UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended September 30, ~~2009~~2010

Commission file number 0-52105

KAISER ALUMINUM CORPORATION

(Exact name of registrant as specified in its charter)


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

27422 PORTOLA PARKWAY, SUITE ~~350,~~200,
FOOTHILL RANCH, CALIFORNIA		92610-2831
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code:
(949) 614-1740

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yesþ Noo

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

Indicate by check mark whether the registrant is a large accelerated ~~filter,~~filer, an accelerated ~~filter,~~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 filer þ

Accelerated filer o

Non-accelerated filer o
(Do not check if a smaller reporting company)

Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yesþ Noo

As of October ~~15, 2009,~~22, 2010, there were ~~20,276,571~~19,216,196 shares of the Common Stock of the registrant outstanding.

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

PART I — FINANCIAL INFORMATION

Item 1.Financial Statements

CONSOLIDATED BALANCE SHEETS


	September 30,			December 31,			September 30,			December 31,
	2009			2008			2010			2009
	(Unaudited)						(Unaudited)
	(In millions of dollars, except						(In millions of dollars, except share
	share amounts)						and per share amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	34.6		$	.2		$	143.7		$	30.3
Receivables:
Trade, less allowance for doubtful receivables of $.8 at September 30, 2009 and at December 31, 2008		81.1			98.5
Trade, less allowance for doubtful receivables of $0.6 at September 30, 2010 and $0.8 at December 31, 2009, respectively								90.2			83.7
Due from affiliate		—			11.8			—			0.2
Other		3.0			17.5			5.2			2.2
Inventories		125.6			172.3			153.3			125.2
Prepaid expenses and other current assets		93.0			128.4			63.4			59.1

Total current assets		337.3			428.7			455.8			300.7
Property, plant, and equipment — net		332.0			296.7			356.9			338.9
Net asset in respect of VEBA		55.2			56.2			179.6			127.5
Deferred tax assets — net		278.0			313.3			250.1			277.2
Intangible assets, net								4.2			—
Goodwill								3.1			—
Other assets		33.0			50.5			76.0			41.2

Total	$	1,035.5		$	1,145.4		$	1,325.7		$	1,085.5


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	49.8		$	52.4		$	48.7		$	49.0
Accrued salaries, wages, and related expenses		32.3			41.2			29.3			33.1
Other accrued liabilities		32.8			113.9			39.4			32.1
Payable to affiliate		21.5			27.5			20.0			9.0
Long-term debt-current portion								1.3			—

Total current liabilities		136.4			235.0			138.7			123.2
Net liability in respect of VEBA		16.9			14.0			1.2			0.3
Long-term liabilities		48.9			65.3			126.1			53.7
Revolving credit facility and other long-term debt		7.1			43.0
Cash convertible senior notes								139.9			—
Other long-term debt								12.1			7.1

		209.3			357.3			418.0			184.3
Commitments and contingencies — Note 14

Commitments and contingencies (Note 11)
Stockholders’ equity:
Common stock, par value $.01, 90,000,000 shares authorized at both September 30, 2009 and December 31, 2008; 20,276,571 shares issued and outstanding at September 30, 2009 and 20,044,913 issued and outstanding at December 31, 2008		.2			.2
Common stock, par value $0.01, 90,000,000 shares authorized at both September 30, 2010 and at December 31, 2009; 19,216,901 shares issued and outstanding at September 30, 2010 and 20,276,571 shares issued and outstanding at December 31, 2009								0.2			0.2
Additional capital		967.0			958.6			986.6			967.8
Retained earnings		65.8			34.1			85.1			85.0
Common stock owned by Union VEBA subject to transfer restrictions, at reorganization value, 4,845,465 shares at both September 30, 2009 and December 31, 2008		(116.4	)		(116.4	)
Treasury stock, at cost, 572,706 shares at both September 30, 2009 and December 31, 2008		(28.1	)		(28.1	)
Common stock owned by Union VEBA subject to transfer restrictions, at reorganization value, 3,523,980 at September 30, 2010 and 4,845,465 shares at December 31, 2009								(84.6	)		(116.4	)
Treasury stock, at cost, 1,724,606 shares at September 30, 2010 and 572,706 shares at December 31, 2009								(72.3	)		(28.1	)
Accumulated other comprehensive loss		(62.3	)		(60.3	)		(7.3	)		(7.3	)

Total stockholders’ equity		826.2			788.1			907.7			901.2

Total	$	1,035.5		$	1,145.4		$	1,325.7		$	1,085.5

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

STATEMENTS OF CONSOLIDATED STOCKHOLDERS’ EQUITY AND

COMPREHENSIVE (LOSS) INCOME

Quarter Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
(Unaudited)
(In millions of dollars, except share and per share amounts)
Net sales $ 252.0 $ 369.2 $ 750.0 $ 1,181.7

Costs and expenses:
Cost of products sold:
Cost of products sold, excluding depreciation, amortization and other items 188.3 383.7 584.2 1,044.2
Lower of cost or market inventory write-down — — 9.3 —
Impairment of investment in Anglesey — — 1.8 —
Restructuring costs and other charges .1 — 6.4 —
Depreciation and amortization 3.9 3.6 12.3 10.8
Selling, administrative, research and development, and general 17.1 19.8 52.1 58.3
Other operating benefits, net — (1.4 ) (.9 ) (1.2 )

Total costs and expenses 209.4 405.7 665.2 1,112.1

Operating income (loss) 42.6 (36.5 ) 84.8 69.6
Other income (expense):
Interest expense (.2 ) (.3 ) (.6 ) (.8 )
Other income (expense), net .1 (.2 ) — 1.0

Income (loss) before income taxes 42.5 (37.0 ) 84.2 69.8
Income tax (provision) benefit (19.5 ) 14.9 (37.8 ) (30.0 )

Net income (loss) $ 23.0 $ (22.1 ) $ 46.4 $ 39.8

Earnings per share — Basic (Note 13):
Net income (loss) per share $ 1.14 $ (1.11 ) $ 2.31 $ 1.93

Earnings per share — Diluted (Note 13):
Net income (loss) per share $ 1.14 $ (1.11 ) $ 2.31 $ 1.93

Weighted-average number of common shares outstanding (000):
Basic 19,982 19,995 19,568 20,032

Diluted 19,982 19,995 19,568 20,032


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

Net income		—			—		—			14.4			—			—			—			14.4

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

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


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

Issuance of warrants		—			—		14.3			—			—			—			—			14.3

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

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

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

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

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

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

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

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

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

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

~~STATEMENTS~~STATEMENT OF CONSOLIDATED ~~STOCKHOLDERS’ EQUITY AND~~
~~COMPREHENSIVE INCOME (LOSS)~~CASH FLOWS

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
(Unaudited)
(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 — — — 46.4 — — — 46.4
Foreign currency translation adjustment, net of tax of $0 — — — — — — (2.0 ) (2.0 )

Comprehensive income 44.4
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 — — — (14.7 ) — — — (14.7 )
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 — — 8.2 — — — — 8.2

BALANCE, September 30, 2009 20,276,571 $ .2 $ 967.0 $ 65.8 $ (116.4 ) $ (28.1 ) $ (62.3 ) $ 826.2


	Nine Months Ended
	September 30,
	2010			2009
	(Unaudited)
	(In millions of dollars)
Cash flows from operating activities:
Net income	$	14.4		$	46.4
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization (including amortization of note discount of $3 for the nine months ended September 30, 2010 and deferred financing costs of $0.5 for the nine months ended September 30, 2009)		16.9			12.8
Deferred income taxes		7.5			35.3
Excess tax deficiency upon vesting of non-vested shares and dividend payment on unvested shares expected to vest		—			0.1
Non-cash equity compensation		4.1			8.3
Net non-cash LIFO charges and lower of cost or market inventory write-down		6.2			3.0
Non-cash unrealized losses (gains) on derivative positions		6.9			(49.4	)
Amortization of option premiums		1.2			2.6
Non-cash impairment charges		1.9			2.1
Equity in income of unconsolidated affiliate, net of distributions		—			(1.9	)
Loss on disposition of property, plant and equipment		0.1			0.1
Other non-cash changes in assets and liabilities		0.4			4.1
Changes in operating assets and liabilities, net of effect of acquisition:
Trade and other receivables		(8.4	)		31.9
Receivable from affiliate		0.2			11.8
Inventories (excluding LIFO charges/benefits and lower of cost or market write-down)		(31.8	)		43.7
Prepaid expenses and other current assets		2.6			2.9
Accounts payable		3.2			0.6
Accrued liabilities		1.5			(31.2	)
Payable to affiliate		11.0			(6.0	)
Accrued income taxes		—			0.5
Long-term assets and liabilities, net		27.4			1.5

Net cash provided by operating activities		65.3			119.2

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

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

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

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

Net increase in cash and cash equivalents during the period		113.4			34.4
Cash and cash equivalents at beginning of period		30.3			0.2

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

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

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

~~STATEMENTS OF CONSOLIDATED CASH FLOWS~~

Nine Months Ended
September 30,
2009 2008
(Unaudited)
(In millions of dollars)
Cash flows from operating activities:
Net income $ 46.4 $ 39.8
Adjustments to reconcile net income to net cash provided by operating activities:
Recognition of pre-emergence tax benefits in accordance with fresh start accounting — 1.2
Depreciation and amortization (including deferred financing costs of $.5 for the nine months ended September 30, 2009 and $.2 for the nine months ended September 30, 2008) 12.8 11.0
Deferred income taxes 35.3 22.4
Excess tax deficiency (benefit) upon vesting of non-vested shares and dividend payment on unvested shares expected to vest .1 (.3 )
Non-cash equity compensation 8.3 8.6
Net non-cash LIFO charges and lower of cost or market inventory write-down 3.0 31.0
Non-cash unrealized (gains) losses on derivative positions (49.4 ) 6.0
Amortization of option premiums 2.6 —
Non-cash impairment charges 2.1 —
Equity in (loss) income of unconsolidated affiliate, net of distributions (1.9 ) 2.5
Loss on disposition of property, plant and equipment .1 .2
Other non-cash changes in assets and liabilities 4.1 (.2 )
Changes in assets and liabilities:
Decrease (increase) in trade and other receivables 31.9 (21.3 )
Decrease in receivable from affiliate 11.8 9.5
Decrease (increase) in inventories, excluding LIFO charges and lower of cost or market write-down 43.7 (92.9 )
Decrease in prepaid expenses and other current assets 2.9 .1
Increase in accounts payable .6 —
Decrease in other accrued liabilities (31.2 ) (5.3 )
Decrease in payable to affiliate (6.0 ) (8.0 )
Increase in accrued income taxes .5 .8
Net cash impact of changes in long-term assets and liabilities 1.5 (1.6 )

Net cash provided by operating activities 119.2 3.5

Cash flows from investing activities:
Capital expenditures, net of change in accounts payable of $3.2 for the nine months ended September 30, 2009 and $(.1) for the nine months ended September 30, 2008 (51.0 ) (61.0 )
Decrease (increase) in restricted cash 18.1 (3.9 )

Net cash used in investing activities (32.9 ) (64.9 )

Cash flows from financing activities:
Borrowings under the revolver credit facility 99.8 55.6
Repayment of borrowings under the revolving credit facility (135.8 ) (20.9 )
Financing costs (1.1 ) —
Excess tax (deficiency) benefit upon vesting of non-vested shares and dividend payment on unvested shares expected to vest (.1 ) .3
Cancellation of common stock to cover employee tax withholding upon vesting of equity awards — (.7 )
Repurchase of common stock — (28.1 )
Cash dividend paid to stockholders (14.7 ) (12.4 )

Net cash used in financing activities (51.9 ) (6.2 )

Foreign currency impact on cash and cash equivalents — —

Net increase (decrease) in cash and cash equivalents during the period 34.4 (67.6 )
Cash and cash equivalents at beginning of period .2 68.7

Cash and cash equivalents at end of period $ 34.6 $ 1.1

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

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

1. Summary of Significant Accounting Policies

This Report should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2008.~~2009.

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

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

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, these financial statements do not include all of the disclosures required by US GAAP for complete financial statements. In the opinion of management, the unaudited interim consolidated financial statements furnished herein include all adjustments, all of which are of a normal recurring nature unless otherwise noted, necessary for a fair statement of the results for the interim periods presented. ~~References to specific US GAAP in this Report cite topics within the FASB Accounting Standards Codification (“ASC”). See~~~~New Accounting Pronouncements~~~~below for further information regarding the ASC.~~

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

Operating results for the nine months ended September 30, ~~2009~~2010 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2009.~~2010.

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

A provision for estimated sales returns from, and allowances to, customers is made in the same period as the related revenues are recognized, based on historical experience or the specific identification of an event necessitating a reserve.

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

Certain of the capacity reservation and commitment deferral agreements provide for periodic, such as quarterly or annual, billing for the duration of the contract. For capacity reservation agreements, the Company recognizes revenue ratably over the period of the capacity reservation. ~~For commitment deferral agreements, the Company recognizes revenue upon the earlier occurrence of: (i) the related sale of product or (ii) the end of the commitment period.~~ Accordingly, the Company may recognize revenue prior to billing reservation fees. At September 30, ~~2009~~2010 and December 31, ~~2008,~~2009, the Company had ~~$6.1~~$6.4 and ~~$.1~~$0.3 of unbilled receivables, respectively, included within Trade receivables on the Company’s Consolidated Balance Sheets. 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. In connection with ~~other capacity reservation and commitment deferral~~certain 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 ~~commitment~~(iv) performance is ~~deferred,~~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~~At September 30, 2010 and December 31, 2009, the ~~Company’s Consolidated Balance Sheets (see Note 6).~~Company had total deferred revenues of $26.3 and

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

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

Earnings per Share.~~ASC 260-10-45-60A~~Accounting Standards Codification (“ASC”) Topic 260,Earnings Per Share, defines unvested share-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. On January 1, 2009, 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 (“FSP EITF 03-6-1), subsequently codified as ASC 260-10-65-2, which 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 $.06 per share reduction in basic earnings per common share for the nine months ended September 30, 2008 and a $.02 per share reduction in diluted earnings per common share for the same period. The retrospective adjustments had no impact on previously reported basic or diluted earnings per share for the quarter ended September 30, 2008 (see Note 13).

Basic earnings per share is computed by dividing distributed and undistributed earnings allocable to common shares by the weighted-average number of common shares outstanding during the applicable period. The basic weighted-average number of common shares outstanding during the period excludes unvested share-based payment awards. The shares owned by a voluntary employee beneficiary association (“VEBA”) for the benefit of certain union retirees, their surviving spouses and eligible dependents (the “Union VEBA”) that are subject to transfer restrictions, while treated in the Consolidated Balance Sheets as being similar to treasury stock (i.e., as a reduction in Stockholders’ equity), are included in the computation of basic weighted-average number of common shares outstanding ~~in the Statements of Consolidated Income~~ because such shares were irrevocably issued and have full dividend and voting rights. Diluted earnings per share is calculated as the more dilutive result of computing earnings per share under: (i) the treasury stock method or (ii) the two-class method ~~(see Note 13)~~(Note 15).

Stock-Based Compensation.Stock based compensation is provided to certain employees, directors and a director emeritus, and is accounted for at fair value, pursuant to the requirements of ASC ~~718.~~Topic 718,Compensation – Stock Compensation. The Company measures the cost of services received in exchange for an award of equity instruments based on the grant-date fair value of the award and the number of awards expected to ultimately vest. The fair value of awards provided to the director emeritus is not material. The cost of an award is recognized as an expense over the requisite service period ~~that~~of the ~~recipient provides service for the award.~~award on a ratable basis. The Company has elected to amortize compensation expense for equity awards with graded vesting using the ~~straight line~~straight-line method. The Company recognized compensation expense for the quarters ended September 30, 2010 and September 30, 2009 of $0.8 and ~~2008 of~~ $2.0, ~~and $2.4,~~ respectively, and for the nine ~~months~~month periods ended September 30, 2010 and September 30, 2009 of $2.9 and ~~2008 of~~ $7.3, ~~and $7.5,~~ respectively, in connection with vested awards and non-vested stock, restricted stock units and stock options ~~(see Note 10)~~(Note 12).

The Company grants performance shares to executive officers and other key employees. These awards are subject to performance requirements pertaining to the Company’s economic value added (“EVA”) performance, measured over a three year performance period. The EVA is a measure of the excess of the Company’s adjusted pretax operating income for a particular year over a pre-determined percentage of the adjusted net assets of the immediately preceding year, as defined in the 2008-2010, 2009-2011 and ~~2009-2011~~2010-2012 Long-Term Incentive (“LTI”) programs. The number of performance shares, if any, that will ultimately vest and result in the issuance of common shares depends on the average annual EVA achieved for the specified three year 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 the quarters ended September 30, 2010 and September 30, 2009 of $0.2 and ~~2008 of $.2 and $.4,~~$0.2, respectively, and for the nine ~~months~~month periods ended September 30, ~~2009~~2010 and ~~2008~~September 30, 2009 of $1.0 and ~~$1.1,~~$1.0, respectively, in connection with the performance shares.

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

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

The judgments made in determining the estimated fair value assigned to ~~stock-based awards. Under~~each class of assets acquired and liabilities assumed, as well as asset lives, can significantly impact the ~~tax law ordering approach, realization~~Company’s results of ~~excess tax benefits is~~operations. Fair values and useful lives are determined based on, among other factors, the ~~ordering provisions~~expected future period of benefit of the ~~tax law. Current year deductions, which include~~asset, the ~~tax benefits from current year stock-based award activities, are used first before using~~various characteristics of 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. During the nine months ended September 30, 2009, theasset and projected cash

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

Environmental Contingencies.With respect to environmental loss contingencies, the Company records a ~~reduction~~loss contingency whenever such contingency is probable and reasonably estimable. Accruals for estimated losses from environmental remediation obligations are generally recognized no later than completion of ~~$.1~~the remedial feasibility study. Such accruals are adjusted as further information develops or circumstances change. Costs of future expenditures for environmental remediation obligations are not discounted to ~~a previously recorded excess tax benefit. This adjustment was reflected as a reduction~~their present value. Environmental expense relating to ~~Additional capital.~~continuing operations is included in Cost of products sold, excluding depreciation, amortization and other items in the Statement of Consolidated Income. Environmental expense relating to discontinued operations is included in Selling, administrative, research and development, and general in the Statement of Consolidated Income.

Restructuring Costs and Other Charges.Restructuring costs and other charges include employee severance and benefit costs, impairment of owned equipment to be disposed of, and other costs associated with exit and disposal activities. The Company applies the provisions of ASC Topic 420,Exit or Disposal Cost Obligations, to account for obligations arising from such activities. Severance and benefit costs incurred in connection with exit activities are recognized when the Company’s management with the proper level of authority has committed to a restructuring plan and communicated those actions to employees. For owned facilities and equipment, impairment losses recognized are based on the fair value less costs to sell, with fair value estimated based on existing market prices for similar assets. Other exit costs include costs to consolidate facilities or close facilities, terminate contractual commitments and relocate employees. A liability for such costs is recorded at its fair value in the period in which the liability is incurred. At each reporting date, the Company evaluates its accruals for exit costs and employee separation costs to ensure the accruals are still appropriate. During the quarter and nine months ended September 30, 2009, the Company recorded $.1 and $6.4, 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 withappropriate (see Note 17 for further information regarding 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 15)~~restructuring initiatives).

Restricted Cash.The Company is required to keep certain amounts on deposit relating to workers’ compensation, ~~derivative contracts,~~ letters of credit and other agreements. Such amounts totaled ~~$18.7~~$17.2 and ~~$36.8~~$18.3 at September 30, ~~2009~~2010 and December 31, ~~2008,~~2009, respectively. Of the restricted cash balance, ~~$.9~~$0.9 and ~~$1.4~~$0.9 were considered ~~short term~~short-term and included in Prepaid expenses and other current assets on the Consolidated Balance Sheets at September 30, ~~2009~~2010 and December 31, ~~2008,~~2009, respectively, and ~~$17.8~~$16.3 and ~~$35.4~~$17.4 were considered ~~long term~~long-term and included in Other assets on the Consolidated Balance Sheets at September 30, ~~2009~~2010 and December 31, ~~2008,~~2009, respectively. Included in long-term restricted cash were zero and $17.2 of margin call deposits with the Company’s derivative counterparties at September 30, 2009 and December 31, 2008, respectively (see Note 6).

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

Inventories.Inventories are stated at the lower of cost or market value. Finished products, work in process and raw material inventories are stated on the last-in, first-out (“LIFO”) basis. Other inventories, principally operating supplies and repair and maintenance parts, are stated at average cost. Inventory costs consist of material, labor and manufacturing overhead, including depreciation. Abnormal costs, such as idle facility expenses, freight, handling costs and spoilage, are accounted for as current period charges. During the first quarter of 2009, the Company recorded an inventory write-down of $9.3 to reflect the market value as of March 31, 2009, in accordance with ASC 330-10-35, paragraphs 1-12 (see Note 2).

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 and energy prices.~~rates. From time-to-time, the Company also enters into hedging arrangements in connection with financing transactions, to mitigate financial risks.

The Company does not utilize derivative financial instruments for trading or other speculative purposes. The Company’s derivative activities are initiated within guidelines established by management and approved by the Company’s Board of Directors. Hedging transactions are executed centrally on behalf of all of the Company’s business segments to minimize transaction costs, monitor consolidated net exposures and allow for increased responsiveness to changes in market factors.

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

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

The Company recognizes all derivative instruments as assets or liabilities in its balance sheet and measures ~~those~~these instruments at fair value by “marking-to-market” all of its hedging positions at each period-end ~~(see Note 12)~~(Note 14). The Company does not meet the documentation requirements for hedge (deferral) accounting under ASC ~~815-20-25-3. Changes in the market value~~815. Unrealized and realized gains and losses associated with hedges of ~~the Company’s open derivative positions resulting from the mark-to-market process~~operational risks are reflected as a reduction or increase in Cost of products sold, excluding depreciation, amortization and other items. Unrealized and realized gains and losses relating to hedges of financing transactions are reflected as a component of Other income (expense). The Company recorded $3.8 and $3.0 of net unrealized loss related to the Call Options and the Bifurcated Conversion Feature as a component of Other income (expense) during the quarter and nine months ended September 30, 2010.

Concentration of ~~credit risk.~~Credit Risk.Financial arrangements which potentially subject the Company to concentrations of credit risk consist of metal, currency, and natural gas derivative contracts, the Call Options, and ~~cash~~ arrangements related to its cash equivalents. If the market value of the Company’s net commodity and currency derivative positions with ~~the counterparty~~certain counterparties 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 market value of ~~the~~these net derivative positions falls below a specified threshold, the Company is required to transfer cash collateral below the threshold to certain counterparties. At both September 30, 2010 and December 31, 2009, the ~~counterparty.~~Company had no margin deposits with or from its counterparties.

The Company is exposed to credit loss in the event of nonperformance by counterparties on derivative contracts used in hedging activities as well as failure of counterparties to return cash collateral previously transferred to the counterparties. The counterparties to the Company’s derivative contracts are major financial institutions and the Company ~~has~~does not ~~experienced~~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 and time deposits of prime quality, ~~short term~~short-term repurchase agreements, and U.S. government agency notes. The Company has not experienced losses on its temporary cash investments.

Fair Value Measurement.The Company applies the provisions of ASC Topic 820,Fair Value Measurements and Disclosures (“ASC 820”), in measuring the fair value of its derivative ~~contracts. See Note 1~~contracts (Note 14), plan assets invested by certain of the Company’s ~~Annual Report on Form 10-K for~~employee benefit plans (Note 11) and its Notes (Note 7).

Fair value is defined as the ~~year ended December 31, 2008 for definitions of Level 1, 2 and 3~~price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a fair value ~~measurements within~~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.~~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 Company’s 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 significant judgment. The fair values of such financial instruments are generally classified within Level 2 of the fair value hierarchy.

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.

~~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~~three levels of the fair value hierarchy ~~as of September 30, 2009:~~are described below:

Level 1 Level 2 Level 3 Total
Derivative assets:
Aluminum swap contracts $ — $ 2.4 $ — $ 2.4
Aluminum option contracts — 13.5 — 13.5
Natural gas swap contracts — 0.4 — .4
Midwest premium swap contracts — — .3 .3

Total $ — $ 16.3 $ .3 $ 16.6

Derivative liabilities:
Aluminum swap contracts $ — $ (21.9 ) $ — $ (21.9 )
Aluminum option contracts — (5.7 ) — (5.7 )
Pound Sterling forward contract — (.3 ) — (.3 )
Natural gas swap contracts — (1.2 ) — (1.2 )
Midwest premium swap contracts — — (.3 ) (.3 )

Total $ — $ (29.1 ) $ (.3 ) $ (29.4 )

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 fair value measurement and unobservable.

Level 3
Balance at January 1, 2009: $ (1.1 )
Total realized/unrealized losses included in:
Cost of goods sold excluding depreciation, amortization and other items .8
Purchases, sales, issuances and settlements .3
Transfers in and (or) out of Level 3 —

Balance at September 30, 2009 $ —

Total gains included in earnings attributable to the change in unrealized losses relating to derivative contracts still held at September 30, 2009: $ .7

New Accounting Pronouncements

~~Recently adopted accounting pronouncements:~~

~~Statement of Financial~~. Accounting Standards Update (“ASU”) No. ~~168,~~2010-06,~~The FASB Accounting Standards Codification~~Fair Value Measurements and ~~the Hierarchy of Generally Accepted Accounting Principles~~Disclosures (Topic 820) — Improving Disclosures about Fair Value Measurements(“~~SFAS No. 168”~~ASU 2010-06”) was issued in ~~June 2009. SFAS No. 168 establishes the~~January 2010. This ASU amends ASC Subtopic 820-10,Fair Value Measurements and Disclosures—Overall, to require new disclosures regarding transfers in and out of Level 1 and Level 2, as ~~the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities~~well as activity in the preparation of financial standards in conformity with US GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative US GAAP for SEC registrants. SFAS No. 168Level 3 fair value measurements. ASU 2010-06 became effective for financial statements issued by the Company for interim and annual periods beginning after December 15, 2009, except for disclosures about purchases, sales, issuances, and settlements in the ~~quarter ended~~roll-forward of activity in Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010. The Company adopted the applicable provisions of ASU 2010-06 for the nine month period ending September 30, ~~2009. Upon~~2010, which did not have a material impact on the disclosures in its consolidated financial statements. The Company does not expect the adoption of ~~SFAS No. 168, all then-existing non-SEC accounting and reporting standards were superseded, with~~ the ~~exception~~remaining provisions of ~~certain promulgations listed~~ASU 2010-06 relating to increased disclosure of activity in SFAS No. 168. The adoption of SFAS No. 168 had no effect on the Company’s consolidated financial statements, other than requisite updates to applicable references to US GAAP, which now cite the ASC.

~~Recently issued accounting pronouncements not yet adopted:~~

~~As of the filing of this Report, the Company is not aware of any issued but not yet adopted accounting pronouncements that, when adopted, are expected~~Level 3 fair value measurements to have a material impact on the ~~Company’s~~disclosures in its consolidated financial statements.

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

2. Inventories

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

~~Inventories~~ consist of the following:

September 30, December 31,
2009 2008
Fabricated Products segment —
Finished products $ 40.3 $ 52.7
Work in process 48.5 57.5
Raw materials 23.4 48.1
Operating supplies and repairs and maintenance parts 13.3 13.2

125.5 171.5

Primary Aluminum segment —
Primary aluminum .1 .8

$ 125.6 $ 172.3

~~KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES~~
~~NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~


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

	$	153.3	$	125.2

The Company recorded net non-cash LIFO benefits (charges) of approximately $2.0 and $(6.2) during the quarter and nine months ended September 30, 2010, respectively. The Company recorded net non-cash LIFO (charges) benefits of approximately $(6.9) and $6.3 during the quarter and nine months ended September 30, 2009, ~~respectively. The Company recorded net non-cash LIFO charges of approximately $.7 and $31.3 during the quarter and nine months ended September 30, 2008,~~ respectively. These amounts are primarily a result of changes in metal prices and changes in inventory volumes.

With the inevitable ebb and flow of business cycles, non-cash LIFO benefits (charges) will result when inventory levels and metal prices fluctuate. Further, potential lower of cost or market adjustments can occur when metal prices decline and margins compress. ~~At December 31, 2008,~~During the first quarter of 2009, due to ~~the~~a decline in the London Metal Exchange (“~~LME)~~LME”) price of primary aluminum, the Company recorded a ~~$65.5~~$9.3 lower of cost or market inventory write-down, pursuant to ~~reflect~~ASC Topic 330,Inventory, under which the market value of inventory ~~at market value. During~~is determined based on the ~~first three months~~current replacement cost, by purchase or by reproduction, except that it does not exceed the

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(In millions of ~~2009, the Company recorded~~dollars, except share and per share amounts and as otherwise indicated)
(Unaudited)

net realizable value and it is not less than net realizable value reduced by 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.~~approximate normal profit margin. There were no ~~additional~~ lower of cost or market inventory write-downs during the nine months ended September 30, ~~2009 or 2008.~~2010.

3. Investment In and Advances To Unconsolidated Affiliate

The Company has a 49%, non-controlling ownership interest in Anglesey, which operated as an aluminum smelter until September 30, ~~2009 and commenced remelt and casting of secondary aluminum products in~~2009. In the fourth quarter of ~~2009.~~

~~Prior~~2009, Anglesey commenced a remelt and casting operation to produce secondary aluminum. Anglesey purchases its own material for the remelt and casting operations and sells 49% of its output to the ~~quarter~~Company in transactions structured to largely eliminate metal price and currency exchange rate risks with respect to income and cash flow.

At December 31, 2008, the Company fully impaired its investment in Anglesey. For the six months ended ~~September~~June 30, 2009, the Company ~~accounted for its 49% ownership~~recorded $1.8 in ~~Anglesey using the equity method, under which the Company’s~~ equity in income ~~or loss before income taxes~~ of Anglesey, ~~was treated as a reduction or increase~~which amounts were impaired in ~~cost of products sold. The income tax effects of~~such periods to maintain the Company’s ~~equity in income or loss was included in the Company’s income tax provision.~~

investment balance at zero. For the quarter ended September 30, 2009, Anglesey incurred a significant net loss, primarily as the result of ~~recording charges for~~ 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 iswas not obligated to, (i) advance any funds to Anglesey, (ii) guarantee any obligations of Anglesey, or (iii) make any commitments to provide any financial support for Anglesey, the Company suspended the use of the equity method of accounting with respect to its ownership in Anglesey, ~~during~~commencing in the quarter ended September 30, ~~2009.~~2009, and continuing through the quarter ended September 30, 2010. Accordingly, the Company did not recognize its share of Anglesey’s ~~net loss~~operating results for ~~the quarter ended September 30, 2009,~~such periods, pursuant to ASC ~~323-10-35.~~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 ~~any~~ periods for which the equity method was ~~suspended. As of the date of filing of this Report, the~~suspended and (ii) future dividends can be expected. The Company does not anticipate the occurrence of such ~~event~~events during the next 12 months.

~~The following table shows a summary of Anglesey’s selected operating results for the quarters and nine month periods ended September 30, 2009 and 2008:~~

Quarter Nine Months
Ended September 30, Ended September 30,
2009 2008 2009 2008
Net sales $ 60.1 $ 66.3 $ 180.1 $ 244.5

Gross (loss) profit $ (125.8 ) $ (13.1 ) $ (122.8 ) $ 4.6

Net (loss) income $ (90.8 ) $ (11.2 ) $ (86.7 ) $ .9

Company’s equity (loss) income (1) $ — $ (6.9 ) $ — $ 1.4


~~(1)~~		For the quarter ended September 30, 2009, the Company had no equity income, as the Company did not recognize its share of Anglesey’s losses, due to the suspension of the use of equity method accounting. For the nine months ended September 30, 2009, the Company’s recorded equity income is zero due to (i) the suspension of the use of the equity method of accounting during the quarter ended September 30, 2009, and (ii) impairment charges recorded by the Company during the first half of 2009, such that the Company’s investment balance remained at zero. See further discussion regarding the Company’s accounting for its investment in Anglesey below.

~~KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES~~
~~NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

For the quarter and nine months ended September 30, 2008, the Company’s equity income differs from 49% of the summary net income (loss) from Anglesey primarily due to (i) share based compensation adjustments of $(2.0) and $(.6), respectively, relating to Anglesey’s separate reimbursement agreement with its parent (“Rio Tinto”) under Anglesey’s share based award arrangement, and (ii) US GAAP adjustment relating to Anglesey’s CAROs (defined below in Note 4) in the amount of $(.3) and $(1.0), respectively.

At December 31, ~~2008,~~2009, receivables from Anglesey were ~~$11.8,~~$0.2, all of which were received during the first ~~quarter.~~quarter of 2010. No amounts were due from Anglesey at September 30, ~~2009.~~2010. At September 30, ~~2009~~2010 and December 31, ~~2008,~~2009, payables to Anglesey were ~~$21.5~~$20.0 and ~~$27.5,~~$9.0, respectively.

~~Through the quarter ended September 30, 2009, Anglesey operated under a power agreement that provided sufficient power~~ Transactions giving rise to ~~sustain its aluminum reduction operations at near-full capacity. As the Company previously announced, the power agreement expired at the end of September 2009. Despite Anglesey’s efforts~~payables 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 power contract expiration date. Accordingly, Anglesey fully curtailed its smelting operations as of September 30, 2009. Upon termination of smelting operations, Anglesey commenced remelt and casting operations in the fourth quarter of 2009, producing secondary aluminum billet.

~~The Company fully impaired its investment in Anglesey in the fourth quarter of 2008, concluding that it should not expect to receive any dividends~~or receivables from Anglesey in the foreseeable future. This determination was made taking into account Anglesey’s full curtailment of its smelting operations, which the Company had anticipated as a likely possibility, due to its inability to obtain affordable power, the cash requirements for redundancy and pension payments, and the uncertainty with respect to the future of its operations. For the first half of 2009, based uponresult from the Company’s ~~continued assessment of the facts and circumstances, the Company recorded additional impairment charges of $1.8~~ongoing trading activities with Anglesey relating to its ~~investment in~~remelt operations. Any amounts due from/to Anglesey ~~such that~~are reflected on the Company’s ~~investment balance remained 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 until normal production resumed in December 2008 and incurred incremental costs, primarily associated with repair and maintenance costs,Consolidated Balance Sheets as ~~well as loss of margin due~~Due from affiliate or Payable to the outage. Anglesey has property damage and business interruption insurance that is expected to recover financial losses (net of applicable deductibles). Anglesey received a partial insurance settlement payment of $20.0 in December 2008 of which $10.0 was recorded as the Company’s equity income. During the first quarter of 2009, Anglesey received another partial insurance settlement of $8.2, 49% of which (or $4.0) was recorded as the Company’s equity income. The Company fully impaired the value of its share of the insurance proceeds received by Anglesey in 2008 and during the first quarter of 2009 as reflected in the Company’s equity income, because the Company does not expect to receive any such proceeds through the distribution of dividends. Anglesey did not receive any insurance settlements during the second or third quarters of 2009, and the timing and amount of any remaining insurance recovery are uncertain. The Company currently anticipates that it would not receive any portion of any remaining Anglesey insurance recoveries, in the form of potential dividends by Anglesey, relating to the fire.affiliate, respectively.

4. Conditional Asset Retirement Obligations

The Company has conditional asset retirement obligations (“~~CAROs”~~CARO”) at several of its fabricated products facilities. The vast majority of such CAROs consist of incremental costs that would be associated with the removal and disposal of asbestos (all of which is believed to be fully contained and encapsulated within walls, floors, roofs, ceilings or piping) at certain of the older ~~plants~~facilities if such ~~plants~~facilities were to undergo major renovation or be demolished. NoThere are currently plans ~~currently exist~~ for ~~any~~ such renovation or demolition ~~of such facilities~~at one facility and ~~the Company’s~~management’s current assessment is that certain immaterial CAROs may be triggered during the next seven years. For locations where there are no current plans for renovations or demolitions, the most probable ~~scenarios are~~scenario is that ~~no material CARO will~~such CAROs would not be triggered for 20 or more ~~years.~~years, if at all.

~~The Company’s estimates and judgments that affect~~During the ~~probability weighted estimated future contingent cost amounts did not change during the nine months~~quarter ended September 30, ~~2009. For~~2010, the Company re-assessed and revised its estimates relating to the timing and future costs of various asbestos removal projects at one facility. Both upward and downward revisions relating to cost estimates were made. The downward revisions in cost estimates resulted in a $1.3 decrease in CARO liabilities and cumulative adjustments reducing Cost of products sold, excluding depreciation, amortization and other items, and Depreciation and amortization by approximately $1.1 and $0.1, respectively. The total of such adjustments increased both basic and diluted earnings per share by approximately $0.06 per share. The upward revisions in costs estimates resulted in a $1.3 increase in both CARO liabilities and CARO assets. The Company used a credit adjusted risk free rate of 10.8% in estimating the fair value with respect to the CARO liability associated with the upward cost adjustment. Accretion and depreciation expense over the next 20 years is expected to increase as a result of the revisions. Revisions to timing of CARO settlement did not have a material impact on the Company’s financial statements.

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

1210

30, 2008, there was a revision to the estimated timing for certain future contingent costs (recorded during the quarter ended June 30, 2008) that resulted in a $.1 charge to net income in that period. The Company’s results for the quarters ended September 30, 2009 and 2008 each reflect an accretion of the estimated liability of $.1 (recorded in Cost of products sold). In addition, the Company’s results for the nine months ended September 30, 2009 and 2008 each reflect an accretion of the estimated liability of $.2 (recorded in Cost of products sold). The estimated fair value of ~~the CAROs~~CARO liabilities at September 30, 2010 and December 31, 2009 was ~~$3.4.~~

Anglesey also recorded CAROs of approximately $24.0 in its financial statements in prior years. The time period over which the fair value of CAROs is estimated under United Kingdom generally accepted accounting principles (“UK GAAP”) treatment applied by Anglesey is different from the time period over which the fair value of CAROs is estimated under the principles of ASC 410-20. As such, the resulting accretion expenses are different under UK GAAP$3.7 and US GAAP. For the first six months of 2009, the Company adjusted its equity in earnings of Anglesey to reflect the impact of applying U.S. GAAP with respect to the Anglesey CAROs by $.6. For the quarter ended September 30, 2009, the Company recorded no CARO accretion expense relating to Anglesey, as the result of suspending the equity method of accounting in that quarter (see Note 3). The Company adjusted its equity in earnings of Anglesey to reflect the impact of applying US GAAP with respect to the Anglesey CAROs by $.3 for the quarter ended September 30, 2008, and by $1.0 for the nine months ended September 30, 2008.$3.5, respectively.

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

5. Property, Plant and Equipment

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


	September 30,			December 31,			September 30,			December 31,
	2009			2008			2010			2009
Land and improvements	$	23.6		$	22.8		$	23.3		$	23.6
Buildings		31.8			29.6			39.6			31.9
Machinery and equipment		243.3			211.0			307.0			246.2
Construction in progress		75.3			63.3			45.3			83.4

		374.0			326.7			415.2			385.1
Accumulated depreciation		(42.0	)		(30.0	)		(58.3	)		(46.2	)

Property, plant, and equipment, net	$	332.0		$	296.7		$	356.9		$	338.9

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

~~The accrued book overdraft balance at September 30, 2009 and December 31, 2008 represents uncleared cash disbursements.~~

Long-term Liabilities.

Long-term liabilities were comprised of the following:

September 30, December 31,
2009 2008
Derivative liabilities (Note 12) $ 9.3 $ 27.9


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

Total	$	126.1	$	53.7

7. Cash Convertible Senior Notes and Related Transactions

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

Convertible Note Hedge Transactions. On March 23 and March 26, 2010, the Company purchased the Call Options from several financial institutions (the “Option Counterparties”). The Call Options have an exercise price equal to the conversion price of the Notes, subject to anti-dilution adjustments substantially similar to the anti-dilution adjustments for the Notes. The Call Options will expire upon the maturity of the Notes. The Company paid an aggregate amount of approximately $31.4 to the Option Counterparties for the Call Options.

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

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

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

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

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

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

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

8. Secured Debt and Credit Facilities

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


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

Total		13.4			7.1
Less — Current portion		(1.3	)		—

Long-term secured debt	$	12.1		$	7.1

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

September 30, December 31,
2009 2008
Income tax liabilities 12.3 10.0
Workers’ compensation accruals 16.0 15.9
Environmental accruals 6.2 6.3
Asset retirement obligations 3.5 3.3
Other long term liabilities 1.6 1.9

Total $ 48.9 $ 65.3

~~7. Secured Debt~~connection with the amendment and ~~Credit Facilities~~

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

September 30, December 31,
2009 2008
Revolving Credit Facility $ — $ 36.0
Other 7.1 7.0

Total 7.1 43.0
Less — Current portion — —

Long-term debt $ 7.1 $ 43.0

~~Revolving Credit Facility.~~~~At September 30, 2009,~~restatement, the Company ~~had in place a Senior Secured Revolving Credit Agreement with a group~~expensed $0.4 of ~~lenders providing for a~~unamortized deferred financing costs relating to the $265.0 revolving credit facility, ~~(the “Revolving~~resulting in a residual balance of $0.7 of unamortized deferred financing costs related to such financing arrangement. Also, in connection with the amendment and restatement, the Company incurred $2.7 of additional financing costs, which were capitalized. Accordingly, a total of $3.4 of capitalized financing costs will be amortized over the term of the Revolving Credit ~~Facility”),~~Facility on a straight-line basis. At September 30, 2010, $2.9 of ~~which up to a maximum of $60.0 may be utilized for letters of credit.~~deferred financing costs remained on the Consolidated Balance Sheets.

Under the Revolving Credit Facility, the Company is able to borrow ~~(or obtain letters of credit)~~ from ~~time to time in~~time-to-time an aggregate amount equal to the lesser of ~~a stated amount of $265.0~~$200.0 or a borrowing base comprised of certain percentages of eligible accounts receivable and 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 matures in ~~July 2011,~~March 2014, at which time all ~~principal~~ amounts outstanding ~~thereunder~~under the Revolving Credit Facility will be due and payable. Borrowings under the Revolving Credit Facility bear interest at a rate equal to either a base prime rate or LIBOR, at the Company’s option, plus, in each case, a specified variable percentage determined by reference to the ~~then remaining~~then-remaining borrowing availability under the Revolving Credit Facility. The Revolving Credit Facility may, subject to certain conditions and the agreement of lenders ~~thereunder,~~there under, be increased to up to ~~$275.0 at the request of the Company.~~$250.0.

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

The Revolving Credit Facility is secured by a first priority lien on substantially all of the accounts receivable, inventory and certain other related assets and proceeds relating thereto of the Company and ~~certain of~~ its 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.subsidiaries. At September 30, ~~2009,~~2010, the Company was in compliance with all covenants contained in the Revolving Credit Facility.

At September 30, ~~2009,~~2010, based on the borrowing base determination in effect as of that date, the Company had ~~$166.6~~$167.1 available ~~for borrowing and letters of credit~~ under the Revolving Credit Facility, of which ~~$10.0 supports~~$9.9 was being used to support outstanding letters of credit, leaving ~~$156.6 available for additional borrowing and letters~~$157.2 of ~~credit.~~availability. There were no borrowings under the Revolving Credit Facility at September 30, ~~2009,~~2010, but the interest rate applicable to any borrowings under the Revolving Credit Facility would have been ~~4.75%~~5.25% at September 30, ~~2009.~~2010 for overnight borrowings.

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

As of September 30, ~~2009,~~2010, the Company also had a $7.0 outstanding promissory note ~~obligation~~ (the ~~“Note”~~“LA Promissory Note”) ~~in the amount of $7.0~~ in connection with the Company’s purchase of ~~real property of~~ the previously leased land and buildings associated with its Los Angeles, California ~~facility.~~facility, in December 2008. Interest is payable on the unpaid principal balance of the LA Promissory Note monthly in arrears at the prime rate, as defined in the LA Promissory Note, plus 1.5%, in no event exceeding 10% per annum. A principal payment of $3.5 will be due on ~~February~~January 1, 2012 and the remaining $3.5 will be due on ~~February~~January 1, 2013. The LA Promissory Note is secured by a deed of trust on the property. For both the nine ~~months~~month periods ended September 30, 2010 and September 30, 2009, the Company incurred ~~$.3 in~~$0.3 of interest expense relating to the LA Promissory Note. The interest rate applicable to ~~borrowings under~~ the LA Promissory Note was 4.75% at September 30, ~~2009.~~2010.

~~8. Income Tax Matters~~9. Acquisition

On August 9, 2010, the Company completed the acquisition of the manufacturing facility and related assets of Nichols, located in Florence, Alabama, which manufactures bare mechanical alloy wire products, nails and aluminum rod for aerospace, general engineering, and automotive applications. The acquired assets have been integrated into and complement the existing assets of the Company’s Fabricated Products segment. In connection with the purchase, the Company hired approximately 100 personnel who were

formerly employees of Nichols. The majority of such employees are members of the United Steel, Paper and Foresting, rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union, AFL-CIO, CLC (the “USW”).

Consideration for the purchase consisted of (i) $9.0 in cash, (ii) $6.7 in a promissory note from the Company to Nichols (Note 8), and (iii) the assumption of certain liabilities totaling approximately $2.1. The goodwill of $3.1 arising from the acquisition represents the commercial opportunity for the Company to sell small diameter rod, bar and wire products as a complement to the Company’s existing portfolio of products to its core markets and end-use applications and is expected to be deductible for income tax purposes over the next 15 years. All of the goodwill is included in the Company’s Fabricated Products segment. Total acquisition-related costs were approximately $0.8, of which $0.4 was expensed during the nine months ended September 30, 2010 and was included in Selling, administrative, research and development, and general in the Statement of Consolidated Income. The Company does not expect the acquisition will have a material impact on its consolidated financial statements.

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


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

Consideration paid	$	15.7

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


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

			$	4.3	$	(0.1	)	$	4.2

Total amortization expense relating to the intangible assets for the quarter ended September 30, 2010 was $0.1. Amortization expense relating to intangible assets will be $0.2 for the fourth quarter of 2010, $0.3 for each of 2011 and 2012, and $0.2 for each of 2013 and 2014.

10. Income Tax Matters

Tax ~~Benefit (Provision)~~Provision.The ~~benefit (provision)~~provision for income taxes for the quarters and nine month periods ended September 30, ~~2009~~2010 and ~~2008~~September 30, 2009 consisted of:


	Quarter					Nine Months						Quarter Ended					Nine Months Ended
	Ended September 30,					Ended September 30,						September 30,					September 30,
	2009			2008		2009			2008			2010			2009		2010			2009
Domestic	$	(18.4	)	$	13.6	$	(37.4	)	$	(25.2	)	$	2.5		$	18.4	$	8.4		$	37.4
Foreign		(1.1	)		1.3		(.4	)		(4.8	)		(2.1	)		1.1		(0.7	)		0.4

Total	$	(19.5	)	$	14.9	$	(37.8	)	$	(30.0	)	$	0.4		$	19.5	$	7.7		$	37.8

unrecognized tax benefits, including interest and penalties of $1.1 resulting in a 5% decrease in the effective tax rate, as well as the impact of a non-deductible compensation expense of $0.5, resulting in ana 2.1% increase in the effective tax rate.

The foreign currency impact on unrecognized tax benefits, interest and penalties resulted in a $0.2 increase to ~~the income tax rate of approximately 4.6%.~~currency translation adjustment that was recorded in Accumulated other comprehensive loss.

Deferred Income Taxes.Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

At December 31, ~~2008,~~2009, the Company had ~~$879~~$858.2 of net operating loss (“NOL”) carryforwards available to reduce future cash payments for income taxes in the United States. Of the 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 ~~$32.1 of other tax attributes, including $31.7~~$31.1 of alternative minimum tax (“AMT”) credit carryforwards with an indefinite life, available to offset regular federal income tax requirements. ~~The remaining tax attributes are general business credits~~

To preserve the NOL carryforwards that ~~will expire periodically through 2011.~~may be available to the Company, the Company’s certificate of incorporation was amended and restated in July 2006 to, among other things, include certain restrictions on the transfer of the Company’s common stock. In connection with the amendment and restatement, 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~~the Company 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~~The Company 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, ~~2008,~~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 ~~$29.5~~$18.0 against its deferred tax assets. When recognized, the tax benefits relating to any reversal of the valuation allowance will be recorded as a reduction of income tax expense pursuant to ASC ~~852-740-45.~~

Foreign taxes primarily represent Canadian income taxes in connection with the operations of the Company’s London, Ontario facility and United Kingdom income taxes in connection with the operations related to the Company’s ownership in Anglesey. The provision for income tax is based on the projected rate for each applicable period.Topic 805,Business Combinations.

Other.The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. The Canada Revenue Agency audited and issued assessment notices for 1998 through 2001 for which Notices of Objection have been filed. In addition, the Canada Revenue Agency 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~~$1.1, including interest, for the 2002 through 2004 income tax audit that is anticipated to be paid against previously accrued tax reserves inwithin the ~~fourth quarter of 2009.~~next twelve months. Certain past years are still subject to examination by taxing authorities, and the use of NOL carryforwards in future periods could trigger a review of attributes and other tax matters in years that are not otherwise subject to examination.

No U.S. federal or state liability has been recorded for the undistributed earnings of the Company’s Canadian subsidiary at December 31, ~~2008.~~2009. These undistributed earnings are considered to be indefinitely reinvested. Accordingly, no provision for U.S. federal and state income taxes or foreign withholding taxes has been provided on such undistributed earnings. Determination of the potential amount of unrecognized deferred U.S. income tax liability and foreign withholding taxes is not practicable because of the complexities associated with its hypothetical calculation.

~~KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES~~
~~NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

The Company had gross unrecognized tax benefits of $14.6 and ~~$15.8~~$15.6 at September 30, ~~2009~~2010 and December 31, ~~2008,~~2009, respectively. The ~~change~~changes during the ~~quarter and~~ nine months ended September 30, ~~2009 was~~2010 were primarily due to a partial release of an unrecognized tax benefit, including interest and penalties, as a result of the expiration of a statute, as well as currency fluctuations and ~~the settlement of~~ a ~~Canada Revenue Agency income~~change in tax ~~audit for the tax years 2002 through 2004.~~position. The Company recognizes interest and penalties related to these unrecognized tax benefits in the income tax provision. The Company had approximately ~~$5.7~~$6.2 and ~~$9.4~~$6.2 accrued at September 30, ~~2009~~2010 and December 31, ~~2008,~~2009, respectively, for interest and penalties. Of the ~~$9.4~~$6.2 of total interest and penalties at ~~December 31, 2008, $5.2~~September 30, 2010, $0.4 is included in current liabilities and ~~$4.2~~$5.8 is included in Long-term liabilities in the Consolidated Balance ~~Sheet.~~Sheets. Of the ~~$5.7~~$6.2 of total interest and penalties at ~~September 30,~~December 31, 2009, ~~$.3~~$0.3 is included in current liabilities and ~~$5.4~~$5.9 is included in Long-term liabilities in the Consolidated Balance Sheet. During the quarter and nine months ended September 30, 2009, the Company reduced its liability for interest and penalties by approximately $2.5 and $3.7, respectively, predominantly due to the settlement of a Canada Revenue Agency income tax audit for tax years 2002 through 2004.Sheets. During the nine months ended September 30, ~~2009,~~2010, the foreign currency impact on gross unrecognized tax benefits, interest and penalties resulted in a ~~$2.0~~$0.2 increase to currency translation adjustment that was recorded in Accumulated other comprehensive ~~income, of which $1.6 related to gross unrecognized tax benefits and $.4 related to accrued interest and penalties.~~loss. The Company expects its gross unrecognized tax benefits to be reduced by ~~$.7~~$1.6 within the next ~~twelve~~12 months ~~in connection with a Canadian income~~due to the resolution of certain tax ~~audit.~~audits and expirations of various statutes of limitation.

9.11. Employee Benefits

Pension and Similar Plans.Pensions and similar plans include:

	•		Monthly contributions of ~~one dollar~~(in whole dollars) $1.00 per hour worked by each bargaining unit employee to the appropriate multi-employer pension plans sponsored by the ~~United Steelworkers, International Brotherhood of Teamsters,~~USW and International Association of Machinists and certain other unions at certain of ~~our~~the Company’s production ~~facilities.~~facilities, except that the monthly contributions per hour worked by each bargaining unit employee to a pension plan sponsored by the USW at the Company’s Newark, Ohio and Spokane, Washington facilities increased to (in whole dollars) $1.25 starting July 2010 and will increase to (in whole dollars) $1.50 in July 2015, and monthly contributions to a pension plan sponsored by the USW at the Company’s newly acquired Florence, Alabama facility are (in whole dollars) $1.25 per hour worked by each bargaining unit employee. The Company currently estimates that contributions will range from $2$2.0 to $4$4.0 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 age. The Company currently estimates that contributions to such plans will range from $1$1.0 to $3$3.0 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, ~~2008,~~2009, approximately ~~53%~~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~~short-term securities. The Company’s investment committee reviews and evaluates the ~~investments~~investment portfolio. The asset mix target allocation on the ~~long term~~long-term investments is approximately 60% in equity securities and 36% in debt securities with the remaining assets in ~~short term~~short-term securities.

	•		A defined contribution 401(k) savings plan for salaried and certain hourly employees providing for a concurrent match of up to 4% of certain contributions made by employees plus an annual contribution of between 2% and 10% of their compensation depending on their age and years of service. All new hires after January 1, 2004 receive a fixed 2% contribution annually. The Company currently estimates that ~~the~~ contributions to such plan will range from $4$4.0 to $6$6.0 per year.

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

Postretirement Medical Obligations.As a part of the Company’s reorganization, ~~efforts,~~ the Company’s postretirement medical plan was terminated in 2004. Participants were given the option of coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), with the Company’s filing of its plan of reorganization as the qualifying event, or participation in the applicable VEBA (the Union ~~VEBA)~~VEBA or the VEBA that provides benefits for certain other eligible retirees and their surviving spouse and eligible dependents (the “Salaried VEBA”)). Qualifying bargaining unit employees who do not, or are not eligible to, elect COBRA coverage are covered by the Union VEBA. The Salaried VEBA covers all other 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

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

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

The Company’s only obligation to the Union VEBA and the Salaried VEBA is an annual variable cash ~~contribution which,~~contribution. This obligation extends through September 30, 2017 with respect to the Union VEBA ~~terminates for periods beginning after December 31, 2012.~~(reflecting a five year extension agreed by the Company on January 20, 2010 in connection with the renewal and ratification of a labor agreement with the members of the USW at the Company’s Newark, Ohio and Spokane, Washington facilities), while the obligation to the Salaried VEBA has no termination date. The amount to be contributed to the VEBAs through ~~2012~~September 2017 pursuant to the Company’s obligation is 10% of the first $20.0 of annual cash flow (as defined; in general terms, the principal elements of cash flow are earnings before interest expense, provision for income taxes, and depreciation and amortization less cash payments for, among other things, interest, income taxes and capital expenditures), plus 20% of annual cash flow, as defined, in excess of $20.0. Such annual payments may not exceed $20.0 and are also limited (with no carryover to future years) to the extent that the payments would cause the Company’s liquidity to be less than $50.0. Such amounts are determined on an annual basis and payable within 120 days following the end of ~~each~~the fiscal year, or within 15 days following the date on which the Company files its Annual Report on Form 10-K with ~~the~~ SEC (or, if no such report is required to be filed, within 15 days of the delivery of the independent auditor’s opinion of the Company’s annual financial statements), whichever is earlier. The Union VEBA is managed by four trustees (two appointed by the Company and two appointed by the USW) and the assets are managed by an independent fiduciary.

Amounts owing by the Company to the VEBAs are recorded in the Company’s Consolidated Balance Sheets under Other accrued liabilities, with a corresponding increase in Net assets in respect of VEBAs. At December 31, ~~2008,~~2009, the Company had preliminarily determined that ~~$4.2 and $.7 were~~$2.4 was owed to the VEBAs (comprised of $2.0 to the Union VEBA and $0.4 to the Salaried VEBA, respectively, under the contribution obligation, which amounts were recorded in Other accrued liabilities in the Company’s Consolidated Balance Sheets with a corresponding increase/decrease in Net asset/liability in respect of VEBA. In March 2009,VEBA); and these amounts were paid toduring the ~~VEBAs following the final determination~~first quarter of ~~the contribution obligation.~~2010. In addition to contribution obligations, the Company is obligated to pay one-half of the administrative expenses of the Union VEBA, up to ~~$.3,~~$0.3 in each successive ~~calendar year.~~year, which annual cap was effective beginning with 2008. During ~~2008,~~2009, the Company paid ~~$.1~~$0.3 in administrative expenses of the Union VEBA. No administrative expenses of the Union VEBA were paid for the nine months ended September 30, 2009. As of September 30, 2009, the Union VEBA owns approximately 24% of the Company’s outstanding common stock.

For accounting purposes, after discussions with the staff of the SEC, the Company treats the postretirement medical benefits to be paid by the VEBAs and the Company’s related annual variable contribution obligations as defined benefit postretirement plans with the current VEBA assets and future variable contributions described above, and earnings thereon, operating as a cap on the benefits to be paid. While the Company’s 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 nonetheless accounts for net periodic postretirement benefit costs in accordance with ASC ~~715-60,~~ Topic 715,Compensation — Retirement Benefits,and records any difference between the assets of each VEBA and its accumulated postretirement benefit obligation in the Company’s financial statements.

~~KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES~~
~~NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

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

Subject to certain adjustments that may be required from ~~time to time~~time-to-time to prevent dilution or enlargement of the rights of participants under the Equity Incentive Plan, upon its effectiveness 2,222,222 common shares were reserved for issuance under the Equity Incentive Plan. As discussed above, in June 2010, the shareholders of the Company approved the addition of 500,000 shares of common stock to the number of shares available for issuance under the Equity Incentive Plan. At September 30, ~~2009, 815,357~~2010, approximately 1,012,819 common shares were available for additional awards under the Equity Incentive Plan.

Compensation charges, all of which are included in Selling, administrative, research and development and general expenses, related to the Equity Incentive Plan for the quarters and nine month periods ended September 30, ~~2009~~2010 and ~~2008~~September 30, 2009 were as follows:


	Quarter				Nine Months				Quarter Ended				Nine Months Ended
	Ended September 30,				Ended September 30,				September 30,				September 30,
	2009		2008		2009		2008		2010		2009		2010		2009
Service-based vested and non-vested common shares and restricted stock units	$	1.9	$	2.3	$	7.1	$	7.3	$	0.8	$	1.9	$	2.8	$	7.1
Performance shares		.2		.4		1.0		1.1		0.2		0.2		1.0		1.0
Service-based stock options		.1		.1		.2		.2		—		0.1		0.1		0.2

Total compensation charge	$	2.2	$	2.8	$	8.3	$	8.6	$	1.0	$	2.2	$	3.9	$	8.3

common shares, if any, under the 2008-2010 LTI program, 2009-2011 LTI program and 2010-2012 LTI program will occur in 2011, 2012 and 2013, respectively. Performance share holders do not receive voting rights through the ownership of such performance shares.

The fair value of performance-based awards is measured based on the most probable outcome of the performance condition, which is ~~evaluated~~estimated quarterly using the Company’s forecast and actual results. The ~~total~~Company expenses the fair value, ~~based on the Company’s best estimate as of September 30, 2009,~~ after assuming an estimated forfeiture rate, ~~is being amortized to expense~~ over the ~~requisite service period of~~specified three ~~years~~year performance periods on a ratable basis.

The fair value of the non-vested common shares, restricted stock units, and 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 nine months ended September 30, ~~2009~~2010 is as follows:


	Non-Vested					Restricted					Non-Vested					Restricted
	Common Shares					Stock Units					Common Shares					Stock Units
				Weighted-					Weighted-					Weighted-Average					Weighted-Average
				Average					Average					Grant-Date Fair					Grant-Date Fair
				Grant-Date					Grant-Date		Shares			Value per Share		Units			Value per Unit
				Fair Value					Fair Value
	Shares			per Share		Units			per Unit
Outstanding at January 1, 2009		553,712		$	47.79		2,969		$	36.05
Outstanding at December 31, 2009												254,152		$	32.74		7,528		$	18.13
Granted		196,829			15.57		5,181			13.92		97,931			34.39		2,362			36.23
Vested		(490,721	)		42.88		(622	)		68.60		(75,680	)		52.92		(686	)		37.79
Forfeited		(5,668	)		25.08		—			—		(1,624	)		23.87		—			—

Outstanding at September 30, 2009		254,152		$	32.75		7,528		$	18.13
Outstanding at September 30, 2010												274,779		$	27.82		9,204		$	21.31

~~KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES~~
~~NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~A summary of the Company’s stock option activity for the nine months ended September 30, 2009 is as follows:~~

Weighted- Weighted-
Average Average
Exercise Remaining Aggregate
Number of Price per Contractual Intrinsic
Options Share Life Value
(In years) (In millions)
Outstanding at January 1, 2009 22,077 $ 80.01 — $ —
Grants — — — —
Forfeited — — — —
Exercise — — — —

Outstanding at September 30, 2009 22,077 $ 80.01 7.50 $ —

Fully vested and expected to vest at September 30, 2009 22,017 $ 80.01 7.50 $ —

Exercisable at September 30, 2009 15,143 $ 80.01 7.50 $ —

~~At September 30, 2009, there was $.1 of unrecognized compensation expense related to stock options. The expense is expected to be recognized over a weighted-average period of 6 months.~~2010.

~~11.~~13. 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 12),~~indebtedness (and related Call Options and Warrants) and letters of credit ~~(see Note 7),~~(Notes 7, 8 and guarantees. The Company and its subsidiaries also had agreements to supply alumina to and to purchase aluminum from Anglesey through September 30, 2009 (See also Note 4 of Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 for information regarding these agreements)14). ~~See also Note 3 for additional information regarding changes in the nature of Anglesey’s operations as of September 30, 2009.~~

~~Refer to Note 12 of Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 for information relating to minimum~~Minimum rental commitments under operating ~~leases. There have been no material changes to such scheduled rental commitments~~leases at September 30, 2010 were as ~~of the filing of this Report.~~follows: years ending December 31, 2010 – $1.6, 2011 – $6.9, 2012 – $6.4, 2013 – $5.5, 2014 and thereafter – $38.1.

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

~~Based on the~~The Company has established procedures for regularly evaluating environmental loss contingencies, including those arising from environmental reviews and investigations and any other environmental remediation or compliance matters. The Company’s evaluation of the existing environmental matters, the Company had environmental accruals totaling $8.5 at September 30, 2009. Such amounts are primarily related to potential solid waste disposal and soil and groundwater remediation matters. These environmental accruals represent the Company’s undiscounted estimate of costs reasonably expected to be incurred based on presently enacted laws and regulations, existing requirements, currently available facts, existing technology, and the Company’s assessment of the likely remediation ~~action~~actions to be taken.

During the third quarter of 2010, the Company increased its environmental accruals in connection with the Company’s submission of a draft feasibility study to the State of Washington on September 8, 2010 (the “Feasibility Study”). The draft Feasibility Study included recommendations for alternatives to primarily address the historical use of oils containing polychlorinated biphenyls, or PCBs, at the Company’s Trentwood facility in Spokane, Washington and plans for remediation for the next 30 years. Although future annual costs reflected in the draft Feasibility Study are not expected to vary materially from the current level of environmental expenditures, based on the draft Feasibility Study and the Company’s evaluation of other existing historical environmental matters at the Trentwood facility and certain other locations owned or operated by the Company, the Company increased its environmental accrual by $13.6 during the quarter ended September 30, 2010, to a total of $20.6 at September 30, 2010, to reflect the cost of remediation for the next 30 years. The Company expects that these remediation actions will be taken over the next ~~several~~30 years and estimates that expenditures to be charged to these environmental accruals will be approximately ~~$.7 in 2009, $2.0~~$0.5 in 2010, ~~$2.4~~$1.1 in 2011, ~~$.9~~$1.0 in 2012, ~~and $2.5~~$3.2 in 2013, and ~~thereafter.~~$14.8 in 2014 and years thereafter through the balance of the 30 year period. The draft Feasibility Study is still subject to further reviews, public comment and regulatory approvals before the final consent decree is issued. The Company expects the consent decree to be issued in 2012.

As additional facts are developed, ~~and~~feasibility studies at various facilities are completed, definitive remediation plans and necessary regulatory approvals for implementation of remediation are established, orand 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 be, in the aggregate, up to an estimated ~~$16.8. As~~$23.8 over 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.next 30 years.

Other Contingencies.The Company and its subsidiaries are ~~party~~parties to various lawsuits, claims, investigations, and administrative proceedings that arise in connection 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

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

(Unaudited)

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

~~12.~~14. Derivative Financial Instruments and Related Hedging Programs

Overview. In conducting its business, the Company, from ~~time to time,~~time-to-time, enters into derivative transactions, including forward contracts and options, to limit its economic (i.e., cash) exposure resulting from (i) metal price risk related to its ~~sales~~sale of fabricated aluminum products and the purchase of metal used as raw ~~materials~~material for its fabrication operations, (ii) the energy price risk from fluctuating prices for natural gas used in its production process, and (iii) foreign currency requirements with respect to its cash commitments for equipment purchases and with respect to its foreign subsidiaries and affiliate. Additionally, in March 2010, the Company entered into Call Options to limit its exposure to the Bifurcated Conversion Feature of the Notes (Note 7). From time to time, the Company may modify the terms of its derivative contracts based on operational needs or financing objectives. As the Company’s operational hedging activities are generally designed to lock-in a specified price or range of prices, realized gains or losses on the derivative contracts utilized in the hedging activities generally offset at least a portion of any losses or gains, respectively, on the transactions being hedged at the time the transaction occurs. However, due to mark-to-market accounting, during the life of the derivative contract, significant unrealized, non-cash gains and losses are recorded in the income ~~statement as a reduction or increase in Cost of products sold, excluding depreciation, amortization and other items.~~statement. The Company may also be exposed to margin calls, which the Company tries to minimize or offset through the use of counterparty credit lines and/or ~~use~~options. The Company regularly reviews the creditworthiness of ~~options. From time~~its derivative counterparties and does not expect to ~~time,~~incur a significant loss from the ~~Company may modify the terms~~failure of ~~the derivative contracts based on operational needs.~~any counterparties to perform under any agreements.

Hedges of Operational Risks. The Company’s pricing of fabricated aluminum products is generally intended to lock-in a conversion margin (representing the value added from the fabrication process(es)) and to pass metal price risk on to its customers. However, in certain instances the Company does enter into firm price ~~arrangements. In such instances, the Company has~~arrangements and incurs price risk on its anticipated primary aluminum purchases in respect of ~~the customer’s~~customer orders. The Company ~~currently~~ uses third party hedging instruments to limit exposure to primary aluminum price risks related to substantially all fabricated products firm price arrangements. Unrealized and realized gains and losses associated with hedges of operational risks are reflected as a reduction or increase in Cost of products sold, excluding depreciation, amortization and other items.

~~Total~~During the nine month periods ended September 30, 2010 and September 30, 2009, total fabricated products shipments ~~during the nine months ended September 30, 2009 and 2008~~ that contained ~~fixed~~firm price terms were (in millions of pounds) ~~128.7~~72.3 and ~~184.9,~~128.7, respectively. At September 30, ~~2009,~~2010, the Fabricated Products ~~business~~segment held contracts for the delivery of fabricated aluminum products that have the effect of creating price risk on anticipated purchases of primary aluminum ~~during~~for the ~~last three months~~remainder of ~~2009~~2010, for 2011, and for ~~the period 2010 through~~ 2012 and thereafter, totaling approximately (in millions of pounds): ~~2009 — 47.2,~~32.3, 84.8, and 14.2, respectively.

Hedges Relating to the Notes. In March 2010, ~~— 91.5, 2011 — 79.9,~~the Company issued $175.0 aggregate principal amount of the Notes. Holders may convert their Notes into cash before January 1, 2015, only in certain circumstances determined by (i) the market price of the Company’s common stock, (ii) the trading price of the Notes, or (iii) the occurrence of specified corporate events. The Notes can be converted by the holders at any time on and ~~2012 — 13.4.~~after January 1, 2015 until the close of business on the second scheduled trading day immediately preceding the maturity date of the Notes. The conversion feature can only be settled in cash and is required to be bifurcated from the Notes and treated as a separate derivative instrument under ASC 815 (Note 1). In order to offset the cash flow risk associated with the Bifurcated Conversion Feature, the Company purchased Call Options. Both the Bifurcated Conversion Feature and the Call Options are measured at fair value with unrealized gains and losses recorded in Other income (expense) within the Company’s Statements of Consolidated Income. The Company expects the gain or loss from the Call Options to substantially offset, over time, the gain or loss associated with changes to the valuation of the Bifurcated Conversion Feature. In connection with the issuance of the Notes, the Company also entered into transactions pursuant to which the Company sold to the Option Counterparties the Warrants (Note 7). The Warrants meet the definition of derivatives under ASC 815; however, because the Warrants have been determined to be indexed to the Company’s own stock and to have met the requirement to be classified as equity instruments, they are not subject to the fair value provisions of ASC 815.

2324

(Unaudited)

The following table summarizes the Company’s material derivative positions at September 30, ~~2009:~~2010:

Notional
Amount of
Contracts Fair
Commodity Period (mmlbs) Value
Aluminum —
Option purchase contracts 10/2009 through 12/2011 193.8 $ 7.8
Fixed priced purchase contracts 10/2009 through 12/2012 184.5 $ (19.7 )
Fixed priced sales contracts 10/2009 through 12/2011 17.6 $ .2
Regional premium swap contracts(1) 10/2009 through 12/2012 173.6 $ —

Notional
Amount of
Contracts Fair
Foreign Currency Period (mm) Value
Pound Sterling —
Fixed priced purchase contracts 10/2009 £ 7.1 $ (.3 )
Euro —
Fixed priced purchase contracts 10/2009 through 3/2010 € .5 $ —


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

		Notional						Notional
		Amount of						Amount
		Contracts		Fair				of Contracts
Energy	Period	(mmbtu)		Value			Period	(mmbtu)		Fair Value
Natural gas —
Fixed priced purchase contracts(2)	10/2009 through 2/2011		1,300,000	$	(.8	)
Option purchase contracts²							10/10 through 12/12		11,520,000	$	(4.9	)
Fixed priced purchase contracts²							10/10 through 12/11		970,000	$	(0.6	)

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

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

(Unaudited)

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

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


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


¹		The Company used a discrete quarterly dividend payment of $0.24 per share based on historical and expected future quarterly dividend payments.

²		The risk-free rate was based on the five-year and three-year Constant Maturity Treasury rate on September 30, 2010, compounded semi-annually.

³		The Company’s credit rating was estimated to be between BB and B+ based on comparisons of its financial ratios and size to those of other rated companies. Using the Merrill Lynch High Yield index, the Company identified credit spreads for other debt issuances with similar credit ratings and used the median of such credit spreads.

⁴		The volatility rate was based on both observed volatility based on the Company’s historical stock price and implied volatility from the Company’s traded options. Such volatility was further adjusted to take into consideration market participant risk tolerance.

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

The following table presents the Company’s assets and liabilities that are measured and recognized at fair value on a recurring basis classified under the appropriate level of the fair value hierarchy as of September 30, 2010:


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

Total	$	—	$	61.9		$	0.3	$	62.2

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

Total	$	—	$	(64.8	)	$	—	$	(64.8	)

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

(Unaudited)


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

Total	$	—	$	29.9		$	0.2		$	30.1

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

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

Financial instruments classified as Level 3 in the fair value hierarchy represent derivative contracts in which management has used at least one significant unobservable input in the valuation model. The following table presents a reconciliation of ~~its~~activity for such derivative ~~instruments in Net income (rather than deferring such gains/losses to the date of the underlying transactions to which the related hedges occur).~~contracts on a net basis:


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

Balance at September 30, 2010	$	0.3

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

The realized and unrealized gains (losses) for the quarters and nine month periods ended September 30, ~~2009~~2010 and ~~2008~~September 30, 2009 were as follows:

Quarter Nine Months
Ended September 30, Ended September 30,
2009 2008 2009 2008
Realized gains (losses):
Aluminum $ (7.2 ) $ 1.7 $ (20.7 ) $ 10.4
Foreign currency (2.7 ) (.4 ) (13.3 ) .5
Natural gas (2.0 ) (.2 ) (8.5 ) .1

Total realized gains (losses) $ (11.9 ) $ 1.1 $ (42.5 ) $ 11.0

Unrealized gains (losses):
Aluminum $ 22.1 $ (26.0 ) $ 29.9 $ 5.7
Foreign currency 3.1 (10.1 ) 15.3 (8.2 )
Natural gas 1.9 (7.7 ) 4.2 (3.5 )

Total unrealized gains (losses) $ 27.1 $ (43.8 ) $ 49.4 $ (6.0 )


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

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

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

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

~~KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES~~
~~NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~counterparties.

~~13.~~15. Earnings Per Share

ASC 260-10-45-60A defines unvested share-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. On January 1, 2009, the Company adopted FSP EITF 03-6-1, subsequently codified by ASC 260-10-65-2, which mandates the application of the foregoing principles to all financial statements issued for fiscal years beginning after December 2008, and requires retrospective application. As certain of the Company’s unvested share-based payment awards contain nonforfeitable rights to dividends and dividend equivalents, the Company used the two-class method in the computation of earnings per share for the quarter and nine months ended September 30, 2009 and retrospectively adjusted its earnings per share data for the quarter and nine months ended September 30, 2008.

Basic and diluted earnings per share ~~using the two-class method~~ for the quarters and nine month periods ended September 30, ~~2009~~2010 and ~~2008~~September 30, 2009 were calculated as follows:


	Quarter						Nine Months						Quarter Ended					Nine Months Ended
	Ended September 30,						Ended September 30,						September 30,					September 30,
	2009			2008			2009			2008			2010		2009			2010			2009
Numerator:
Net Income (loss)	$	23.0		$	(22.1	)	$	46.4		$	39.8
Less: net income attributable to participating securities (1)		(.2	)		(.1	)		(1.2	)		(1.1	)
Net Income													$	5.5	$	23.0		$	14.4		$	46.4
Less: net income attributable to participating securities¹														—		(0.2	)		(0.1	)		(1.2	)

Net income (loss) available to common stockholders	$	22.8		$	(22.2	)	$	45.2		$	38.7
Net income available to common stockholders													$	5.5	$	22.8		$	14.3		$	45.2

Denominator:
Weighted-average common shares outstanding — Basic		19,981,715			19,995,073			19,567,963			20,031,802			18,941,426		19,981,715			19,499,099			19,567,963

Weighted-average common shares outstanding — Diluted		19,981,715			19,995,073			19,567,963			20,031,802
Weighted-average common shares — Diluted														18,941,426		19,981,715			19,499,099			19,567,963

Income (loss) per common share:
Earnings per common share:
Basic	$	1.14		$	(1.11	)	$	2.31		$	1.93		$	0.29	$	1.14		$	0.74		$	2.31
Diluted	$	1.14		$	(1.11	)	$	2.31		$	1.93		$	0.29	$	1.14		$	0.74		$	2.31

~~KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES~~
~~NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

diluted weighted average common shares. Options to purchase 22,077 common shares at an average exercise price of $80.01 per share ~~of $80.01~~ were outstanding at ~~both~~September 30, 2010 and September 30, 2009, ~~and 2008.~~respectively. The potential dilutive effect of such shares was zero for each of the quarters and nine month periods ended September 30, ~~2009~~2010 and ~~2008~~September 30, 2009. Warrants relating to approximately 3.6 million common shares at an average exercise price of approximately $61.36 per share were issued in March 2010 and outstanding at September 30, 2010. The potential dilutive effect of shares underlying the Warrants was zero for ~~each of~~the quarter and nine months ended September 30, 2010.

During the nine month periods ended September 30, ~~2009~~2010 and ~~2008.~~

~~For the nine months ended~~ September 30, 2009, ~~and 2008,~~ the Company paid a total of ~~$14.7, or $.72~~approximately $14.3 ($0.72 per common ~~share,~~share) and ~~$12.4, or $.60~~$14.7 ($0.72 per common ~~share,~~share), respectively, in cash dividends to stockholders, including the holders of restricted stock, and dividend equivalents to the holders of restricted stock units and to the holders of any performance shares with respect to one half of the performance shares.

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

The Company’s primary line of business is the production of semi-fabricated specialty aluminum products. In addition, the Company also owns a 49% interest in ~~Anglesey. As described in Note 3,~~ Anglesey, which operated as an aluminum smelter in Holyhead, Wales until September ~~30,~~ 2009, when the contract for power supply that enabled smelting operations expired, and ~~commenced~~thereafter has operated as a secondary aluminum remelt and casting ~~of secondary aluminum products in the fourth quarter of 2009.~~operation.

The Company’s continuing operations are organized and managed by product type and include two operating segments of the aluminum industry and a Corporate segment. The aluminum industry segments consist of:Company has one reportable segment, Fabricated ~~Products and Primary Aluminum.~~Products. The Fabricated Products segment sells ~~value-added~~value added products such as ~~heat treat~~ aluminum sheet and plate, ~~extrusions~~extruded and ~~forgings~~drawn products which are used in a wide range of industrial applications, including automotive, aerospace ~~defense, automotive~~ and general engineering end-use applications. ~~The~~Prior to September 30, 2009, the Company also had a Primary Aluminum segment, ~~conducts hedging activities in respect of~~which produced, through the Company’s ~~exposure to primary aluminum price risk and, through its investment~~interest in Anglesey, ~~produces~~and sold commodity grade ~~aluminum sow and/or value-added~~products as well as value added products such as ingot and billet for which the Company received a premium over fluctuating commodity market prices, and conducted hedging activities with respect to the Company’s exposure to primary aluminum price risk and British Pound Sterling exchange rate risk relating to Anglesey’s smelting operations.

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

The accounting policies of the segments are the same as those described in Note 1 of Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2008~~2009 and as further described in Note 1 of this Report. Segment results are evaluated internally by management before any allocation of corporate overhead and without any charge for income taxes, interest expense, or Other operating charges, net.

Financial information by operating segment for the quarters and nine month periods ended September 30, ~~2009~~2010 and ~~2008~~September 30, 2009 is as follows:

Quarter Nine Months
Ended September 30, Ended September 30,
2009 2008 2009 2008
Net Sales:
Fabricated Products $ 215.1 $ 334.9 $ 660.7 $ 1,043.3
Primary Aluminum 36.9 34.3 89.3 138.4

$ 252.0 $ 369.2 $ 750.0 $ 1,181.7

Segment Operating Income (Loss):
Fabricated Products $ 26.4 $ 19.5 $ 59.0 $ 102.4
Primary Aluminum 27.5 (44.9 ) 58.8 3.8
Corporate and Other (11.3 ) (12.5 ) (33.9 ) (37.8 )
Other Operating Benefits, Net — 1.4 .9 1.2

Total operating income (loss) $ 42.6 $ (36.5 ) $ 84.8 $ 69.6
Interest expense (.2 ) (.3 ) (.6 ) (.8 )
Other income (expense), net .1 (.2 ) — 1.0

Income (Loss) before income taxes $ 42.5 $ (37.0 ) $ 84.2 $ 69.8

2629

Quarter Nine Months
Ended September 30, Ended September 30,
2009 2008 2009 2008
Depreciation and Amortization:
Fabricated Products $ 3.9 $ 3.6 $ 12.2 $ 10.8
Corporate and Other — — .1 —

$ 3.9 $ 3.6 $ 12.3 $ 10.8

Capital expenditures, net of change in accounts payable:
Fabricated Products $ 13.7 $ 22.7 $ 50.3 $ 61.0
Corporate and Other .7 — .7 —

$ 14.4 $ 22.7 $ 51.0 $ 61.0

(Unaudited)

September 30, December 31,
2009 2008
Segment assets:
Fabricated Products $ 448.8 $ 498.8
Primary Aluminum (1) 28.2 99.9
Corporate and Other (2) 558.5 546.7

$ 1,035.5 $ 1,145.4


	Quarter Ended				Nine Months Ended
	September 30,				September 30,
	2010		2009		2010		2009
Net Sales:
Fabricated Products	$	263.4	$	215.1	$	813.0	$	660.7
All Other¹		—		36.9		0.3		89.3

	$	263.4	$	252.0	$	813.3	$	750.0


~~(1)~~¹		~~Primary Aluminum includes~~For the ~~Company’s derivative assets.~~quarter and nine month periods ended September 30, 2009, Net sales in All Other represent net sales relating to Anglesey’s smelting operations. In connection with Anglesey’s remelt operations beginning in the fourth quarter of 2009, the Company changed its basis of revenue recognition from a gross basis to a net basis (Note 1).


	Quarter Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
Segment Operating Income (Loss):
Fabricated Products^{1, 3}	$	5.9		$	26.4		$	62.0		$	59.0
All Other^{2, 3}		7.3			16.2			(30.0	)		25.8

Total operating income	$	13.2		$	42.6		$	32.0		$	84.8
Interest expense		(3.7	)		(0.2	)		(7.2	)		(0.6	)
Other income (expense), net		(3.6	)		0.1			(2.7	)		—

Income before income taxes	$	5.9		$	42.5		$	22.1		$	84.2


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

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

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

~~KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES~~
~~NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~Second Quarter 2009 Restructuring Plans~~

In May 2009, the Company announced plans ~~to: (i)~~to further curtail operations at its Bellwood, Virginia facility to focus solely on drive shaft and seamless tube products and (ii) 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.products. 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~~

The Company recorded a restructuring ~~costs~~benefit of $0.4 and ~~other charges of $5.1 in~~$0.9 for the ~~second~~ quarter ~~of 2009. Of these charges, $4.8 were related to involuntary employee terminations~~ and other personnel costs, and the remaining $.3 were principally related to a non-cash asset impairment. Of the personnel-related costs recorded during the second quarter, approximately $.8 represented incremental non-cash expense during the period,nine months ended September 30, 2010, respectively, in connection with the ~~accelerated vesting~~above restructuring efforts. Total restructuring benefit for the nine months ended September 30, 2010 primarily represents a revision of previously ~~granted share-based payments.~~estimated employee termination costs due to the extension of unemployment benefits from the state of Virginia. During the quarter and nine months ended September 30, 2009, the Company recorded a$0.1 and $6.4, respectively, of restructuring ~~charge of $.1 representing an adjustment to~~charges in connection with the ~~estimated costs of its second quarter~~ 2009 restructuring ~~plans. The restructuring~~ efforts, ~~initiated during the second quarter~~consisting primarily of ~~2009 were substantially completed by the end of the third quarter of 2009.~~personnel-related, contract termination and facility shut-down costs.

~~Of the $5.1~~All restructuring costs and other charges ~~incurred in the quarter ended June 30, 2009, $4.2~~described above were incurred and recorded in the Company’s Fabricated Products segment, ~~with the remaining $.9 incurred and~~other than $0.9 of costs reported in ~~the Company’s Corporate segment. The $.1 restructuring cost recorded~~All Other in the ~~quarter~~nine month period ended September 30, 2009.

Of the total cash restructuring charges recorded in connection with the fourth quarter 2008 and the second quarter 2009 ~~was incurred in the Company’s Fabricated Products segment.~~restructuring plans, approximately $0.6 and $2.3 of restructuring obligations remained as of September 30, 2010 and December 31,

2831

(Unaudited)

2009, respectively. The following table summarizes the activity relating to cash obligations arising from the Company’s restructuring plans:

Employee
Termination
and Other Facility
Personnel related
Costs costs Total
Restructuring obligations at December 31, 2008 $ 4.5 $ — $ 4.5
Cash restructuring costs and other charges:
Recorded in the quarter ended March 31, 2009 (1) .2 .4 .6
Recorded in the quarter ended June 30, 2009 (2) 4.0 .1 4.1
Recorded in the quarter ended September 30, 2009 (2) .1 — .1

Total cash restructuring costs and other charges recorded for the nine months ended September 30, 2009 4.3 .5 4.8
Cash payments during the nine months ended September 30, 2009 (5.0 ) (.5 ) (5.5 )

Restructuring obligations at September 30, 2009 $ 3.8 $ — $ 3.8


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

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

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


~~(1)~~		~~In connection with the fourth quarter 2008 restructuring plans described above.~~

~~(2)~~		~~In connection with the second quarter 2009 restructuring plans described above.~~

~~16.~~18. Supplemental ~~cash flow information~~Cash Flow Information


	Nine Months				Nine Months Ended
	Ended September 30,				September 30,
	2009		2008		2010		2009
Supplemental disclosure of cash flow information:
Interest paid, net of capitalized interest of $1.5 and zero, respectively	$	—	$	.6
Interest paid					$	1.5	$	—

Income taxes paid	$	11.0	$	5.2	$	0.3	$	11.0


Supplemental disclosure of non-cash transactions:
Dividend declared and unpaid	$	—	$	4.8
Issuance of Nichols Promissory Note — Note 9					$	6.7	$	—

Acquisition of leased equipment	$	.1	$	—

our Annual Report onForm 10-K for the year ended December 31, ~~2008, identifies~~2009 and Part II, Item 1A. “Risk Factors” included in our Quarterly Report onForm 10-Q for the quarter ended March 31, 2010, identify other factors that could cause actual results to vary. No assurance can be given that these are all of the factors that could cause actual results to vary materially from the forward-looking statements.

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

	•		Overview;

	•		Results of Operations;

	•		Liquidity and Capital Resources;

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

	•		Critical Accounting Estimates and Policies; ~~and~~

	•		New Accounting ~~Pronouncements.~~Pronouncements; and

	•		Available Information.

We believe our MD&A should be read in conjunction with the Consolidated Financial Statements and related Notes included in Part II, Item 8. “Financial Statements and Supplementary Data” of our Annual Report on Form 10-K for the year ended December 31, ~~2008.~~2009.

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,~~period-to-period, (i) are particularly material to results, (ii) affect costs primarily as a result of external market factors, and (iii) may not recur in future periods if the same level of underlying performance were to occur. Non-run-rate items are part of our business and operating environment but are worthy of being highlighted for the benefit of the users of the financial statements. Our intent is to allow users of the financial statements to consider our results both in light of and separately from items such as fluctuations in underlying metal prices, natural gas prices, ~~and~~ currency exchange ~~rates.~~rates and our stock prices.

Overview

We are a leading North American manufacturer of semi-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 Aluminium Limited (“Anglesey”), which owns a facility in Holyhead, Wales that had operated as an aluminum smelter until September 30, 2009 and commenced remelt and casting of secondary aluminum products in the fourth quarter of 2009.

At September 30, 2010, we operated 10 focused fabricated aluminum production facilities in the United States (reflecting the sale on July 27, 2010 of our manufacturing facility in Greenwood, South Carolina and the acquisition on August 9, 2010 of the facility and assets of Nichols Wire, Inc (“Nichols”) in Florence, Alabama) and one in Canada. We ~~have two reportable operating segments, Fabricated Products~~shipped approximately 429 million pounds of semi-fabricated aluminum products in 2009, which comprised 91% of our total consolidated net sales of approximately $1.0 billion and ~~Primary Aluminum, and a Corporate segment. The Fabricated Products segment is~~approximately 389.9 million pounds of semi-fabricated aluminum products during the nine months ended September 30, 2010, which comprised ofeffectively all of our ~~operations within~~total consolidated net sales of approximately $813.3 million. We strive to tightly integrate the fabricated aluminum products industry including ten fabricating facilities in North America at September 30, 2009. The Fabricated Products segment sells value-added products such as heat treat aluminum sheet and plate, extrusions and forgings which are used in a wide range of industrial applications, including aerospace, defense, automotive and general engineering end-use applications.

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

3033

~~Changes~~management of our operations across multiple production facilities, product lines and our served markets in ~~global, regional, or country-specific economic conditions can have a significant~~order to maximize the efficiency of product flow to our customers.

A fundamental part of our business model is to mitigate the impact of aluminum price volatility on ~~overall demand for aluminum-intensive fabricated products~~our cash flow. We manage the risk of fluctuations in the ~~market segments in which we participate. Such changes in demand can directly affect our earnings by impacting~~price of primary aluminum through either (i) pricing policies that allow us to pass the ~~overall volume~~underlying cost of metal onto customers, or (ii) financial derivatives to shield us from exposure related to firm price sales contracts that specify the underlying metal price and ~~mix of such products sold. Overall demand~~a conversion cost for ~~our fabricated products dramatically declined in~~ the first nine months of 2009 as compared to 2008. Weak end-use demand, along with significant inventory de-stocking by our service center customers and others in the value stream, has adversely impacted our shipments in 2009.

sale. Primary aluminum prices ~~fell significantly~~increased over ~~the course of~~ the last half of ~~2008~~2009 and ~~partially recovered~~through the first quarter of 2010, declined slightly in the second quarter of 2010, and increased again in the third ~~quarters~~quarter of ~~2009.~~2010. The average London Metal Exchange ~~or LME,~~(“LME”) transaction price per pound of primary aluminum for the nine ~~months~~month periods ended September 30, ~~2009~~2010 and September 30, ~~2008 were $.70~~2009 was $0.96 and ~~$1.28,~~$0.70, respectively. The average LME transaction price per pound of primary aluminum for the ~~quarter~~quarters ended September 30, ~~2009~~2010 and September 30, ~~2008~~2009 was ~~$.82~~$0.95 and ~~$1.26,~~$0.82, respectively. At October ~~15, 2009,~~22, 2010, the LME transaction price per pound was $1.06.

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

In the commercial aerospace sector, we believe that global economic growth and development will continue to drive growth in airline passenger miles. In addition, trends such as longer routes and larger payloads, as well as a renewed focus on fuel efficiency, have increased the demand for new and larger aircraft. We believe that the long-term demand drivers, including growing build rates, larger airframes and monolithic design used throughout the industry will continue to increase demand for our high strength aerospace plate. Monolithic design and construction utilizes aluminum ~~was $.83. The Company’s~~plate that is heavily machined to form the desired part from a single piece of metal as opposed to using aluminum sheet, extrusions or forgings that are affixed to one another using rivets, bolts or welds.

Our products are also sold into defense end markets. While demand for armor plate has declined from the record levels of 2007 and 2008, we expect the production of theF-35, or Joint Strike Fighter, will drive demand for our high strength products over the long term.

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

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

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

For purposes of segment reporting under United States generally accepted accounting principles (“GAAP”), we treat our Fabricated Products segment ~~operates~~as its own reportable segment. We combine our three other business ~~with an intent~~units, Secondary Aluminum, Hedging and the Corporate and Other into one category, which we refer to ~~remain neutral~~as All Other. All Other is not considered a reportable segment (see Note 16 of Notes to ~~primary aluminum price changes by passing such price changes on to its customers or, to the extent it has firm price contracts, hedging such exposures to primary aluminum prices with counterparties.~~

~~Our operating results are also, albeit to a lesser degree, sensitive to changes~~Interim Consolidated Financial Statements included in prices for 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 Part I, Item ~~3. “Quantitative and Qualitative Disclosures About Market Risks”~~1. “Financial Statements” of this ~~Report.~~Report).

Highlights of the quarter ended September 30, ~~2009~~2010 include:

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

	•		Fabricated Products segment shipments of 106 million pounds, a 4% increase from the second quarter of 2009. Compared to the prior year quarter, third quarter 2009 shipments of fabricated products were lower due to weaker demand, notwithstanding higher aerospace and general engineering plate shipments.

	•		Consolidated net income of ~~$23.0~~$5.5 million ~~or $1.14~~and earnings per diluted share ~~which includes $27.0 million~~ of $0.29, including pre-tax, non-cash mark-to-market gains on derivates positions of approximately $15 million and environmental expense of approximately $14 million;

	•		August 9, 2010 completion of the strategic acquisition of the manufacturing facility and related assets of Nichols, located in Florence, Alabama, which manufactures bare mechanical alloy wire products, nails and aluminum rod and enables us to expand our ~~derivative positions.~~offering of small diameter rod, bar and wire products to our core market segments of aerospace, automotive and general engineering. Consideration for the acquisition was approximately $16 million, consisting of a $9 million cash payment and a $7 million, five-year secured promissory note.

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

	•		Cash ~~generated from operations~~balances and borrowing availability under our revolving credit facility of ~~$32.6 million;~~approximately $300 million, with no borrowings under ~~the Revolving Credit Facility~~that facility as of September 30, ~~2009 and $157 million of borrowing capacity as of that date.~~2010;

	•		~~Dividend payment on August 17, 2009~~Continued ramp-up of ~~$4.8 million, or $.24 per common share, to stockholders of record at~~ the ~~close of business on July 27, 2009.~~new world class rod and bar extrusion facility in Kalamazoo, Michigan; and

	•		~~The planned, full curtailment~~Declaration and payment of ~~smelting operations at the Anglesey, Wales facility, in which we have~~ a ~~49% interest,~~regular dividend of $4.7 million, or $0.24 per common share, on ~~September 30, 2009.~~August 13, 2010 to stockholders of record as of July 26, 2010.

Results of Operations

Consolidated Selected Operational and Financial Information

The table below provides selected operational and financial information ~~on a consolidated basis (in millions~~ of ~~dollars, except shipments~~the Fabricated Products segment and ~~average sales prices).~~All Other for the quarters and nine month periods ended September 30, 2010 and September 30, 2009.

The following data should be read in conjunction with our interim consolidated financial statements and the notes thereto contained elsewhere herein. See Note 16 of Notes to Consolidated Financial Statements included in Part II, Item 8. “Financial Statements and Supplementary Data” of our Annual Report on Form 10-K for the year ended December 31, ~~2008~~2009 for further information regarding segments. Interim results are not necessarily indicative of those for a full year.


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

		129.3			146.7			390.3			429.8


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

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

Total Net Sales	$	263.4		$	252.0		$	813.3		$	750.0

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

Total Operating Income	$	13.2		$	42.6		$	32.0		$	84.8

Income Tax Provision	$	(0.4	)	$	(19.5	)	$	(7.7	)	$	(37.8	)

Net Income	$	5.5		$	23.0		$	14.4		$	46.4

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

3135

Quarter Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
(In millions of dollars, except
shipments and average sales price)
Shipments (millions of pounds):
Fabricated Products 105.7 135.3 316.1 435.6
Primary Aluminum 41.0 24.2 113.7 98.0

146.7 159.5 429.8 533.6

Average Realized Third Party Sales Price (per pound):
Fabricated Products (1) $ 2.03 $ 2.48 $ 2.09 $ 2.40
Primary Aluminum (2) $ .90 $ 1.42 $ .79 $ 1.41
Net Sales:
Fabricated Products $ 215.1 $ 334.9 $ 660.7 $ 1,043.3
Primary Aluminum 36.9 34.3 89.3 138.4

Total Net Sales $ 252.0 $ 369.2 $ 750.0 $ 1,181.7
Segment Operating Income (Loss):
Fabricated Products (3)(4) $ 26.4 $ 19.5 $ 59.0 $ 102.4
Primary Aluminum (5) 27.5 (44.9 ) 58.8 3.8
Corporate and Other (11.3 ) (12.5 ) (33.9 ) (37.8 )
Other Operating Benefits, Net — 1.4 .9 1.2

Total Operating Income (Loss) $ 42.6 $ (36.5 ) $ 84.8 $ 69.6
Net Income (Loss) $ 23.0 $ (22.1 ) $ 46.4 $ 39.8
Capital Expenditures, net of change in accounts payable $ 14.4 $ 22.7 $ 51.0 $ 61.0


~~(1)~~¹		For the quarters and nine month periods ended September 30, 2010 and September 30, 2009, shipments in All Other reflects shipments of primary aluminum products produced by Anglesey.

²		Average realized prices for ~~the Company’s~~our Fabricated Products segment are subject to fluctuations due to changes in product mix as well as underlying primary aluminum prices and are not necessarily indicative of changes in underlying profitability. ~~See Part I, Item 1. “Business” included in our Annual Report on Form 10-K for the year ended December 31, 2008.~~

~~(2)~~³		Average realized prices for All Other reflect average realized prices on sales of primary aluminum product produced by Anglesey and are subject to fluctuations in the ~~Company’s Primary Aluminum segment exclude derivative gains/ losses.~~LME price of metal.

~~(3)~~⁴		Fabricated Products segment operating results for the quarter and nine months ended September 30, ~~2009~~2010 include a non-cash last-in, first-out (“LIFO”) inventory ~~charges (benefits)~~benefit (charge) of ~~$6.9~~$2.0 million and ~~$(6.3)~~$(6.2) million, respectively, and metal ~~(gains) losses~~(losses) gains of approximately ~~$(11.2)~~$(4.0) million and ~~$5.3~~$3.3 million, respectively. Fabricated Products segment operating results for the quarter and nine months ended September 30, 2009 include a non-cash LIFO inventory (charge) benefit of $(6.9) million and $6.3 million, respectively, and metal gain (losses) of approximately $11.2 million and $(5.3) million, respectively. Fabricated Products segment operating results for the quarter and nine months ended September 30, 2010 also included environmental expenses of $13.1 million and $13.5 million, respectively. Also included in the Fabricated Products segment operating results for the nine months ended September 30, 2009 ~~are~~was a $9.3 million lower of cost or market inventory write-down recognized in the first quarter of 2009 and $5.5 million of restructuring charges ($5.4 million of which were recorded in the first half of 2009), relating to the restructuring plans principally involving our Tulsa, Oklahoma and Bellwood, Virginia facilities.2009. Fabricated Products segment operating results for the quarter and nine months ended September 30, ~~2008~~2009 include ~~a non-cash LIFO inventory charge of $.7~~$0.1 million and ~~$31.3~~$5.5 million, respectively, of restructuring charges relating to the restructuring plans involving our Tulsa, Oklahoma and ~~metal (losses) gains of approximately $(3.2) million and $23.7 million, respectively.~~Bellwood, Virginia facilities.

~~(4)~~⁵		Fabricated Products segment ~~operating results include~~includes non-cash mark-to-market losses on natural gas and foreign currency hedging activities totaling $2.4 million and $5.2 million in the quarter and nine months ended September 30, 2010, respectively. Fabricated Products segment also includes non-cash mark-to-market gains ~~(losses)~~ on natural gas and foreign currency hedging activities totaling $2.6 million and ~~$(9.7)~~$5.4 million in the ~~quarters ended September 30, 2009~~quarter and 2008, respectively. Fabricated Products segment results also include non-cash mark-to-market gains (losses) on natural gas and foreign currency hedging activities totaling $5.4 million and $(5.2) million in the nine months ended September 30, 2009, ~~and 2008,~~ respectively. For further discussion regarding mark-to-market matters, see Note 1214 of Notes to Interim Consolidated Financial Statements included in Part I, Item 1. “Financial Statements” of this Report.

~~(5)~~⁶		~~Primary Aluminum segment~~Operating income in All Other was primarily driven by the Hedging business unit operating ~~results include~~results. For the quarter and nine months ended September 30, 2010, non-cash mark-to-market gains ~~(losses)~~ on primary aluminum hedging activities ~~totaling $22.0~~were $17.1 million and ~~$(26.1)~~$1.1 million, respectively, compared to non-cash mark-to-market gains of $22.1 million and ~~on foreign currency derivatives totaling $2.4 million and $(8.0)~~$29.9 million for the ~~quarters ended September 30, 2009~~quarter and 2008, respectively. Primary Aluminum segment results also include non-cash mark-to-market gains (losses) on primary aluminum hedging activities totaling $29.9 million and $5.7 million and on foreign currency derivatives totaling $14.1 million and $(6.5) million for the nine months ended September 30, 2009, respectively. The mark-to-market impact of foreign currency derivatives for both the quarter and ~~2008,~~nine months ended September 30, 2010 was zero, compared to mark-to-market gains of $2.4 million and $14.1 million for the quarter and nine months ended September 30, 2009, respectively. For further discussion regarding mark-to-market matters, see Note 1214 of Notes to Interim Consolidated Financial Statements included in Part I,1, Item 1. “Financial Statements” of this Report. Also included in the quarter and nine months ended September 30, 2008 were $20.1 million and $26.8 million of adverse impact from the Anglesey outage as a result of a fire that occurred in June 2008.

Other related to Anglesey’s new remelt operations reported on a net revenue recognition basis. Fabricated Products segment realized prices remained approximately the same in both periods, with higher underlying metal prices offsetting lower value added revenue per pound in the third quarter of 2010 as compared to the third quarter of 2009. The decrease in value added revenue per pound was due to slightly lower pricing for ~~the quarter ended September 30, 2008 was $43.8 million of unrealized mark-to-market losses on our derivative positions. Our operating income for~~most products and a shift in mix toward lower margin products.

For the nine months ended September 30, ~~2009 was $84.8~~2010, we reported Net sales of $813.3 million compared to ~~$69.6~~$750.0 million for the nine months ended September 30, ~~2008. Included in operating income for~~2009. As more fully discussed below, the nine months ended September 30, 2009 were $49.4 million of unrealized mark-to-market gains on our derivative positions. Included in operating income for the nine months ended September 30, 2008 were $6.0 million of unrealized mark-to-market losses on our derivative positions. The increase in ~~operating income for the quarter and nine months ended September 30, 2009 is more fully explained below in the “~~~~Segment Information~~~~” section below.~~

~~Net Sales.~~~~We reported~~ Net sales in the quarter ended September 30, 2009 of $252.0 million compared to $369.2 million in the quarter ended September 30, 2008. The decrease in revenues during the quarter ended September 30, 2009 is primarily the result of a 22% decrease in our Fabricated Products segment shipment volume, an 18% decrease in Fabricated Products segment realized prices, and a 37% decrease in Primary Aluminum segment pricing, all partially offset by 69% increase in Primary Aluminum segment shipment volume. The increase in Primary Aluminum shipments is due to the production interruption in the third quarter of 2008 caused by a fire at the facility (see~~“Segment Information—Primary Aluminum” section below). The decrease in Fabricated Products segment prices primarily reflects the pass-through to customers of lower underlying hedged alloyed metal prices.~~

~~For the nine months ended September 30, 2009, we reported net sales of $750.0 million compared to $1,181.7 million for the nine months ended September 30, 2008. The decrease in revenues~~ during the nine months ended September 30, ~~2009~~2010 is primarily the result of ~~a 27% decrease in our Fabricated Products segment shipment volume, a 13% decrease~~an increase in Fabricated Products segment ~~realized prices, and a 44% decrease in Primary Aluminum segment pricing, all~~shipments, partially offset by lower revenues in All Other related to Anglesey’s new remelt operations reported on a ~~16% increase~~net revenue recognition basis. Realized prices for the Fabricated Products segment remained approximately the same in ~~Primary Aluminum segment shipment volume. The increase in Primary Aluminum shipments is due to the production interruption~~both nine month periods, as higher underlying metal prices in the ~~third quarter of 2008 caused by a fire at the facility (see~~~~“Segment Information—Primary Aluminum~~~~” section below).~~nine months ended September 30, 2010 offset lower value added revenue per pound. The decrease in ~~Fabricated Products segment prices reflects the pass-through to customers of lower underlying hedged alloyed metal prices, partially offset by an increase in value-added~~value added revenue per ~~pound. Increases or decreases~~pound was due to a leaner product mix, as well as lower pricing for most products, particularly for general engineering plate. Fluctuation in underlying primary aluminum market prices dodoes not necessarily directly ~~translate to increased or decreased~~impact profitability because (i) a substantial portion of the business conducted by the Fabricated Products segment passes primary aluminum price changes directly onto customers and (ii) our hedging activities in support of Fabricated Products segment firm price sales agreements limit our ~~realized~~ losses as well as ~~realized~~ gains from primary metal price changes.

Cost of Products Sold Excluding Depreciation, Amortization and Other Items.Cost of products sold, excluding depreciation, amortization and other items for the quarter ended September 30, ~~2009~~2010 totaled $229.3 million, or 87% of Net Sales, compared to $188.3 million, or 75% ~~of Net sales, compared to $383.7 million, or 104%~~ of Net sales, in the quarter ended September 30, ~~2008.~~2009. Included in Cost of products sold, excluding depreciation, amortization and other items were $14.8 million and $27.0 million ~~and $(43.8) million~~ of unrealized non-cash mark-to-market gains ~~(losses)~~ on our derivative positions infor the ~~quarter~~quarters ended September 30, 2010 and September 30, 2009, respectively. Also included in Cost of products sold, excluding depreciation, amortization and ~~2008,~~other items were $13.1 million and $0.1 million of environmental expenses for the quarters ended September 30, 2010 and September 30, 2009, respectively. See Segment and Business Unit Information below for a detailed discussion of the comparative results of operations for the quarters ended September 30, 2010 and September 30, 2009.

Cost of products sold, excluding depreciation, amortization and other items for the nine months ended September 30, ~~2009~~2010 totaled $717.2 million, or 88% of Net Sales, compared to $584.2 million, or 78% ~~of Net sales, compared to $1,044.2 million, or 88%~~ of Net sales, in the nine months ended September 30, ~~2008.~~2009. Included in Cost of products sold, excluding depreciation, amortization and other items were $(4.0) million and $49.4 million ~~and $(6.0) million~~ of unrealized non-cash mark-to-market (losses) gains ~~(losses)~~ on our derivative positions infor the nine ~~months~~month periods ended September 30, ~~2009~~2010 and ~~2008,~~September 30, 2009. Also included in Cost of products sold, excluding depreciation, amortization and other items were $13.5 million and $0.6 million of environmental expenses for the nine month periods ended September 30, 2010 and September 30, 2009, respectively. See “Segment ~~Information”~~~~section~~and Business Unit Information below for a detailed discussion of the comparative results of operations for the ~~quarters and~~ nine month periods ended September 30, ~~2009~~2010 and ~~2008.~~September 30, 2009.

Lower of Cost or Market Inventory Write-down.We recorded a lower of cost or market inventory write-down of $9.3 million infor the ~~first~~ quarter ofended March 31, 2009 as ~~the~~a result of declining metal prices. There were no additional lower of cost or market inventory write-downs ~~during~~in the nine months ended September 30, ~~2009 or the nine months ended September 30, 2008.~~2010.

Impairment of Investment in Anglesey.~~For~~In 2008, we fully impaired our investment in Anglesey in anticipation of the ~~nine~~cessation of its smelting operations on September 30, 2009. In the six months ended ~~September~~June 30, 2009, ~~the Company~~we recorded ~~charges of~~ $1.8 million ~~relating~~of equity in income of Anglesey, which we concurrently impaired in full to ~~its~~maintain our investment ~~in Anglesey. Such charges were all recorded in~~balance at zero. Based on our continued assessment of the ~~first six months of 2009. For the quarter ended September 30, 2009, no additional impairment charges were recorded, due to the suspension of~~facts and circumstances, we suspended the equity method of accounting ~~as more fully described~~for our investment in ~~Note 3~~Anglesey commencing in the third quarter of ~~Notes to Interim Consolidated Financial Statements included in Part I, Item 1. “Financial Statements” of this Report.~~2009.

Restructuring Costs and Other Charges.In ~~December~~connection with the restructuring initiative announced in 2008 ~~we announced plans~~ to ~~close our~~shut down the Tulsa, Oklahoma facility and to curtail operations at ~~our~~the Bellwood, Virginia ~~facility. During the first quarter of 2009,~~facility, we recorded $1.2 million in restructuring charges related primarily ~~related~~ to contract termination costs and other costs ~~pertaining to the December 2008 restructuring initiatives.~~

In May 2009, we announced plans to (i) further curtail operations at our Bellwood, Virginia facility to focus solely on drive shaft and seamless tube products and (ii) 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. We also reduced personnel at certain of our other locations. Approximately 85 employees were affected by the reduction in force, principally at the Bellwood, Virginia location. In connection with these restructuring plans, we recorded restructuring costs and other charges of $5.1 million in the second quarter of 2009. Of these charges, $4.8 million were related to involuntary employee terminations and other personnel costs, and the remaining $.3 million were principally related to a non-cash asset impairment. Of the personnel-related costs recorded during the second quarter, approximately $.8 million represented incremental non-cash expense during the period, in connection with the accelerated vesting of a portion of previously granted share-based compensation. During the quarter ended March 31, 2009. In the quarters ended June, 30, 2009 and September 30, 2009, we recorded aadditional restructuring ~~charge~~charges of ~~$.1~~$5.2 million ~~representing an adjustment to the estimated costs of the restructuring initiatives undertaken in the second quarter of 2009.~~

~~See Note 15 of Notes to Interim Consolidated Financial Statements included in Part I, Item 1. “Financial Statements” of this Report for additional information regarding the costs incurred~~principally in connection with plans to further curtail operations at the Bellwood, Virginia facility. We made an adjustment in the amount of $0.9 million to the restructuring charges during the nine months ended September 30, 2010, due primarily to an extension of unemployment benefits granted by the state of Virginia, reducing our ~~restructuring plans.~~supplemental unemployment liability.

Depreciation and Amortization.Depreciation and amortization for the quarter ended September 30, ~~2009~~2010 was ~~$3.9~~$4.8 million compared to ~~$3.6~~$3.9 million for the quarter ended September 30, ~~2008.~~2009. Depreciation and amortization for the nine months ended September 30, ~~2009~~2010 was ~~$12.3~~$13.8 million compared to ~~$10.8~~$12.3 million for the nine months ended September 30, ~~2008. The increase is~~2009. Depreciation expense increased in the quarter ended September 30, 2010 primarily as the result of ~~placing~~bringing on-line certain production equipment at our Kalamazoo, Michigan facility. We expect depreciation expense to increase further as additional ~~construction in progress into service throughout 2008.~~production equipment at our Kalamazoo, Michigan facility is fully brought on-line.

Selling, Administrative, Research and Development, and General.Selling, administrative, research and development, and general expense totaled $16.5 million in the quarter ended September 30, 2010 compared to $17.1 million in the quarter ended September 30, ~~2009 compared to $19.8 million in the quarter ended September 30, 2008.~~

~~Other Operating Benefits, Net~~~~. For the nine months ended September 30, 2009 and~~operating charges (benefits) for the quarter and nine months ended September 30, ~~2008, other operating benefits consisted primarily of the~~2009 reflected a $(0.9) million recovery of a pre-chapter 11 emergence obligation owed to us, for which we had previously ~~fully-reserved against any expected collection.~~established a full reserve.

Interest Expense.Interest expense ~~was $.2 million in the quarter ended September 30, 2009, as compared to $.3 million for the quarter ended September 30, 2008. Interest expense was $.6 million~~ for the nine months ended September 30, ~~2009, as compared~~2010 was primarily related to ~~$.8~~cash and non-cash interest expense incurred on our 4.5% cash convertible senior notes due 2015 (the “Notes”), which were issued on March 29, 2010. Total interest incurred was $4.5 million and $9.9 million for the quarter and nine months ended September 30, ~~2008.~~2010, respectively. Of these amounts, $0.8 million and $2.7 million were capitalized as a part of Construction in progress for the quarter and nine months ended September 30, 2010, respectively, leaving $3.7 million and $7.2 million of interest expense in the quarter and nine months ended September 30, 2010, respectively. Interest expense was $0.2 million and $0.6 million for the quarter and nine months ended September 30, 2009, respectively. The majority of the interest incurred in such periods was also capitalized.

Other Income (Expense), Net.Other income (expense), net was ~~$.1~~$(3.6) million for the quarter ended September 30, ~~2009, as~~2010, compared to ~~$(.2) million in~~$0.1 for the quarter ended September 30, ~~2008.~~2009. Other income (expense), net was ~~zero in the nine months ended September 30, 2009, compared to $1.0~~$(2.7) million ~~in the nine months ended September 30, 2008. The decrease~~ for the nine months ended September 30, ~~2009~~2010 compared to zero for the nine months ended September 30, 2009. Other income (expense), net for the quarter and nine months ended September 30, 2010 was primarily related to ~~lower interest income as a result of declining interest rates.~~net unrealized non-cash mark-to-market losses on the derivative instruments relating to the Notes.

Income Tax Provision.The income tax provision for the nine months ended September 30, ~~2009~~2010 was ~~$37.8~~$7.7 million, ~~for~~or an effective tax rate of ~~44.9%~~34.7%. The effective tax rate for the nine months ended September 30, ~~2008~~2009 was approximately ~~43%~~44.9%. The difference between the effective tax rate and the projected blended statutory tax rate for the nine months ended September 30, 2010 was primarily related to unrecognized tax benefits, including interest and penalties, of $1.1 million resulting in a 5% decrease in the effective tax rate, as well as the impact of non-deductible compensation expense of $0.5 million, resulting in a 2.1% increase in the effective tax rate. The difference between the effective tax rate and the projected blended statutory tax rate for the nine months ended September 30, 2009 was primarily related to the impact of a non-deductible compensation expense, resulting in an increase to the income tax ~~provision. The effective tax~~ rate ~~for the nine months ended September 30, 2008 was impacted by (i) the accounting for the income tax effects~~ of equity income in our investment in Anglesey, which had the impact of increasing the effective tax rate; (ii) unrecognized tax benefits, including interest and penalties, and (iii) changes in the United Kingdom and Canadian income tax rates and geographical distribution of income for the period.approximately 4.6%.

Derivatives

~~In conducting our business,~~From time-to-time, 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~~sale of fabricated aluminum products and the purchase of metal used as raw ~~materials~~material for our fabrication operations, (ii) the energy price risk from fluctuating prices for natural gas used in our production process, and (iii) foreign currency requirements with respect to our cash commitments for equipment purchases and with respect to our foreign subsidiaries and foreign affiliate. In March 2010, in connection with the issuance of the Notes, we purchased cash-settled call options relating to our common stock (the “Call Options”) to limit our exposure to the cash conversion feature of the Notes (see Note 7 of Notes to Interim Consolidated Financial Statements included in Part I, Item 1. “Financial Statements” of this Report). We may modify the terms of our derivative contracts based on operational needs or financial objectives. As our hedging activities are generally designed to lock-in a specified price or range of prices, realized gains or losses on the derivative contracts utilized in the hedging activities generally offset at least a portion of any losses or gains, respectively, on the transactions being hedged at the time the transactions occur. However, due to mark-to-market accounting, during the term of the derivative contract, significant unrealized, non-cash gains and losses may be recorded in the income ~~statement as a reduction or increase in Cost of products sold, excluding depreciation, amortization and other items.~~statement. We may also be exposed to margin calls placed on derivative contracts, which we try to minimize or offset through counterparty credit lines and/or the use of options. ~~From time~~We regularly review the creditworthiness of our derivative counterparties and do not expect to ~~time, we may modify~~incur a significant loss from the ~~terms~~failure of ~~the derivative contracts based on operational needs.~~any counterparties to perform under any agreements.

The fair value of our derivatives recorded on the Consolidated Balance Sheets at September 30, ~~2009~~2010 and December 31, ~~2008~~2009 was ~~a net liability of $12.8~~$(2.6) million and ~~$59.6~~$16.5 million, respectively. The ~~primary reasons for the~~ decrease in the net ~~liability were settlements~~position was primarily due to decreases in underlying prices for natural gas and the addition of new derivatives ~~during~~in connection with the ~~nine months ended September 30, 2009, giving rise to realized losses~~issuance of ~~$42.5 million for~~ the ~~period, and an increase in metal prices, the effect of changes in outstanding foreign currency hedge positions and changes in foreign currency rates compared to December 31, 2008.~~Notes. The ~~settlement of derivatives and~~ changes in market value of derivative contracts resulted in the recognition of ~~$27.0 million and $49.4~~$7.1 million of unrealized mark-to-market ~~gains~~loss on derivatives, ~~for the quarter and nine months ended September 30, 2009, respectively,~~ which we consider to be a non-run-rate item (see Note 1214 of Notes to Interim Consolidated Financial Statements included in Part I, Item 1. “Financial Statements” of this Report).

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Fair Value Measurement

We apply the provisions of Accounting Standard Codification (“ASC”) Topic 820,Fair Value Measurements and Disclosures, in measuring the fair value of our derivative contracts and the fair value of our Canadian pension plan assets and the plan assets of the voluntary employee beneficiary association (“VEBA”) for the benefit of certain union retirees, their surviving spouses and eligible dependents (the “Union VEBA”) and the VEBA that provides benefits for certain eligible salaried retirees and their surviving spouses and eligible dependents (the “Salaried VEBA”).

Commodity, Foreign Currency and Energy Hedges—The fair values of a majority of these derivative contracts are based upon trades in liquid markets. Valuation model inputs can generally be verified and valuation techniques do not involve significant judgment. The fair values of such financial instruments are generally classified within Level 2 of the fair value hierarchy (see Note 1 of Notes to Interim Consolidated Financial Statements included in Part I, Item 1. “Financial Statements” of this Report). We have some derivative contracts, however, that do not have observable market quotes. For these financial instruments, we use significant other observable inputs (i.e., information concerning regional premiums for swaps). Where appropriate, valuations are adjusted for various factors, such as bid/offer spreads.

Cash Conversion Feature of the Notes and Call Options—The value of the cash conversion feature of the Notes is measured as the difference in the estimated fair value of the Notes and the estimated fair value of the Notes without the cash conversion feature. The Notes were valued based on the closing price of the Notes on September 30, 2010. The fair value of the Notes without the cash conversion feature is the present value of the series of fixed income cash flows under the Notes with a mandatory redemption in 2015. The Call Options are valued using a binomial lattice valuation model. Significant inputs to the model are our stock price, risk-free rate, credit spread, dividend yield, expected volatility of our stock price, and probability of certain corporate events, all of which are observable inputs by market participants. See Note 14 of Notes to Interim Consolidated Financial Statements included in Part I, Item 1. “Financial Statements” of this Report for significant assumptions used in these valuations.

In determining the fair value of employee benefit 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. Our Canadian pension plan assets and the plan assets of the Union VEBA and the Salaried VEBA are measured on December 31 of each year.

Segment and Business Unit Information

For 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. As discussed above, the Fabricated Products segment sells value added products such as heat treat sheet and plate and extruded rod, bar, wire and tube products which are used in a wide range of industrial applications, including aerospace, defense, automotive and general engineering end-use applications. All Other consists of Secondary Aluminum, Hedging and Corporate and Other business units. The Secondary Aluminum business unit sells value added products such as ingot and billet produced by the secondary aluminum remelt and casting operations of Anglesey, for which we receive a portion of a premium over normal commodity market prices. Our ~~continuing~~Hedging business unit conducts hedging activities in respect of our exposure to primary aluminum prices, and conducted hedging activities in respect of British Pound Sterling exchange rate risk relating to Anglesey’s smelting operations ~~are organized~~through September 30, 2009. Our Corporate and ~~managed by product type~~Other business unit provides general and ~~include two operating segments and~~administrative support for our operations. All Other is not considered a ~~Corporate~~reportable segment. The accounting policies of the ~~segments~~segment and business units are the same as those described in Note 1 of Notes to Consolidated Financial Statements ~~included~~ in ~~Part II,~~ Item 8. “Financial Statements and Supplementary Data” of our Annual Report on Form 10-K for the year ended December 31, ~~2008~~2009 and ~~as further described in~~ Note 1 of Notes to Interim Consolidated Financial Statements included in Part I, Item 1. “Financial Statements” of this Report. Segment results are evaluated internally ~~by us~~ before ~~any allocation of Corporate overhead and without any charge for income taxes,~~ interest expense, ~~or Other operating charges, net.~~other expense (income) and income taxes.

Fabricated Products

On August 9, 2010, we completed the acquisition of the manufacturing facility and related assets of Nichols, located in Florence, Alabama, which manufactures bare mechanical alloy wire products, nails and aluminum rod for aerospace, general engineering, and automotive applications. Consideration for the purchase consisted of (i) $9.0 million in cash, (ii) $6.7 million in a promissory note to Nichols, and (iii) the assumption of certain liabilities totaling approximately $2.1 million. The transaction generated approximately $3 million of goodwill and $4 million of intangible assets relating primarily to customer relationships. The intangible assets are expected

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

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

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

Quarter Nine Months
Ended September 30, Ended September 30,
2009 2008 2009 2008
Shipments (mm pounds) 105.7 135.3 316.1 435.6

Composition of average realized third-part sales price (per pound):
Hedged cost of alloyed metal $ .91 $ 1.28 $ .87 $ 1.23
Average realized third party value-added revenue 1.12 1.20 1.22 1.17

Average realized third party sales price $ 2.03 $ 2.48 $ 2.09 $ 2.40

Net sales $ 215.1 $ 334.9 $ 660.7 $ 1,043.3
Segment operating income $ 26.4 $ 19.5 $ 59.0 $ 102.4

Net sales of fabricated products decreased by 36% to $215.1 million for the quarter ended September 30, 2009 as compared to the quarter ended September 30, 2008, primarily due to a 22% decrease in shipments and an 18% decrease in average realized prices. Shipments of products for aerospace and high-strength applications were 18% lower in the quarter ended September 30, 2009 as compared to the quarter ended September 30, 2008, reflecting significant supply chain de-stocking and weaker demand for all aerospace and high strength products (including plate, sheet, cold finish rod and bar, and drawn tube products), partially offset by higher contractual aerospace plate shipments. Shipments of general engineering products and automotive and custom industrial products declined 23% in the quarter ended September 30, 2009 as compared to the same quarter of 2008, reflecting continued weak ground transportation and other end-use demand and service center demand. The reduction in average realized prices primarily reflected the pass through to customers of 29% lower underlying hedged, alloyed metal prices.

For the nine months ended September 30, 2009 as compared to the nine months ended September 30, 2008, net sales of fabricated products decreased by 37% to $660.7 million, primarily due to a 27% decrease in shipments and a 13% decrease in average realized prices. Shipments of products for aerospace and high-strength applications were 4% lower in the nine months ended September 30, 2009 as compared to the nine months ended September 30, 2008 due to weaker end-use and service center demand, which was largely offset by significantly higher contractual aerospace plate shipments. Shipments of general engineering products and automotive and custom industrial products declined 36% in the nine months ended September 30, 2009 as compared to the same period of 2008, reflecting continued weak end-use and service center demand.

The reduction in average realized prices reflected the pass through to customers of 29% lower underlying hedged, alloyed metal prices, offset by a 4% increase in value-added revenue per pound. The increase in value-added revenue per pound was largely due to a higher proportion of higher value-added products within the mix of products shipped in the nine months ended September 30, 2009.

~~The table below provides shipment and value-added revenue information for our three end-use product groupings~~segment for the quarters and nine month periods ended September 30, 2010 and September 30, 2009:


	Quarters Ended				Nine Months Ended
	September 30,				September 30,
	2010		2009		2010		2009
Shipments (mm lbs)		129.3		105.7		389.9		316.1

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

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

Net sales	$	263.4	$	215.1	$	813.0	$	660.7
Segment Operating Income	$	5.9	$	26.4	$	62.0	$	59.0

The table below provides shipment and value added revenue information (in millions of dollars except shipments and value added revenue per pound) for our end market applications for the quarters and nine month periods ended September 30, 2010 and September 30, 2009 ~~and 2008:~~for our Fabricated Products segment:

Quarter Nine Months
Ended September 30, Ended September 30,
2009 2008 2009 2008
Shipments (mm lbs):
Aerospace and high strength products 30.2 37.0 109.2 113.7
General engineering products 50.5 60.8 137.9 206.0
All other products 25.0 37.5 69.0 115.9

105.7 135.3 316.1 435.6

Value added revenue(1):
Aerospace and high strength products $ 57.7 $ 77.4 $ 211.2 $ 235.9
General engineering products 41.8 60.1 122.7 193.2
All other products 19.0 24.9 50.9 80.0

$ 118.5 $ 162.4 $ 384.8 $ 509.1

Value added revenue per pound:
Aerospace and high strength products $ 1.91 $ 2.09 $ 1.93 $ 2.08
General engineering products .83 .99 .89 .94
All other products .76 .67 .74 .69

$ 1.12 $ 1.20 $ 1.22 $ 1.17


	Quarter Ended				Nine Months Ended
	September 30,				September 30,
	2010		2009		2010		2009
Shipments (mm lbs):
Aerospace and High Strength		39.4		30.2		119.0		109.2
General Engineering		51.9		50.5		167.9		137.9
Automotive Extrusions		14.1		10.2		40.0		25.6
Other Applications		23.9		14.8		62.9		43.4

		129.3		105.7		389.8		316.1

Value added revenue:¹
Aerospace and High Strength	$	73.5	$	57.7	$	222.1	$	211.2
General Engineering		42.1		41.8		134.3		122.7
Automotive Extrusions		12.2		8.5		33.9		22.3
Other Applications		9.7		10.5		32.0		28.6

	$	137.5	$	118.5	$	422.3	$	384.8

Value added revenue per pound:
Aerospace and High Strength	$	1.87	$	1.91	$	1.87	$	1.93
General Engineering		0.81		0.83		0.80		0.89
Automotive Extrusions		0.87		0.83		0.85		0.87
Other Applications		0.41		0.71		0.51		0.66

	$	1.06	$	1.12	$	1.08	$	1.22


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

~~Based on recent trends, management’s expectations~~

For the quarter ended September 30, 2010, Net sales of fabricated products increased by 22% to $263.4 million, as compared to the quarter ended September 30, 2009, due primarily to a 22% increase in shipments. Shipments for ~~our~~aerospace and high strength products during the quarter ended September 30, 2010 were 30% higher as compared to the quarter ended September 30, 2009 due primarily to stronger demand in select end markets and lower overall destocking as significant service center destocking was abated. However, shipments continued to be negatively impacted by the large airframe manufacturers destocking in the first nine months of 2010. Shipments for general engineering products were 3% higher during the quarter ended September 30, 2010 as compared to the quarter ended September 30, 2009, reflecting moderate improvement in overall industrial demand and insignificant impact of inventory stocking patterns by service center customers. Shipments for automotive products during the quarter ended September 30, 2010 were 38% higher as compared to the quarter ended September 30, 2009 due to significantly stronger light vehicle build rates in North America. A $0.07 per pound increase in underlying hedged alloyed metal prices was offset by a $0.06 per pound decrease in average Fabricated Products ~~segment~~value added revenue per pound for the quarter ended September 30, 2010 as compared to the quarter ended September 30, 2009. The decrease in value added revenue per pound was due to slightly lower pricing for most products and a shift in mix toward lower margin products.

For the ~~fourth quarter~~nine months ended September 30, 2010, Net sales of fabricated products increased by 23% to $813.0 million, as compared to the nine months ended September 30, 2009, ~~include~~due primarily to a 23% increase in shipments driven primarily by significantly stronger demand for general engineering and automotive products as service center destocking that was prevalent in 2009 abated and automotive build rates increased compared to the ~~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. However, lower demand due to destocking in the supply chain will continue in the near-term. Orders shifted from the third quarter are expected to result in higher fourth quarter plate shipments. Overall, average shipments in the last six months of 2009 should be at the pace of the second quarter of 2009.

	•		~~General Engineering.~~ Visibility remains limited. The pace of service center destocking has moderated, with inventories at historic lows for many general engineering products. End-user demand should continue at the current level, but reflect normal seasonal downturns in the fourth quarter.

	•		~~Automotive and All Other.~~ Slight improvement in demand for our automotive products over the very weak pace of the first half of 2009 should continue, but with automotive build rates still substantially below historic levels. Our shipments should also reflect seasonal weakness due to the normal year-end shutdowns.

prior year period. Shipments for aerospace and high strength products during the nine months ended September 30, 2010 were moderately higher as compared to the nine months ended September 30, 2009. While average realized third party sales prices remained approximately the same, a 10% decrease in value added revenue per pound was offset by a 15% higher average underlying hedged alloyed metal price for the nine months ended September 30, 2010, as compared to the nine months ended September 30, 2009. The decrease in value added revenue per pound was due to a leaner product mix, as well as lower pricing for most products, particularly for general engineering plate. Consistent with our strategy, the underlying hedged cost of alloyed metal is passed through to customers through various pricing policies.

Operating income for the quarter ended September 30, ~~2009~~2010 was ~~$26.4~~$5.9 million as compared to ~~$19.5~~$26.4 million for the ~~third~~ quarter ~~of 2008.~~ended September 30, 2009. Operating income for the nine months ended September 30, ~~2009~~2010 was ~~$59.0~~$62.0 million as compared to ~~$102.4~~$59.0 million for the ~~first~~ nine months ~~of 2008.~~ended September 30, 2009. Operating income for ~~each of~~ the quarters and nine month periods ended September 30, 2010 and September 30, 2009 ~~and 2008 includes~~included several large non-run-rate items. These items are listed below (in millions of dollars):


	Quarter						Nine Months						Quarter Ended						Nine Months Ended
	Ended September 30,						Ended September 30,						September 30,						September 30,
	2009			2008			2009			2008			2010			2009			2010			2009
Operating income	$	26.4		$	19.5		$	59.0		$	102.4		$	5.9		$	26.4		$	62.0		$	59.0

Impact to operating income of non-run-rate items:
Metal (losses) gains (before considering LIFO)		11.2			(3.2	)		(5.3	)		23.7			(4.0	)		11.2			3.3			(5.3	)
Non-cash LIFO benefits (charges)		(6.9	)		(.7	)		6.3			(31.3	)		2.0			(6.9	)		(6.2	)		6.3
Non-cash lower of cost or market inventory write-down		—			—			(9.3	)		—			—			—			—			(9.3	)
Mark-to-market gains (losses) on derivative instruments		2.6			(9.7	)		5.4			(5.2	)
Restructuring charges		(.1	)		—			(5.5	)		—
Pre-emergence related environmental costs (1)		(.1	)		(.6	)		(.6	)		(1.9	)
Mark-to-market (losses) gains on derivative instruments														(2.4	)		2.6			(5.2	)		5.4
Restructuring benefits (charges)														0.4			(0.1	)		0.9			(5.5	)
Impairment on held for sale assets																	—			(1.9	)		—
Environmental expense														(13.1	)		(0.1	)		(13.5	)		(0.6	)

Total non-run-rate items		6.7			(14.2	)		(9.0	)		(14.7	)		(17.1	)		6.7			(22.6	)		(9.0	)


Operating income excluding non-run-rate items	$	19.7		$	33.7		$	68.0		$	117.1		$	23.0		$	19.7		$	84.6		$	68.0

3Q09 vs. 3Q08 9M09 vs. 9M08
Favorable Favorable
(unfavorable) (unfavorable)
Sales impact $ (28.7 ) $ (70.2 )
Manufacturing efficiency improvements 7.4 1.0
Energy costs 6.4 14.4
Freight 1.7 5.9
Currency exchange related .6 3.5
Depreciation expense (.3 ) (1.5 )
Other (1.1 ) (2.2 )


	3Q10 vs. 3Q09			9M10 vs. 9M09
	Favorable/(Unfavorable)			Favorable/(Unfavorable)
Sales impact	$	7.7		$	7.8
Manufacturing efficiency improvements		(3.1	)		8.4
Other		(1.3	)		0.4

Total	$	3.3		$	16.6

Segment operating results for the quarters ended September 30, 2009 and 2008 include gains (losses) on intercompany hedging activities with the Primary Aluminum segment totaling $(5.9) million and $5.5 million, respectively. Segment operating results for the nine months ended September 30, 2009 and 2008 include gains (losses) on intercompany hedging activities with the Primary Aluminum segment totaling $(39.6) million and $28.8 million, respectively. These amounts eliminate in consolidation.

~~Primary Aluminum~~

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

Quarter Nine Months
Ended September 30, Ended September 30,
2009 2008 2009 2008
Shipments (mm pounds) 41.0 24.2 113.7 98.0
Average realized third party sales price (per pound) $ .90 $ 1.42 $ .79 $ 1.41
Net sales $ 36.9 $ 34.3 $ 89.3 $ 138.4
Segment operating income (loss) $ 27.5 $ (44.9 ) $ 58.8 $ 3.8

During the quarter ended September 30, 2009, third party net sales of primary aluminum increased by 8% compared to the prior year quarter, as a 69% increase in shipments was partially offset by a 36% decrease in average realized pricing. During the nine months ended September 30, 2009, third party net sales of primary aluminum decreased by 35% compared to the prior year period, with a 44% decrease in average realized pricing partially offset by a 16% increase in shipments. The increase in Primary Aluminum shipments for the quarter and nine months ended September 30, 2009 over the prior periods reflected the lower shipment volume in the third quarter 2008 due to a production interruption resulting from a fire at Anglesey, as discussed below. The net sales and average realized sales prices did not consider the impact of hedging transactions.

~~The following table recaps the major components of segment operating results for the quarter~~ and nine month periods ended September 30, 2010 and September 30, 2009 include losses on intercompany hedging activities with the Hedging business unit. For the quarters ended September 30, 2010 and ~~2008 (in millions~~September 30, 2009, such amounts included losses totaling $0.8 million and $5.9 million, respectively. For the nine month periods ended September 30, 2010 and September 30, 2009, such amounts included losses totaling $2.7 million and $39.6 million, respectively. These intercompany amounts eliminate in consolidation.

Outlook

We are increasingly encouraged by the prospects for the aerospace market. Airframe manufacturers have announced plans for increased production, and long-term fundamentals remain strong with solid order backlogs and growing aircraft build rates. Although in the short-term we expect that airframe manufacturers will continue destocking as surplus inventories are reduced, we expect destocking to abate as build rates ramp up in 2011.

Demand for our general engineering, automotive and industrial applications continues to reflect a slow recovery. We do not anticipate any meaningful restocking of ~~dollars)~~service center inventories until the economic recovery is strong enough to stimulate a sustainable increase in real demand. Despite these conditions, automotive build rates are steadily increasing and we are capturing new programs driven by vehicle light weighting to meet CAFE regulations.

We are very encouraged by the progress at our new Kalamazoo, Michigan facility and are extremely optimistic about the long-term prospects for the facility as we achieve full operational potential. With our recently announced acquisition of the Florence, Alabama facility and the ~~discussion following~~pending acquisition of the ~~table addresses~~Alexco, assets, we have further strengthened our platform for growth through product extensions and capabilities to more broadly meet the ~~primary factors leading~~needs of our aerospace and general engineering served market segments.

Our outlook for the fourth quarter reflects normal seasonality which we expect will result in slightly lower shipments and value added revenue compared to the ~~differences. Many~~third quarter. We anticipate continued major maintenance spending at a cost comparable to the third quarter, however, we anticipate manufacturing efficiencies to improve in the fourth quarter to performance levels similar to the first half of ~~these factors indicated are subject~~2010 and to ~~significant fluctuation~~continue to improve as we progress into 2011.

As we look towards early 2011, we anticipate aerospace and automotive demand to improve and seasonally strong first quarter shipments and value added revenue to exceed first quarter 2010 levels. In addition, we expect incremental benefits from ~~period to period. See Part I, Item 1A. “Risk Factors” included in~~the ramp up of our ~~Annual Report on Form 10-K for~~new Kalamazoo, Michigan facility and from the ~~year ended December 31, 2008.~~integration of the acquired assets into our Fabricated Products business.

3842

Quarter Nine Months
Ended September 30, Ended September 30,
2009 2008 2009 2008
Profit on metal sales (net of alumina sales) (1) $ 6.7 $ 1.6 $ 9.5 $ 18.5
Anglesey (2) .4 (8.4 ) .4 4.0
Impairment of investment in Anglesey — — (1.8 ) —
Internal hedging gains (losses) with Fabricated Products (3) 5.9 (5.5 ) 39.6 (28.8 )
Derivative settlement gains (losses) — Pounds Sterling (4) (2.7 ) (.1 ) (12.2 ) .5
Derivative settlement gains (losses) — External metal hedging (4) (7.2 ) 1.6 (20.7 ) 10.4
Mark-to-market gains (losses) on derivative instruments (4)(5) 24.4 (34.1 ) 44.0 (.8 )

$ 27.5 $ (44.9 ) $ 58.8 $ 3.8

All Other


~~(1)~~		~~Operating income represents earnings on metal purchases from Anglesey and resold~~ All Other consists of Secondary Aluminum, Hedging and Corporate and Other business units. The Secondary Aluminum business unit sells value added products such as ingot and billet produced by us and on alumina purchases from third parties by us and sold to Anglesey. This is 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 (losses) from Anglesey, which for the quarter and nine months ended September 30, 2008 included an estimated $20 million adverse impact from a fire in June 2008. Anglesey’s 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.

~~(3)~~		~~Eliminates in consolidation.~~

~~(4)~~		~~Impacted by positions and market prices.~~

~~(5)~~		~~We consider mark-to-market gains and losses on derivative instruments to be non-run-rate income items.~~

~~Through~~ the ~~quarter ended~~secondary aluminum remelt and casting operations of Anglesey, for which we receive a portion of a premium over normal commodity market prices. Our Hedging business unit conducts hedging activities in respect of our exposure to primary aluminum prices, and conducted British Pound Sterling exchange rate risk relating to Anglesey’s smelting operations through September 30, ~~2009,~~ 2009. Our Corporate and Other business unit provides general and administrative support for our operations. All Other is not considered a reportable segment.

Secondary and Primary Aluminum Activities.Anglesey operated under a power agreement that provided sufficient power to sustain its ~~aluminum reduction~~smelting operations at near-full ~~capacity. As we previously announced,~~capacity until the ~~power agreement expired~~contract expiration at the end of September 2009. Despite Anglesey’s efforts to find a sustainable alternative to its power supply needs, no ~~sources~~source of affordable power ~~were~~was identified to allow for the uninterrupted continuation of smelting operations beyond the expiration of the power ~~contract expiration date. Accordingly,~~contract. As a result, Anglesey fully curtailed its smelting operations ~~as of~~on September 30, 2009. In the fourth quarter of 2009, Anglesey commenced a remelt and casting operation to produce secondary aluminum products such as log and billet. Anglesey purchases its own material for the remelt and casting operations and sells 49% of its output to ~~produce secondary aluminum billet~~us in transactions structured to largely eliminate metal price and currency exchange rate risks with respect to income and cash flow related to Anglesey. See Note 3 of Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the ~~fourth quarter~~year ended December 31, 2009 for additional information regarding the operations of ~~2009.~~Anglesey.

WeAt December 31, 2008, we fully impaired our investment in Anglesey in the fourth quarter of 2008, concluding that we should not expect to receive any dividends from Anglesey in the foreseeable future. This determination was made taking into account Anglesey’s full curtailment of its smelting operations, which we had anticipated as a likely possibility, due to its inability to obtain affordable power, the cash requirements for redundancy and pension payments, and the uncertainty with respect to the future of its operations.Anglesey. For the ~~first half of~~six months ended June 30, 2009, ~~based upon our continued assessment of the facts and circumstances,~~ we recorded ~~additional impairment charges of~~ $1.8 million ~~relating~~in equity in income of Anglesey, which was subsequently impaired to ~~our investment in Anglesey, such that~~maintain our investment balance ~~remained~~ at zero.

For the quarter ended September 30, 2009, Anglesey incurred a significant net loss, primarily as ~~the~~a result of ~~recording charges for~~ employee ~~termination~~redundancy costs incurred in connection with the cessation of its smelting operations. As a result of such loss, and as we ~~did~~were not, and are not, obligated to, (i) advance any funds to Anglesey, (ii) guarantee any obligations of Anglesey, or (iii) make any commitments to provide any financial support for Anglesey, we suspended the use of the equity method of accounting with respect to our ownership in Anglesey, ~~during~~commencing in the quarter ended September 30, ~~2009.~~2009 and continuing through the quarter ended September 30, 2010. Accordingly, we did not recognize our share of Anglesey’s ~~net loss~~operating results for such ~~period.~~periods, pursuant to ASC Topic 323,Investments—Equity Method and Joint Ventures. We dowill not ~~anticipate resuming~~resume 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 ~~any~~ periods for which the equity method was ~~suspended. As of the date of filing of this Report, we~~suspended and (ii) future dividends can be expected. We do not ~~expect~~anticipate the occurrence of such ~~event~~events during the next 12 months.

~~In June 2008,~~The table below provides selected operational and financial information (in millions of dollars except shipments and prices) for Anglesey ~~suffered a significant failure~~related primary and secondary aluminum activities:


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

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

The following table recaps the major components of the ~~fire, Anglesey operated below its production capacity during~~operating results from Anglesey- related primary and secondary aluminum activities for the ~~latter half~~quarters and nine month periods ended September 30, 2010 and September 30, 2009 (in millions of 2008 until normal production resumed in December 2008 and incurred incremental costs, primarily associated with repair and maintenance costs, as well as loss of margin due to the outage. Anglesey has property damage and business interruption insurance that is expected to recover financial losses (net of applicable deductibles)dollars). ~~Anglesey received a partial insurance settlement payment of $20.0 million in December 2008 of which $10.0 million was~~

3943

~~recorded~~


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

	$	—	$	7.1	$	0.1	$	8.1


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

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

Hedging activities.Our pricing of fabricated aluminum products, as our equity income. During the first quarter of 2009, Anglesey received another partial insurance settlement of $8.2 million, 49% of which (or $4.0 million) was recorded as our equity income. We fully impaireddiscussed 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 and incur price risk on our anticipated primary aluminum purchases in respect of customer orders. 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 our Fabricated Products segment and Hedging business unit eliminate in consolidation. 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 share of the insurance proceeds received by Anglesey in 2008 and during the first quarter of 2009, as reflected in our equity income, because we do not expect to receive any such proceeds through the distribution of dividends. Anglesey did not receive any insurance settlements during the second or third quarters of 2009 and the timing and amount of any remaining insurance recovery are uncertain. We currently anticipate that we would not receive any portion of Anglesey insurance recoveries, in the form of potential dividends by Anglesey, relating to the fire.

~~Although we have suspended equity accounting with respect to our interest in Anglesey, the Primary Aluminum segment will continue to reflect the impact of hedging activities with respect~~exposure to aluminum price risk, the Hedging business unit also conducted hedging activities in respect of our exposure to the British Pounds Sterling exchange rate relating to Anglesey’s smelting operations through September 30, 2009.

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

The table below provides a detail of operating income (in millions of dollars) from our Hedging business unit for the ~~entire company~~quarters and ~~include the revenue~~nine month periods ended September 30, 2010 and costs associated with our purchase and sale of our share of Anglesey’s secondary aluminum billet production. We expect the Primary Aluminum segment results to reflect a net realized loss of approximately $5 million in the fourth quarter of 2009 related to metal hedge positions that were placed when we determined that Anglesey production no longer provided a natural hedge for Fabricated Products’ firm price customer commitments. Further, Anglesey purchases its own material for its remelt and casting operations and sells its output to Rio Tinto and us, 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 metal price and currency exchange rate risks with respect to our income and cash flow related to Anglesey.September 30, 2009:


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

	$	17.0		$	20.5		$	1.2		$	50.7


¹		Eliminates in consolidation.

²		Impacted by positions and market prices.

Corporate and Other Activities.

Operating expenses within the Corporate ~~operating expenses~~and Other business unit represent ~~corporate~~ general and administrative expenses that are not allocated to ~~our~~other business ~~segments.~~units. 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 (in millions of dollars) for the quarters and nine month periods ended September 30, 2010 and September 30, 2009:


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

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

Total non-run-rate items		0.9			1.3			1.9			4.0

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

Corporate operating expenses ~~exclude Other operating charges, net discussed above.~~

~~Corporate operating costs~~excluding non-run-rate items for the quarter ended September 30, ~~2009~~2010 were ~~$1.2~~$1.3 million lower than such ~~costs~~expenses for the ~~quarter ended September 30, 2008. This~~comparable period in 2009. The decrease ~~in Corporate operating costs is~~reflects primarily ~~related to: (i)~~ a ~~$.4~~$1.1 million decrease in ~~short term incentive compensation accrual, (ii) a $.6 million reduction in cost associated with stock-based~~non-cash stock compensation expense ~~(iii) a $.9 million reduction in professional fees, primarily audit fees, and (iv) a $1.0 million decline of in environmental related costs,~~relating to our long-term incentive programs due to ~~charges incurred in 2008 relating to~~the vesting of certain ~~of our former production facilities. Such decreases were partially offset by a $1.5 million increase in voluntary~~ employee ~~beneficiary association (“VEBA”) net periodic benefit cost and a $.2 million increase in various other administrative costs.~~equity awards.

Corporate operating ~~costs~~expenses excluding non-run-rate items for the nine months ended September 30, ~~2009~~2010 were ~~$3.9~~$0.4 million ~~lower~~higher than such ~~costs~~expenses for the ~~nine months ended September 30, 2008. This decrease~~comparable period in ~~Corporate operating costs is~~2009. The increase reflects primarily ~~related~~(i) a $1.5 million increase in discontinued operations workers’ compensation expense as a result of changes in estimated incurred but not reported expense and (ii) a $3.0 million increase in employee compensation expense relating to our short-term incentive program and other benefit programs, partially offset by (i) a ~~$4.8~~$3.4 million decrease in ~~administrative expenses, partially offset by $.9 million~~non-cash stock compensation expense relating to our long-term incentive programs due to the vesting of ~~restructuring costs~~certain employee equity awards and ~~other charges incurred in the second quarter 2009. The decrease in administrative expenses reflects: (i) a $3.0 million decrease in short term incentive compensation accrual,~~ (ii) a ~~$3.3~~decrease of $0.8 million ~~reduction~~ in professional fees ~~primarily audit fees, (iii) a $1.2 million decline in environmental~~for tax related ~~costs, due to charges incurred in 2008 relating to certain of our former production facilities, (iv) a $1.1 million reduction in cost based upon timing of vesting~~services and changes in vesting assumptions relating to performance shares, and (v) a $.7 million aggregate decrease in various other administrative costs, primarily personnel compensation. Such decreases were partially offset by a $4.5 million increase in VEBA net periodic benefit cost.consulting services.

We consider the restructuring costs and other charges, the environmental costs incurred in 2008 in connection with certain of our former production facilities, and the VEBA net period benefit costs discussed above to be non-run-rate items.

Liquidity and Capital Resources

Summary

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

Cash and cash equivalents were ~~$34.6~~$143.7 million ~~as of~~at September 30, ~~2009,~~2010, up from ~~$.2~~$30.3 million ~~as of~~at December 31, ~~2008. In addition to~~2009. The increase in cash and cash equivalents ~~our revolving credit facility is a source of liquidity for operations. Borrowing on the revolving credit facility was zero at September 30, 2009, down from $36.0 million at December~~

~~31, 2008. Operating income and net cash inflows from changes in certain current assets and liabilities~~ during the nine months ended September 30, ~~2009 contributed to~~2010 is primarily driven by the ~~repayment~~issuance of ~~revolving credit borrowings and~~ the ~~increase~~Notes, resulting in ~~cash and cash equivalents. Of the $119.2~~$169.2 million of net ~~cash provided by operating activities for~~proceeds after deducting the ~~nine months ended September 30, 2009, approximately $63.5 million is attributable to operating income for the period. Significant cash flows from changes in current assets~~initial purchasers’ discounts and ~~liabilities include decreases in inventories ($43.7 million), in trade~~transaction fees and ~~other receivables ($31.9 million), and in net receivables from affiliate ($5.8 million)~~expenses (see “Sources of Liquidity” below). ~~Partially offsetting these cash inflows was a $31.2 million decrease in other accrued liabilities.~~

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~~purchased, and other highly liquid investments. We place our cash in money market funds with high credit quality financial institutions which invest primarily in commercial paper and time deposits of prime quality, short-term repurchase agreements, and U.S. government agency notes. We have not experienced losses on our temporary cash investments.

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

In addition to our unrestricted cash and cash equivalents described above, we have restricted cash that is pledged as collateral ~~for derivative contracts with our counterparties and~~at September 30, 2010 for certain letters of credit, or restricted to use for workers’ compensation requirements and certain agreements. ~~Short term~~Short-term restricted cash, which is included in Prepaid expenses and other current assets, totaled ~~$.9~~$0.9 million ~~and $1.4 million as of~~at both September 30, ~~2009~~2010 and December 31, ~~2008, respectively. Long term~~2009. Long-term restricted cash, which ~~was~~is included in Other Assets, was ~~$17.8~~$16.3 million ~~and $35.4 million as of September 30, 2009 and December 31, 2008, respectively. Included in long term restricted cash~~ at September 30, ~~2009~~2010 and $17.4 million at December 31, ~~2008~~2009.

~~Primary Aluminum —~~~~During~~an increase in inventory of $31.8 million and an increase in accounts receivables of $4.6 million. Cash provided by the nine months ended September 30, 2009, Primary Aluminum operating activities provided $30.1 million in cash compared to the nine months ended September 30, 2008, when Primary Aluminum operating activities provided $3.7 million of cash. Cash providedFabricated Products segment in the nine months ended September 30, 2009 was primarily ~~due~~related to ~~operating income ($17.9 million) and a decrease~~decreases in working capital ~~($12.2 million).~~ and secondarily to operating income.

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 provided $7.5 million of cash in the nine months ended September 30, ~~2008~~2010, while Anglesey related activities used $5.2 million of cash in the nine months ended September 30, 2009. Operating cash flow for the nine months ended September 30, 2010 was ~~primarily due~~related to ~~dividends received from Anglesey ($3.9 million) and~~changes in working capital. Operating cash flow for the nine months ended September 30, 2009 was comprised of operating income ~~($1.2 million), partially offset by an increase~~from Anglesey-related activities and changes in working ~~capital ($1.4 million).~~capital.

~~Corporate and Other —~~~~Corporate and Other operating~~Hedging related activities ~~used $33.9~~provided $4.4 million of cash during the nine months ended September 30, ~~2009 compared to~~2010 and $24.9 million of cash during the nine months ended September 30, ~~2008, when~~2009. Cash provided by our Hedging business unit is related to realized hedging gains and losses on our derivative positions and is affected by the timing of settlement of such positions.

Corporate and ~~Other~~other operating activities used ~~$39.4~~$30.4 million and $33.9 million of ~~cash.~~cash during the nine month periods ended September 30, 2010 and September 30, 2009, respectively. Cash ~~outflows~~outflow from Corporate and ~~Other~~other operating activities in the nine months ended September 30, 2010 consisted primarily of $2.8 million of annual VEBA contribution, payment of $2.7 million in relation to our short-term incentive program and payments in respect of cash general and administrative costs. Cash outflow from Corporate and other operating activities in the nine months ended September 30, 2009 ~~include~~consisted primarily of $4.9 million of ~~payments to the VEBAs, payments~~annual VEBA contribution, payment of $5.1 million in relation to our ~~short term~~short-term incentive program and payments ~~of $23.9 million~~ in respect of cash general and administrative costs. Cash outflows from Corporate and Other operating activities in the nine months ended September 30, 2008 primarily included $8.4 million of payments to the VEBAs, payments of $8.0 million in relation to our short term incentive program and payments of $23.1 million in respect of general and administrative costs. The amount of cash outflows for general and administrative costs in a given period can be significantly affected by the timing of disbursements.

Investing Activities

Fabricated Products -——Cash used in investing activities for Fabricated Products was ~~$50.3~~$42.6 million in the nine months ended September 30, ~~2009. This compares~~2010, compared to $50.3 million of cash used in the nine months ended September 30, ~~2008 when Fabricated Products~~2009. Cash used in investing ~~activities used $61.0 million in cash. See "~~~~Capital Expenditures~~~~” below for additional information.~~

~~Primary Aluminum —~~~~Investing~~ activities in the ~~Primary Aluminum segment is~~nine month periods ended September 30, 2010 consisted of cash outflow of (i) $34.0 million for capital expenditures, (ii) $9.0 million for the acquisition of the manufacturing facility and related ~~to margin deposits required as cash collateral~~assets of Nichols and (iii) $4.4 million for the purchase available for sale securities in connection with our ~~derivative counterparties. We received $17.2~~deferred compensation plan, partially offset by cash inflow of $4.8 million for the sale of ~~margin deposits back from the counterparties during~~our Greenwood, South Carolina facility. Cash used in investing activities in the nine months ended September 30, 2009 ~~as a result of an increase in~~was primarily related to our ~~aggregate derivative fair value from December 31, 2008.~~capital expenditures. See “Capital Expenditures” below for additional information.

~~Corporate and~~All Other—Investing activities in All Other is generally related to activities in restricted cash and capital expenditures within the Corporate and Other ~~segment~~business unit. We have restricted cash on deposit as financial assurance for certain environmental obligations and workers’ compensation claims from the State of Washington. Cash provided in investing activities in the nine months ended September 30, 2010 is comprised of a return of $1.1 million of restricted cash to us relating to workers’ compensation deposit, partially offset by $0.9 million of capital expenditures. Cash generated from investing activities in All Other in the nine months ended September 30, 2009 is ~~primarily~~ related to return of a ~~$.9 million decrease in~~portion of restricted cash ~~largely offset by capital spending.~~related to margin deposit posted with our derivative counterparties to support derivative hedging transactions at December 31, 2008.

Financing Activities

~~Corporate~~All Other—Cash provided by financing activities in the nine months ended September 30, 2010 was $90.5 million. The cash inflow was primarily related to the issuance of the Notes and ~~Other —~~related transactions. We received $169.2 million of net proceeds from the Notes after deducting the initial purchasers’ discounts and transaction fees and fees and expenses of $5.8 million. In connection with the issuance of the Notes, we paid $31.4 million to Option Counterparties to purchase the Call Options and received $14.3 million for issuing the Warrants. In addition, we used $44.2 million of the net proceeds from the Notes transaction to repurchase approximately 1.2 million shares of our common stock. In addition to the financing transactions relating to the Notes, during the nine months ended September 30, 2010, we also paid $14.3 million in cash dividends and dividend equivalents to our stockholders and holders of restricted stock, restricted stock units and performance shares and paid $0.4 million in principal and interest on the promissory note issued to Nichols.

Cash used in financing activities in the nine months ended September 30, 2009 was $51.9 million. The cash outflow was primarily related to the repayment of $36.0 million of net borrowings under our previously existing revolving credit facility and the payment of ~~$36.0 million and~~ $14.7 million in cash dividends ~~paid~~and dividend equivalents to ~~stockholders. Cash used in the nine months ended September 30, 2008 was primarily related to cash dividends paid to stockholders.~~our stockholders and holders of restricted stock, restricted stock units and performance shares.

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.~~Revolving Credit Facility. We believe that funds generated from the expected results of operations, together with available cash and cash equivalents and borrowing availability under our ~~revolving credit facility,~~Revolving Credit Facility, will be sufficient to finance our cash requirements, including those associated with our existing expansion plans and strategic initiatives, ~~which could include acquisitions,~~ for at least the next 12 months. ~~There~~However, 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.~~Revolving Credit Facility.

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

On March 23, 2010, we and certain of our subsidiaries entered into the Revolving Credit Facility with a group of lenders. The Revolving Credit Facility provides for up to $200.0 million of borrowing base, of which up to a maximum of $60.0 million may be utilized for letters of credit. Under the ~~revolving credit facility,~~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 ~~$265.0~~$200.0 million or a borrowing base comprised of certain percentages of eligible accounts receivable and 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 $60.0 million may be utilized for letters of credit.~~Revolving Credit Facility.

The ~~revolving credit facility~~Revolving Credit Facility matures in ~~July 2011,~~March 2014, at which time all ~~principal~~ amounts outstanding ~~thereunder~~under the Revolving Credit Facility will be due and payable. Borrowings under the ~~revolving credit facility~~Revolving Credit Facility bear interest at a rate equal to either a base prime rate or LIBOR, at our option, plus, in each case, a

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

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

On March 23 and March 26, 2010, we also entered into warrant transactions to sell the Option Counterparties the Warrants. The Warrants will expire on July 1, 2015. The Option Counterparties paid an aggregate amount of approximately $14.3 million to us for the Warrants. If the market price per share of our common stock, as measured under the terms of the Warrants, exceeds the strike price of the Warrants (which is initially equal to $61.36, representing 160% of the closing price of $38.35 per share of our common stock on March 23, 2010), we will issue the Option Counterparties shares of our common stock having a value equal to such excess, as measured under the terms of the Warrants.

The Call Options and the Warrants are separate transactions, are not part of the terms of the Notes and do not change a holder’s rights under the Notes.

In connection with our acquisition of the manufacturing facility and related assets of Nichols on August 9, 2010, a promissory note in the amount of $6.7 million (“Nichols Promissory Note”) was issued to Nichols as a part of the consideration paid. The Nichols Promissory Note bears interest at a rate of 7.5% per annum. Accrued but unpaid interest is due quarterly through maturity of the note on August 9, 2015, with the first such payment having been made on September 30, 2010. We have the option to repay all or a portion of the promissory note at any time prior to the maturity date. Principal payments on the note are due in equal quarterly installments, with the first such payment having been made on September 30, 2010. The Nichols Promissory Note is secured by certain real property and equipment included in the assets acquired from Nichols. The current portion of the Nichols Promissory Note was $1.3 million on September 30, 2010.

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

Capital Expenditures and Investments

Capital Expenditures.A component of our long-term strategy is our capital expenditure program including our organic growth initiatives. The following table presents our capital expenditures for the nine ~~months~~month periods ended September 30, ~~2009~~2010 and ~~2008~~September 30, 2009 (in millions of dollars):

Nine Months
Ended September 30,
2009 2008
Kalamazoo, Michigan facility (1) $ 38.4 $ 12.4
Spokane, Washington facility (2) 3.4 26.7
Other (3) 6.0 22.0
Change in accounts payable associated with capital expenditures 3.2 (.1 )

Total capital expenditures, net of change in accounts payable $ 51.0 $ 61.0


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

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


~~(1)~~¹		The Kalamazoo, Michigan facility is ~~planned to be~~ equipped with two extrusion presses and a remelt operation. We expect that it will significantly improve the capabilities and efficiencies of our rod and bar operations, enhance the market position of such products, and be a platform to enable further extruded ~~products~~product growth for automotive applications. ~~Completion of this~~This investment program is expected to ~~occur~~be substantially complete in ~~early~~late 2010. We estimate that ~~an additional $20~~$25 million to ~~$25~~$30 million will be incurred in connection with this investment program ~~in the remainder of 2009 and that $20 million to $25 million will be incurred in~~during 2010.

~~(2)~~		Inclusive of the $139 million heat treat plate expansion project at our Trentwood facility in Spokane, Washington. This project, substantially completed in October 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)~~²		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 and investments for Fabricated Products are currently expected to be in the ~~$70~~$40 million to ~~$80~~$50 million range for all of ~~2009~~2010 and are expected to be funded using cash generated from operations, available cash and cash equivalents, or borrowings under ~~our revolving credit facility~~the Revolving Credit Facility or other ~~third party~~third-party financing arrangements.

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

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

On October 12, 2010, we entered into a definitive agreement to purchase substantially all of the assets and to assume substantially all of the liabilities of Alexco, a manufacturer of hard alloy extrusions for the aerospace industry based in Chandler, Arizona. The acquisition is intended to complement our current offering of sheet, plate, cold finish and drawn tube products in our Fabricated Products segment. The transaction is anticipated to close in December, 2010, subject to satisfaction of closing conditions, including receipt of third party consents. We intend to fund the purchase price of approximately $90 million with existing cash on hand.

Dividends

During the ~~first~~ nine months ~~of 2009,~~ended September 30, 2010, we paid a total of ~~$14.7~~$14.3 million, or ~~$.72~~$0.72 per common share, in cash dividends to our stockholders, including the holders of restricted stock, and dividend equivalents to the holders of restricted stock units and the holders of performance shares with respect to approximately half of the performance shares.

On October ~~13, 2009,~~11, 2010, we announced that our Board of Directors had approved the declaration of a quarterly cash dividend of ~~$.24~~$0.24 per common share payable on November 15, 2010 to stockholders of record at the close of business on October ~~23, 2009, payable on November 13, 2009.~~22, 2010.

~~Future~~The future declaration and payment of dividends, if any, will be at the discretion of the Board of Directors and will ~~be dependent upon~~depend on a number of factors, including our financial and operating results, ~~of operations,~~ financial condition, anticipated cash requirements ~~future prospects~~ and ~~other factors.~~ability to satisfy conditions contained in our Revolving Credit Facility. We can give no assurance that ~~any~~ dividends will be declared orand 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 or would not be in default as a result of the dividend payment, and such dividends cannot exceed $25 million during any fiscal year.

Stock Repurchase Plan

During the second quarter of 2008, our Board of Directors authorized the repurchase of up to ~~$75~~$75.0 million of our common shares, with repurchase transactions to occur in open-market or privately negotiated transactions at such times and prices as management deemed appropriate and to be funded with our excess liquidity after giving consideration to internal and external growth opportunities and future cash flows. The program may be modified, extended or terminated by our Board of Directors at any time. ~~We did not repurchase any of our common shares under this program during the nine months ended September 30, 2009.~~ As of September 30, ~~2009,~~2010, $46.9 million remained available for repurchases under the existing repurchase authorization.

~~Our revolving credit facility, as amended on January 9, 2009, prohibits~~During the first quarter of 2010, pursuant to a separate authorization from our Board of Directors, we repurchased $44.2 million, or approximately 1.2 million shares of our outstanding common stock, in privately negotiated, off-market transactions with purchasers of the Notes.

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

Restrictions Related to Equity Capital

As discussed in Note 9 of Notes to Consolidated Financial Statements included in Part II, Item 8. “Financial Statements and Supplementary Data” and elsewhere in our ~~compensation programs, without lender approval.~~Annual Report on Form 10-K for the year ended December 31, 2009, there are restrictions on the transfer of our common shares. Additionally, our Revolving Credit Facility places limitations on our ability to repurchase our common stock and to pay dividends (see Sources of Liquidity above).

Environmental Commitments and Contingencies

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

During the third quarter of 2010, we increased our environmental accruals in connection with our submission of a draft feasibility study to the State of Washington on September 8, 2010 (the “Feasibility Study”). The draft Feasibility Study included recommendations for alternatives to primarily address the historical use of oils containing polychlorinated biphenyls, or PCBs, at our Trentwood facility in Spokane, Washington and plans for remediation for the next 30 years. Based on the draft Feasibility Study and our evaluation of ~~these and~~ other existing historical environmental matters at the Trentwood facility and certain other locations owned or operated by us, we ~~have established~~increased our environmental accruals by $13.6 million during the quarter ended September 30, 2010, to a total environmental reserve of ~~$8.5~~$20.6 million at September 30, ~~2009. However, we~~2010, primarily to reflect anticipated expenditures included in the draft Feasibility Study for the next 30 years at or near the current level of expenditures incurred in connection with ongoing efforts to address the historical issues at the Trentwood facility. Of the total environmental reserve, $18.6 million is related to our Trentwood facility in Spokane, Washington. We expect that these remediation actions will be taken over the next 30 years and estimate that expenditures to be charged to these environmental accruals will be approximately $0.5 million in 2010, $1.1 million in 2011, $1.0 million in 2012, $3.2 million in 2013, and $14.8 million in 2014 and years thereafter through the balance of the 30 year period. The draft Feasibility Study is still subject to further reviews, public comment and regulatory approvals before the final consent decree is issued. We expect the consent decree to be issued in 2012.

As additional facts are developed, feasibility studies at various locations are completed, definitive remediation plans and necessary regulatory approvals for implementation of remediation are established, and alternative technologies are developed, changes in these and other factors may result in actual costs exceeding the current environmental accruals. We believe that it is reasonably possible that changes in various factors and our assumptions, including the effectiveness of our recommended remediation alternatives, the completion of the review of our draft Feasibility Study and resulting clean-up action plan expected to become part of a consent decree, and the nature of the costs identified in the draft Feasibility Study could cause the undiscounted costs associated with these environmental matters, again primarily in connection with our ongoing efforts to address the historical use of oils containing PCBs at our Trentwood facility, to exceed current accruals by amounts that could be, in the aggregate, up to an estimated $16.8 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.$23.8 million.

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

During the nine months ended September 30, ~~2009,~~2010, we granted additional stock-based awards to certain members of management under our stock-based long term incentive plan in connection with our 2010 compensation program (see Note 1012 of Notes to Interim Consolidated Financial Statements included in Part I, Item 1. “Financial Statements” of this Report). Additional awards are expected to be made in future years.

During the quarter ended March 31, 2010, we also issued the Notes and the Warrants, and purchased the Call Options (see Note 7 of Notes to Interim Consolidated Financial Statements included in Part I, Item 1. “Financial Statements” of this Report). As of September 30, 2010, the Notes were not convertible. We do not expect the Notes to be converted by investors until close to their maturity date, if at all. It is possible that the Notes could be converted prior to their maturity date if, for example, a holder perceives (and market data validates the perception) the market for the Notes to be weaker than the market for the common stock. Upon an investor’s election to convert, we are required to pay the conversion value in cash. We expect that any payment above the principal amount would be effectively offset by payments we would be entitled to receive from exercise of the Call Options.

On October 12, 2010, we entered into a definitive agreement to purchase substantially all of the assets of Alexco, a manufacturer of hard alloy extrusions for the aerospace industry based in Chandler, Arizona, for approximately $90 million. In connection with the purchase transaction, we will also assume substantially all of Alexco’s liabilities. The acquisition is intended to complement our current offering of sheet, plate, cold finish and drawn tube products in our Fabricated Products segment. The transaction is anticipated to close in December, 2010, subject to satisfaction of closing conditions, including receipt of third party consents. We intend to fund the purchase with existing cash on hand.

With the exception of the ~~stock-based awards granted in the nine months ended September 30, 2009,~~above-mentioned transactions and as otherwise disclosed herein, there has been no ~~other~~ material change in our contractual obligations other than in the ordinary course of business since the end of fiscal ~~2008.~~2009. See Part II, Item 7. ~~“Management’s~~

Critical Accounting Estimates and Policies

Our consolidated financial statements are prepared in accordance with ~~United States generally accepted accounting principles (“US 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, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that ~~management believes~~we believe to be relevant at the time our consolidated financial statements are prepared. On a regular basis, ~~management reviews~~we review the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with US GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

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

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

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

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

Our significant accounting policies are discussed in Note 1 of Notes to Consolidated Financial Statements included in Part II, Item 8. “Financial Statements and Supplementary Data” of our Annual Report on Form 10-K for the year ended December 31, ~~2008.~~2009. We discuss our critical accounting estimates in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, ~~2008. There~~2009. With the exception of our judgments and estimates in respect of: (i) the Notes and the related derivatives and (ii) acquisition-related accounting, each of which is discussed above, there has been no material change in our critical accounting estimates since the end of fiscal ~~2008.~~2009. Changes to our significant accounting policies since the end of fiscal ~~2008~~2009 are discussed in Note 1 of Notes to Interim Consolidated Financial Statements included in Part I, Item 1. “Financial Statements” of this Report.

New Accounting Pronouncements

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


~~Item 3.~~		Available Information Our website is located atwww.kaiseraluminum.com. The website includes a section for investor relations under which we provide notifications of news or announcements regarding our financial performance, including Securities and Exchange Commission (the “SEC”) filings, investor events, and press and earnings releases. In addition, all Kaiser Aluminum Corporation filings submitted to the SEC, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and Proxy Statements for our annual meeting of stockholders, as well as other Kaiser Aluminum Corporation reports and statements, are available on the SEC’s web site atwww.sec.gov. Such filings are also available for download free of charge on our website. In addition, we provide and archive on our website webcasts of our quarterly earnings calls and certain events in which management participates or hosts with members of the investment community, and related investor presentations. The contents of the website is not intended to be incorporated by reference into this Report or in any other report or document filed by us and any reference to the websites are intended to be inactive textual references only. Item 3. *Quantitative and Qualitative Disclosures About Market Risk*

Our operating results are sensitive to changes in the prices of primary aluminum and fabricated aluminum products, and also depend to a significant degree upon the volume and mix of all products sold. As discussed more fully in Note 1214 of Notes to Interim Consolidated Financial Statements included in Part I, Item 1. “Financial ~~Statements”~~Information” of this Report, 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 and energy prices.

Primary and Secondary Aluminum.As a result of the full curtailment of Anglesey’s smelting operations at September 30, 2009 and the commencement of secondary aluminum remelt and casting operations discussed in Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (see “Results of Operations— Segment and Business Unit Information — ~~Primary Aluminum~~”All Other”) of this Report, we believe our exposure to primary aluminum price risk, with respect to our income and cash ~~flow~~flows related to our share of Anglesey production, 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 to~~onto customers. However, in certain instances, we do enter into firm price ~~arrangements. In such instances, we have~~arrangements and incur price risk on anticipated 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 the nine ~~months~~month periods ended September 30, ~~2009~~2010 and ~~2008~~September 30, 2009 for which we had price risk were (in millions of pounds) ~~128.7~~72.3 and ~~184.9,~~128.7, respectively. At September 30, ~~2009,~~2010, 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 ~~last nine months~~remainder of ~~2009~~2010, for 2011 and for ~~the period 2010 through~~ 2012 and thereafter totaling approximately (in millions of pounds): ~~2009 — 47.2, 2010 — 91.5, 2011 — 79.9,~~32.3, 84.8 and ~~2012 — 13.4.~~14.2, respectively.

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~~as well as for cash commitments for equipment purchases.

Because we do not anticipate ~~recognizing~~recognition of equity income or losses relating to our investment in Anglesey for at least the next 12 months, and because we expect to purchase and sell our share of Anglesey secondary aluminum production under pricing mechanisms that are intended to eliminate metal price risk and currency exchange risk, the Pound Sterling exchange exposure related to Anglesey’s earnings is effectively eliminated in the near-term. As of September 30, 2009, we had forward purchase agreements for a total of 7.1 million Pounds Sterling for the month of October 2009 related to Pound Sterling denominated trade payables for our purchase of our share of Anglesey production through the end of the third quarter.

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 operating costs by approximately ~~$3.4~~$3.7 million.

We, from ~~time to time~~time-to-time, in the ordinary course of business, enter into hedging transactions with major suppliers of energy and energy-related financial investments. As of September 30, ~~2009, the Company’s~~2010, our exposure to ~~increases and decreases~~fluctuations in natural gas prices had been

substantially ~~limited~~reduced for approximately ~~91%~~93% of the expected natural gas purchases for ~~October 2009 through December 2009,~~the remainder of 2010, approximately ~~15%~~88% of the expected natural gas purchases for ~~2010,~~2011 and ~~an insignificant percentage~~approximately 57% of the expected natural gas purchases for ~~2011.~~2012.


~~Item 4.~~		*~~Controls and Procedures~~*

Item 4. 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~~SEC’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~~we recognize 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~~we are required to apply ~~its~~our judgment in evaluating the cost-benefit relationship of possible controls and procedures.

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

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

PART II — OTHER INFORMATION


~~Item 1.~~		Item 1. *Legal Proceedings.*

Reference is made to Part I, Item 3. “Legal Proceedings” included in our Annual Report on Form 10-K for the year ended December 31, ~~2008~~2009 for information concerning material legal proceedings with respect to the Company. There have been no material developments since December 31, ~~2008.~~2009.


~~Item 1A.~~		*~~Risk Factors.~~*

Item 1A. Risk Factors.

Reference is made to Part I, Item 1A. “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, ~~2008~~2009 and to Part II, Item 1A. “Risk Factors” included in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 for information concerning risk factors. There have been no material changes in the risk factors since ~~December~~March 31, ~~2008.~~2010.


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

None.


~~Item 3.~~		Item 3. *Defaults Upon Senior Securities.*

~~None.~~


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

~~None.~~


~~Item 5.~~		*~~Other Information.~~*

None.

4754

Item 4. [Removed and Reserved.]

Item 5. Other Information.

None.

Item 6. Exhibits.


~~Item 6.~~		*~~Exhibits.~~*

*31.1		Certification of Jack A. Hockema pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

*31.2		Certification of Daniel J. Rinkenberger pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

*32.1		Certification of Jack A. Hockema pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*32.2		Certification of Daniel J. Rinkenberger pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* 101.INS **		XBRL Instance

* 101.SCH **		XBRL Taxonomy Extension Schema

* 101.CAL **		XBRL Taxonomy Extension Calculation

* 101.DEF **		XBRL Taxonomy Extension Definition

* 101.LAB **		XBRL Taxonomy Extension Label

* 101.PRE **		XBRL Taxonomy Extension Presentation


*		Filed herewith.

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

4855

SIGNATURES

Pursuant to the requirements 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
	/s/ Daniel J. Rinkenberger
	Daniel J. Rinkenberger
	Senior Vice President and Chief Financial Officer (Principal Financial Officer)



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

~~Date: October 28, 2009~~

4956

INDEX TO EXHIBITS


Exhibit
Number		Description

*31.1		Certification of Jack A. Hockema pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

*31.2		Certification of Daniel J. Rinkenberger pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

*32.1		Certification of Jack A. Hockema pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*32.2		Certification of Daniel J. Rinkenberger pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* 101.INS **		XBRL Instance

* 101.SCH **		XBRL Taxonomy Extension Schema

* 101.CAL **		XBRL Taxonomy Extension Calculation

* 101.DEF **		XBRL Taxonomy Extension Definition

* 101.LAB **		XBRL Taxonomy Extension Labels

* 101.PRE **		XBRL Taxonomy Extension Presentation


*		Filed herewith.

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

5057


	Performance Shares					Performance Shares
				Weighted-					Weighted-
				Average					Average
				Grant-Date					Grant-Date
				Fair Value					Fair Value
	Shares			per Share		Shares			per Share
Outstanding at January 1, 2009		89,951		$	74.40
Outstanding at December 31, 2009							508,214		$	23.75
Granted		460,198			14.06		205,789			34.13
Vested		(20,467	)		24.83		(609	)		31.02
Forfeited		(21,468	)		27.15		(6,532	)		26.09

Outstanding at September 30, 2009		508,214		$	23.75
Outstanding at September 30, 2010							706,862		$	26.74


~~(1)~~¹		Net income attributable to participating securities for a given period includes both distributed and undistributed net income, as applicable. ~~Undistributed net losses are not allocated to participating securities, however, as such securities do not have an obligation to fund net losses of the Company.~~

		Distributed net income attributed to participating securities represents dividend and dividend equivalents declared on the participating securities that the Company expects to ultimately vest. Distributed net income to participating securities was $.1 for each of the quarters ended September 30, 2009 and 2008 and was $.3 for each of the nine month periods ended September 30, 2009 and 2008.

		For the quarter ended September 30, 2009, undistributed net income attributed to participating securities was $.1. For the quarter ended September 30, 2008, the Company incurred an undistributed loss, none of which was allocated to participating securities. Undistributed net income attributed to participating securities was $.9 and $.8 for the nine month periods ended September 30, 2009 and 2008, respectively.

		For the quarter and nine months ended September 30, 2009 and the nine months ended September 30, 2008, undistributed net income was 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. For the nine months ended September 30, 2009 and 2008, undistributed net income apportioned to the participating securities represented approximately 3% of total undistributed net income. For the three months ended September 30, 2009, undistributed net income apportioned to participating securities represented approximately 1% of net income.


PART I
Item 1. Financial Statements			1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			33
Item 3. Quantitative and Qualitative Disclosures About Market Risks			53
Item 4. Controls and Procedures			54

PART II
Item 1. Legal Proceedings			54
Item 1A. Risk Factors			54
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			54
Item 3. Defaults Upon Senior Securities			54
Item 4. [Removed and Reserved]			55
Item 5. Other Information			55
Item 6. Exhibits			55

SIGNATURES			56

INDEX OF EXHIBITS			57

EXHIBITS			58


	Level 3
Balance at January 1, 2009:	$	(1.1	)
Total realized/unrealized losses included in:
Cost of goods sold excluding depreciation, amortization and other items		.8
Purchases, sales, issuances and settlements		.3
Transfers in and (or) out of Level 3		—

Balance at September 30, 2009	$	—

Total gains included in earnings attributable to the change in unrealized losses relating to derivative contracts still held at September 30, 2009:	$	.7


~~(1)~~		~~The Kalamazoo, Michigan facility is planned to be equipped with two extrusion presses and a remelt operation. Completion of this investment program is expected to occur by early 2010.~~

~~(2)~~		~~Inclusive of the $139 million 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.~~


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


~~(1)~~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)~~²		As of September 30, ~~2009,~~2010, the Company’s exposure to ~~increases and decreases~~fluctuations in natural gas prices had been substantially ~~limited~~reduced for approximately ~~91%~~93% of the expected natural gas purchases for ~~October 2009 through December 2009,~~the remainder of 2010, approximately ~~15%~~88% of the expected natural gas purchases for ~~2010,~~2011, and ~~an insignificant percentage~~approximately 57% of the expected natural gas purchases for ~~2011.~~2012.

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


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


	Employee
	Termination
	and Other			Facility
	Personnel			related
	Costs			costs			Total
Restructuring obligations at December 31, 2008	$	4.5		$	—		$	4.5
Cash restructuring costs and other charges:
Recorded in the quarter ended March 31, 2009 (1)		.2			.4			.6
Recorded in the quarter ended June 30, 2009 (2)		4.0			.1			4.1
Recorded in the quarter ended September 30, 2009 (2)		.1			—			.1

Total cash restructuring costs and other charges recorded for the nine months ended September 30, 2009		4.3			.5			4.8
Cash payments during the nine months ended September 30, 2009		(5.0	)		(.5	)		(5.5	)

Restructuring obligations at September 30, 2009	$	3.8		$	—		$	3.8


~~(1)~~		~~Pre-emergence related environmental costs were related to environmental issues at our Spokane, Washington facility that existed before our emergence from chapter 11 bankruptcy in July 2006.~~


	3Q09 vs. 3Q08			9M09 vs. 9M08
	Favorable			Favorable
	(unfavorable)			(unfavorable)
Sales impact	$	(28.7	)	$	(70.2	)
Manufacturing efficiency improvements		7.4			1.0
Energy costs		6.4			14.4
Freight		1.7			5.9
Currency exchange related		.6			3.5
Depreciation expense		(.3	)		(1.5	)
Other		(1.1	)		(2.2	)