Effective Date were converted to outstanding letters of credit under the Revolving Credit Facility).
The DIP Facility, which was implemented during the first quarter of 2005, replaced a post-petition credit facility (the “Replaced Facility”) that the Company and one of its subsidiaries entered into on February 12, 2002. The Replaced Facility was amended a number of times during its term as a result of, among other things, reorganization transactions, including disposition of the Company’s interests in its commodity subsidiaries.
During the first quarter of 2005, the Company deposited cash of $13.3 as collateral for the Replaced Facility’s letters of credit and deposited approximately $1.7 of collateral with the Replaced Facility’s lenders until certain other banking arrangements were terminated. As of June 30, 2006, all of the collateral for the Replaced Facility’s letters of credit and the collateral for certain other banking arrangements (of which $1.5 was received during 2006) had been refunded to the Company.
22.  Income Tax Matters
For the six months ended June 30, 2006, the income tax provision for continuing operations included a foreign income tax provision of approximately $7.0. The income tax provision for continuing operations related primarily to foreign income taxes. The six months ended June 30, 2006 include an approximate $1.0 benefit associated with a U.S. income tax refund. While the Company considered the July 2006 emergence from chapter 11 for purposes of estimating impacts on the effective tax rate, the Company’s provisions for income taxes as of June 30, 2006 did not include any direct impacts from the Company’s emergence from chapter 11. Such impacts are reflected in periods following emergence as more fully discussed in Note 9.
23.  Employee Benefit and Incentive Plans
The Company and its subsidiaries historically provided (a) postretirement health care and life insurance benefits to eligible retired employees and their dependents and (b) pension benefit payments to retirement plans. Substantially all employees became eligible for health care and life insurance benefits if they reached retirement age while still working for the Company or its subsidiaries. The Company did not fund the liability for these benefits, which were expected to be paid out of cash generated by operations. The Company reserved the right, subject to applicable collective bargaining agreements, to amend or terminate these benefits. Retirement plans were generally non-contributory for salaried and hourly employees and generally provided for benefits based on formulas which considered such items as length of service and earnings during years of service.
In January 2004, the Company filed motions with the Bankruptcy Court to terminate or substantially modify postretirement medical obligations for both salaried and certain hourly employees and for the distressed termination of substantially all domestic hourly pension plans. The Company subsequently concluded agreements with a committee appointed in the Company’s reorganization proceedings that represented salaried employees and union representatives that represented the vast majority of the Company’s hourly employees. The agreements provided for the termination of existing salaried and hourly postretirement medical benefit plans, and the termination of existing hourly pension plans. Under the agreements, salaried and hourly retirees were provided an opportunity for continued medical coverage through COBRA or the VEBAs and active salaried and hourly employees were provided with an opportunity to participate in one or more replacement pension plansand/or defined contribution plans. The agreements were approvedcompleted by the Bankruptcy Court, but were subject to certain conditions, including Bankruptcy Court approvalend of the Intercompany Agreement in a form acceptable to the Debtors and UCC.2009.
     
On June 1, 2004,Of the Bankruptcy Court entered an order, subject to certain conditions including final Bankruptcy Court approval of the Intercompany Agreement, authorizing the Company to terminate its


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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
postretirement medical plans as of May 31, 2004$4.6 restructuring costs and to make advance payments to the VEBAs. As previously disclosed, pending the resolution of all contingencies in respect of the termination of the existing postretirement medical benefit plan, during the period June 1, 2004 through December 31, 2004, the Company continued to accrue costs based on the existing plan and treated the VEBA contributions as a reduction of its liability under the plan. However, because the Intercompany Agreement was approved in February 2005 and all other contingencies had already been met, the Company determined that the existing postretirement medical plan should be treated as terminated as of December 31, 2004.
The PBGC assumed responsibility for the Company’s three largest pension plans, which represented the vast majority of the Company’s net pension obligation including the Company’s Salaried Employees Retirement Plan (in December 2003), the Inactive Pension Plan (in July 2004) and the Kaiser Aluminum Pension Plan (in September 2004), collectively referred to as the Terminated Plans (see Note 12). The PBGC’s assumption of the Terminated Plans resulted in the Company recognizing non-cash pension charges of approximately $121.2 in 2003 and $310.0 in 2004. Pursuant to the agreement with the PBGC, the Company and the PBGC agreed, among other things, that: (a) the Company would continue to sponsor the Company’s remaining pension plans (which primarily are in respect of hourly employees at four Fabricated Products facilities) and paid approximately $5.0 minimum funding contribution for these plans in March 2005; (b) the PBGC would have an allowed post-petition administrative claim of $14.0, which was expected to be paid upon the consummation of a plan of reorganization for the Company or the consummation of the KAAC/KFC Plan, whichever came first; and (c) the PBGC would have allowed pre-petition unsecured claims in respect of the Terminated Plans in the amount of $616.0, which would be resolved in the Company’s plan or plans of reorganization provided that the PBGC’s cash recovery from proceeds of the Company’s sale of its interests in and related to Alpart and QAL was limited to 32% of the net proceeds distributable to holders of the Company’s senior notes, senior subordinated notes and the PBGC. However, certain contingencies arose in respect of the settlement with the PBGC which were ultimately resolved in the Company’s favor. See Note 12 —Resolution of Contingencies with respect to the PBGC.
Cash Flow and Charges.
Domestic Plans—During the first three years of the chapter 11 proceedings, the Company did not make any further significant contributions to any of its domestic pension plans. However, as discussed aboveincurred in connection with the PBGC settlement agreement, which was approved by the Bankruptcy Court in January 2005, the Company paid approximately $5.0 in March 2005second quarter 2009 restructuring plans, $3.7 were incurred and approximately $1.0 in July 2005 in respect of minimum funding contributions for retained pension plans and paid $11.0 in respect of post-petition administrative claims of the PBGC when the KAAC/KFC Plan became effective in December 2005. An additional $3.0 was pending the resolution of the ongoing litigation with the PBGC (see Note 12). Any other payments to the PBGC were limited to recoveries under the Liquidating Plans and the Plan.
Prior to the Effective Date, the Company agreed to make the following contributions to the VEBAs:
a) an amount not to exceed $36.0 payable on emergence from the chapter 11 proceedings so long as the Company’s liquidity (i.e., cash plus borrowing availability) was at least $50.0 after considering such payments; and
b) advances of $3.1 in June 2004 and $1.9 per month thereafter until the Company emerged from the chapter 11 proceedings. Any advances made pursuant to such agreement constitute a credit toward the $36.0 maximum contribution due upon emergence.
In October 2004, the Company entered into an amendment to the USW agreement (see Note 24) to pay an additional $1.0 to the VEBAs in excess of the originally agreed $36.0 contribution described above, which amount was paid in March 2005. Under the terms of the amended agreement, the Company was required to continue to make the monthly VEBA contributions as long as it remained in chapter 11, even if the sum of such monthly payments exceeded the $37.0 maximum amount discussed above. The monthly amounts paid during the chapter 11


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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
process in excess of the $37.0 limit will offset future variable contribution requirements after emergence. The amended agreement was approved by the Bankruptcy Court in February 2005. VEBA-related payments prior to the Effective Date totaled approximately $49.7. As a result, $12.7 was available to the Company to offset future VEBA contributions of the Successor at the Effective Date (see Note 10).
Total charges associated with the VEBAs in 2006 prior to the Effective Date and the year ended December 31, 2005 were $11.4 and $23.8, respectively. These amounts were reflected as a reduction of Liabilities subject to compromise.
Key Employee Retention Plan—Under the Key Employee Retention Plan (“KERP”), approved by the Bankruptcy Court in September 2002, financial incentives were provided to retain certain key employees during the chapter 11 proceedings. The KERP included six key elements: a retention plan, a severance plan, a change in control plan, a completion incentive plan, the continuation for certain participants of an existing supplemental executive retirement plan (“SERP”) and a long-term incentive plan. Under the KERP:
• Pursuant to the retention plan, retention payments were paid between September 2002 and March 31, 2004, except that 50% of the amounts payable to certain senior officers were withheld until the Company’s emergence from chapter 11 proceedings or as otherwise agreed pursuant to the KERP.
• The severance and change in control plans generally provided for severance payments of between nine months and three years of salary and certain benefits, depending on the facts and circumstances and the level of employee involved.
• The completion incentive plan lapsed without any amounts being due.
• The SERP generally provided additional non-qualified pension benefits for certain active employees at the time that the KERP was approved, who would suffer a loss of benefits based on Internal Revenue Code limitations, so long as such employees were not subsequently terminated for cause or voluntarily terminated their employment prior to reaching their retirement age. The Successor’s board of directors terminated the SERP and funded payments totaling $2.3. Such amounts had been fully accrued by the Predecessor and were included in the Successor’s opening balance sheet.
• The long-term incentive plan generally provided for incentive awards to key employees based on an annual cost reduction target. Payment of such long-term incentive awards generally will be made: (a) 50% upon emergence and (b) 50% one year from the date the Debtors emerged from the chapter 11 proceedings. Approximately $3.4 which was previously accrued by the Predecessor at December 31, 2006 in respect of the KERP long-term incentive plan was paid in 2007 by the Successor.
Foreign Plans—Contributions to foreign pension plans (excluding those that are considered part of discontinued operations) were nominal.
24.  Commitments and Contingencies
Impact of Reorganization Proceedings.  During the chapter 11 proceedings, substantially all pending litigation, except certain environmental claims and litigation, against the Debtors was stayed. Generally, claims against a Debtor arising from actions or omissions prior to its Filing Date were resolved pursuant to the Plan.
Environmental Contingencies.  The Company and one of its subsidiaries were subject to a number of environmental laws and regulations, to fines or penalties assessed for alleged breaches of the environmental laws, and to claims and litigation based upon such laws and regulations. The Company was also subject to a number of claims under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments Reauthorization Act of 1986 (“CERCLA”), and, along with certain other entities, was named as a potentially responsible party for remedial costs at certain third-party sites listed on the National Priorities List under CERCLA.


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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Based on the Company’s evaluation of these and other environmental matters, the Company established an environmental accrual, primarily related to potential solid waste disposal and soil and ground water remediation matters. The following table presents the changes in such accruals, which are primarily included in Long-term liabilities, for the period from January 1, 2006 to July 1, 2006 and the year ended December 31, 2005:
         
  January 1, 2006
  Year Ended
 
  to
  December 31,
 
  July 1, 2006  2005 
 
Balance at beginning of period $46.5  $58.3 
Additional accruals  .3   .5 
Less expenditures  (7.0)  (12.3)
Less amounts resolved in connection with the Plan  (29.4)  — 
         
Balance at end of period $10.4  $46.5 
         
As of June 30, 2006 and December 31, 2005 $29.4 and $30.7, respectively, of the environmental accrual was included in Liabilities subject to compromise (see Note 19). These amounts related to non-owned locations and were resolved as part of the Plan.
Asbestos and Certain Other Personal Injury Claims.  The Company was one of many defendants in a number of lawsuits, some of which involved claims of multiple persons, in which the plaintiffs allege that certain of their injuries were caused by, among other things, exposure to asbestos or exposure to products containing asbestos produced or sold by the Company or as a result of employment or association with the Company. The lawsuits generally related to products the Company had not sold for more than 20 years. As of the initial Filing Date, approximately 112,000 asbestos-related claims were pending. The Company also previously disclosed that certain other personal injury claims had been filed in respect of alleged pre-Filing Date exposure to silica and coal tar pitch volatiles (approximately 3,900 claims and 300 claims, respectively).
Due to the reorganization proceedings, holders of asbestos, silica and coal tar pitch volatile claims were stayed from continuing to prosecute pending litigation and from commencing new lawsuits against the Debtors. As a result, the Company did not make any asbestos payments (or other payments) during the pendency of the reorganization proceedings. However, the Company continued to pursue insurance collections in respect of asbestos-related amounts paid prior to its Filing Date and, as described below, to negotiate insurance settlements and prosecute certain actions to clarify policy interpretations in respect of such coverage.
While a formal estimation process was never completed, the Company believed it had obtained sufficient information to project a range of likely asbestos and other tort-related costs. The Company estimated that its total liability for asbestos, silica and coal tar pitch volatile personal injury claims was expected to be between approximately $1,100.0 and $2,400.0. However, as previously disclosed, the Company did not think that other constituents would necessarily agree with this cost range. In particular, the Company was aware that certain informal assertions made by representatives for the asbestos, silica and coal tar pitch volatiles claimants suggested that the actual liability might exceed, perhaps significantly, the top end of the Company’s expected range. While the Company could not reasonably predict what the ultimate amount of such claims might be determined to be, the Company believed that the minimum end of the range was both probable and reasonably estimatable. Accordingly, the Company reflected an accrued liability of $1,115.0 for the minimum end of the expected range. All of such amounts (which were included in Liabilities subject to compromise) were resolved as a part of the Plan (see Note 19).
As previously disclosed, the Company believed it had insurance coverage available that would recover a substantial portion of its asbestos-related costs. However, the timing and amount of future insurance recoveries were dependent on the resolution of disputes regarding coverage under certain of the applicable insurance policies through the process of negotiations or further litigation. The Company previously stated that it believed that substantial recoveries from the insurance carriers were probable and had estimated the amount of remaining solvent


116

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
insurance coverage (before considering the contingent settlement agreements discussed below) to be in the range of $1,400.0 — $1,500.0. Further, the Company previously disclosed that, assuming that actual asbestos, silica and coal tar pitch volatile costs were to be the $1,115.0 amount accrued (as discussed above) the Company believed that it would be able to recover from insurers amounts totaling approximately $965.0, which amount was reflected as “Personal injury-related insurance recoveries receivable” (reduced to $963.3 at June 30, 2006 due to certain subsequent recoveries).
Throughout the reorganization process, the Company continued its efforts with insurers to make clear the amount of insurance coverage expected to be available in respect of asbestos, silica and coal tar pitch personal injury claims. Part of such efforts focused on certain litigation in San Francisco Superior Court. The Company’s efforts in this regard were also intended to provide certainty as to the amounts available to the PI Trusts and to resolve certain appeals by insurers to the confirmation order in respect of the Plan.
During the latter half of 2005 and the first half of 2006, the Company entered into conditional settlement agreements with insurers (all of which were approved by the Bankruptcy Court) under which the insurers agreed (in aggregate) to pay approximately $1,246.0 in respect of substantially all coverage under certain policies having a combined face value of approximately $1,460.0. Many of the agreements provided for multi-year payouts and for some of the settlement amounts to be accessed, claims would have to be made against the PI Trusts that would aggregate well in excess of the approximate $1,115.0 liability amount reflected by the Company at June 30, 2006. There are no remaining policies that are expected to yield any material amounts for the benefit of the Company or the PI Trusts.
The Company did not provide any accounting recognition for the conditional settlement agreements in the June 30, 2006 financial statements given: (1) the conditional nature of the settlements; (2) the fact that, if the Plan did not become effective as of June 30, 2006, the Company’s interests with respect to the insurance policies covered by the agreements were not impaired in any way; and (3) the Company believed that collection of the approximate $963.3 amount of Personal injury-related insurance recovery receivable was probable even if the conditional agreements were ultimately approved.
Hearing Loss Claims.  During February 2004, the Company reached a settlement in principle in respect of 400 claims, which alleged that certain individuals who were employees of the Company, principally at a facility previously owned and operated by KACC in Louisiana, suffered hearing loss in connection with their employment. Under the terms of the settlement, the claimants were allowed claims totaling up to $15.8 (included in Liabilities subject to compromise, Other accrued liabilities — see Note 19). At emergence, these claims were transferred to the PI Trusts along with certain rights against certain insurance policies of the Company. While the Company believed that the insurance policies were of value, no amounts were reflectedrecorded in the Company’s financial statements in respect of such policies as the Company could notFabricated Products segment, with the level of certainty necessary determine the amount of recoveries that were probable.
During the chapter 11 proceedings, the Company received approximately 3,200 additional proofs of claim alleging pre-petition injury due to noise induced hearing loss. It was never determined how many, if any, of such claims had merit or at what level such claims might qualify within the parameters established by the above-referenced settlementremaining $.9 incurred and reported in principle for the 400 claims. However, under the Plan all such claims were transferred, along with certain rights against certain insurance policies, to the PI Trusts and resolved in that manner rather than being settled prior to the Company’s emergence from the chapter 11 proceedings.
Labor Matters.  In January 2004, as part of its settlement with the USW with respect to pension and retiree medical benefits, the Company and the USW agreed to settle a case pending before the National Labor Relations Board in respect of certain unfair labor practice (“ULP”) claims made by the USW in connection with a 1998 USW strike and subsequent lock-out by the Company. Under the terms of the agreement, solely for the purposes of determining distributions in connection with the reorganization, an unsecured pre-petition claim in the amount of $175.0 was allowed. Also, the Company agreed to adopt a position of neutrality regarding the unionization of any employees of the Company. The settlement was approved by the Bankruptcy Court in February 2005. The CompanyAll Other.


117

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
recorded a $175.0 non-cash charge in the fourth quarter of 2004 associated with the ULP settlement. The obligations in respect of the ULP claim were resolved on the Effective Date.
Pacific Northwest Power Matters.  As a part of the reorganization process, the Company rejected a contract with the BPA that provided power to fully operate the Trentwood facility, as well as approximately 40% of the combined capacity of the Company’s former Mead and Tacoma aluminum smelting operations, which had been curtailed since the last half of 2000. The BPA filed a proof of claim for approximately $75.0 in connection with the contract rejection. In June 2006, the Bankruptcy Court approved an agreement between the Company and the BPA which resolved the claim by granting the BPA an unsecured pre-petition claim totaling approximately $6.1 (i.e., $5.0 in addition to $1.1 of previously accrued pre-petition accounts payable). The Company recorded a non-cash charge for the incremental $5.0 amount in the second quarter of 2005 (in Discontinued operations — see Note 20). This claim was resolved as a part of the Plan and has no impact on the Successor.


11895

 

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
     The following table summarizes the activity relating to cash obligations arising from the Company’s restructuring plans:
             
  Employee  Facility-    
  Termination  Related    
  Costs  Costs  Total 
Restructuring obligations at December 31, 2007 $—  $—  $— 
Cash restructuring costs and other charges incurred in 2008  4.5   —   4.5 
Cash payments in 2008  —   —   — 
          
Restructuring obligations at December 31, 2008  4.5   —   4.5 
Cash restructuring costs and other charges incurred in 2009  3.3   .5   3.8 
Cash payments in 2009  (5.5)  (.5)  (6.0)
          
Restructuring obligations at December 31, 2009 $2.3  $—  $2.3 
          
17. Supplemental cash flow information
             
  Year Ended  Year Ended  Year Ended 
  December 31,  December 31,  December 31, 
  2009  2008  2007 
Supplemental disclosure of cash flow information:            
Interest paid $2.0  $.9  $6.2 
          
Income taxes paid $12.8  $6.4  $3.4 
          
Supplemental disclosure of non-cash transactions:            
Removal of transfer restrictions on common stock owned by Union VEBA (Note 9) $—  $—  $92.8 
          
Dividend declared and unpaid $—  $—  $3.7 
          
Recognition of deferred income tax assets and liabilities due to release of valuation allowance through equity $—  $—  $343.0 
          
18. Subsequent events
     The Company has evaluated events subsequent to December 31, 2009, to assess the need for potential recognition or disclosure in this Report. Such events were evaluated through February 23, 2010, the date these financial statements were issued. Based upon this evaluation, it was determined that no subsequent events occurred that require recognition in the financial statements and that the following items represent subsequent events that merit disclosure herein:
     On January 15, 2010, the Company’s Board of Directors approved the declaration of a quarterly cash dividend of $.24 per common share to stockholders of record at the close of business on January 25, 2010. Such amount was paid on or about February 12, 2010.
     In connection with the renegotiation and entry of a labor agreement relating to the USW members at the Company’s Newark, Ohio and Spokane, Washington facilities on January 20, 2010, the Company agreed to extend its obligation to make an annual variable cash contribution to the Union VEBA to September 30, 2017.

96

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
QUARTERLY FINANCIAL DATA (Unaudited)
                 
  Quarter Ended  Quarter Ended  Quarter Ended  Quarter Ended 
  March 31  June 30  September 30  December 31 
2009
                
Net sales $265.9  $232.1  $252.0  $237.0 
Costs of products sold  225.6   170.3   188.3   182.2 
Lower of cost or market inventory write-down  9.3   —   —   — 
Impairment of investment in Anglesey  .6   1.2   —   — 
Restructuring costs and other charges (benefits)  1.2   5.1   .1   (1.0)
Gross Profit  29.2   55.5   63.6   55.8 
Operating income  7.2   35.0   42.6   33.9 
Net income  3.8   19.6   23.0   24.1 
Earnings per share — Basic:                
Net income per share  .19   .97   1.14   1.20 
Earnings per share — Diluted:                
Net income per share  .19   .97   1.14   1.19 
Common stock market price:                
High  29.24   37.41   41.65   43.59 
Low  16.36   22.19   29.76   33.15 
                 
2008
                
Net sales $399.0  $413.5  $369.2  $326.5 
Costs of products sold (1)  308.5   352.0   383.7   468.6 
Gross Profit  90.5   61.5   (14.5)   (142.1) 
Operating income (loss)  68.1   38.0   (36.5)  (160.6)
Net income (loss)  39.1   22.8   (22.1)  (108.3)
Earnings per share — Basic: (2)                
Net income (loss) per share  1.90   1.11   (1.11)  (5.56)
Earnings per share — Diluted: (2)                
Net income (loss) per share  1.90   1.11   (1.11)  (5.56)
Common stock market price:                
High  79.84   76.46   55.49   43.00 
Low  56.67   53.23   41.89   15.01 
                 
  Quarter Ended
  Quarter Ended
  Quarter Ended
  Quarter Ended
 
  March 31  June 30  September 30  December 31 
 
2007                
Net sales $392.2  $385.1  $366.7  $360.5 
Costs of products sold  337.1   314.0   303.3   296.7 
Operating income  32.3   62.7   44.0   43.0 
Net income  17.1   34.7   24.8   24.4 
Earnings per share — Basic:(2)                 
Net income  .86   1.73   1.24   1.22 
Earnings per share — Diluted:                
Net income  .85   1.71   1.22   1.20 
Common stock market price:(2)                
High  78.00   88.68   78.26   80.58 
Low  57.60   72.33   57.88   66.27 
 
                     
  Predecessor       
  Quarter Ended
  Quarter Ended
     July 1 through
  Quarter Ended
 
  March 31  June 30  July 1  September 30  December 31 
 
2006                    
Net sales $336.3  $353.5  $—  $331.4  $336.1 
Costs of products sold  272.2   324.2   —   291.8   288.6 
Operating income  44.0   8.4   —   21.7   26.6 
Income from continuing operations  31.1   .5   3,105.3(1)  14.3   11.9 
Income (loss) from discontinued operations  7.3   (3.0)  —   —   — 
Net income (loss)  38.4   (2.5)  3,105.3   14.3   11.9 
Earnings per share — Basic:(2)                     
Income from continuing operations  .39   .01   38.98   .72   .59 
Income (loss) from discontinued operations  .09   (.04)  —   —   — 
Net income (loss)  .48   (.03)  38.98   .72   .59 
Earnings per share — Diluted (same as basic for Predecessor):                    
Income from continuing operations              .72   .59 
Income from discontinued operations              —   — 
Net income              .72   .59 
Common stock market price:(2)                    
High  .07   .26   —   44.50   62.00 
Low  .03   .04   —   37.50   43.50 
(1)IncludesCosts of products sold for the quarter ended December 31, 2008 includes a non-cash gainlower of $3,110.3 related to the implementationcost or market inventory write-down of the Plan$65.5, Impairment of investment in Anglesey of $37.8 and applicationRestructuring costs and other charges of fresh start accounting (see Note 19 of Notes to Consolidated Financial Statements).$8.8.
 
(2)Earnings (loss)As described more fully in Note 14 of Notes to Consolidated Financial Statements above, the Company has retrospectively adjusted its earnings per share for each quarter in 2008 to apply the first two quarterstwo-class method of 2006 may not be meaningful becausedetermining earnings per share. The data presented in this table reflect the equity interestsapplication of such methodology. See Note 1 of Notes to Consolidated Financial Statements included in Item 8. “Financial Statements and Supplementary Data” for the impact of the Company’s existing stockholders were cancelled without consideration pursuant to the Plan.retrospective application on 2008.


11997

 

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIESItem 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
     
None.
FIVE-YEAR FINANCIAL DATA
UNAUDITED CONSOLIDATED BALANCE SHEETS(1)Item 9A.Controls and Procedures
     
                      
         Predecessor 
  December 31, 
  2007  2006   2005  2004  2003 
ASSETS
                     
Current assets:                     
Cash and cash equivalents $68.7  $50.0   $49.5  $55.4  $35.5 
Receivables  112.3   106.0    101.5   111.0   80.5 
Inventories  207.6   188.1    115.3   105.3   92.5 
Prepaid expenses and other current assets  66.0   40.8    21.0   19.6   23.8 
Discontinued operations’ current assets  —   —    —   30.6   193.7 
                      
Total current assets  454.6   384.9    287.3   321.9   426.0 
Investments in and advances to unconsolidated affiliate  41.3   18.6    12.6   16.7   13.1 
Property, plant, and equipment — net  222.7   170.3    223.4   214.6   230.1 
Restricted proceeds from sale of commodity interests  —   —    —   280.8   — 
Personal injury-related insurance recoveries receivable  —   —    965.5   967.0   465.4 
Intangible assets including goodwill  —   —    11.4   11.4   11.4 
Net assets in respect of VEBAs  134.9   40.7    —   —   — 
Deferred tax assets — net  268.6   —    —   —   — 
Other assets  43.1   40.9    38.7   31.1   43.7 
Discontinued operations’ long-term assets  —   —    —   38.9   433.8 
                      
Total $1,165.2  $655.4   $1,538.9  $1,882.4  $1,623.5 
                      
                      
LIABILITIES AND STOCKHOLDERS’ EQUITY                     
Liabilities not subject to compromise —                     
Current liabilities:                     
Accounts payable and accruals $146.8  $160.2   $149.6  $175.3  $98.4 
Accrued postretirement medical benefit obligation — current portion  —   —    —   —   32.5 
Payable to affiliate  18.6   16.2    14.8   14.7   11.4 
Long-term debt — current portion  —   —    1.1   1.2   1.3 
Discontinued operations’ current liabilities  —   —    2.1   57.7   177.5 
                      
Total current liabilities  165.4   176.4    167.6   248.9   321.1 
Long-term liabilities  57.0   58.3    42.0   32.9   59.4 
Long-term debt  —   50.0    1.2   2.8   2.2 
Discontinued operations’ liabilities, including liabilities subject to compromise and minority interests  —   —    68.5   26.4   208.7 
                      
   222.4   284.7    279.3   311.0   591.4 
Liabilities subject to compromise  —   —    4,400.1   3,954.9   2,770.1 
Minority interests  —   —    .7   .7   .7 
Stockholders’ equity:                     
Common stock  .2   .2    .8   .8   .8 
Additional capital  948.9   487.5    538.0   538.0   539.1 
Retained earnings (deficit)  116.1   26.2    (3,671.2)  (2,917.5)  (2,170.7)
Common stock owned by Union VEBA subject to transfer restrictions, at reorganization value  (116.4)  (151.1)   —   —   — 
Accumulated other comprehensive income (loss)  (6.0)  7.9    (8.8)  (5.5)  (107.9)
                      
Total stockholders’ equity  942.8   370.7    (3,141.2)  (2,384.2)  (1,738.7)
                      
Total $1,165.2  $655.4   $1,538.9  $1,882.4  $1,623.5 
                      
(1)The Selected Consolidated Financial Data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the notes thereto. The consolidated financial data has been derived from the audited consolidated financial statements.


120

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
FIVE-YEAR FINANCIAL DATA
UNAUDITED STATEMENTS OF CONSOLIDATED INCOME (LOSS)(1)
                          
         Predecessor 
     Year Ended December 31, 2006       
     July 1, 2006
              
  Year Ended
  through
              
  December 31,
  December 31,
   January 1, 2006
  Year Ended December 31, 
  2007  2006   to July 1, 2006  2005  2004  2003 
Net sales $1,504.5  $667.5   $689.8  $1,089.7  $942.4  $710.2 
                          
Costs and expenses:                         
Cost of products sold excluding depreciation  1,251.1   580.4    596.4   951.1   852.2   681.2 
Depreciation and amortization  11.9   5.5    9.8   19.9   22.3   25.7 
Selling, administrative, research and development, and general  73.1   35.5    30.3   50.9   92.3   92.5 
Other operating (benefits) charges, net  (13.6)  (2.2)   .9   8.0   793.2   141.6 
                          
Total costs and expenses  1,322.5   619.2    637.4   1,029.9   1,760.0   941.0 
                          
Operating income (loss)  182.0   48.3    52.4   59.8   (817.6)  (230.8)
Other income (expense):                         
Interest expense (excluding unrecorded contractual interest expense of $47.4 for the period from January 1, 2006 to July 1, 2006,$95.0 in 2005, 2004 and 2003, respectively.)  (4.3)  (1.1)   (.8)  (5.2)  (9.5)  (9.1)
Reorganization items  —   —    3,090.3   (1,162.1)  (39.0)  (27.0)
Other income (expense) — net  4.7   2.7    1.2   (2.4)  4.2   (5.2)
                          
Income (loss) before income taxes and discontinued operation  182.4   49.9    3,143.1   (1,109.9)  (861.9)  (272.1)
Provision for income taxes  (81.4)  (23.7)   (6.2)  (2.8)  (6.2)  (1.5)
                          
Income (loss) from continuing operations  101.0   26.2    3,136.9   (1,112.7)  (868.1)  (273.6)
                          
Discontinued operations:                         
Loss from discontinued operation, net of income taxes and minority interests  —   —    4.3   (2.5)  (5.3)  (514.7)
Gain from sale of commodity interests  —   —    —   366.2   126.6   — 
                          
Income (loss) from discontinued operations  —   —    4.3   363.7   121.3   (514.7)
                          
Cumulative effect on years prior to 2005 of adopting accounting for conditional asset retirement obligations  —   —    —   (4.7)  —   — 
                          
Net income (loss) $101.0  $26.2   $3,141.2  $(753.7) $(746.8) $(788.3)
                          
Earnings (loss) per share — Basic:(2)                         
Income (loss) from continuing operations $5.05  $1.31   $39.37  $(13.97) $(10.88) $(3.41)
                          
Income (loss) from discontinued operations $—  $—   $.05  $4.57  $1.52  $(6.42)
                          
Loss from cumulative effect on years prior to 2005 of adopting accounting for conditional asset retirement obligations $—  $—   $—  $(.06) $—  $— 
                          
Net income (loss) $5.05  $1.31   $39.42  $(9.46) $(9.36) $(9.83)
                          
Earnings per share — Diluted (same as basic for predecessor):                         
Income from continuing operations $4.97  $1.30                  
                          
Income from discontinuing operations $—  $—                  
                          
Loss from cumulative effect on years prior to 2005 of adopting accounting for conditional asset retirement obligations $—  $—                  
                          
Net income $4.97  $1.30                  
                          
Dividends per common share $.54  $—   $—  $—  $—  $— 
                          
Weighted average shares outstanding (000):(2) Basic  20,014   20,003    79,672   79,675   79,815   80,175 
Diluted  20,308   20,089    79,672   79,675   79,815   80,175 
(1)The Selected Consolidated Financial Data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the notes thereto. The consolidated financial data has been derived from the audited consolidated financial statements.
(2)Earnings (loss) per share and share information for the Predecessor may not be meaningful because, pursuant to the Plan, the equity interests of the Company’s existing stockholders were cancelled without consideration.


121

Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.Controls and Procedures
Evaluation of Disclosure Controls and Procedures.We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934 is processed, recorded, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to management, including the principal executive officer and principal financial officer, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. 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 December 31, 2007.2009 at the reasonable assurance level.
     
Management’s Annual Report on Internal Control Over Financial Reporting.Our management’s report on internal control over financial reporting is included in Item 8. “Financial Statements and Supplementary Data” and is incorporated herein by reference.
     
Changes in Internal Controls Over Financial Reporting.We had no changes in our internal controlscontrol over financial reporting during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controlscontrol over financial reporting.
Item 9B.Item 9B.Other InformationOther Information
None.
PART III
     None.
Item 10.Directors, Executive Officers and Corporate Governance
PART III
Item 10.Directors, Executive Officers and Corporate Governance
     
The information called for by this item is set forth under the captions “Executive Officers,” “Proposals Requiring Your Vote — Proposal for Election of Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance” and “Corporate Governance” in our proxy statement for the 20082010 annual meeting of stockholders.
Item 11.Executive Compensation
Item 11.Executive Compensation
     
The information called for by this item is set forth under the captions “Executive Compensation,” “Director Compensation” and “Corporate Governance — Board Committees — Compensation Committee — Compensation Committee Interlocks and Insider Participation” in our proxy statement for the 20082010 annual meeting of stockholders.
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
     
The information required by this item is incorporated by reference to the information included under the captions “Equity Compensation Plan Information” and “Principal Stockholders and Management Ownership” in our proxy statement for the 20082010 annual meeting of stockholders.


122

Item 13.Certain Relationships and Related Transactions, and Director Independence
     
The information required by this item is incorporated by reference to the information included under the captions “Certain Relationships and Related Transactions” and “Corporate Governance — Director Independence” in our proxy statement for the 20082010 annual meeting of stockholders.
Item 14.Principal Accountant Fees and Services
Item 14.Principal Accountant Fees and Services
     
The information required by this item is incorporated by reference to the information included under the caption “Independent Public Accountants” in our proxy statement for the 20082010 annual meeting of stockholders.

98

PART IV
Item 15.Exhibits and Financial Statement Schedules
     
  Page 
1.Financial Statements    
Management’s Report on the Financial Statements and Internal Control Over Financial Reporting  6256 
Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements  6457 
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting  6557 
Consolidated Balance Sheets  6658 
Statements of Consolidated Income (Loss)  6759 
Statements of Consolidated Stockholders’ Equity and Comprehensive Income (Loss)  6860 
Statements of Consolidated Cash Flows  7063 
Notes to Consolidated Financial Statements  7164 
Quarterly Financial Data (Unaudited)  119
Five-Year Financial Data120
2.Financial Statement Schedules97 
     
All schedules are omitted because they are either inapplicable or the required information is included in the Consolidated Financial Statements or the Notes thereto included in Item 8. “Financial Statements and Supplementary Data” and are incorporated herein by reference.
3. Exhibits
3.  Exhibits
     
Reference is made to the Index of Exhibits immediately preceding the exhibits hereto (beginning on page 125)104), which index is incorporated herein by reference.


12399

 

SIGNATURES
     
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
KAISER ALUMINUM CORPORATION
KAISER ALUMINUM CORPORATION
 By:  /s/ Jack A. Hockema
Jack A. Hockema 
President and Chief Executive Officer 
Jack A. Hockema
President and Chief Executive Officer
Date: February 25, 200823, 2010
     
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
  
/s/ Jack A. HockemaPresident, Chief Executive Officer,
Jack A. Hockema
 Chairman of the Board and Director
(Principal Executive Officer)		Date: February 23, 2010
/s/ Daniel J. RinkenbergerSenior Vice President and Chief
Daniel J. Rinkenberger
 Financial Officer
(Principal Financial Officer)		Date: February 23, 2010
/s/ Neal WestVice President and Chief
Neal West
 Accounting Officer
(Principal Accounting Officer)Date: February 23, 2010
/s/ Carolyn Bartholomew
Carolyn Bartholomew
 DirectorDate: February 23, 2010
     
     
/s/  Jack A. Hockema

David Foster
Jack A. Hockema
 President, Chief Executive Officer, Chairman of the Board and Director
(Principal Executive Officer)
/s/ Teresa A. Hopp
Teresa A. Hopp
 Director Date: February 25, 200823, 2010
     
/s/  Joseph P. Bellino

William F. Murdy
Joseph P. Bellino
 Executive Vice President and Chief Financial Officer
(Principal Financial Officer) Director		 Date: February 25, 2008
     
/s/ Lynton J. Rowsell

Lynton J. RowsellAlfred E. Osborne, Jr., Ph.D.		 Vice President and Chief Accounting Officer
(Principal Accounting Officer)
Alfred E. Osborne, Jr., Ph.D.
 Director Date: February 25, 200823, 2010
     
 

Jack Quinn
Carolyn Bartholomew
 
Director		 Date: February 25, 2008
     

Carl B. Frankel/s/ Thomas M. Van Leeuwen		 
Thomas M. Van Leeuwen
Director Date: February 25, 200823, 2010
     
/s/ Teresa A. HoppBrett E. Wilcox

Teresa A. Hopp
Brett E. Wilcox Director Date: February 23, 2010

100

INDEX OF EXHIBITS
Exhibit
NumberDescription
2.1Third Amended Joint Plan of Liquidation for Alpart Jamaica Inc. (“AJI”) and Kaiser Jamaica Corporation (“KJC”), dated February 25, 20082005 (incorporated by reference to Exhibit 99.1 to the Annual Report on Form 10-K for the period ended December 31, 2004, filed by the Company on March 31, 2005, File No. 1-9447).
     

William F. Murphy		2.2 DirectorDate: February 25, 2008Modification to the Third Amended Joint Plan of Liquidation for AJI and KJC, dated April 7, 2005 (incorporated by reference to Exhibit 2.2 to the Current Report Form 8-K, filed by the Company on December 23, 2005, File No. 1-9447).
     
/s/  Alfred E. Osborne, Jr., Ph.D.

Alfred E. Osborne, Jr., Ph.D.		2.3 DirectorDate: February 25, 2008Second Modification to the Third Amended Joint Plan of Liquidation for AJI and KJC, dated November 22, 2005 (incorporated by reference to Exhibit 2.3 to the Current Report Form 8-K, filed by the Company on December 23, 2005, File No. 1-9447).
     
/s/  Georganne Proctor

Georganne Proctor		2.4 DirectorDate: February 25, 2008Third Modification to the Third Amended Joint Plan of Liquidation for AJI and KJC, dated December 19, 2005 (incorporated by reference to Exhibit 2.4 to the Current Report Form 8-K, filed by the Company on December 23, 2005, File No. 1-9447).
     

Jack Quinn		2.5 DirectorDate:Third Amended Joint Plan of Liquidation for Kaiser Alumina Australia Corporation (“KAAC”) and Kaiser Finance Corporation (“KFC”), dated February 25, 20082005 (incorporated by reference to Exhibit 99.3 to the Annual Report on Form 10-K for the period ended December 31, 2004, filed by the Company on March 31, 2005, File No. 1-9447).
     
/s/  Thomas M. Van Leeuwen

Thomas M. Van Leeuwen		2.6 DirectorDate: February 25, 2008Modification to the Third Amended Joint Plan of Liquidation for KAAC and KFC, dated April 7, 2005 (incorporated by reference to Exhibit 2.6 to the Current Report on Form 8-K, filed by the Company on December 23, 2005, File No. 1-9447).
     
/s/  Brett E. Wilcox

Brett E. Wilcox		2.7 DirectorSecond Modification to the Third Amended Joint Plan of Liquidation for KAAC and KFC, dated November 22, 2005 (incorporated by reference to Exhibit 2.7 to the Current Report on Form 8-K, filed by the Company on December 23, 2005, File No. 1-9447).
 Date:
2.8Third Modification to the Third Amended Joint Plan of Liquidation for KAAC and KFC, dated December 19, 2005 (incorporated by reference to Exhibit 2.8 to the Current Report on Form 8-K, filed by the Company on December 23, 2005, File No. 1-9447)
2.9Second Amended Joint Plan of Reorganization for the Company, KACC and Certain of Their Debtor Affiliates, dated as of September 7, 2005 (incorporated by reference to Exhibit 99.2 to the Current Report on Form 8-K, filed by the Company on September 13, 2005, File No. 1-9447).
2.10Modifications to the Second Amended Joint Plan of Reorganization for the Company, KACC and Certain of Their Debtor Affiliates Pursuant to Stipulation and Agreed Order between Insurers, Debtors, Committee and Future Representatives (incorporated by reference to Exhibit 2.2 to the Current Report on Form 8-K, filed by the Company on February 25, 20087, 2006, File No. 1-9447).
2.11Modification to the Second Amended Joint Plan of Reorganization for the Company, KACC and Certain of Their Debtor Affiliates, dated as of November 22, 2005 (incorporated by reference to Exhibit 2.3 to the Current Report on Form 8-K, filed by the Company on February 7, 2006, File No. 1-9447).
2.12Third Modification to the Second Amended Joint Plan of Reorganization for the Company, KACC and Certain of Their Debtor Affiliates, dated as of December 16, 2005 (incorporated by reference to Exhibit 2.4 to the Current Report on Form 8-K, filed by the Company on February 7, 2006, File No. 1-9447).
2.13Order Confirming the Second Amended Joint Plan of Reorganization of the Company, KACC and Certain of Their Debtor Affiliates (incorporated by reference to Exhibit 2.5 to the Current Report on Form 8-K, filed by the Company on February 7, 2006, File No. 1-9447).
2.14Order Affirming the Confirmation Order of the Second Amended Joint Plan of Reorganization of the Company, KACC and Certain of Their Debtor Affiliates, as modified (incorporated by reference to Exhibit 2.6 to the Registration Statement on Form 8-A, filed by the Company on July 6, 2006, File No. 1-9447).


124101

 

INDEX OF EXHIBITS
     
Exhibit
  
Number
 
Description
 
 2.1 Third Amended Joint Plan of Liquidation for Alpart Jamaica Inc. (“AJI”) and Kaiser Jamaica Corporation (“KJC”), dated February 25, 2005 (incorporated by reference to Exhibit 99.1 to the Annual Report on Form 10-K for the period ended December 31, 2004, filed by the Company on March 31, 2005, File No. 1-9447).
 2.2 Modification to the Third Amended Joint Plan of Liquidation for AJI and KJC, dated April 7, 2005 (incorporated by reference to Exhibit 2.2 to the Current Report Form 8-K, filed by the Company on December 23, 2005, File No. 1-9447).
 2.3 Second Modification to the Third Amended Joint Plan of Liquidation for AJI and KJC, dated November 22, 2005 (incorporated by reference to Exhibit 2.3 to the Current Report Form 8-K, filed by the Company on December 23, 2005, File No. 1-9447).
 2.4 Third Modification to the Third Amended Joint Plan of Liquidation for AJI and KJC, dated December 19, 2005 (incorporated by reference to Exhibit 2.4 to the Current Report Form 8-K, filed by the Company on December 23, 2005, File No. 1-9447).
 2.5 Third Amended Joint Plan of Liquidation for Kaiser Alumina Australia Corporation (“KAAC”) and Kaiser Finance Corporation (“KFC”), dated February 25, 2005 (incorporated by reference to Exhibit 99.3 to the Annual Report on Form 10-K for the period ended December 31, 2004, filed by the Company on March 31, 2005, File No. 1-9447).
 2.6 Modification to the Third Amended Joint Plan of Liquidation for KAAC and KFC, dated April 7, 2005 (incorporated by reference to Exhibit 2.6 to the Current Report on Form 8-K, filed by the Company on December 23, 2005, File No. 1-9447).
 2.7 Second Modification to the Third Amended Joint Plan of Liquidation for KAAC and KFC, dated November 22, 2005 (incorporated by reference to Exhibit 2.7 to the Current Report on Form 8-K, filed by the Company on December 23, 2005, File No. 1-9447).
 2.8 Third Modification to the Third Amended Joint Plan of Liquidation for KAAC and KFC, dated December 19, 2005 (incorporated by reference to Exhibit 2.8 to the Current Report on Form 8-K, filed by the Company on December 23, 2005, File No. 1-9447)
 2.9 Second Amended Joint Plan of Reorganization for the Company, KACC and Certain of Their Debtor Affiliates, dated as of September 7, 2005 (incorporated by reference to Exhibit 99.2 to the Current Report on Form 8-K, filed by the Company on September 13, 2005, File No. 1-9447).
 2.10 Modifications to the Second Amended Joint Plan of Reorganization for the Company, KACC and Certain of Their Debtor Affiliates Pursuant to Stipulation and Agreed Order between Insurers, Debtors, Committee and Future Representatives (incorporated by reference to Exhibit 2.2 to the Current Report on Form 8-K, filed by the Company on February 7, 2006, File No. 1-9447).
 2.11 Modification to the Second Amended Joint Plan of Reorganization for the Company, KACC and Certain of Their Debtor Affiliates, dated as of November 22, 2005 (incorporated by reference to Exhibit 2.3 to the Current Report on Form 8-K, filed by the Company on February 7, 2006, File No. 1-9447).
 2.12 Third Modification to the Second Amended Joint Plan of Reorganization for the Company, KACC and Certain of Their Debtor Affiliates, dated as of December 16, 2005 (incorporated by reference to Exhibit 2.4 to the Current Report on Form 8-K, filed by the Company on February 7, 2006, File No. 1-9447).
 2.13 Order Confirming the Second Amended Joint Plan of Reorganization of the Company, KACCand Certain of Their Debtor Affiliates (incorporated by reference to Exhibit 2.5 to the Current Report on Form 8-K, filed by the Company on February 7, 2006, File No. 1-9447).
 2.14 Order Affirming the Confirmation Order of the Second Amended Joint Plan of Reorganization of the Company, KACC and Certain of Their Debtor Affiliates, as modified (incorporated by reference to Exhibit 2.6 to the Registration Statement on Form 8-A, filed by the Company on July 6, 2006, FileNo. 1-9447).


125

     
Exhibit
  
Number
 
Description
 
 2.15 Special Procedures for Distributions on Account of NLRB Claim, as agreed by the National Labor Relations Board, the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union, AFL-CIO, CLC (formerly known as the United Steelworkers of America, AFL-CIO, CLC) (the “USW”) and the Company pursuant to Section 7.8e of the Second Amended Joint Plan of Reorganization of the Company, KACC and Certain of Their Debtor Affiliates, as modified (incorporated by reference to Exhibit 2.7 to the Registration Statement on Form 8-A, filed by the Company on July 6, 2006, File No. 000-52105).
 3.1 Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Registration Statement on Form 8-A, filed by the Company on July 6, 2006, File No. 000-52105).
 3.2 Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Registration Statement on Form 8-A, filed by the Company on July 6, 2006, File No. 000-52105).
 10.1 Senior Secured Revolving Credit Agreement, dated as of July 6, 2006, among the Company, Kaiser Aluminum Investments Company, Kaiser Aluminum Fabricated Products, LLC (“KAFP”), Kaiser Aluminum International, Inc., certain financial institutions from time to time thereto, as lenders, J.P. Morgan Securities, Inc., The CIT Group/Business Credit, Inc. and JPMorgan Chase Bank, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed by the Company on July 6, 2006, File No. 000-52105).
 10.2 First Amendment to Senior Secured Revolving Credit Agreement, Consent and Facility Increase, dated as of December 10, 2007 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed by the Company on December 13, 2007, File No. 000-52105)
 10.3 Term Loan and Guaranty Agreement, dated as of July 6, 2006, among KAFP, the Company and certain indirect subsidiaries of the Company listed as dGuarantors’ thereto, certain financial institutions from time to time party thereto, as lenders, J.P. Morgan Securities, Inc., JPMorgan Chase Bank, N.A., as administrative agent, and Wilmington Trust Company, as collateral agent (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K, filed by the Company on July 6, 2006, FileNo. 000-52105).
 **10.4 Description of 2006 Compensation of Directors (incorporated by reference to Exhibit 10.3 to the Report on Form 8-K, filed by the Company on July 6, 2006, File No. 000-52105).
 **10.5 Description of 2007 Compensation of Directors (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed by the Company on June 12, 2007, File No. 000-52105).
 **10.6 2006 Short Term Incentive Plan for Key Managers (incorporated by reference to Exhibit 10.4 to the Report on Form 8-K, filed by the Company on July 6, 2006, File No. 000-52105).
 **10.7 Summary of the Kaiser Aluminum Fabricated Products 2007 Short Term Incentive Plan for Key Managers (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed by the Company on April 5, 2007, File No. 000-52105).
 **10.8 Employment Agreement, dated as of July 6, 2006, between the Company and Jack A. Hockema (incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K, filed by the Company on July 6, 2006, File No. 000-52105).
 **10.9 Employment Agreement, dated as of July 6, 2006, between the Company and Joseph P. Bellino (incorporated by reference to Exhibit 10.6 to the Current Report on Form 8-K, filed by the Company on July 6, 2006, File No. 000-52105).
 **10.10 Form of Director Indemnification Agreement (incorporated by reference to Exhibit 10.8 to the Current Report on Form 8-K, filed by the Company on July 6, 2006, File No. 000-52105).
 **10.11 Form of Officer Indemnification Agreement (incorporated by reference to Exhibit 10.9 to the Current Report on Form 8-K, filed by the Company on July 6, 2006, File No. 000-52105).
 **10.12 Form of Director and Officer Indemnification Agreement (incorporated by reference to Exhibit 10.10 to the Current Report on Form 8-K, filed by the Company on July 6, 2006, File No. 000-52105).


126

     
Exhibit
  
Number
 
Description
 
 *10.13 Kaiser Aluminum Corporation Amended and Restated 2006 Equity and Performance Incentive Plan.
 **10.14 2006 Form of Executive Officer Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.12 to the Current Report on Form 8-K, filed by the Company on July 6, 2006, FileNo. 000-52105).
 **10.15 2006 Form of Non-Employee Director Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.13 to the Current Report on Form 8-K, filed by the Company on July 6, 2006, FileNo. 000-52105).
 **10.16 2007 Form of Non-Employee Director Restricted Stock Award Agreement (incorporated by reference to the Current Report on Form 8-K, filed by the Company on June 12, 2007, File No. 000-52105).
 **10.17 Kaiser Aluminum Fabricated Products Restoration Plan (incorporated by reference to Exhibit 10.14 to the Current Report on Form 8-K, filed by the Company on July 6, 2006, File No. 000-52105).
 10.18 Stock Transfer Restriction Agreement, dated as of July 6, 2006, between the Company and National City Bank, in its capacity as the trustee for the trust that provides benefits for certain eligible retirees of Kaiser Aluminum & Chemical Corporation represented by the USW, the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America and its Local 1186, the International Association of Machinists and Aerospace Workers, the International Chemical Workers Union Council of the United Food and Commercial Workers, and the Paper, Allied-Industrial, Chemical and Energy Workers International Union, AFL-CIO, CLC and their surviving spouses and eligible dependents (the “Union VEBA”) (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form 8-A, filed by the Company on July 6, 2006, File No. 000-52105).
 10.19 Registration Rights Agreement, dated as of July 6, 2006, between the Company and the Union VEBA and the other parties thereto (incorporated by reference to Exhibit 4.2 to the Registration Statement on Form 8-A, filed by the Company on July 6, 2006, File No. 000-52105).
 10.20 Director Designation Agreement, dated as of July 6, 2006, between the Company and the USW (incorporated by reference to Exhibit 4.3 to the Registration Statement on Form 8-A, filed by the Company on July 6, 2006, File No. 000-52105).
 **10.21 Key Employee Retention Plan (effective September 3, 2002) (incorporated by reference to Exhibit 10.26 to the Annual Report on Form 10-K for the period ended December 31, 2002, filed by the Company on March 31, 2003, File No. 1-9447).
 **10.22 Form of Retention Agreement for the KACC Key Employee Retention Plan (effective September 3, 2002) for Jack A. Hockema and John Barneson (incorporated by reference to Exhibit 10.27 to the Annual Report on Form 10-K for the period ended December 31, 2002, filed by the Company on March 31, 2003, File No. 1-9447).
 **10.23 Severance Plan (effective September 3, 2002) (incorporated by reference to Exhibit 10.30 to the Annual Report on Form 10-K for the period ended December 31, 2002, filed by the Company on March 31, 2003, File No. 1-9447).
 **10.24 Form of Severance Agreement for the Severance Plan (effective September 3, 2002) for John Barneson and John M. Donnan (incorporated by reference to Exhibit 10.31 to the Annual Report on Form 10-K for the period ended December 31, 2002, filed by the Company on March 31, 2003, File No. 1-9447).
 **10.25 Form of Change in Control Severance Agreement for John Barneson (incorporated by reference to Exhibit 10.32 to the Annual Report on Form 10-K for the period ended December 31, 2002, filed by the Company on March 31, 2003, File No. 1-9447).
 **10.26 Form of Change in Control Severance Agreement for John M. Donnan (incorporated by reference to Exhibit 10.33 to the Annual Report on Form 10-K for the period ended December 31, 2002, filed by the Company on March 31, 2003, File No. 1-9447).
 **10.27 Description of Long-Term Incentive Plan (incorporated by reference to Exhibit 10.21 to the Annual Report on Form 10-K for the period ended December 31, 2004, filed by the Company on March 31, 2005, File No. 1-9447).


127

     
Exhibit
  
Number
Description
2.15Special Procedures for Distributions on Account of NLRB Claim, as agreed by the National Labor Relations Board, the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union, AFL-CIO, CLC (formerly known as the United Steelworkers of America, AFL-CIO, CLC) (the “USW”) and the Company pursuant to Section 7.8e of the Second Amended Joint Plan of Reorganization of the Company, KACC and Certain of Their Debtor Affiliates, as modified (incorporated by reference to Exhibit 2.7 to the Registration Statement on Form 8-A, filed by the Company on July 6, 2006, File No. 000-52105).
3.1Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Registration Statement on Form 8-A, filed by the Company on July 6, 2006, File No. 000-52105).
3.2Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.2 to the Quarterly Report on Form 10-Q, filed by the Company on August 7, 2008, File No. 000-52105).
3.3Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Registration Statement on Form 8-A, filed by the Company on July 6, 2006, File No. 000-52105).
10.1Senior Secured Revolving Credit Agreement, dated as of July 6, 2006, among the Company, Kaiser Aluminum Investments Company, Kaiser Aluminum Fabricated Products, LLC (“KAFP”), Kaiser Aluminum International, Inc., certain financial institutions from time to time thereto, as lenders, J.P. Morgan Securities, Inc., The CIT Group/Business Credit, Inc. and JPMorgan Chase Bank, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed by the Company on July 6, 2006, File No. 000-52105).
10.2 
First Amendment to Senior Secured Revolving Credit Agreement, Consent and Facility Increase, dated as of December 10, 2007 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed by the Company on December 13, 2007, File No. 000-52105).
10.3
Second Amendment to Senior Secured Revolving Credit Agreement, Consent and Facility Increase, dated as of January 9, 2009 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed by the Company on January 15, 2009, File No. 000-52105).
**10.4Description of Compensation of Directors (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed by the Company on June 12, 2007, File No. 000-52105).
**10.5Employment Agreement, dated as of July 6, 2006, between the Company and Jack A. Hockema (incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K, filed by the Company on July 6, 2006, File No. 000-52105).
**10.6Amendment dated December 31, 2008 to the Employment Agreement between Jack A. Hockema and the Company (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed by the Company on December 31, 2008, File No. 000-52105).
**10.7Severance Letter between Joseph P. Bellino and the Company dated April 16, 2008 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed by the Company on April 16, 2008, File No. 000-52105).
**10.8Form of Director Indemnification Agreement (incorporated by reference to Exhibit 10.8 to the Current Report on Form 8-K, filed by the Company on July 6, 2006, File No. 000-52105).
**10.9Form of Officer Indemnification Agreement (incorporated by reference to Exhibit 10.9 to the Current Report on Form 8-K, filed by the Company on July 6, 2006, File No. 000-52105).
**10.10Form of Director and Officer Indemnification Agreement (incorporated by reference to Exhibit 10.10 to the Current Report on Form 8-K, filed by the Company on July 6, 2006, File No. 000-52105).
 
 **1010.11.28Kaiser Aluminum Corporation Amended and Restated 2006 Equity and Performance Incentive Plan dated June 2, 2009 (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the period ended June 30, 2009, filed by the Company on July 30, 2009).

102

Exhibit
NumberDescription
**10.12Kaiser Aluminum Fabricated Products Restoration Plan (incorporated by reference to Exhibit 10.14 to the Current Report on Form 8-K, filed by the Company on July 6, 2006, File No. 000-52105).
**10.13Amendment to the Kaiser Aluminum Fabricated Products Restoration Plan (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K, filed by the Company on December 31, 2008, File No. 000-52105).
10.14Stock Transfer Restriction Agreement, dated as of July 6, 2006, between the Company and National City Bank, in its capacity as the trustee for the trust that provides benefits for certain eligible retirees of Kaiser Aluminum & Chemical Corporation represented by the USW, the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America and its Local 1186, the International Association of Machinists and Aerospace Workers, the International Chemical Workers Union Council of the United Food and Commercial Workers, and the Paper, Allied-Industrial, Chemical and Energy Workers International Union, AFL-CIO, CLC and their surviving spouses and eligible dependents (the “Union VEBA”) (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form 8-A, filed by the Company on July 6, 2006, File No. 000-52105).
10.15Registration Rights Agreement, dated as of July 6, 2006, between the Company and the Union VEBA and the other parties thereto (incorporated by reference to Exhibit 4.2 to the Registration Statement on Form 8-A, filed by the Company on July 6, 2006, File No. 000-52105).
10.16Director Designation Agreement, dated as of July 6, 2006, between the Company and the USW (incorporated by reference to Exhibit 4.3 to the Registration Statement on Form 8-A, filed by the Company on July 6, 2006, File No. 000-52105).
**10.17Form of Change in Control Severance Agreement for John Barneson (incorporated by reference to Exhibit 10.32 to the Annual Report on Form 10-K for the period ended December 31, 2002, filed by the Company on March 31, 2003, File No. 1-9447).
**10.18Form of Change in Control Severance Agreement for John M. Donnan, Daniel J. Rinkenberger and James E. McAuliffe (incorporated by reference to Exhibit 10.33 to the Annual Report on Form 10-K for the period ended December 31, 2002, filed by the Company on March 31, 2003, File No. 1-9447).
**10.19Form of Amendment to the Change in Control Severance Agreement with John Barneson, John M. Donnan, Daniel J. Rinkenberger, and James E. McAuliffe (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K, filed by the Company on December 31, 2008, File No. 000-52105).
**10.20 2007 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 April 5, 2007, FileNo. 000-52105).
 **1010.21.29 2007 Form of Executive Officer Option Rights Award Agreement (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K, filed by the Company on April 5, 2007, File No. 000-52105).
 
**10.22Amendment dated December 31, 2008 to the agreements evidencing awards granted to Messrs. Jack A. Hockema, John Barneson, John M. Donnan, Daniel J. Rinkenberger and James E. McAuliffe prior to 2008 under the Company’s 2006 Equity and Performance Incentive Plan (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K, filed by the Company on December 31, 2008, File No. 000-52105).
**10.232008 Form of Executive Officer Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K, filed by the Company on March 4, 2008, File No. 000-52105).
**10.242008 Form of Executive Officer Performance Shares Award Agreement (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K, filed by the Company on March 4, 2008, File No. 000-52105).
**10.25Kaiser Aluminum Corporation 2008 — 2010 Long-Term Incentive Program Summary of Management Objectives and Formula for Determining Performance Shares Earned (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K, filed by the Company on March 4, 2008, File No. 000-52105).
**10.262008 Form of Non-Employee Director Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q, filed by the Company on August 7, 2008, File No. 000-52105).

103

Exhibit
NumberDescription
**10.27Summary of the Kaiser Aluminum Fabricated Products 2009 Short-Term Incentive Plan for Key Managers (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed by the Company on March 10, 2009, File No. 000-52105).
**10.28Summary of the Kaiser Aluminum Fabricated Products 2008 Short-Term Incentive Plan for Key Managers (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed by the Company on March 4, 2008, File No. 000-52105).
**10.292009 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 10, 2009, File No. 000-52105).
**10.302009 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 10, 2009, File No. 000-52105).
**10.31Kaiser Aluminum Corporation 2009 — 2011 Long-Term Incentive Program Summary of Management Objectives and Formula for Determining Performance Shares Earned (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K, filed by the Company on March 10, 2009, File No. 000-52105).
*21  Significant Subsidiaries of Kaiser Aluminum Corporation.
 *23.1
*23.1 Consent of Independent Registered Public Accounting Firm.
 *31.1
*31.1 Certification of Jack A. Hockema pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 *31.2
*31.2 Certification of Joseph P. BellinoDaniel J. Rinkenberger pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 *32.1
*32.1 Certification of Jack A. Hockema pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 *32.2
*32.2 Certification of Joseph P. BellinoDaniel J. Rinkenberger pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
*Filed herewith.
 
**Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Annual Report onForm 10-K.


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