Aleris International 10Q 2012 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



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

For the quarterly period ended September 30, 2012



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

For the transition period from to

Commission File Number: 333-173180

________________________________________________________________________

Aleris International, Inc.

(Exact name of registrant as specified in its charter)

________________________________________________________________________



Delaware		27-1539680
(State or other jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

25825 Science Park Drive, Suite 400 Cleveland, Ohio 44122-7392
(Address of principal executive offices) (Zip Code)

(216) 910-3400

(Registrant’s telephone number, including area code)

________________________________________________________________________

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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨ No þ

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

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



Large accelerated filer	¨		Accelerated filer	¨

Non-accelerated filer	þ	(Do not check if smaller reporting company)	Smaller reporting company	¨

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

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

There were 100 shares of the registrant’s common stock, par value $0.01 per share, outstanding as of November 2, 2012.

ALERIS INTERNATIONAL, INC.

QUARTERLY REPORT ON FORM 10-Q

September 30, 2012

TABLE OF CONTENTS




		Page No.
PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements:
	Consolidated Balance Sheet (Unaudited) as of September 30, 2012 and December 31, 2011	3
	Consolidated Statements of Comprehensive Income (Unaudited) for the Three and Nine Months Ended September 30, 2012 and 2011	4
	Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2012 and 2011	5
	Notes to Consolidated Financial Statements (Unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	58
Item 4.	Controls and Procedures	60

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	60
Item 1A.	Risk Factors	60
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	60
Item 3.	Defaults Upon Senior Securities	60
Item 4.	Mine Safety Disclosures	60
Item 5.	Other Information	61
Item 6.	Exhibits	61
Signatures		62

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

Aleris International, Inc.

Consolidated Balance Sheet

(Unaudited)

(in millions, except share and per share data)



ASSETS	September 30, 2012			December 31, 2011
Current Assets
Cash and cash equivalents	$	105.8		$	231.4
Accounts receivable (net of allowances of $9.3 and $8.7 at September 30, 2012 and December 31, 2011, respectively)	496.2			401.1
Inventories	625.7			585.7
Deferred income taxes	6.0			6.0
Prepaid expenses and other current assets	19.4			23.0
Total Current Assets	1,253.1			1,247.2
Property, plant and equipment, net	946.4			670.5
Intangible assets, net	46.1			47.7
Deferred income taxes	33.9			33.9
Other long-term assets	47.6			38.3
Total Assets	$	2,327.1		$	2,037.6

LIABILITIES AND STOCKHOLDER’S EQUITY
Current Liabilities
Accounts payable	$	369.6		$	287.4
Accrued liabilities	238.2			233.1
Deferred income taxes	6.2			6.2
Current portion of long-term debt	10.3			6.9
Total Current Liabilities	624.3			533.6
Long-term debt	684.9			595.1
Deferred income taxes	13.4			5.1
Accrued pension benefits	196.8			206.2
Accrued postretirement benefits	52.1			52.9
Other long-term liabilities	72.7			79.1
Total Long-Term Liabilities	1,019.9			938.4
Redeemable preferred stock; par value $.01; 5,000 shares authorized and issued	5.6			5.4
Redeemable noncontrolling interest	8.5			—
Stockholder’s Equity
Common stock; par value $.01; 5,000 shares authorized and 100 shares issued	—			—
Additional paid-in capital	569.8			563.2
Retained earnings	131.5			19.7
Accumulated other comprehensive loss	(32.5		)	(29.0		)
Total Aleris International, Inc. Equity	668.8			553.9
Noncontrolling interest	—			6.3
Total Equity	668.8			560.2
Total Liabilities and Equity	$	2,327.1		$	2,037.6

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

Aleris International, Inc.

Consolidated Statements of Comprehensive Income

(Unaudited)

(in millions)



	For the three months ended						For the nine months ended
	September 30,						September 30,
	2012			2011			2012			2011
Revenues	$	1,081.0		$	1,247.1		$	3,392.2		$	3,766.7
Cost of sales	960.8			1,126.1			3,018.4			3,382.5
Gross profit	120.2			121.0			373.8			384.2
Selling, general and administrative expenses	66.5			76.2			195.0			206.0
Losses (gains) on derivative financial instruments	1.3			0.7			3.3			(3.5		)
Other operating expense, net	0.8			2.4			2.1			0.4
Operating income	51.6			41.7			173.4			181.3
Interest expense, net	10.7			11.8			33.8			34.2
Other expense (income), net	0.9			2.6			0.4			(4.2		)
Income before income taxes	40.0			27.3			139.2			151.3
Provision for (benefit from) income taxes	7.5			(0.3		)	25.6			9.6
Net income	32.5			27.6			113.6			141.7
Net loss attributable to noncontrolling interest	(0.3		)	(0.3		)	(0.9		)	(0.1		)
Net income attributable to Aleris International, Inc.	$	32.8		$	27.9		$	114.5		$	141.8

Comprehensive income	$	44.5		$	1.5		$	109.9		$	145.6
Comprehensive loss attributable to noncontrolling interest	(0.3		)	(0.2		)	(1.0		)	—
Comprehensive income attributable to Aleris International, Inc.	$	44.8		$	1.7		$	110.9		$	145.6

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

Aleris International, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

(in millions)



	For the nine months ended
	September 30,
	2012			2011
Operating activities
Net income	$	113.6		$	141.7
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	59.2			50.9
Provision for deferred income taxes	8.3			1.5
Stock-based compensation expense	8.1			7.3
Unrealized (gains) losses on derivative financial instruments	(3.2		)	13.4
Unrealized currency exchange losses (gains) on debt	0.5			(1.0		)
Amortization of debt issuance costs	4.7			4.5
Other non-cash gains, net	(1.1		)	(5.9		)
Changes in operating assets and liabilities:
Change in accounts receivable	(97.4		)	(130.7		)
Change in inventories	(41.5		)	(53.5		)
Change in other assets	(7.7		)	(3.7		)
Change in accounts payable	69.6			88.4
Change in accrued liabilities	(21.9		)	36.8
Net cash provided by operating activities	91.2			149.7
Investing activities
Payments for property, plant and equipment	(285.5		)	(108.4		)
Purchase of a business	(21.5		)	—
Other	(0.2		)	7.4
Net cash used by investing activities	(307.2		)	(101.0		)
Financing activities
Proceeds from issuance of Senior Notes, net of discount of $10.0	—			490.0
Proceeds from China Loan Facility	88.5			11.5
Net proceeds from (payments on) other long-term debt	2.0			(1.0		)
Debt issuance costs	(0.4		)	(7.2		)
Contributions from noncontrolling interests	—			7.6
Dividends paid to Aleris Corporation	—			(400.0		)
Other	(0.6		)	2.0
Net cash provided by financing activities	89.5			102.9
Effect of exchange rate differences on cash and cash equivalents	0.9			0.8
Net (decrease) increase in cash and cash equivalents	(125.6		)	152.4
Cash and cash equivalents at beginning of period	231.4			113.5
Cash and cash equivalents at end of period	$	105.8		$	265.9

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

ALERIS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(amounts in millions, except share data)

1. BASIS OF PRESENTATION

The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The operating results for interim periods contained herein are not necessarily indicative of the results that may be expected for any other interim period or for the full year. The accompanying Consolidated Financial Statements include the accounts of Aleris International, Inc. and all of its subsidiaries (collectively, except where the context otherwise requires, referred to as “we,” “us,” “our,” “Company” or similar terms). Aleris International, Inc. is a wholly owned subsidiary of Aleris Corporation (our parent company), a holding company whose assets, liabilities and operations consist solely of those of Aleris International, Inc.

2. INVENTORIES

The components of our “Inventories” as of September 30, 2012 and December 31, 2011 are as follows:



	September 30, 2012		December 31, 2011
Finished goods	$	177.1	$	175.6
Raw materials	234.6		226.5
Work in process	191.1		162.5
Supplies	22.9		21.1
Total inventories	$	625.7	$	585.7

3. LONG-TERM DEBT

Our debt as of September 30, 2012 and December 31, 2011 is summarized as follows:



	September 30, 2012		December 31, 2011
ABL Facility	$	—	$	—
Senior Notes, net of discount of $7.7 and $8.8 at September 30, 2012 and December 31, 2011, respectively	492.3		491.2
Exchangeable Notes, net of discount of $0.8 and $0.9 at September 30, 2012 and December 31, 2011, respectively	44.2		44.1
China Loan Facility, net of discount of $1.2 and $1.0 at September 30, 2012 and December 31, 2011, respectively	144.3		55.9
Other	14.4		10.8
Total debt	695.2		602.0
Less: Current portion of long-term debt	10.3		6.9
Total long-term debt	$	684.9	$	595.1

ABL Facility

In connection with our emergence from bankruptcy, we entered into an asset backed multi-currency revolving credit facility (the “ABL Facility”). On June 30, 2011 we amended and restated the ABL Facility. The amended and restated ABL Facility is a $600.0 revolving credit facility which permits multi-currency borrowings up to $600.0 by our U.S. subsidiaries, up to $240.0 by Aleris Switzerland GmbH (a wholly owned Swiss subsidiary), and up to $15.0 by Aleris Specification Alloy Products Canada Company (a wholly owned Canadian subsidiary). We and certain of our U.S. and international subsidiaries are borrowers under the ABL Facility. The availability of funds to the borrowers located in each jurisdiction is subject to a borrowing base for that jurisdiction, and the jurisdictions in which certain subsidiaries of such borrowers are located, calculated on the basis of a predetermined percentage of the value of selected accounts receivable and U.S., Canadian and certain European inventory, less certain ineligible accounts receivable and inventory. The level of our borrowing base and

ALERIS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)

(amounts in millions, except share data)

availability under the ABL Facility fluctuates with the underlying London Metal Exchange (“LME”) price of aluminum which impacts both accounts receivable and inventory values included in our borrowing base. Non-U.S. borrowers also have the ability to borrow under the ABL Facility based on excess availability under the borrowing base applicable to the U.S. borrowers, subject to certain sublimits. The ABL Facility provides for the issuance of up to $75.0 of letters of credit as well as borrowings on same-day notice, referred to as swingline loans that are available in U.S. dollars, Canadian dollars, euros and certain other currencies. As of September 30, 2012, we estimate that our borrowing base would have supported borrowings up to $519.8. After giving effect to outstanding letters of credit of $43.0, we had $476.9 available for borrowing as of September 30, 2012.

Borrowings under the ABL Facility bear interest at a rate equal to the following, plus an applicable margin ranging from 0.75% to 2.50%:


▪	in the case of borrowings in U.S. dollars, a LIBOR rate or a base rate determined by reference to the higher of (1) Bank of America’s prime lending rate, (2) the overnight federal funds rate plus 0.5% or (3) a eurodollar rate determined by Bank of America plus 1.0%;


▪	in the case of borrowings in euros, a euro LIBOR rate determined by Bank of America; and


▪	in the case of borrowings in Canadian dollars, a Canadian prime rate.

As of September 30, 2012 and December 31, 2011, we had no amounts outstanding under the ABL Facility.

In addition to paying interest on any outstanding principal under the ABL Facility, we are required to pay a commitment fee in respect of unutilized commitments of 0.50% if the average utilization is less than 33% for any applicable period, 0.375% if the average utilization is between 33% and 67% for any applicable period, and 0.25% if the average utilization is greater than 67% for any applicable period. We must also pay customary letters of credit fees and agency fees.

The ABL Facility is subject to mandatory prepayment with (i) 100% of the net cash proceeds of certain asset sales, subject to certain reinvestment rights; (ii) 100% of the net cash proceeds from issuance of debt, other than debt permitted under the ABL Facility; and (iii) 100% of net cash proceeds from certain insurance and condemnation payments, subject to certain reinvestment rights.

In addition, if at any time outstanding loans, unreimbursed letter of credit drawings and undrawn letters of credit under the ABL Facility exceed the applicable borrowing base in effect at such time, the Company is required to repay outstanding loans or cash collateralize letters of credit in an aggregate amount equal to such excess, with no reduction of the commitment amount. If the amount available under the ABL Facility is less than the greater of (x) $50.0 and (y) 15.0% of the lesser of the total commitments or the borrowing base under the ABL Facility or an event of default is continuing, we are required to repay outstanding loans with the cash we are required to deposit in collection accounts maintained with the agent under the ABL Facility.

We may voluntarily reduce the unutilized portion of the commitment amount and repay outstanding loans at any time upon three business days prior written notice without premium or penalty other than customary “breakage” costs with respect to eurodollar, euro LIBOR and EURIBOR loans.

There is no scheduled amortization under the ABL Facility. The principal amount outstanding will be due and payable in full at maturity, on June 29, 2016 unless extended pursuant to the credit agreement.

The ABL Facility is secured, subject to certain exceptions (including appropriate limitations in light of U.S. federal income tax considerations on guaranties and pledges of assets by foreign subsidiaries, and certain pledges of such foreign subsidiaries’ stock, in each case to support loans to us or our domestic subsidiaries), by a first-priority security interest in substantially all of our current assets and related intangible assets located in the U.S., substantially all of the current assets and related intangible assets of substantially all of our wholly owned domestic subsidiaries located in the U.S., substantially all of the current assets and related intangible assets of the borrower located in Canada and substantially all of the current assets (other than inventory located outside of the United Kingdom) and related intangibles of Aleris Recycling (Swansea) Ltd. and Aleris Switzerland GmbH and certain of its subsidiaries. The borrowers’ obligations under the ABL Facility are guaranteed by certain of our existing and future direct and indirect subsidiaries.

ALERIS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)

(amounts in millions, except share data)

The ABL Facility contains a number of covenants that, among other things and subject to certain exceptions, restrict our ability and the ability of our subsidiaries to:


▪	incur additional indebtedness;


▪	pay dividends on our common stock and make other restricted payments;


▪	make investments and acquisitions;


▪	engage in transactions with our affiliates;


▪	sell assets;


▪	merge; and


▪	create liens.

Although the credit agreement governing the ABL Facility generally does not require us to comply with any financial ratio maintenance covenants, if the amount available under the ABL Facility is less than the greater of (x) $45.0 or (y) 12.5% of the lesser of (i) the total commitments or (ii) the borrowing base under the ABL Facility at any time, a minimum fixed charge coverage ratio (as defined in the credit agreement) of at least 1.0 to 1.0 will apply. The credit agreement also contains certain customary affirmative covenants and events of default. We were in compliance with all of the covenants set forth in the credit agreement as of September 30, 2012.

Senior Notes

On February 9, 2011, we issued $500.0 aggregate original principal amount of 7⁵/8% Senior Notes due 2018 under an indenture (the “Indenture”) with U.S. Bank National Association, as trustee, and on October 14, 2011, we exchanged the $500.0 aggregate original principal amount of 7⁵/8% Senior Notes for $500.0 of our new 7⁵/8% Senior Notes due 2018 that have been registered under the Securities Act of 1933, as amended (the “Senior Notes”). Interest on the Senior Notes is payable in cash semi-annually in arrears on February 15th and August 15th of each year. The Senior Notes mature on February 15, 2018.

The Senior Notes are jointly and severally, irrevocably and unconditionally guaranteed on a senior unsecured basis, by each direct and indirect restricted subsidiary that is a domestic subsidiary and that guarantees our obligations under the ABL Facility, as primary obligor and not merely as surety. The Senior Notes and the guarantees thereof are our unsecured senior obligations and rank (i) equally in right of payment to all of our existing and future debt and other obligations that are not, by their terms, expressly subordinated in right of payment to the Senior Notes; (ii) effectively subordinated in right of payment to all of our existing and future secured debt (including any borrowings under our ABL Facility), to the extent of the value of the assets securing such debt; (iii) structurally subordinated to all existing and future debt and other obligations, including trade payables, of each of our subsidiaries that is not a guarantor of the Senior Notes; and (iv) senior in right of payment to our existing and future debt and other obligations that are, by their terms, expressly subordinated in right of payment to the Senior Notes, including our 6% Senior Subordinated Exchangeable Notes.

We are not required to make any mandatory redemption or sinking fund payments with respect to the Senior Notes other than as set forth in the Indenture relating to certain tax matters, but under certain circumstances, we may be required to offer to purchase Senior Notes as described below. We may from time to time acquire Senior Notes by means other than redemption, whether by tender offer, in open market purchases, through negotiated transactions or otherwise, in accordance with applicable securities laws.

From and after February 15, 2014, we may redeem the Senior Notes, in whole or in part, upon not less than 30 nor more than 60 days’ prior notice at a redemption price equal to 105.7% of the principal amount, declining annually to 100.0% of the principal amount on February 15, 2017, plus accrued and unpaid interest, and Additional Interest (as defined in the Indenture), if any, thereon to the applicable redemption date.

Prior to February 15, 2013, we may, at our option, subject to certain conditions, redeem up to 35% of the original aggregate principal amount of the Senior Notes at a redemption price of 107.6% of the aggregate principal amount thereof, plus accrued and unpaid interest, and Additional Interest, if any, thereon to the redemption date, (plus the aggregate principal amount of any additional notes issued after the issue date) with the net cash proceeds of one or more equity offerings of ours

ALERIS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)

(amounts in millions, except share data)

or any direct or indirect parent of ours to the extent such proceeds are contributed to us provided that at least 65% of the sum of the aggregate principal amount of Senior Notes originally issued under the Indenture and the aggregate principal amount of any additional notes issued under the Indenture after the issue date remain outstanding immediately after the occurrence of each such redemption and each such redemption occurs within 180 days of the date of closing of each equity offering. Prior to February 15, 2013, we also may, but not more than one time during each twelve month period, redeem, in the aggregate, up to 10% of the sum of the original principal amount of the Senior Notes (and the original principal amount of any additional notes) issued under the Indenture at a redemption price equal to 103% of the aggregate principal amount thereof, plus accrued and unpaid interest, and Additional Interest, if any, thereon to the applicable redemption date. At any time prior to February 15, 2014, we may redeem all or a part of the Senior Notes, upon not less than 30 nor more than 60 days prior notice, at a redemption price equal to 100% of the principal amount of Senior Notes redeemed plus an applicable premium, as provided in the Indenture, as of, and accrued and unpaid interest and Additional Interest, if any, to the redemption date.

Upon the occurrence of a change in control (as defined in the Indenture), each holder of the Senior Notes has the right to require us to repurchase some or all of such holder’s Senior Notes at a price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Additional Interest, if any, to the purchase date.

If we or our restricted subsidiaries engage in an asset sale (as defined in the Indenture), we generally must either invest the net cash proceeds from such sales in our business within a specified period of time, permanently reduce senior debt, permanently reduce senior subordinated debt, permanently reduce debt of a restricted subsidiary that is not a subsidiary guarantor or make an offer to purchase a principal amount of the notes equal to the net cash proceeds, subject to certain exceptions. The purchase price of the notes will be 100% of their principal amount, plus accrued and unpaid interest.

The Indenture contains covenants that limit our ability and certain of our subsidiaries’ ability to:


▪	incur additional debt;


▪	pay dividends or distributions on our capital stock or redeem, repurchase or retire our capital stock or subordinated debt;


▪	issue preferred stock of restricted subsidiaries;


▪	make certain investments;


▪	create liens on our or our subsidiary guarantors’ assets to secure debt;


▪	enter into sale and leaseback transactions;


▪	create restrictions on the payment of dividends or other amounts to us from our restricted subsidiaries that are not guarantors of the notes;


▪	enter into transactions with affiliates;


▪	merge or consolidate with another company; and


▪	sell assets, including capital stock of our subsidiaries.

These covenants are subject to a number of important limitations and exceptions.

The Indenture also provides for events of default, which, if any of them occurs, would permit or require the principal, premium, if any, interest and any other monetary obligations on all outstanding Senior Notes to be due and payable immediately. We were in compliance with all covenants set forth in the Indenture as of September 30, 2012.

We used a portion of the net proceeds from the sale of the Senior Notes to pay cash dividends of approximately $500.0 to Aleris Corporation during the year ended December 31, 2011, which were then paid as dividends, pro rata, to the stockholders of Aleris Corporation.

Exchangeable Notes

In connection with our emergence from bankruptcy, we issued $45.0 aggregate principal amount of 6.0% Senior Subordinated Exchangeable Notes (the “Exchangeable Notes”). The Exchangeable Notes are scheduled to mature on June 1, 2020. The Exchangeable Notes have exchange rights at the holder’s option, after June 1, 2013, and are exchangeable for

ALERIS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)

(amounts in millions, except share data)

Aleris Corporation common stock at a rate equivalent to 47.20 shares of Aleris Corporation common stock per $1,000 principal amount of Exchangeable Notes (after adjustment for the payment of the dividends in 2011), subject to further adjustment. The Exchangeable Notes may be redeemed at the Company’s option at specified redemption prices on or after June 1, 2013 or upon a fundamental change of Aleris Corporation.

The Exchangeable Notes are our unsecured, senior subordinated obligations and rank (i) junior to all of our existing and future senior indebtedness, including the ABL Facility; (ii) equally to all of our existing and future senior subordinated indebtedness; and (iii) senior to all of our existing and future subordinated indebtedness.

China Loan Facility

Our subsidiary, Aleris Dingsheng Aluminum (Zhenjiang) Co., Ltd. (“Aleris Zhenjiang”), entered into non-recourse multi-currency secured revolving and term loan facilities (the “China Loan Facility”). The China Loan Facility consists of a $30.6 U.S. dollar term loan facility, an RMB 993.5 term loan facility (or equivalent to approximately $157.3) and an RMB 232.8 (or equivalent to approximately $36.9) revolving credit facility. The interest rate on the term U.S. dollar facility is six month U.S. dollar LIBOR plus 5.0% and the interest rate on the term RMB facility and the revolving credit facility is 110% of the base rate applicable to any loan denominated in RMB of the same tenor, as announced by the People’s Bank of China. As of September 30, 2012, $145.5 was drawn under the term loan facilities. Draws on the revolving facility begin in 2013. The final maturity date for all borrowings under the China Loan Facility is May 18, 2021. Aleris Zhenjiang is an unrestricted subsidiary and non-guarantor under the indenture governing the Senior Notes.


▪	repay loans extended by the stockholders of Aleris Zhenjiang prior to repaying loans under the China Loan Facility or make the China Loan Facility junior to any other debts incurred of the same class for the project;


▪	distribute any dividend or bonus to stockholders if its pre-tax profit is insufficient to cover a loss or not used to discharge principal, interest and expenses;


▪	dispose of any assets in a manner that will materially impair its ability to repay debts;


▪	provide guarantees to third parties above a certain threshold that use assets that are financed by the China Loan Facility;


▪	permit any individual investor or key management personnel changes that result in a material adverse effect;


▪	use any proceeds from the China Loan Facility for any purpose other than as set forth therein; and


▪	enter into additional financing to expand or increase the production capacity of the project.

Aleris Zhenjiang was in compliance with all of the covenants set forth in the China Loan Facility as of September 30, 2012.

4. COMMITMENTS AND CONTINGENCIES

Environmental Proceedings

Our operations are subject to environmental laws and regulations governing air emissions, wastewater discharges, the handling, disposal and remediation of hazardous substances and wastes and employee health and safety. These laws can impose joint and several liabilities for releases or threatened releases of hazardous substances upon statutorily defined parties, including us, regardless of fault or the lawfulness of the original activity or disposal. Given the changing nature of environmental legal requirements, we may be required, from time to time, to take environmental control measures at some of our facilities to meet future requirements.

We have been named as a potentially responsible party in certain proceedings initiated pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act and similar stated statutes and may be named a potentially responsible party in other similar proceedings in the future. It is not anticipated that the costs incurred in connection with the presently pending proceedings will, individually or in the aggregate, have a material adverse effect on our financial position, results of operations or cash flows.

ALERIS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)

(amounts in millions, except share data)

We are performing operations and maintenance at two Superfund sites for matters arising out of past waste disposal activity associated with closed facilities. We are also under orders to perform environmental remediation by agencies in four states and one non-U.S. country at seven sites.

Our reserves for environmental remediation liabilities totaled $35.8 and $36.5 at September 30, 2012 and December 31, 2011, respectively, and have been classified as “Other long-term liabilities” and “Accrued liabilities” in the Consolidated Balance Sheet. Of the environmental liabilities recorded at September 30, 2012 and December 31, 2011, $6.3 and $6.9, respectively, is indemnified by Corus Group Ltd.

In addition to environmental liabilities, we have recorded asset retirement obligations associated with legal requirements related primarily to the normal operation of our landfills and the retirement of the related assets. At September 30, 2012 and December 31, 2011, our total asset retirement obligations were $12.8 and $13.7, respectively. The amounts represent the most probable costs of remedial actions. We estimate the costs related to currently identified remedial actions will be paid out primarily over the next ten years.

Legal Proceedings

We are party to routine litigation and proceedings as part of the ordinary course of business and do not believe that the outcome of any existing proceedings would have a material adverse effect on our financial position, results of operations or cash flows. We have established accruals for those loss contingencies, including litigation and environmental contingencies, for which it has been determined that a loss is probable; none of such loss contingencies is material. For those loss contingencies, including litigation and environmental contingencies, which have been determined to be reasonably possible, an estimate of the possible loss or range of loss cannot be determined because the claims, amount claimed, facts or legal status are not sufficiently developed or advanced in order to make such a determination. While we cannot estimate the loss or range of loss at this time, we do not believe that the outcome of any of these existing proceedings would be material to our financial position, results of operations or cash flows.

5. EQUITY, REDEEMABLE PREFERRED STOCK AND REDEEMABLE NONCONTROLLING INTEREST

The following table summarizes the activity within equity, redeemable preferred stock and redeemable noncontrolling interest, including the components of other comprehensive loss, for the nine months ended September 30, 2012:



	Aleris International, Inc. Equity			Noncontrolling Interest			Total Equity			Redeemable Preferred Stock		Redeemable Noncontrolling Interest
Total equity at January 1, 2012	$	553.9		$	6.3		$	560.2		$	5.4	$	—
Net income (loss)	114.5			(0.4		)	114.1			—		(0.5		)
Other comprehensive loss, before tax:
Currency translation adjustments	(3.4		)	(0.1		)	(3.5		)	—		—
Other	(0.1		)	—			(0.1		)	—		—
Other comprehensive loss, net of tax	(3.5		)	(0.1		)	(3.6		)	—		—
Stock-based compensation	8.1			—			8.1			—		—
Redeemable noncontrolling interest redemption value adjustments	(2.3		)	—			(2.3		)	—		2.3
Adjustments to noncontrolling interest for change in ownership	(1.4		)	(5.3		)	(6.7		)	—		6.7
Accrued dividends, net of payments	(0.5		)	—			(0.5		)	0.2		—
Distribution to noncontrolling interest	—			(0.5		)	(0.5		)	—		—
Total equity at September 30, 2012	$	668.8		$	—		$	668.8		$	5.6	$	8.5

In July 2012, the joint venture contract between Aleris and Zhenjiang Dingsheng Aluminum Industries Joint-Stock Co., Ltd. (“Dingsheng”) was amended and restated to increase our equity interest in Aleris Zhenjiang from 81% to 93%. The change in equity interest did not result in a change in control and therefore the adjustment to the carrying value of the noncontrolling interest (representing Dingsheng’s new ownership interest in the net assets of Aleris Zhenjiang) was recognized directly in equity attributable to Aleris. The amended and restated joint venture agreement also includes an option

ALERIS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)

(amounts in millions, except share data)

by which Dingsheng has the unilateral right to require Aleris Asia Pacific Limited, our wholly owned subsidiary and the direct parent of Aleris Zhenjiang, to purchase Dingsheng’s noncontrolling interest in Aleris Zhenjiang at any time prior to May 31, 2013. The redemption price is calculated as the cumulative amount of paid-in registered capital plus accrued interest from the date the actual contributions were made through the date that Dingsheng receives proceeds for the purchase of its noncontrolling interest.

At September 30, 2012, the noncontrolling interest in Aleris Zhenjiang is classified as temporary equity and measured at the current redemption amount. During the three months ended September 30, 2012, we recorded a $2.3 increase to the carrying value of the redeemable noncontrolling interest under the provisions of ASC 480, “Distinguishing Liabilities from Equity.”

6. SEGMENT INFORMATION

The Company’s operating structure includes two global business units, Global Rolled and Extruded Products and Global Recycling. Within our two global business units, we have five operating segments based on the organizational structure that is used by the Company’s chief operating decision maker to evaluate performance, make decisions on resource allocations and for which discrete financial information is available.

The Company’s operating segments (each of which is considered a reportable segment) are:


▪	Rolled Products North America (“RPNA”);


▪	Rolled Products Europe (“RPEU”);


▪	Extrusions;


▪	Recycling and Specification Alloys North America (“RSAA”); and


▪	Recycling and Specification Alloys Europe (“RSEU”).

Prior period amounts presented have been restated to conform to our current reportable segments, which were changed in the fourth quarter of 2011.

Measurement of Segment Profit or Loss and Segment Assets

The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies in the Consolidated Financial Statements for the year ended December 31, 2011. Our measure of profitability for our operating segments is referred to as segment income and loss. Segment income and loss includes gross profits, segment specific realized gains and losses on derivative financial instruments, segment specific other income and expense, segment specific selling, general and administrative (“SG&A”) expense and an allocation of certain regional and global functional SG&A expenses. Segment income and loss excludes provisions for and benefits from income taxes, restructuring items, net, interest, depreciation and amortization, unrealized and certain realized gains and losses on derivative financial instruments, corporate general and administrative costs, start-up expenses, gains and losses on asset sales, currency exchange gains and losses on debt, gains and losses on intercompany receivables, reorganization items, net and certain other gains and losses. Intersegment sales and transfers are recorded at market value. Consolidated cash, long-term debt, net capitalized debt costs, deferred tax assets and assets related to our headquarters offices and Aleris Zhenjiang are not allocated to the segments. Prior period segment income and loss amounts presented have been restated to conform to the current definition of segment income and loss, which was changed in the fourth quarter of 2011.

Reportable Segment Information

The following table shows our revenues and segment income for the periods presented in our Consolidated Statements of Comprehensive Income:

ALERIS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)

(amounts in millions, except share data)



Three months ended September 30, 2012	RPNA		RPEU		Extrusions		RSAA		RSEU		Intersegment Revenues			Total
Revenues to external customers	$	328.5	$	312.4	$	87.6	$	216.4	$	136.1				$	1,081.0
Intersegment revenues	0.3		18.2		1.5		2.7		6.7		$	(29.4	)	—
Total revenues	$	328.8	$	330.6	$	89.1	$	219.1	$	142.8	$	(29.4	)	$	1,081.0
Segment income	$	30.3	$	42.6	$	5.6	$	9.2	$	4.7				$	92.4

Three months ended September 30, 2011	RPNA		RPEU		Extrusions		RSAA		RSEU		Intersegment Revenues			Total
Revenues to external customers	$	365.0	$	369.9	$	103.8	$	245.7	$	162.7				$	1,247.1
Intersegment revenues	0.5		21.4		2.8		1.4		11.5		$	(37.6	)	—
Total revenues	$	365.5	$	391.3	$	106.6	$	247.1	$	174.2	$	(37.6	)	$	1,247.1
Segment income	$	30.0	$	52.7	$	3.9	$	21.5	$	8.3				$	116.4



Nine months ended September 30, 2012	RPNA		RPEU		Extrusions		RSAA		RSEU		Intersegment Revenues			Total
Revenues to external customers	$	1,001.7	$	961.7	$	270.2	$	726.4	$	432.2				$	3,392.2
Intersegment revenues	1.6		47.0		6.5		6.0		24.6		$	(85.7	)	—
Total revenues	$	1,003.3	$	1,008.7	$	276.7	$	732.4	$	456.8	$	(85.7	)	$	3,392.2
Segment income	$	91.2	$	126.4	$	16.5	$	40.4	$	17.4				$	291.9

Nine months ended September 30, 2011	RPNA		RPEU		Extrusions		RSAA		RSEU		Intersegment Revenues			Total
Revenues to external customers	$	1,053.2	$	1,141.4	$	315.1	$	745.9	$	511.1				$	3,766.7
Intersegment revenues	1.4		65.3		8.8		4.4		33.6		$	(113.5	)	—
Total revenues	$	1,054.6	$	1,206.7	$	323.9	$	750.3	$	544.7	$	(113.5	)	$	3,766.7
Segment income	$	86.3	$	120.8	$	9.4	$	62.2	$	31.6				$	310.3

The following table reconciles total segment income to “Income before income taxes” as reported in our Consolidated Statements of Comprehensive Income:



	For the three months ended						For the nine months ended
	September 30,						September 30,
	2012			2011			2012			2011
Total segment income	$	92.4		$	116.4		$	291.9		$	310.3
Unallocated amounts:
Depreciation and amortization	(20.0		)	(17.0		)	(59.2		)	(50.9		)
Corporate general and administrative expenses, excluding depreciation, amortization and start-up expenses	(12.4		)	(15.2		)	(42.1		)	(42.5		)
Interest expense, net	(10.7		)	(11.8		)	(33.8		)	(34.2		)
Unallocated (losses) gains on derivative financial instruments	(0.7		)	(22.5		)	2.8			(14.0		)
Unallocated currency exchange gains (losses)	0.7			(5.3		)	(0.2		)	(1.4		)
Start-up expenses	(8.3		)	(4.0		)	(17.5		)	(8.2		)
Other expense, net (including research and development contract termination costs)	(1.0		)	(13.3		)	(2.7		)	(7.8		)
Income before income taxes	$	40.0		$	27.3		$	139.2		$	151.3

The following table shows our reportable segment assets as of September 30, 2012 and December 31, 2011:

ALERIS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)

(amounts in millions, except share data)



	September 30, 2012		December 31, 2011
Assets
RPNA	$	574.0	$	514.7
RPEU	692.1		565.1
Extrusions	149.7		126.0
RSAA	292.4		277.4
RSEU	186.6		169.0
Unallocated assets	432.3		385.4
Total consolidated assets	$	2,327.1	$	2,037.6

7. STOCK-BASED COMPENSATION

Stock-based awards are granted under Aleris Corporation’s 2010 Equity Incentive Plan (the “2010 Equity Plan”). Generally, stock options have a ten-year life and vest quarterly over four years. Generally, all restricted stock units and restricted shares also vest quarterly over four years. A portion of the stock options, as well as a portion of the restricted stock units and restricted shares, may vest upon a change in control event.

During the nine months ended September 30, 2012, Aleris Corporation granted 87,500 stock options and 12,400 restricted stock units to certain members of our senior management and a nonemployee director.

During the three and nine months ended September 30, 2012, we recorded $2.8 and $8.1 of compensation expense, respectively, associated with stock options, restricted stock units and restricted shares under the push down accounting provisions of ASC 718, “Compensation - Stock Compensation.” During the three and nine months ended September 30, 2011, we recorded $2.8 and $7.3 of compensation expense, respectively. At September 30, 2012, there was $19.8 of unearned compensation that is expected to be recorded over the next four years pertaining to the stock options, restricted stock units and restricted shares.

8. INCOME TAXES

Our effective tax rate was 18.9% and 18.4% for the three and nine months ended September 30, 2012, respectively, and (1.1)% and 6.3% for the three and nine months ended September 30, 2011, respectively. The effective tax rate for the three and nine months ended September 30, 2012 and 2011 differed from the federal statutory rate applied to income and losses before income taxes primarily as a result of the mix of income, losses and tax rates between tax jurisdictions and valuation allowances.

We have valuation allowances recorded to reduce certain deferred tax assets to amounts that are more likely than not to be realized. The valuation allowances relate to the potential inability to realize our deferred tax assets associated with amortization, pension and postretirement liabilities in the U.S. and depreciation and net operating loss carryforwards in non-U.S. jurisdictions. We intend to maintain our valuation allowances until sufficient positive evidence exists (such as cumulative positive earnings and estimated future taxable income) to support their reversal.

As of September 30, 2012, we have $16.6 of unrecognized tax benefits. We recognize interest and penalties related to uncertain tax positions within the “Provision for (benefit from) income taxes” in the Consolidated Statements of Comprehensive Income. As of September 30, 2012, we had approximately $2.3 of accrued interest related to uncertain tax positions.

The 2005 through 2011 tax years remain open to examination. A non-U.S. jurisdiction commenced an examination in the fourth quarter of 2009 that is anticipated to be completed within six months of September 30, 2012.

9. EMPLOYEE BENEFIT PLANS

Defined Benefit Pension Plans

The components of the net periodic benefit expense are as follows:

ALERIS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)

(amounts in millions, except share data)



	U.S. pension benefits
	For the three months ended						For the nine months ended
	September 30,						September 30,
	2012			2011			2012			2011
Service cost	$	0.7		$	0.6		$	2.2		$	2.0
Interest cost	1.8			1.9			5.4			5.6
Amortization of net loss	0.1			—			0.3			—
Expected return on plan assets	(2.1		)	(2.0		)	(6.3		)	(6.0		)
Net periodic benefit expense	$	0.5		$	0.5		$	1.6		$	1.6



	European pension benefits
	For the three months ended				For the nine months ended
	September 30,				September 30,
	2012		2011		2012		2011
Service cost	$	0.6	$	0.6	$	1.9	$	1.8
Interest cost	1.8		1.8		5.3		5.5
Expected return on plan assets	—		—		—		(0.1		)
Net periodic benefit expense	$	2.4	$	2.4	$	7.2	$	7.2

Other Postretirement Benefit Plans

The components of net postretirement benefit expense are as follows:



	For the three months ended				For the nine months ended
	September 30,				September 30,
	2012		2011		2012		2011
Service cost	$	—	$	—	$	—	$	0.1
Interest cost	0.6		0.7		1.8		2.0
Amortization of net loss	0.1		—		0.3		—
Net postretirement benefit expense	$	0.7	$	0.7	$	2.1	$	2.1

10. DERIVATIVE AND OTHER FINANCIAL INSTRUMENTS

We use forward contracts and options, as well as contractual price escalators, to reduce the risks associated with our metal, natural gas and other supply requirements and certain currency exposures. Generally, we enter into master netting arrangements with our counterparties and offset each type of net derivative position with the same counterparties against amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral under those arrangements in our Consolidated Balance Sheet. For classification purposes, we record the net fair value of each type of derivative position that is expected to settle in less than one year with each counterparty as a net current asset or liability and each type of long-term position as a net long-term asset or liability. At September 30, 2012, no cash collateral was posted. At December 31, 2011, we had posted cash collateral totaling approximately $0.5, of which $0.3 related to counterparties in a net asset position, and therefore, was recorded within “Prepaid expenses and other current assets” on the Consolidated Balance Sheet. The amounts shown in the table below represent the fair value of individual contracts, regardless of the net position presented in the Consolidated Balance Sheet:

ALERIS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)

(amounts in millions, except share data)



	Fair Value of Derivatives as of
	September 30, 2012						December 31, 2011
Derivatives by type	Asset			Liability			Asset			Liability
Metal	$	15.9		$	(29.9	)	$	20.8		$	(33.7	)
Natural gas	0.2			(0.7		)	—			(4.2		)
Currency	—			—			0.3			—
Total	16.1			(30.6		)	21.1			(37.9		)
Effect of counterparty netting	(14.7		)	14.7			(20.1		)	20.1
Effect of cash collateral	—			—			—			0.2
Net derivatives as classified in the balance sheet	$	1.4		$	(15.9	)	$	1.0		$	(17.6	)

The fair value of our derivative financial instruments at September 30, 2012 and December 31, 2011 are recorded in the Consolidated Balance Sheet as follows:



Asset Derivatives	Balance Sheet Location	September 30, 2012		December 31, 2011
Metal	Prepaid expenses and other current assets	$	—	$	0.5
	Other long-term assets	1.2		0.2
Natural gas	Prepaid expenses and other current assets	0.2		—
Currency	Prepaid expenses and other current assets	—		0.3
Total		$	1.4	$	1.0

Liability Derivatives	Balance Sheet Location	September 30, 2012		December 31, 2011
Metal	Accrued liabilities	$	14.8	$	10.1
	Other long-term liabilities	0.4		3.5
Natural gas	Accrued liabilities	0.7		4.0
Total		$	15.9	$	17.6

Derivative contracts are recorded at fair value under ASC 820, “Fair Value Measurements and Disclosures,” using quoted market prices and significant other observable inputs. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:

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

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

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

We endeavor to utilize the best available information in measuring fair value. Where appropriate, valuations are adjusted for various factors such as liquidity, bid/offer spreads, and credit considerations. Such adjustments are generally based on available market evidence and unobservable inputs. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following table sets forth our financial

ALERIS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)

(amounts in millions, except share data)

assets and liabilities that are accounted for at fair value on a recurring basis as of September 30, 2012 and the level in the fair value hierarchy:



	Fair value measurements at September 30, 2012 using:
Description	Total carrying value in the Consolidated Balance Sheet			Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)
Derivative assets	$	16.1		$	—	$	16.1		$	—
Derivative liabilities	(30.6		)	—		(30.6		)	—
Net derivative assets	$	(14.5	)	$	—	$	(14.5	)	$	—

Both realized and unrealized gains and losses on derivative financial instruments are included within “Losses (gains) on derivative financial instruments” in the Consolidated Statements of Comprehensive Income. Realized (gains) and losses on derivative financial instruments totaled the following:



	For the three months ended						For the nine months ended
	September 30,						September 30,
	2012			2011			2012			2011
Metal	$	(0.9	)	$	(22.6	)	$	(0.3	)	$	(18.6	)
Natural gas	1.2			0.8			5.5			1.5
Currency	0.5			0.2			1.3			0.2

Metal Hedging

The selling prices of the majority of the orders for our rolled and extruded products are established at the time of order entry or, for certain customers, under long-term contracts. As the related raw materials used to produce these orders are purchased several months or years after the selling prices are fixed, margins are subject to the risk of changes in the purchase price of the raw materials used for these fixed price sales. In order to manage this transactional exposure, LME future or forward purchase contracts are purchased at the time the selling prices are fixed. As metal is purchased to fill these fixed price sales orders, LME future or forward contracts are then sold. We also maintain a significant amount of inventory on-hand to meet anticipated and unpriced future sales. In order to preserve the value of this inventory, LME future or forward contracts are sold at the time inventory is purchased. As sales orders are priced, LME future or forward contracts are purchased. These derivatives generally settle within three months. We can also use call option contracts, which function in a manner similar to the natural gas call option contracts discussed below, and put option contracts for managing metal price exposures. Option contracts require the payment of a premium which is recorded as a realized loss upon settlement or expiration of the option contract. Upon settlement of a put option contract, we receive cash and recognize a related gain if the LME closing price is less than the strike price of the put option. If the put option strike price is less than the LME closing price, no amount is paid and the option expires. As of September 30, 2012 and December 31, 2011, we had 0.2 and 0.2 metric tons of metal buy and sell forward contracts, respectively.

Natural Gas Hedging

To manage our price exposure for natural gas purchases, we fix the future price of a portion of our natural gas requirements by entering into financial hedge agreements. Under these agreements, payments are made or received based on the differential between the monthly closing price on the New York Mercantile Exchange (“NYMEX”) and the contractual hedge price. We also enter into call option contracts to manage the exposure to increasing prices while maintaining our ability to benefit from declining prices. Upon settlement of call option contracts, we receive cash and recognize a related gain if the NYMEX closing price exceeds the strike price of the call option. If the call option strike price exceeds the NYMEX closing price, no amount is received and the option expires. Option contracts require the payment of a premium which is recorded as a realized loss upon settlement or expiration of the option contract. Natural gas cost can also be managed through the use of cost escalators included in some of our long-term supply contracts with customers, which limits exposure to natural gas price risk. As of September 30, 2012 and December 31, 2011, we had 3.1 trillion and 2.3 trillion, respectively, of British thermal unit forward buy contracts.

ALERIS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)

(amounts in millions, except share data)

Currency Exchange Hedging

The construction of the Zhenjiang rolling mill has increased Aleris Zhenjiang’s exposure to fluctuations in the euro as certain of the contracts to purchase equipment are denominated in euros while our source of funding is the U.S. dollar and RMB denominated China Loan Facility. Our equity contributions are primarily made in euros to mitigate this exposure. In addition, Aleris Zhenjiang has entered into euro call option contracts to manage this exposure if the U.S. dollar weakens while maintaining the benefit if the U.S. dollar strengthens. As with all of our other derivative financial instruments, these call option contracts are not accounted for as hedges and, as a result, the changes in fair value are recorded immediately in the Consolidated Statements of Comprehensive Income. These call option contracts cover periods consistent with known or expected exposures through 2012. As of September 30, 2012 and December 31, 2011, Aleris Zhenjiang had euro call option contracts covering a notional amount of $7.4 and $48.5, respectively.

Credit Risk

We are exposed to losses in the event of non-performance by the counterparties to the derivative financial instruments discussed above; however, we do not anticipate any non-performance by the counterparties. The counterparties are evaluated for creditworthiness and risk assessment prior to initiating trading activities with the brokers and periodically throughout each year while actively trading.

Other Financial Instruments

The carrying amount and fair value of our other financial instruments at September 30, 2012 and December 31, 2011 are as follows:



	September 30, 2012				December 31, 2011
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Cash and cash equivalents	$	105.8	$	105.8	$	231.4	$	231.4
ABL Facility	—		—		—		—
Exchangeable Notes	44.2		104.1		44.1		107.4
Senior Notes	492.3		535.0		491.2		490.0
China Loan Facility	144.3		145.5		55.9		56.9

The following table sets forth our other financial instruments for which fair value is disclosed and the level in the fair value hierarchy within which the fair value measurements are categorized as of September 30, 2012:



	Fair value measurements at September 30, 2012 using:
Description	Total estimated fair value		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Cash and cash equivalents	$	105.8	$	105.8	$	—	$	—
Exchangeable Notes	104.1		—		—		104.1
Senior Notes	535.0		535.0		—		—
China Loan Facility	145.5		—		—		145.5

The fair value of our Exchangeable Notes was estimated using a binomial lattice pricing model based on the fair value of Aleris Corporation common stock, a risk-free interest rate of 1.3% to 1.7% and expected equity volatility of 50%. Expected equity volatility was determined based on historical stock prices and implied and stated volatilities of our peer companies. The fair value of our Senior Notes was estimated using market quotations. The carrying amount of the China Loan Facility approximates fair value because the interest rate paid is variable, is set for periods of six months or less and there have been no significant changes in the credit risk of Aleris Zhenjiang subsequent to the inception of the China Loan Facility.

11. RELATED PARTY TRANSACTIONS

ALERIS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)

(amounts in millions, except share data)

As discussed in Note 7, “Stock-Based Compensation,” we recorded $2.8 and $8.1 of compensation expense for the three and nine months ended September 30, 2012, respectively, and $2.8 and $7.3 of compensation expense for the three and nine months ended September 30, 2011, respectively, associated with the 2010 Equity Plan, the beneficiaries of which are members of our senior management and our nonemployee directors.

12. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

Certain of our subsidiaries (the “Guarantors”) are guarantors of the indebtedness under our Senior Notes. Each of the Guarantors has fully and unconditionally guaranteed, on a joint and several basis, to pay principal and interest related to the Senior Notes and each of the Guarantors are directly or indirectly 100% owned subsidiaries of the Company. For purposes of complying with the reporting requirements of the Guarantor Subsidiaries, presented below are condensed consolidating financial statements of Aleris International, Inc., the Guarantor Subsidiaries, and those subsidiaries of Aleris International, Inc. that are not guaranteeing the indebtedness under the Senior Notes (the “Non-Guarantors”). The condensed consolidating balance sheets are presented as of September 30, 2012 and December 31, 2011. The condensed consolidating statements of comprehensive income are presented for the three and nine months ended September 30, 2012 and 2011. The condensed consolidating statements of cash flows are presented for the nine months ended September 30, 2012 and 2011.

ALERIS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)

(amounts in millions, except share data)



	As of September 30, 2012
	Aleris International, Inc. (Parent)		Guarantors		Non- Guarantors		Eliminations			Consolidated
ASSETS
Current Assets
Cash and cash equivalents	$	—	$	—	$	105.8	$	—		$	105.8
Accounts receivable, net	1.3		198.3		296.6		—			496.2
Inventories	—		228.8		396.9		—			625.7
Deferred income taxes	1.4		—		4.6		—			6.0
Prepaid expenses and other current assets	0.7		8.6		10.1		—			19.4
Total Current Assets	3.4		435.7		814.0		—			1,253.1
Property, plant and equipment, net	—		359.3		587.1		—			946.4
Intangible assets, net	—		30.2		15.9		—			46.1
Deferred income taxes	—		—		33.9		—			33.9
Other long-term assets	13.8		2.5		31.6		(0.3		)	47.6
Investments in subsidiaries/intercompany receivables, net	1,201.1		283.7		5.4		(1,490.2		)	—
Total Assets	$	1,218.3	$	1,111.4	$	1,487.9	$	(1,490.5	)	$	2,327.1

LIABILITIES AND STOCKHOLDER’S EQUITY
Current Liabilities
Accounts payable	$	5.0	$	149.9	$	214.7	$	—		$	369.6
Accrued liabilities	—		62.2		176.0		—			238.2
Deferred income taxes	—		—		6.2		—			6.2
Current portion of long-term debt	—		—		10.3		—			10.3
Total Current Liabilities	5.0		212.1		407.2		—			624.3
Long-term debt	536.5		—		148.4		—			684.9
Deferred income taxes	2.4		—		11.0		—			13.4
Accrued pension benefits	—		54.4		142.4		—			196.8
Accrued postretirement benefits	—		52.1		—		—			52.1
Other long-term liabilities	—		32.8		40.2		(0.3		)	72.7
Total Long-Term Liabilities	538.9		139.3		342.0		(0.3		)	1,019.9
Redeemable preferred stock	5.6		—		—		—			5.6
Redeemable noncontrolling interest	—		—		8.5		—			8.5
Aleris International, Inc. equity	668.8		760.0		730.2		(1,490.2		)	668.8
Total Liabilities and Equity	$	1,218.3	$	1,111.4	$	1,487.9	$	(1,490.5	)	$	2,327.1

ALERIS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)

(amounts in millions, except share data)



	As of December 31, 2011
	Aleris International, Inc. (Parent)		Guarantors		Non- Guarantors			Eliminations			Consolidated
ASSETS
Current Assets
Cash and cash equivalents	$	67.1	$	—	$	165.7		$	(1.4	)	$	231.4
Accounts receivable, net	1.3		150.5		249.3			—			401.1
Inventories	—		220.7		365.0			—			585.7
Deferred income taxes	1.4		—		4.6			—			6.0
Prepaid expenses and other current assets	0.9		9.5		12.6			—			23.0
Total Current Assets	70.7		380.7		797.2			(1.4		)	1,247.2
Property, plant and equipment, net	—		309.9		360.6			—			670.5
Intangible assets, net	—		31.8		15.9			—			47.7
Deferred income taxes	—		—		33.9			—			33.9
Other long-term assets	15.8		3.8		18.7			—			38.3
Investments in subsidiaries/intercompany receivables (payables), net	1,014.6		352.4		(26.4		)	(1,340.6		)	—
Total Assets	$	1,101.1	$	1,078.6	$	1,199.9		$	(1,342.0	)	$	2,037.6

LIABILITIES AND STOCKHOLDER’S EQUITY
Current Liabilities
Accounts payable	$	3.3	$	106.4	$	179.1		$	(1.4	)	$	287.4
Accrued liabilities	0.4		89.4		143.3			—			233.1
Deferred income taxes	—		—		6.2			—			6.2
Current maturities of debt	—		—		6.9			—			6.9
Total Current Liabilities	3.7		195.8		335.5			(1.4		)	533.6
Long-term debt	535.4		—		59.7			—			595.1
Deferred income taxes	2.1		—		3.0			—			5.1
Accrued pension benefits	—		65.4		140.8			—			206.2
Accrued postretirement benefits	—		52.9		—			—			52.9
Other long-term liabilities	0.6		32.4		46.1			—			79.1
Total Long-Term Liabilities	538.1		150.7		249.6			—			938.4
Redeemable preferred stock	5.4		—		—			—			5.4
Aleris International, Inc. equity	553.9		732.1		608.5			(1,340.6		)	553.9
Noncontrolling interest	—		—		6.3			—			6.3
Total Liabilities and Equity	$	1,101.1	$	1,078.6	$	1,199.9		$	(1,342.0	)	$	2,037.6

ALERIS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)

(amounts in millions, except share data)



	For the three months ended September 30, 2012
	Aleris International, Inc. (Parent)			Guarantors			Non- Guarantors			Eliminations			Consolidated
Revenues	$	—		$	499.8		$	582.2		$	(1.0	)	$	1,081.0
Cost of sales	—			456.7			505.1			(1.0		)	960.8
Gross profit	—			43.1			77.1			—			120.2
Selling, general and administrative expenses	0.1			30.3			36.1			—			66.5
Losses on derivative financial instruments	—			0.3			1.0			—			1.3
Other operating expense, net	—			0.4			0.4			—			0.8
Operating (loss) income	(0.1		)	12.1			39.6			—			51.6
Interest expense, net	—			10.7			—			—			10.7
Other (income) expense, net	—			(1.2		)	2.1			—			0.9
Equity in net earnings of affiliates	(32.4		)	(0.6		)	—			33.0			—
Income before income taxes	32.3			3.2			37.5			(33.0		)	40.0
(Benefit from) provision for income taxes	(0.5		)	—			8.0			—			7.5
Net income	32.8			3.2			29.5			(33.0		)	32.5
Net loss attributable to noncontrolling interest	—			—			(0.3		)	—			(0.3		)
Net income attributable to Aleris International, Inc.	$	32.8		$	3.2		$	29.8		$	(33.0	)	$	32.8

Comprehensive income	$	44.8		$	3.8		$	40.6		$	(44.7	)	$	44.5
Comprehensive loss attributable to noncontrolling interest	—			—			(0.3		)	—			(0.3		)
Comprehensive income attributable to Aleris International, Inc.	$	44.8		$	3.8		$	40.9		$	(44.7	)	$	44.8


	For the nine months ended September 30, 2012
	Aleris International, Inc. (Parent)			Guarantors			Non- Guarantors			Eliminations			Consolidated
Revenues	$	—		$	1,579.5		$	1,820.7		$	(8.0	)	$	3,392.2
Cost of sales	—			1,444.0			1,582.4			(8.0		)	3,018.4
Gross profit	—			135.5			238.3			—			373.8
Selling, general and administrative expenses	0.2			91.3			103.5			—			195.0
Losses (gains) on derivative financial instruments	—			4.3			(1.0		)	—			3.3
Other operating expense, net	—			1.0			1.1			—			2.1
Operating (loss) income	(0.2		)	38.9			134.7			—			173.4
Interest expense, net	—			32.6			1.2			—			33.8
Other (income) expense, net	—			(3.7		)	4.1			—			0.4
Equity in net earnings of affiliates	(114.2		)	(1.5		)	—			115.7			—
Income before income taxes	114.0			11.5			129.4			(115.7		)	139.2
(Benefit from) provision for income taxes	(0.5		)	—			26.1			—			25.6
Net income	114.5			11.5			103.3			(115.7		)	113.6
Net loss attributable to noncontrolling interest	—			—			(0.9		)	—			(0.9		)
Net income attributable to Aleris International, Inc.	$	114.5		$	11.5		$	104.2		$	(115.7	)	$	114.5

Comprehensive income	$	110.9		$	12.1		$	99.5		$	(112.6	)	$	109.9
Comprehensive loss attributable to noncontrolling interest	—			—			(1.0		)	—			(1.0		)
Comprehensive income attributable to Aleris International, Inc.	$	110.9		$	12.1		$	100.5		$	(112.6	)	$	110.9

ALERIS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)

(amounts in millions, except share data)



	For the three months ended September 30, 2011
	Aleris International, Inc. (Parent)			Guarantors			Non- Guarantors			Eliminations			Consolidated
Revenues	$	—		$	562.5		$	687.2		$	(2.6	)	$	1,247.1
Cost of sales	—			520.7			608.0			(2.6		)	1,126.1
Gross profit	—			41.8			79.2			—			121.0
Selling, general and administrative expenses	—			29.0			47.2			—			76.2
(Gains) losses on derivative financial instruments	—			(6.8		)	7.5			—			0.7
Other operating expense, net	—			0.9			1.5			—			2.4
Operating income	—			18.7			23.0			—			41.7
Interest expense, net	—			10.8			1.0			—			11.8
Other (income) expense, net	—			(0.9		)	3.5			—			2.6
Equity in net earnings of affiliates	(29.1		)	(3.3		)	—			32.4			—
Income before income taxes	29.1			12.1			18.5			(32.4		)	27.3
Provision for (benefit from) income taxes	1.2			—			(1.5		)	—			(0.3		)
Net income	27.9			12.1			20.0			(32.4		)	27.6
Net loss attributable to noncontrolling interest	—			—			(0.3		)	—			(0.3		)
Net income attributable to Aleris International, Inc.	$	27.9		$	12.1		$	20.3		$	(32.4	)	$	27.9

Comprehensive income (loss)	$	1.7		$	9.9		$	(3.9	)	$	(6.2	)	$	1.5
Comprehensive loss attributable to noncontrolling interest	—			—			(0.2		)	—			(0.2		)
Comprehensive income (loss) attributable to Aleris International, Inc.	$	1.7		$	9.9		$	(3.7	)	$	(6.2	)	$	1.7


	For the nine months ended September 30, 2011
	Aleris International, Inc. (Parent)			Guarantors			Non- Guarantors			Eliminations			Consolidated
Revenues	$	—		$	1,648.6		$	2,126.8		$	(8.7	)	$	3,766.7
Cost of sales	—			1,507.8			1,883.4			(8.7		)	3,382.5
Gross profit	—			140.8			243.4			—			384.2
Selling, general and administrative expenses	0.1			81.4			124.5			—			206.0
(Gains) losses on derivative financial instruments	—			(5.4		)	1.9			—			(3.5		)
Other operating expense (income), net	—			2.0			(1.6		)	—			0.4
Operating (loss) income	(0.1		)	62.8			118.6			—			181.3
Interest expense, net	—			29.3			4.9			—			34.2
Other (income) expense, net	(0.2		)	(5.9		)	1.9			—			(4.2		)
Equity in net earnings of affiliates	(143.5		)	(7.0		)	—			150.5			—
Income before income taxes	143.6			46.4			111.8			(150.5		)	151.3
Provision for income taxes	1.8			—			7.8			—			9.6
Net income	141.8			46.4			104.0			(150.5		)	141.7
Net loss attributable to noncontrolling interest	—			—			(0.1		)	—			(0.1		)
Net income attributable to Aleris International, Inc.	$	141.8		$	46.4		$	104.1		$	(150.5	)	$	141.8

Comprehensive income	$	145.6		$	47.1		$	107.3		$	(154.4	)	$	145.6
Comprehensive income attributable to noncontrolling interest	—			—			—			—			—
Comprehensive income attributable to Aleris International, Inc.	$	145.6		$	47.1		$	107.3		$	(154.4	)	$	145.6

ALERIS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)

(amounts in millions, except share data)



	For the nine months ended September 30, 2012
	Aleris International, Inc. (Parent)			Guarantors			Non- Guarantors			Eliminations			Consolidated
Net cash (used) provided by operating activities	$	(37.6	)	$	97.3		$	30.1		$	1.4		$	91.2
Investing activities
Payments for property, plant and equipment	—			(96.9		)	(188.6		)	—			(285.5		)
Purchase of a business	—			—			(21.5		)	—			(21.5		)
Other	—			(0.4		)	0.2			—			(0.2		)
Net investment in subsidiaries	(29.3		)	—			29.3			—			—
Net cash used by investing activities	(29.3		)	(97.3		)	(180.6		)	—			(307.2		)
Financing activities
Proceeds from China Loan Facility	—			—			88.5			—			88.5
Net proceeds from long-term debt	—			—			2.0			—			2.0
Debt issuance costs	(0.1		)	—			(0.3		)	—			(0.4		)
Other	(0.1		)	—			(0.5		)	—			(0.6		)
Net cash (used) provided by financing activities	(0.2		)	—			89.7			—			89.5
Effect of exchange rate differences on cash and cash equivalents	—			—			0.9			—			0.9
Net decrease in cash and cash equivalents	(67.1		)	—			(59.9		)	1.4			(125.6		)
Cash and cash equivalents at beginning of period	67.1			—			165.7			(1.4		)	231.4
Cash and cash equivalents at end of period	$	—		$	—		$	105.8		$	—		$	105.8

	For the nine months ended September 30, 2011
	Aleris International, Inc. (Parent)			Guarantors			Non- Guarantors			Eliminations			Consolidated
Net cash provided by operating activities	$	31.2		$	49.2		$	69.3		$	—		$	149.7
Investing activities
Payments for property, plant and equipment	—			(49.2		)	(59.2		)	—			(108.4		)
Proceeds from the sale of property, plant and equipment	—			—			7.8			—			7.8
Net investment in subsidiaries	(50.0		)	—			50.0			—			—
Other	—			—			(0.4		)	—			(0.4		)
Net cash used by investing activities	(50.0		)	(49.2		)	(1.8		)	—			(101.0		)
Financing activities
Proceeds from Senior Note, net of discount	490.0			—			—			—			490.0
Proceeds from China Loan Facility	—			—			11.5			—			11.5
Net payments on long-term debt	—			—			(1.0		)	—			(1.0		)
Debt issuance costs	(7.0		)	—			(0.2		)	—			(7.2		)
Contributions from noncontrolling interests	—			—			7.6			—			7.6
Dividends paid to Aleris Corporation	(400.0		)	—			—			—			(400.0		)
Other	(0.2		)	—			2.2			—			2.0
Net cash provided by financing activities	82.8			—			20.1			—			102.9
Effect of exchange rate differences on cash and cash equivalents	—			—			0.8			—			0.8
Net increase in cash and cash equivalents	64.0			—			88.4			—			152.4
Cash and cash equivalents at beginning of period	37.9			—			75.6			—			113.5
Cash and cash equivalents at end of period	$	101.9		$	—		$	164.0		$	—		$	265.9

ALERIS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)

(amounts in millions, except share data)

13. SUBSEQUENT EVENT

New Senior Notes due 2020

On October 23, 2012, we issued $500.0 aggregate principal amount of 7 ⁷/8% Senior Notes due 2020 (the “New Senior Notes”) under an indenture (the “New Indenture”) with U.S. Bank National Association, as trustee. Interest on the New Senior Notes will be payable in cash semi-annually in arrears on May 1st and November 1st of each year, commencing May 1, 2013. Interest on the New Senior Notes will accrue from the most recent date to which interest has been paid, or if no interest has been paid, from October 23, 2012. The New Senior Notes mature on November 1, 2020.

The New Senior Notes are jointly and severally irrevocably and unconditionally guaranteed on a senior unsecured basis, by each direct and indirect restricted subsidiary that is a domestic subsidiary and that guarantees our obligations under the ABL Facility and the Senior Notes, as primary obligor and not merely as surety. The New Senior Notes and the guarantees thereof are our unsecured senior obligations and rank (i) equally in right of payment to all of our existing and future debt and other obligations that are not, by their terms, expressly subordinated in right of payment to the New Senior Notes (including the existing Senior Notes); (ii) be effectively subordinated in right of payment to all of our existing and future secured debt (including any borrowings under our ABL Facility), to the extent of the value of the assets securing such debt; (iii) be structurally subordinated to all existing and future debt and other obligations, including trade payables, of each of our subsidiaries that is not a guarantor of the New Senior Notes; and (iv) rank senior in right of payment to our existing and future debt and other obligations that are, by their terms, expressly subordinated in right of payment to the New Senior Notes, including our Exchangeable Notes.

We are not required to make any mandatory redemption or sinking fund payments with respect to the New Senior Notes other than as set forth in the New Indenture relating to certain tax matters, but under certain circumstances, we may be required to offer to purchase New Senior Notes as described below. We may from time to time acquire New Senior Notes by means other than redemption, whether by tender offer, in open market purchases, through negotiated transactions or otherwise, in accordance with applicable securities laws.

Except as described below, the New Senior Notes are not redeemable at our option prior to November 1, 2015. From and after November 1, 2015, we may redeem the New Senior Notes, in whole or in part, upon not less than 30 nor more than 60 days’ prior notice at a redemption price equal to 105.9% of principal amount, declining annually to 100.0% of the principal amount on November 1, 2018, plus accrued and unpaid interest, and Additional Interest (as defined in the New Indenture), if any, thereon to the applicable redemption date.

Prior to November 1, 2015, we may, at our option, redeem up to 40% of the sum of the aggregate principal amount of the New Senior Notes originally issued under the New Indenture and the aggregate principal amount of any additional notes issued under the New Indenture after the issue date at a redemption price equal to 107.9% of the aggregate principal amount thereof, plus accrued and unpaid interest, and Additional Interest, if any, thereon to the redemption date, with the net cash proceeds of one or more equity offerings of ours or any direct or indirect parent of ours to the extent such net proceeds are contributed to us provided that at least 60% of the sum of the aggregate principal amount of New Senior Notes originally issued under the New Indenture and the aggregate principal amount of any additional notes issued under the New Indenture after the issue date remain outstanding immediately after the occurrence of each such redemption and each such redemption occurs within 180 days of the date of closing of each equity offering. At any time prior to November 1, 2015, we may also redeem all or a part of the New Senior Notes, upon not less than 30 nor more than 60 days’ prior notice, at a redemption price equal to 100% of the principal amount of New Senior Notes redeemed plus an applicable premium, as provided in the New Indenture, as of, and accrued and unpaid interest and Additional Interest, if any, to the redemption date.

Upon the occurrence of a change in control (as defined in the New Indenture), each holder of the New Senior Notes has the right to require us to repurchase some or all of such holder's New Senior Notes at a price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Additional Interest, if any, to the date of purchase.

The New Indenture contains covenants that limit our ability and certain of our subsidiaries' ability to:

ALERIS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)

(amounts in millions, except share data)


•	incur additional debt;


•	pay dividends or distributions on our capital stock or redeem, repurchase or retire our capital stock or

subordinated debt;


•	issue preferred stock of restricted subsidiaries;


•	make certain investments;


•	create liens on our or our subsidiary guarantors' assets to secure debt;


•	enter into sale and leaseback transactions;


•	create restrictions on the payment of dividends or other amounts to us from our restricted subsidiaries that

are not guarantors of the notes;


•	enter into transactions with affiliates;


•	merge or consolidate with another company; and


•	sell assets, including capital stock of our subsidiaries.

These covenants are subject to a number of important limitations and exceptions.

The New Indenture also provides for events of default, which, if any of them occurs, would permit or require the principal, premium, if any, interest and any other monetary obligations on all outstanding New Senior Notes to be due and payable immediately.

ALERIS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)

(amounts in millions, except share data)

The following presents our Consolidated Balance Sheet as of September 30, 2012 on a pro forma basis as if the New Senior Notes had been issued on September 30, 2012:



				Pro Forma
	Historical			Adjustments		Pro Forma
ASSETS
Current Assets
Cash and cash equivalents	$	105.8		$	489.5	$	595.3
Accounts receivable, net	496.2			—		496.2
Inventories	625.7			—		625.7
Deferred income taxes	6.0			—		6.0
Prepaid expenses and other current assets	19.4			—		19.4
Total Current Assets	1,253.1			489.5		1,742.6
Property, plant and equipment, net	946.4			—		946.4
Intangible assets, net	46.1			—		46.1
Deferred income taxes	33.9			—		33.9
Other long-term assets	47.6			1.8		49.4
Total Assets	$	2,327.1		$	491.3	$	2,818.4

LIABILITIES AND STOCKHOLDER’S EQUITY
Current Liabilities
Accounts payable	$	369.6		$	—	$	369.6
Accrued liabilities	238.2			—		238.2
Deferred income taxes	6.2			—		6.2
Current portion of long-term debt	10.3			—		10.3
Total Current Liabilities	624.3			—		624.3
Long-term debt	684.9			491.3		1,176.2
Deferred income taxes	13.4			—		13.4
Accrued pension benefits	196.8			—		196.8
Accrued postretirement benefits	52.1			—		52.1
Other long-term liabilities	72.7			—		72.7
Total Long-Term Liabilities	1,019.9			491.3		1,511.2
Redeemable preferred stock	5.6			—		5.6
Redeemable noncontrolling interest	8.5			—		8.5
Stockholder’s Equity
Common stock; par value	—			—		—
Additional paid-in capital	569.8			—		569.8
Retained earnings	131.5			—		131.5
Accumulated other comprehensive loss	(32.5		)	—		(32.5		)
Total Aleris International, Inc. Equity	668.8			—		668.8
Noncontrolling interest	—			—		—
Total Equity	668.8			—		668.8
Total Liabilities and Equity	$	2,327.1		$	491.3	$	2,818.4



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

The following Management’s Discussion and Analysis of our Financial Condition and Results of Operations (“MD&A”) is intended to help you understand our operations as well as the industry in which we operate. Our MD&A is designed to provide 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 includes the following sections:


▪	Overview - a general description of our operations, our business segments, the aluminum industry and our critical measures of financial performance;


▪	Seasonality and Management Outlook - a brief discussion of the material trends and uncertainties that may impact our business in the future;


▪	Results of Operations - an analysis and discussion of our consolidated and segment operating results for the three and nine months ended September 30, 2012 and 2011;


▪	Liquidity and Capital Resources - an analysis and discussion of our cash flows for the nine months ended September 30, 2012 and 2011, as well as a brief discussion of our current sources of capital; and


▪	Non-GAAP Financial Measures - an analysis and discussion of key financial performance measures, including EBITDA, Adjusted EBITDA and commercial margin, as well as reconciliations to the applicable generally accepted accounting principles in the United States (“GAAP”) performance measures, for the three and nine months ended September 30, 2012 and 2011.

This discussion should be read in conjunction with our unaudited consolidated financial statements and notes. The discussions of our financial condition and results of operations also include various forward-looking statements about our industry, the demand for our products and services and our projected results. These statements are based on certain assumptions that we consider reasonable. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below, particularly under the caption “Forward-Looking Statements.”

Overview

Our Business

We are a global leader in the manufacture and sale of aluminum rolled and extruded products, aluminum recycling and specification alloy manufacturing with locations in North America, Europe and China. We operate 42 production facilities worldwide, with 15 production facilities that provide rolled and extruded aluminum products and 27 recycling and specification alloy manufacturing plants. We are currently constructing our 43rd production facility, a state-of-the-art aluminum rolling mill in China that will produce semi-finished rolled aluminum products through our subsidiary, Aleris Dingsheng Aluminum (Zhenjiang) Co. Ltd. (“Aleris Zhenjiang”). We possess a combination of low-cost, flexible and technically advanced manufacturing operations supported by an industry-leading research and development platform. Our facilities are strategically located to service our customers, which include a number of the world’s largest companies in the aerospace, automotive and other transportation industries, building and construction, containers and packaging and metal distribution industries.

For a majority of our businesses, London Metal Exchange (“LME”) aluminum prices serve as the pricing mechanism for both the aluminum we purchase and the products we sell. Aluminum and other metal costs represented in excess of 73% of our costs of sales for the nine months ended September 30, 2012. Aluminum prices are determined by worldwide forces of supply and demand and, as a result, aluminum prices are volatile. Average LME aluminum prices per ton for the three months ended September 30, 2012 and 2011 were $1,918 and $2,399, respectively, which represents a decrease of 20%. Average LME aluminum prices per ton for the nine months ended September 30, 2012 and 2011 were $2,025 and $2,498, respectively, which represents a decrease of 19%. Our business model strives to reduce the impact of aluminum price fluctuations on our financial results and protect and stabilize our margins, principally through pass-through pricing (market-based aluminum price plus a conversion fee), tolling arrangements (conversion of customer-owned material) and derivative financial instruments.

As a result of utilizing LME aluminum prices to both buy our raw materials and to sell our products, we are able to pass through aluminum price changes in the majority of our commercial transactions. Consequently, while our revenues can fluctuate significantly as LME aluminum prices change, the impact of these price changes on our profitability is limited.

Approximately 88% of our global rolled products sales for the year ended December 31, 2011 were generated from aluminum pass-through arrangements. In addition to using LME prices to establish our invoice prices to customers, we utilize derivative financial instruments to further reduce the impacts of changing aluminum prices. Derivative financial instruments are entered into at the time fixed prices are established for aluminum purchases or sales, on a net basis, and allow us to fix the margin to be realized on our long-term contracts and on short-term contracts where selling prices are not established at the same time as the physical purchase price of aluminum. However, as we have elected not to account for our derivative financial instruments as hedges for accounting purposes, changes in the fair value of our derivative financial instruments are included in our results of operations immediately. These changes in fair value (referred to as “unrealized gains and losses”) can have a significant impact on our pre-tax income in the same way LME aluminum prices can have a significant impact on our revenues. However, in assessing the performance of our operating segments, we exclude these unrealized gains and losses, electing to include them only at the time of settlement to better match the period in which the underlying physical purchases and sales affect earnings. For additional information on the key factors impacting our profitability, see “Our Segments” and “Critical Measures of Our Financial Performance,” below.

Our Segments

The Company’s operating structure includes two global business units, Global Rolled and Extruded Products and Global Recycling. Within our two global business units, we have five operating segments based on the organizational structure that we use to evaluate performance, make decisions on resource allocations and perform business reviews of financial results. The Company’s operating segments (each of which is considered a reportable segment) are:


▪	Rolled Products North America (“RPNA”);


▪	Rolled Products Europe (“RPEU”);


▪	Extrusions;


▪	Recycling and Specification Alloys North America (“RSAA”); and


▪	Recycling and Specification Alloys Europe (“RSEU”).

All prior period amounts presented have been restated to conform to our current reportable segments, which were changed in the fourth quarter of 2011.

In addition to analyzing our consolidated operating performance based upon revenues and net income and loss attributable to Aleris International, Inc. before interest, taxes, depreciation and amortization (“EBITDA”), we measure the performance of our operating segments utilizing segment income and loss, segment Adjusted EBITDA and commercial margin. Segment income and loss includes gross profits, segment specific realized gains and losses on derivative financial instruments, segment specific other income and expense, segment specific selling, general and administrative (“SG&A”) expense and an allocation of certain regional and global functional SG&A expenses. Segment income and loss excludes provisions for and benefit from income taxes, restructuring items, net, interest, depreciation and amortization, unrealized and certain realized gains and losses on derivative financial instruments, corporate general and administrative costs, start-up expenses, gains and losses on asset sales, currency exchange gains and losses on debt, gains and losses on intercompany receivables, reorganization items, net and certain other gains and losses. Intersegment sales and transfers are recorded at market value. Consolidated cash, long-term debt, net capitalized debt costs, deferred tax assets and assets related to our headquarters offices and Aleris Zhenjiang are not allocated to the segments. Prior period segment income and loss amounts presented have been restated to conform to the current definition of segment income and loss, which was changed in the fourth quarter of 2011.

Segment Adjusted EBITDA eliminates from segment income and loss the impact of recording inventory and other items at fair value through fresh-start and purchase accounting and metal price lag, which represents the financial impact of the timing difference between when aluminum prices included within our revenues are established and when aluminum purchase prices included in our cost of sales are established, net of the impact of our hedging activities. Commercial margin represents revenues less the hedged cost of metal, or the raw material costs included in our cost of sales, net of the impact of our hedging activities and the effects of metal price lag. Segment Adjusted EBITDA and commercial margin are non-GAAP financial measures that have limitations as analytical tools and should be considered in addition to, and not in isolation, or as a substitute for, or as superior to, our measures of financial performance prepared in accordance with GAAP. Management uses segment Adjusted EBITDA in managing and assessing the performance of our business segments and overall business and believes that segment Adjusted EBITDA provides investors and other users of our financial information with additional useful information regarding the ongoing performance of the underlying business activities of our segments, as well as comparisons between our current results and results in prior periods. Management also uses commercial margin as a performance metric and believes that it provides useful information regarding the performance of our segments because it measures the price at which we sell our

aluminum products above the hedged cost of the metal and the effects of metal price lag, thereby reflecting the value-added components of our commercial activities independent of aluminum prices which we cannot control. For additional information regarding non-GAAP financial measures, see “Non-GAAP Financial Measures.”

Rolled Products North America

Our RPNA segment produces rolled products for a wide variety of applications, including building and construction, distribution, transportation, and other uses in the consumer durables general industrial segments. Except for depot sales, which are for standard size products, substantially all of our rolled aluminum products in the U.S. are manufactured to specific customer requirements, using direct-chill ingot and continuous cast technologies that allow us to use and offer a variety of alloys and products for a number of end-uses. Specifically, those products are integrated into, among other applications, building panels, truck trailers, gutters, appliances, and recreational vehicles.

Segment metric tons invoiced, revenues, commercial margin, income and Adjusted EBITDA, along with the related reconciliations, are presented below:



	For the three months ended						For the nine months ended
	September 30,						September 30,
	2012			2011			2012			2011
Rolled Products North America	(dollars in millions, except per ton measures, volumes in thousands of tons)
Segment metric tons invoiced	102.2			97.7			304.8			287.2

Segment revenues	$	328.8		$	365.5		$	1,003.3		$	1,054.6
Hedged cost of metal	(204.6		)	(241.4		)	(632.2		)	(699.6		)
Favorable metal price lag	(0.6		)	(1.8		)	(3.0		)	(3.0		)
Segment commercial margin	$	123.6		$	122.3		$	368.1		$	352.0

Segment commercial margin per ton invoiced	$	1,209.6		$	1,252.3		$	1,207.7		$	1,225.6

Segment income	$	30.3		$	30.0		$	91.2		$	86.3
Favorable metal price lag	(0.6		)	(1.8		)	(3.0		)	(3.0		)
Segment Adjusted EBITDA (1)	$	29.7		$	28.3		$	88.2		$	83.3

Segment Adjusted EBITDA per ton invoiced	$	290.7		$	289.5		$	289.3		$	290.0

(1) Amounts may not foot as they represent the calculated totals based on actual amounts and not the rounded amounts presented in this table.

Rolled Products Europe

Our RPEU segment consists of two rolled aluminum products manufacturing facilities, located in Germany and Belgium, as well as an aluminum casting plant in Germany that produces rolling slab and billets used by our RPEU and Extrusions segments. Our RPEU segment produces rolled products for a wide variety of technically sophisticated applications, including aerospace plate and sheet, brazing sheet (clad aluminum material used for, among other applications, heat exchangers in vehicle radiators and HVAC systems), automotive sheet, and heat treated plate for engineering uses, as well as for other uses in the transportation, construction, and packaging industries. Substantially all of our rolled aluminum products in Europe are manufactured to specific customer requirements using direct-chill ingot cast technologies that allow us to use and offer a variety of alloys and products for a number of technically demanding end-uses.

Segment metric tons invoiced, revenues, commercial margin, income and Adjusted EBITDA, along with the related reconciliations, are presented below:



	For the three months ended						For the nine months ended
	September 30,						September 30,
	2012			2011			2012			2011
Rolled Products Europe	(dollars in millions, except per ton measures, volumes in thousands of tons)
Segment metric tons invoiced	78.5			77.4			222.8			246.9

Segment revenues	$	330.6		$	391.3		$	1,008.7		$	1,206.7
Hedged cost of metal	(179.3		)	(233.7		)	(567.9		)	(740.1		)
Favorable metal price lag	(2.6		)	(5.3		)	(6.4		)	(2.2		)
Segment commercial margin	$	148.7		$	152.3		$	434.4		$	464.4

Segment commercial margin per ton invoiced	$	1,894.4		$	1,968.9		$	1,950.2		$	1,880.9

Segment income	$	42.6		$	52.7		$	126.4		$	120.8
Impact of recording amounts at fair value through fresh-start and purchase accounting	(0.2		)	1.0			(0.7		)	2.6
Favorable metal price lag	(2.6		)	(5.3		)	(6.4		)	(2.2		)
Segment Adjusted EBITDA (1)	$	39.8		$	48.4		$	119.3		$	121.1

Segment Adjusted EBITDA per ton invoiced	$	507.4		$	625.6		$	535.4		$	490.6

(1) Amounts may not foot as they represent the calculated totals based on actual amounts and not the rounded amounts presented in this table.

Extrusions

Our Extrusions segment produces soft and hard alloy extruded aluminum profiles targeted at high demand end-uses. Our extruded aluminum products are used for the automotive, building and construction, electrical, mechanical engineering and other transportation (rail, aerospace, and shipbuilding) industries. The extruded products business includes five extrusion facilities located in Germany, Belgium and China. Industrial extrusions are made in all locations and the production of extrusion systems, including building systems, is concentrated in Vogt, Germany. Large extrusions and project business serving rail and other transportation sectors are concentrated in Bonn, Germany and Tianjin, China, with rods and hard alloys produced in Duffel, Belgium. The extrusion plant in Bonn operates one of the largest extrusion presses in Europe, that is mainly used for long and wide sections for railway, shipbuilding and other applications. In addition, we perform value-added fabrication to most of our extruded products.

Segment metric tons invoiced, revenues, commercial margin, income and Adjusted EBITDA, along with the related reconciliations, are presented below:



	For the three months ended						For the nine months ended
	September 30,						September 30,
	2012			2011			2012			2011
Extrusions	(dollars in millions, except per ton measures, volumes in thousands of tons)
Segment metric tons invoiced	16.8			19.3			53.4			59.5

Segment revenues	$	89.1		$	106.6		$	276.7		$	323.9
Hedged cost of metal	(47.7		)	(61.0		)	(152.2		)	(194.7		)
Favorable metal price lag	(1.5		)	(1.6		)	(2.7		)	(1.0		)
Segment commercial margin	$	39.9		$	44.0		$	121.8		$	128.2

Segment commercial margin per ton invoiced	$	2,371.9		$	2,283.4		$	2,280.4		$	2,154.6

Segment income	$	5.6		$	3.9		$	16.5		$	9.4
Impact of recording amounts at fair value through fresh-start and purchase accounting	—			1.1			(0.1		)	(0.3		)
Favorable metal price lag	(1.5		)	(1.6		)	(2.7		)	(1.0		)
Segment Adjusted EBITDA (1)	$	4.1		$	3.4		$	13.8		$	8.1

Segment Adjusted EBITDA per ton invoiced	$	243.7		$	174.1		$	257.8		$	135.7

(1) Amounts may not foot as they represent the calculated totals based on actual amounts and not the rounded amounts presented in this table.

Recycling and Specification Alloys North America

Our RSAA segment includes aluminum melting, processing and recycling activities, as well as our specification alloy manufacturing business, located in North America. This segment’s recycling operations convert scrap and dross (a by-product of melting aluminum) and combine these materials with other alloy agents as needed to produce recycled aluminum generally for customers serving end-uses related to consumer packaging, steel, transportation and construction. The segment’s specification alloy operations combine various aluminum scrap types with hardeners and other additives to produce alloys with chemical compositions and specific properties, including increased strength, formability and wear resistance, as specified by customers for their particular applications. Our specification alloy operations typically deliver products in molten or ingot form to customers principally in the North American automotive industry. A significant percentage of this segment’s products are sold through tolling arrangements, in which we convert customer-owned scrap and dross and return the recycled metal in ingot or molten form to our customers for a fee.

Segment metric tons invoiced, revenues, commercial margin, income and Adjusted EBITDA are presented below (for the periods presented below, there were no reconciling items between segment income and segment Adjusted EBITDA):



	For the three months ended						For the nine months ended
	September 30,						September 30,
	2012			2011			2012			2011
Recycling and Specification Alloys North America	(dollars in millions, except per ton measures, volumes in thousands of tons)
Segment buy and sell segment metric tons invoiced	90.5			89.5			285.2			273.3
Segment toll metric tons invoiced	120.6			133.8			377.4			397.2
Segment metric tons invoiced	211.1			223.3			662.6			670.5

Segment revenues	$	219.1		$	247.1		$	732.4		$	750.3
Hedged cost of metal	(149.4		)	(163.4		)	(509.1		)	(508.3		)
Segment commercial margin	$	69.7		$	83.7		$	223.3		$	242.0

Segment commercial margin per ton invoiced	$	330.0		$	374.9		$	336.9		$	360.9

Segment income	$	9.2		$	21.5		$	40.4		$	62.2
Segment Adjusted EBITDA	9.2			21.5			40.4			62.2
Segment Adjusted EBITDA per ton invoiced	43.4			96.1			61.0			92.8

Recycling and Specification Alloys Europe

We are a leading European recycler of aluminum scrap and magnesium through our RSEU segment. Our recycling operations primarily convert aluminum scrap, dross and other alloying agents as needed and deliver the recycled metal and specification alloys in molten or ingot form to our customers. Our European recycling business consists of six facilities located in Germany, Norway and Wales. Our RSEU segment supplies specification alloys to the European automobile industry and serves other European aluminum industries from its plants. The segment’s specification alloy operations combine various aluminum scrap types with hardeners and other additives to produce alloys with chemical compositions and specific properties, including increased strength, formability and wear resistance, as specified by customers for their particular applications. Our recycling operations typically service other aluminum producers and manufacturers, generally under tolling arrangements, where we convert customer-owned scrap and dross and return the recycled metal to our customers for a fee.



	For the three months ended						For the nine months ended
	September 30,						September 30,
	2012			2011			2012			2011
Recycling and Specification Alloys Europe	(dollars in millions, except per ton measures, volumes in thousands of tons)
Segment buy and sell segment metric tons invoiced	51.2			50.5			155.1			154.9
Segment toll metric tons invoiced	44.3			45.3			140.8			147.1
Segment metric tons invoiced	95.5			95.8			295.9			302.0

Segment revenues	$	142.8		$	174.2		$	456.8		$	544.7
Hedged cost of metal	(98.6		)	(123.1		)	(314.7		)	(378.9		)
Segment commercial margin	$	44.2		$	51.1		$	142.1		$	165.8

Segment commercial margin per ton invoiced	$	463.2		$	533.3		$	480.2		$	549.1

Segment income	$	4.7		$	8.3		$	17.4		$	31.6
Segment Adjusted EBITDA	4.7			8.3			17.4			31.6
Segment Adjusted EBITDA per ton invoiced	49.2			86.2			58.8			104.7

The Aluminum Industry

The overall aluminum industry consists of primary aluminum producers, aluminum casters, extruders and sheet producers and aluminum recyclers. Primary aluminum is commodity traded and priced daily on the LME. Many primary aluminum producers are engaged in the mining of bauxite ore and refining of the ore into alumina. Alumina is then smelted to form aluminum ingots and billets. Ingots and billets are further processed by aluminum sheet manufacturers and extruders to form plate, sheet and foil and extrusions profiles, or they are sold to aluminum traders or to the commodity markets. Aluminum recyclers produce aluminum in molten or ingot form.

We participate in select segments of the aluminum fabricated products industry, including rolled and extruded products; we also recycle aluminum and produce aluminum specification alloys. We do not smelt aluminum, nor do we participate in other upstream activities, including mining bauxite or processing alumina. Our industry is cyclical and is affected by global economic conditions, industry competition and product development. Compared to several substitute metals, aluminum is lightweight, has a high strength-to-weight ratio and is resistant to corrosion. Also, aluminum is somewhat unique in that it can be recycled again and again without any material decline in performance or quality, which delivers both energy and capital investment savings relative to the cost of smelting primary aluminum.

Critical Measures of Our Financial Performance

The financial performance of our global rolled and extruded products operations and global recycling and specification alloy operations are the result of several factors, the most critical of which are as follows:


▪	volumes;


▪	commercial margins; and


▪	cash conversion costs.

The financial performance of our businesses is determined, in part, by the volume of metric tons invoiced and processed. Increased production volumes will result in lower per unit costs, while higher invoiced volumes will result in additional revenue and associated margins. As a significant component of our revenue is derived from aluminum prices that we pass through to our customers, we measure the performance of our segments based upon a percentage of and the per ton average “commercial margin” in addition to a percentage of revenue and revenue per ton. Commercial margin removes the hedged cost of the metal we purchase and metal price lag from our revenue. Commercial margins capture the value-added components of our business and are impacted by factors, including rolling margins (the fee we charge to convert aluminum in our rolled products and extrusions businesses), the value-added mix of products sold and scrap spreads, which management are able to influence more readily than aluminum prices and, therefore, provide another basis upon which certain elements of our segments’ performance can be measured.

Although our conversion fee-based pricing model is designed to reduce the impact of changing primary aluminum prices, we remain susceptible to the impact of these changes on our operating results. This exposure exists because we value our inventories under the first-in, first-out method, which leads to the purchase price of inventory typically impacting our cost of sales in periods subsequent to when the related sales price impacts our revenues. This lag will, generally, increase our earnings in times of rising primary aluminum prices and decrease our earnings in times of declining primary aluminum prices.

Our exposure to changing primary aluminum prices, both in terms of liquidity and operating results, is greater for fixed price sales contracts and other sales contracts where aluminum price changes are not able to be passed along to our customers. In addition, our rolled products and extrusions operations require that a significant amount of inventory be kept on hand to meet future production requirements. This base level of inventory is also susceptible to changing primary aluminum prices to the extent it is not committed to fixed price sales orders.

In order to reduce these exposures, we focus on reducing working capital and offsetting future physical purchases and sales. We also utilize various derivative financial instruments designed to reduce the impact of changing primary aluminum prices on these net physical purchases and sales and on inventory for which a fixed sale price has not yet been determined. Our risk management practices reduce but do not eliminate our exposure to changing primary aluminum prices and, while we have limited our exposure to unfavorable price changes, we have also limited our ability to benefit from favorable price changes. Further, our counterparties may require that we post cash collateral if the fair value of our derivative liabilities exceed the amount of credit granted by each counterparty, thereby reducing our liquidity.

We refer to the difference between the price of primary aluminum included in our revenues and the price of aluminum impacting our cost of sales, net of the impact of our hedging activities, as “metal price lag.” We exclude the impact of metal price lag from our measurement of commercial margin to more closely align the metal prices inherent in our sales prices to

those included in our cost of sales. The impact of metal price lag is not significant in our recycling and specification alloy operations as we are able to match physical purchases with physical sales, maintain low levels of inventories and conduct a substantial amount of our business on a toll basis, as discussed below.

In addition to rolling margins and product mix, commercial margins of our rolled products business are impacted by the differences between changes in the prices of primary and scrap aluminum, as well as the availability of scrap aluminum, particularly in our RPNA segment where aluminum scrap is used more frequently than in our European operations. As we price our product using the prevailing price of primary aluminum but purchase large amounts of scrap aluminum to produce our products, we benefit when primary aluminum price increases exceed scrap price increases. Conversely, when scrap price increases exceed primary aluminum price increases, our commercial margin will be negatively impacted. The difference between the price of primary aluminum and scrap prices is referred to as the “scrap spread” and is impacted by the effectiveness of our scrap purchasing activities, the supply of scrap available and movements in the terminal commodity markets.

The commercial margins of our recycling and specification alloy operations are impacted by the fees we charge our tolling customers to process their metal and by “metal spreads” which represent the difference between the purchase price of the scrap aluminum we buy and our selling prices. While an aluminum commodity market for scrap exists in Europe, there is no comparable market that is widely-utilized commercially in North America. As a result, scrap prices in North America tend to be determined regionally and are significantly impacted by supply and demand. While scrap prices may trend in a similar direction as primary aluminum prices, the extent of price movements is not highly correlated.

Our operations are labor intensive and also require a significant amount of energy (primarily natural gas and electricity) be consumed to melt scrap or primary aluminum and to re-heat and roll aluminum slabs into rolled products. As a result, we incur a significant amount of fixed and variable labor and overhead costs which we refer to as conversion costs. Conversion costs, excluding depreciation expense, or cash conversion costs, on a per ton basis are a critical measure of the effectiveness of our operations.

Revenues and margin percentages for our recycling and specification alloy manufacturing operations are subject to fluctuations based upon the percentage of customer-owned metric tons tolled or processed. Increased processing under such tolling agreements results in lower revenues while not affecting net income and generally also results in higher gross profit margins and net income margins. Tolling agreements subject us to less risk of changing metal prices and reduce our working capital requirements. Although tolling agreements are beneficial to us in these ways, the percentage of our metric tons able to be processed under these agreements is limited by the amount of metal our customers own and their willingness to enter into such arrangements.

Seasonality and Management Outlook

Certain of our rolled and extruded products and recycling and specification alloy end-uses are seasonal. Demand in the rolled and extruded products business is generally stronger in the spring and summer seasons due to higher demand in the building and construction industry. Our recycling business experiences greater demand in the spring season due to stronger demand from the automotive industry and demand from customers in the beverage can industry. Such factors typically result in higher operating income in our second and third quarters, followed by our first and fourth quarters. We expect this trend to continue during the fourth quarter of 2012. We expect that our recent trend of lower 2012 revenues compared to 2011 will also continue in the fourth quarter of 2012 if LME prices remain below 2011 levels. Additionally, we expect the trend of increased demand from our higher value-added global market segments, including aerospace and automotive, to partially offset lower levels of regional plate and coil demand in Europe. Although trends of higher building and construction volumes are expected to continue , future demand from distribution customers remains uncertain due to the current economic situation in the U.S. Finally, we expect scrap and metal spreads to be sequentially higher than the third quarter of 2012 but still lower than the fourth quarter of 2011. As a result of most of the items mentioned above, we expect fourth quarter 2012 segment income and Adjusted EBITDA could be lower than the prior year period.

Results of Operations

Three Months Ended September 30, 2012 Compared to the Three Months Ended September 30, 2011

Revenues for the three months ended September 30, 2012 were approximately $1.1 billion compared to approximately $1.2 billion for the three months ended September 30, 2011. The 13% decrease in revenues reflects a decrease in aluminum prices, which reduced revenues by approximately 10%, and a stronger U.S. dollar, which reduced revenues by approximately

5%. These decreases were partially offset by an improved mix of products during the quarter, which more than offset a 2% reduction in overall volumes, resulting in a 2% increase in revenues. The volume decrease was driven by lower demand from our regional European plate and coil customers, lower North American specification alloy and recycling volumes and lower North American distribution demand, partially offset by stronger demand from the North American building and construction industry and our global aerospace and auto body sheet customers as well as a shift in the mix of our recycling and specification alloy volumes.

Gross profit for the three months ended September 30, 2012 was $120.2 million compared to $121.0 million for the three months ended September 30, 2011. The impact of tighter scrap and metal spreads resulting from lower aluminum prices and demand exceeding scrap availability reduced gross profit by approximately $18.0 million. The negative impact that the strengthening U.S. dollar had on the translation of our euro-based sales was partially offset by improved margins for our U.S. dollar-based aerospace and heat exchanger sales. In addition, lower volumes reduced gross profit, but the impact was mostly offset by a stronger mix of products sold to our higher value-added global market segments. A $2.7 million increase in depreciation expense further impacted third quarter gross profit compared to the prior year period due to the significant increase in capital expenditures during 2011 and 2012. Gross profit was positively impacted by an $18.8 million variance from metal price lag, excluding realized gains on metal derivative financial instruments. In addition, approximately $15.0 million of productivity savings generated by our Aleris Operating System (“AOS”) initiatives more than offset approximately $9.0 million of inflation and higher energy costs.

SG&A expenses were $66.5 million for the three months ended September 30, 2012 as compared to $76.2 million for the three months ended September 30, 2011. The $9.7 million decrease primarily related to a decrease in professional fees and $11.9 million of contract termination costs recorded during the third quarter of 2011 as a result of terminating our research and development agreement with Tata Steel. These decreases were partially offset by an increase in start-up expenses associated with the Zhenjiang rolling mill.

During the three months ended September 30, 2012 and 2011, we recorded realized losses (gains) on derivative financial instruments of $0.8 million and $(21.6) million, respectively, and unrealized losses of $0.5 million and $22.3 million, respectively. Generally, our realized (gains) losses represent the cash paid or received upon settlement of our derivative financial instruments. Unrealized (gains) losses reflect the change in the fair value of derivative financial instruments from the later of the end of the prior period or our entering into the derivative instrument as well as the reversal of previously recorded unrealized (gains) losses for derivatives that settled during the period.

Further impacting our 2012 third quarter results was a $1.1 million decrease in interest expense, net due to an increase in capitalized interest associated with in-process capital projects, including the construction of the Zhenjiang rolling mill. Other expense decreased $1.7 million primarily due to a reduction in currency exchange losses when compared to the prior year period.

The following table presents key financial and operating data on a consolidated basis for the three months ended September 30, 2012 and 2011:



	For the three months ended
	September 30,
	2012			2011			Change			% Change
	(dollars in millions)
Revenues	$	1,081.0		$	1,247.1		$	(166.1	)	(13	)%
Cost of sales	960.8			1,126.1			(165.3		)	(15	)
Gross profit	120.2			121.0			(0.8		)	(1	)
Gross profit as a percentage of revenues	11.1		%	9.7		%	1.4		%	14
Selling, general and administrative expenses	66.5			76.2			(9.7		)	(13	)
Losses on derivative financial instruments	1.3			0.7			0.6			86	%
Other operating expense, net	0.8			2.4			(1.6		)	(67	)
Operating income	51.6			41.7			9.9			24
Interest expense, net	10.7			11.8			(1.1		)	(9	)
Other expense, net	0.9			2.6			(1.7		)	(65	)%
Income before income taxes	40.0			27.3			12.7			47
Provision for (benefit from) income taxes	7.5			(0.3		)	7.8			*
Net income	32.5			27.6			4.9			18
Net loss attributable to noncontrolling interest	(0.3		)	(0.3		)	—			*
Net income attributable to Aleris International, Inc.	$	32.8		$	27.9		$	4.9		18	%

Total segment income	$	92.4		$	116.4		$	(24.0	)	(21	)%
Depreciation and amortization	(20.0		)	(17.0		)	(3.0		)	18
Corporate general and administrative expenses, excluding depreciation, amortization, start-up expenses and other expenses	(12.4		)	(15.2		)	2.8			(18	)
Interest expense, net	(10.7		)	(11.8		)	1.1			(9	)
Unallocated losses on derivative financial instruments	(0.7		)	(22.5		)	21.8			*
Unallocated currency exchange gains (losses)	0.7			(5.3		)	6.0			*
Start-up expenses	(8.3		)	(4.0		)	(4.3		)	108	%
Other expense, net (including research and development contract termination costs)	(1.0		)	(13.3		)	12.3			*
Income before income taxes	$	40.0		$	27.3		$	12.7		47	%

* Result is not meaningful.

Revenues and Metric Tons Invoiced

The following tables present revenues and metric tons invoiced by segment:



	For the three months ended
	September 30,
	2012			2011			Change			% Change
Revenues:	(dollars in millions, metric tons in thousands)
RPNA	$	328.8		$	365.5		$	(36.7	)	(10	)%
RPEU	330.6			391.3			(60.7		)	(16	)
Extrusions	89.1			106.6			(17.5		)	(16	)
RSAA	219.1			247.1			(28.0		)	(11	)
RSEU	142.8			174.2			(31.4		)	(18	)
Intersegment revenues	(29.4		)	(37.6		)	8.2			(22	)
Consolidated revenues	$	1,081.0		$	1,247.1		$	(166.1	)	(13	)%

Metric tons invoiced:
RPNA	102.2			97.7			4.5			5	%
RPEU	78.5			77.4			1.1			1
Extrusions	16.8			19.3			(2.5		)	(13	)
RSAA	211.1			223.3			(12.2		)	(5	)
RSEU	95.5			95.8			(0.3		)	—
Intersegment shipments	(10.9		)	(8.7		)	(2.2		)	25
Total metric tons invoiced	493.2			504.8			(11.6		)	(2	)%

The following table presents the estimated impact of key factors that resulted in the 13% decrease in our consolidated third quarter revenues from 2011 to 2012:



	RPNA		RPEU		Extrusions		RSAA		RSEU		Consolidated
Price:
LME pass-through	(14	)%	(4	)%	(5	)%	—	%	—	%	(6	)%
Commercial price	—		1		—		(17	)	(6	)	(4	)
Volume/Mix	4		(5	)	(1	)	6		—		2
Currency	—		(8	)	(10	)	—		(12	)	(5	)
Total percentage change	(10	)%	(16	)%	(16	)%	(11	)%	(18	)%	(13	)%

Rolled Products North America Revenues

RPNA revenues for the three months ended September 30, 2012 decreased $36.7 million compared to the three months ended September 30, 2011. This decrease was primarily due to lower LME aluminum prices, which resulted in decreases in the average price of primary aluminum included in our invoiced prices. Aluminum price decreases reduced revenues by approximately $53.0 million. This decrease was partially offset by the following:

▪

a 5% increase in shipment levels, which increased revenues by approximately $15.0 million. The increase in volume was driven by higher demand from the building and construction industry owing to a strengthening in housing starts and sales to truck and trailer customers, partially offset by lower demand from distributors. The decrease in distribution volumes is due to the general uncertainty over the strength of the U.S. economic recovery; and


▪	an increase in rolling margins, which increased revenues by approximately $1.0 million. The increase in rolling margins was due to price increases implemented during 2011.

Rolled Products Europe Revenues

RPEU revenues for the three months ended September 30, 2012 decreased $60.7 million compared to the three months ended September 30, 2011. This decrease was primarily due to the following:


▪	lower LME aluminum prices, which reduced the average price of primary aluminum included in our invoiced prices. The decrease in aluminum prices accounted for approximately $17.0 million of the reduction in revenues;

▪

excluding volumes associated with the Voerde cast house, volumes decreased 7%, which reduced revenues by approximately $20.0 million. Reduced revenues associated with the 14% decline in regional European plate and coil due to slower economic activity associated with the European economic crisis were significantly offset by a higher value-added mix associated with demand from our global market segments, including a 9% increase in aerospace volumes and a 12% increase in automotive demand for auto body sheet; and


▪	a stronger U.S. dollar, which decreased revenues by approximately $31.0 million.

Extrusions Revenues

Revenues from our Extrusions segment for the three months ended September 30, 2012 decreased $17.5 million compared to the three months ended September 30, 2011. This decrease was primarily due to the following:


▪	a stronger U.S. dollar, which decreased revenues by approximately $12.0 million;


▪	lower LME aluminum prices, which reduced the average price of primary aluminum included in our invoiced prices and accounted for approximately $6.0 million of the reduction in revenues; and


▪	a 13% decrease in shipment levels, which reduced revenues by approximately $1.0 million. This decrease resulted from the impact of slower economic activity associated with the European economic crisis and initiatives to optimize the customer base by focusing on higher value business. The impact on revenues of the volume decline was almost entirely offset by a higher priced mix of products sold.

These decreases were partially offset by improved margins resulting from price increases, which increased revenues by approximately $1.0 million.

Recycling and Specification Alloys North America Revenues

RSAA revenues for the three months ended September 30, 2012 decreased $28.0 million compared to the three months ended September 30, 2011. A change in mix to a lower percentage of toll sales more than offset a 5% decrease in shipment levels resulting in an increase in revenues of approximately $15.0 million. This increase was more than offset by lower selling prices for our products resulting from lower aluminum and specification alloy prices, which decreased revenues by approximately $43.0 million. Higher volumes from automotive customers were more than offset by lower spot sales due to tighter metal spreads and the impact of customer in-sourcing.

Recycling and Specification Alloys Europe Revenues

RSEU revenues for the three months ended September 30, 2012 decreased $31.4 million as compared to the three months ended September 30, 2011. This decrease was primarily due to the following:


▪	a decrease in the selling prices of our products resulting from an increase in imports of specification alloys from southern Europe and lower aluminum prices, which reduced revenues by approximately $11.0 million; and


▪	a stronger U.S. dollar, which decreased revenues by approximately $20.0 million.

Segment Income and Gross Profit



		For the three months ended
		September 30,
		2012			2011			Change			% Change
Segment income:		(in millions)
RPNA		$	30.3		$	30.0		$	0.3		1	%
RPEU		42.6			52.7			(10.1		)	(19	)
Extrusions		5.6			3.9			1.7			44
RSAA		9.2			21.5			(12.3		)	(57	)
RSEU		4.7			8.3			(3.6		)	(43	)
Total segment income		92.4			116.4			(24.0		)	(21	)
Items excluded from segment income and included in gross profit:
Depreciation		(18.2		)	(15.5		)	(2.7		)	17
Other		—			2.0			(2.0		)	*
Items included in segment income and excluded from gross profit:
Segment selling, general and administrative expenses		43.9			43.6			0.3			1
Realized losses (gains) on derivative financial instruments	��	0.6			(21.9		)	22.5			*
Other expense (income), net		1.5			(3.6		)	5.1			*
Gross profit		$	120.2		$	121.0		$	(0.8	)	(1	)%

* Result is not meaningful.

Rolled Products North America Segment Income

RPNA segment income for the three months ended September 30, 2012 increased by $0.3 million compared to the three months ended September 30, 2011. This increase was primarily due to the following:


▪	productivity savings primarily related to improved melt loss recoveries and lower processing costs totaling approximately $6.0 million, which more than offset approximately $2.0 million of higher costs associated with inflation in employee and freight costs;


▪	higher volumes, which increased segment income by approximately $2.0 million; and


▪	a series of successful pricing initiatives implemented in 2011, which increased segment income by approximately $1.0 million.

These increases were partially offset by tighter scrap spreads due to the lower LME, which reduced segment income by approximately $4.0 million. An unfavorable variance in metal price lag when compared to the prior year period also decreased segment income by an estimated $1.2 million. Metal price lag increased 2011 segment income by approximately $1.8 million while increasing 2012 segment income by an estimated $0.6 million.

Rolled Products Europe Segment Income

RPEU segment income for the three months ended September 30, 2012 decreased by $10.1 million compared to the three months ended September 30, 2011. This decrease was primarily due to the following:


▪	higher costs associated with inflation in employee and freight costs, which decreased segment income by approximately $3.0 million;


▪	an unfavorable metal price lag variance when compared to the prior year period, which decreased segment income by an estimated $2.7 million. Metal price lag increased 2011 segment income by approximately $5.3 million while increasing 2012 segment income by an estimated $2.6 million;

▪

a 7% decrease in volumes, excluding volumes associated with the Voerde cast house assets, which reduced segment income by approximately $1.0 million. Reduced segment income associated with the decline in regional European plate and coil demand was partially offset by the benefit of a higher value-added mix, including a 9% increase in aerospace volumes and a 12% increase in automotive demand for auto body sheet;


▪	third quarter 2011 results benefited from a one-time gain of $3.6 million; and


▪	a stronger U.S. dollar improved margins for the segment’s U.S. dollar-based aerospace and heat exchanger business and offset the negative impact that the strengthening U.S. dollar had on the translation of the segment’s results.

Extrusions Segment Income

Extrusions segment income for the three months ended September 30, 2012 increased by $1.7 million compared to the three months ended September 30, 2011. This increase was primarily due to the following:


▪	improved commercial margins resulting from initiatives to optimize the customer base by focusing on higher value businesses including rail, aerospace and automotive applications, which increased segment income by approximately $1.0 million; and


▪	productivity-related savings, which offset inflation in employee and energy costs.

Recycling and Specification Alloys North America Segment Income

RSAA segment income for the three months ended September 30, 2012 decreased by $12.3 million compared to the prior year period. This decrease was due primarily to the following:


▪	tighter metal spreads as lower aluminum prices drove lower selling prices while scrap demand in excess of supply kept scrap purchase prices from declining comparably. Tighter metal spreads reduced segment income by approximately $12.0 million; and


▪	lower volumes decreased segment income by approximately $2.0 million.

These decreases were partially offset by productivity related savings of approximately $3.0 million associated with furnace and scrap optimization capital expenditure initiatives and lower natural gas prices, which more than offset inflation in employee costs as well as hardeners and other additives required to produce alloys.

Recycling and Specification Alloys Europe Segment Income

RSEU segment income for the three months ended September 30, 2012 decreased by $3.6 million compared to the prior year period. This decrease was due primarily to:


▪	tighter metal spreads as a result of demand exceeding scrap availability and unfavorable pricing due to an increase in imports of specification alloys from southern Europe, which reduced segment income by approximately $2.0 million; and


▪	a stronger U.S. dollar, which decreased segment income by approximately $1.0 million.

These decreases were partially offset by productivity related savings, which more than offset inflation in energy and employee costs.

Selling, General and Administrative Expenses

Consolidated selling, general and administrative expenses decreased $9.7 million for the three months ended September 30, 2012 as compared to the prior year period. This decrease was primarily due to the following:


▪	corporate SG&A expense decreased $10.0 million primarily due to $11.9 million of contract termination costs recorded during the third quarter of 2011 as a result of terminating our research and development agreement with Tata Steel. These decreases were partially offset by a $4.3 million increase in start-up expenses associated with Aleris Zhenjiang; and


▪	segment SG&A expense increased $0.3 million in the third quarter of 2012 as compared to the prior year period primarily due to a reduction in professional fees.

Gains and Losses on Derivative Financial Instruments

During the three months ended September 30, 2012 and 2011, we recorded the following realized (gains) losses and unrealized losses (gains) on derivative financial instruments:



	For the three months ended
	September 30,
	2012			2011
Realized (gains) losses	(in millions)
Metal	$	(0.9	)	$	(22.6	)
Natural gas	1.2			0.8
Currency	0.5			0.2
Unrealized losses (gains)
Metal	2.9			18.6
Natural gas	(1.9		)	2.5
Currency	(0.5		)	1.2
Total losses	$	1.3		$	0.7

Generally, our realized (gains) losses represent the cash paid or received upon settlement of our derivative financial instruments. Unrealized losses (gains) reflect the change in the fair value of derivative financial instruments from the later of the end of the prior period or our entering into the derivative instrument as well as the reversal of previously recorded unrealized losses (gains) for derivatives that settled during the period. Realized (gains) losses are included within segment income while unrealized losses (gains) are excluded.

As discussed in the “Critical Measures of Our Financial Performance” section above, we utilize derivative financial instruments to reduce the impact of changing metal and natural gas prices on our operating results. We evaluate the performance of our risk management practices, in part, based upon the amount of metal price lag included in our operating results. During the three months ended September 30, 2012, we estimate that metal price lag favorably impacted gross profit by approximately $4.0 million while we experienced metal hedge gains of $0.7 million, including $0.2 million of economic losses not recorded within realized gains as discussed above. The resulting $4.7 million of net metal price lag improved our consolidated operating results in the third quarter of 2012. During the three months ended September 30, 2011, we estimate gross profit was negatively impacted from metal price lag by approximately $14.8 million while we experienced metal hedge gains of $23.5 million, including $0.9 million of economic gains not recorded within realized gains as discussed above. The resulting $8.7 million of net metal price lag improved our consolidated operating results in the third quarter of 2011.

Interest Expense, net

Interest expense, net for the three months ended September 30, 2012 decreased $1.1 million from the comparable period of 2011. The change in interest expense was due to an increase in capitalized interest associated with in-process capital projects, including the construction of the Zhenjiang rolling mill.

Provision for Income Taxes

Our effective tax rate was 18.9% and (1.1)% for the three months ended September 30, 2012 and 2011, respectively. The effective tax rate for the three months ended September 30, 2012 and 2011 differed from the federal statutory rate applied to income and losses before income taxes primarily as a result of the mix of income, losses and tax rates between tax jurisdictions and valuation allowances.

Nine Months Ended September 30, 2012 Compared to the Nine Months Ended September 30, 2011

Revenues for the nine months ended September 30, 2012 were approximately $3.4 billion compared to approximately $3.8 billion for the nine months ended September 30, 2011. The 10% decrease in revenues was primarily driven by lower aluminum prices, which reduced revenues by approximately 8%, and a stronger U.S. dollar, which reduced revenues by approximately 4%. These decreases were partially offset by an improved mix of products sold during 2012, which more than offset a 2% reduction in overall volumes, resulting in a 2% increase in revenues. The volume decrease was driven by lower

demand from our regional European plate and coil customers, lower North American specification alloy and recycling volumes and lower North American distribution demand, partially offset by stronger demand from the North American building and construction industry and our global aerospace and auto body sheet customers as well as a shift in the mix of our recycling and specification alloy volumes.

Gross profit for the nine months ended September 30, 2012 was $373.8 million compared to $384.2 million for the nine months ended September 30, 2011. The impact of tighter scrap and metal spreads resulting from lower aluminum prices and demand exceeding scrap availability reduced gross profit by approximately $41.0 million. The negative impact that the strengthening U.S. dollar had on the translation of our euro-based sales was partially offset by improved margins for our U.S. dollar-based aerospace and heat exchanger sales. Lower volumes also reduced gross profit, but the impact was substantially offset by a stronger mix of products sold to our higher value-added global market segments. A $7.2 million increase in depreciation expense due to the significant increase in capital expenditures during 2011 and 2012 further impacted gross profit. Rolling margin improvements and higher selling prices for extruded products increased gross profit by approximately $13.0 million. In addition, gross profit for the nine months ended September 30, 2012 was positively impacted by an estimated $12.5 million of favorable metal price lag, excluding realized losses on metal derivative financial instruments. For the nine months ended September 30, 2011, gross profit was negatively impacted by $14.6 million of metal price lag. Productivity savings of approximately $29.0 million generated by our AOS initiatives more than offset approximately $22.0 million of inflation in employee and energy costs.

SG&A expenses were $195.0 million for the nine months ended September 30, 2012 as compared to $206.0 million for the nine months ended September 30, 2011. The $11.0 million decrease primarily related to a reduction in research and development expense, professional fees, and $11.9 million of contract termination costs recorded during the third quarter of 2011 as a result of terminating our research and development agreement with Tata Steel. These decreases were partially offset by increases in personnel costs and start-up expenses associated with the Zhenjiang rolling mill.

During the nine months ended September 30, 2012 and 2011, we recorded realized losses (gains) on derivative financial instruments of $6.5 million and $(16.9) million, respectively, and unrealized (gains) losses of $(3.2) million and $13.4 million, respectively. Generally, our realized (gains) losses represent the cash paid or received upon settlement of our derivative financial instruments. Unrealized (gains) losses reflect the change in the fair value of derivative financial instruments from the later of the end of the prior period or our entering into the derivative instrument as well as the reversal of previously recorded unrealized (gains) losses for derivatives that settled during the period. Other operating income for the nine months ended September 30, 2011 included a $4.1 million gain on the sale of land in Europe.

Further impacting our year-to-date results was a $0.4 million decrease in interest expense, net due to an increase in capitalized interest associated with in-process capital projects, including the construction of the Zhenjiang rolling mill, partially offset by higher debt levels as a result of the issuance of our $500.0 million aggregate original principal amount of 7⁵/8% Senior Notes (the “Senior Notes”) on February 9, 2011. Other expense (income), net changed by $4.6 million as 2011 results benefited from $6.6 million of gains associated with proceeds from insurance settlements and the liquidation of Aleris Aluminum Canada S.E.C. / Aleris Aluminum Canada, L.P.

The following table presents key financial and operating data on a consolidated basis for the nine months ended September 30, 2012 and 2011:



	For the nine months ended
	September 30,
	2012			2011			Change			% Change
	(dollars in millions)
Revenues	$	3,392.2		$	3,766.7		$	(374.5	)	(10	)%
Cost of sales	3,018.4			3,382.5			(364.1		)	(11	)
Gross profit	373.8			384.2			(10.4		)	(3	)
Gross profit as a percentage of revenues	11.0		%	10.2		%	0.8		%	8
Selling, general and administrative expenses	195.0			206.0			(11.0		)	(5	)
Losses (gains) on derivative financial instruments	3.3			(3.5		)	6.8			*
Other operating expense, net	2.1			0.4			1.7			*
Operating income	173.4			181.3			(7.9		)	(4	)
Interest expense, net	33.8			34.2			(0.4		)	(1	)
Other expense (income), net	0.4			(4.2		)	4.6			*
Income before income taxes	139.2			151.3			(12.1		)	(8	)
Provision for income taxes	25.6			9.6			16.0			*
Net income	113.6			141.7			(28.1		)	(20	)
Net loss attributable to noncontrolling interest	(0.9		)	(0.1		)	(0.8		)	*
Net income attributable to Aleris International, Inc.	$	114.5		$	141.8		$	(27.3	)	(19	)%

Total segment income	$	291.9		$	310.3		$	(18.4	)	(6	)%
Depreciation and amortization	(59.2		)	(50.9		)	(8.3		)	16
Corporate general and administrative expenses, excluding depreciation, amortization, start-up expenses and other expenses	(42.1		)	(42.5		)	0.4			(1	)
Interest expense, net	(33.8		)	(34.2		)	0.4			(1	)
Unallocated gains (losses) on derivative financial instruments	2.8			(14.0		)	16.8			*
Unallocated currency exchange losses	(0.2		)	(1.4		)	1.2			*
Start-up expenses	(17.5		)	(8.2		)	(9.3		)	*
Other expense, net (including research and development contract termination costs)	(2.7		)	(7.8		)	5.1			*
Income before income taxes	$	139.2		$	151.3		$	(12.1	)	(8	)%

* Result is not meaningful.

Revenues and Metric Tons Invoiced

The following tables present revenues and metric tons invoiced by segment:



	For the nine months ended
	September 30,
	2012			2011			Change			% Change
Revenues:	(dollars in millions, metric tons in thousands)
RPNA	$	1,003.3		$	1,054.6		$	(51.3	)	(5	)%
RPEU	1,008.7			1,206.7			(198.0		)	(16	)
Extrusions	276.7			323.9			(47.2		)	(15	)
RSAA	732.4			750.3			(17.9		)	(2	)
RSEU	456.8			544.7			(87.9		)	(16	)
Intersegment revenues	(85.7		)	(113.5		)	27.8			(24	)
Consolidated revenues	$	3,392.2		$	3,766.7		$	(374.5	)	(10	)%

Metric tons invoiced:
RPNA	304.8			287.2			17.6			6	%
RPEU	222.8			246.9			(24.1		)	(10	)
Extrusions	53.4			59.5			(6.1		)	(10	)
RSAA	662.6			670.5			(7.9		)	(1	)
RSEU	295.9			302.0			(6.1		)	(2	)
Intersegment shipments	(29.8		)	(29.2		)	(0.6		)	2
Total metric tons invoiced	1,509.7			1,536.9			(27.2		)	(2	)%

The following table presents the estimated impact of key factors that resulted in the 10% decrease in our consolidated revenues from 2011 to 2012:



	RPNA		RPEU		Extrusions		RSAA		RSEU		Consolidated
Price:
LME pass-through	(10	)%	(5	)%	(4	)%	—	%	—	%	(5	)%
Commercial price	1		—		1		(11	)	(5	)	(3	)
Volume/Mix	4		(5	)	(3	)	9		(2	)	2
Currency	—		(6	)	(9	)	—		(9	)	(4	)
Total percentage change	(5	)%	(16	)%	(15	)%	(2	)%	(16	)%	(10	)%

Rolled Products North America Revenues

RPNA revenues for the nine months ended September 30, 2012 decreased $51.3 million compared to the nine months ended September 30, 2011. This decrease was primarily due to lower LME aluminum prices, which resulted in decreases in the average price of primary aluminum included in our invoiced prices. Aluminum price decreases reduced revenues by approximately $105.0 million. This decrease was partially offset by the following:


▪	a 6% increase in shipment levels, which increased revenues by approximately $47.0 million. The increase in volume was driven by higher demand from the building and construction industry and other general industrial applications due to general economic improvements in the U.S., partially offset by reductions in shipments to distributors; and


▪	higher rolling margins, resulting from price increases implemented during 2011, which increased revenues by approximately $7.0 million.

Rolled Products Europe Revenues

RPEU revenues for the nine months ended September 30, 2012 decreased $198.0 million compared to the nine months ended September 30, 2011. This decrease was primarily due to the following:


▪	lower LME aluminum prices, which reduced the average price of primary aluminum included in our invoiced prices. The decrease in aluminum prices accounted for approximately $67.0 million of the reduction in revenues;


▪	excluding volumes associated with the Voerde cast house assets, volumes decreased 12%, which reduced revenues by approximately $62.0 million. Reduced revenues associated with the decline in regional European plate and coil

volumes due to the economic slowdown associated with the European economic crisis were substantially offset by a higher value-added mix associated with demand from our global market segments, including an 11% increase in aerospace volumes and a 10% increase in automotive demand for auto body sheet; and


▪	a stronger U.S. dollar, which decreased revenues by approximately $77.0 million.

Extrusions Revenues

Revenues from our Extrusions segment for the nine months ended September 30, 2012 decreased $47.2 million compared to the nine months ended September 30, 2011. This decrease was primarily due to the following:


▪	a 10% decrease in shipment levels, which reduced revenues by approximately $11.0 million. This decrease resulted from initiatives to optimize the customer base by focusing on higher value business, as well as weakness in the European regional economy associated with the on-going economic crisis;


▪	a stronger U.S. dollar, which decreased revenues by approximately $28.0 million; and


▪	lower LME aluminum prices, which reduced the average price of primary aluminum included in our invoiced prices and accounted for approximately $14.0 million of the reduction in revenues.

These decreases were partially offset by improved margins resulting from price increases, which increased revenues by approximately $5.0 million.

Recycling and Specification Alloys North America Revenues

RSAA revenues for the nine months ended September 30, 2012 decreased $17.9 million compared to the nine months ended September 30, 2011. This decrease was primarily due to lower aluminum and specification alloy prices, which decreased revenues by approximately $88.0 million. This decrease was partially offset by a change in mix to a lower percentage of toll sales which increased revenues by approximately $68.0 million.

Recycling and Specification Alloys Europe Revenues

RSEU revenues for the nine months ended September 30, 2012 decreased $87.9 million as compared to the nine months ended September 30, 2011. This decrease was primarily due to the following:


▪	a decrease in the selling prices of our products resulting from an increase in imports of specification alloys from southern Europe and lower aluminum prices, which reduced revenues by approximately $31.0 million;


▪	a 2% decrease in shipment levels, which reduced revenues by approximately $9.0 million; and


▪	a stronger U.S. dollar, which decreased revenues by approximately $48.0 million.

Segment Income and Gross Profit



	For the nine months ended
	September 30,
	2012			2011			Change			% Change
Segment income:	(in millions)
RPNA	$	91.2		$	86.3		$	4.9		6	%
RPEU	126.4			120.8			5.6			5
Extrusions	16.5			9.4			7.1			76
RSAA	40.4			62.2			(21.8		)	(35	)
RSEU	17.4			31.6			(14.2		)	(45	)
Total segment income	291.9			310.3			(18.4		)	(6	)
Items excluded from segment income and included in gross profit:
Depreciation	(53.5		)	(46.3		)	(7.2		)	16
Other	—			2.0			(2.0		)	*
Items included in segment income and excluded from gross profit:
Segment selling, general and administrative expenses	129.7			138.8			(9.1		)	(7	)
Realized losses (gains) on derivative financial instruments	6.1			(17.5		)	23.6			*
Other expense, net	(0.4		)	(3.1		)	2.7			*
Gross profit	$	373.8		$	384.2		$	(10.4	)	(3	)%

* Result is not meaningful.

Rolled Products North America Segment Income

RPNA segment income for the nine months ended September 30, 2012 increased by $4.9 million compared to the nine months ended September 30, 2011. This increase was primarily due to the following:


▪	a series of successful pricing initiatives implemented in 2011, which favorably impacted rolling margins, and increased segment income by approximately $6.0 million;


▪	higher volumes, which increased segment income by approximately $6.0 million. The impact of the 6% volume increase was tempered by a lower value mix of products sold as well as production inefficiencies and higher operating costs; and


▪	productivity savings primarily related to improved melt loss recoveries and lower processing costs totaled approximately $10.0 million, which more than offset approximately $5.0 million of higher costs associated with inflation in freight, paint and employee costs.

These increases were partially offset by tighter scrap spreads and increased use of primary aluminum, which reduced segment income by approximately $9.0 million.

Rolled Products Europe Segment Income

RPEU segment income for the nine months ended September 30, 2012 increased by $5.6 million compared to the nine months ended September 30, 2011. This increase was primarily due to the following:


▪	favorable metal price lag in 2012 compared to the prior year period, which increased segment income by an estimated $4.2 million. Metal price lag increased 2011 segment income by approximately $2.2 million while increasing 2012 segment income by an estimated $6.4 million;


▪	a stronger U.S. dollar improved margins as the positive impact of the segment’s U.S. dollar-based aerospace and heat exchanger businesses more than offset the negative impact that the strengthening U.S. dollar had on the translation of the segment’s results. Currency changes accounted for approximately $5.0 million of the increase in RPEU segment income; and


▪	a reduction in research and development expense of $8.9 million associated with the 2011 termination of a third party research and development agreement.

These increases were partially offset by:

▪

a 12% decrease in volumes, excluding volumes associated with the Voerde cast house assets, which reduced segment income by approximately $5.0 million. The reduction in segment income associated with the decline in regional European plate and coil demand was significantly offset by a higher value-added mix, including an 11% increase in aerospace volumes and a 10% increase in automotive demand for auto body sheet;


▪	productivity savings of approximately $4.0 million only partially offset higher costs associated with inflation in employee and freight costs which decreased segment income by approximately $8.0 million; and


▪	third quarter 2011 results benefited from a one-time gain of $3.6 million.

Extrusions Segment Income

Extrusions segment income for the nine months ended September 30, 2012 increased by $7.1 million compared to the nine months ended September 30, 2011. This increase was primarily due to the following:


▪	improved commercial margins resulting from initiatives to optimize the customer base by focusing on higher value business, which increased segment income by approximately $5.0 million; and


▪	productivity-related savings, which offset inflation in employee and energy costs.

Recycling and Specification Alloys North America Segment Income

RSAA segment income for the nine months ended September 30, 2012 decreased by $21.8 million compared to the prior year period. This decrease was primarily due to the following:


▪	tighter metal spreads as a result of lower aluminum prices and demand exceeding scrap availability. Tighter metal spreads reduced segment income by approximately $24.0 million; and


▪	segment income for the prior year period also benefited from $4.2 million of gains associated with the recovery of previously written-off accounts receivable and insurance proceeds.

These decreases were partially offset by productivity gains of approximately $9.0 million associated with furnace and scrap optimization initiatives and lower natural gas prices, which more than offset approximately $2.0 million of inflation in employee costs as well as hardeners and other additives required to produce alloys.

Recycling and Specification Alloys Europe Segment Income

RSEU segment income for the nine months ended September 30, 2012 decreased by $14.2 million compared to the prior year period. This decrease was due to the following:


▪	tighter metal spreads as a result of demand exceeding scrap availability and unfavorable pricing due to an increase in specification alloys from southern Europe, which reduced segment income by approximately $7.0 million;


▪	a 2% decrease in volumes, which reduced segment income by approximately $3.0 million;


▪	a stronger U.S. dollar, which decreased segment income by approximately $3.0 million; and


▪	productivity gains, which offset inflation in energy and employee costs.

Selling, General and Administrative Expenses

Consolidated selling, general and administrative expenses decreased $11.0 million in the nine months ended September 30, 2012 as compared to the prior year period. This decrease was primarily due to the following:


▪	third quarter of 2011 included $11.9 million of contract termination costs as a result of terminating our research and development agreement with Tata Steel. This decrease was offset by an increase in personnel costs as well as a $9.3 million increase in start-up expenses associated with the Zhenjiang rolling mill and a $3.7 million increase in business development costs; and


▪	segment SG&A expense decreased $9.1 million for the nine months ended September 30, 2012 as compared to the prior year period primarily due to a reduction in research and development expense and professional fees, partially offset by gains on the recovery of previously written-off trade accounts receivable in the prior year.

Gains and Losses on Derivative Financial Instruments

During the nine months ended September 30, 2012 and 2011, we recorded the following realized losses and unrealized (gains) losses on derivative financial instruments:



	For the nine months ended
	September 30,
	2012			2011
Realized (gains) losses	(in millions)
Metal	$	(0.3	)	$	(18.6	)
Natural gas	5.5			1.5
Currency	1.3			0.2
Unrealized losses (gains)
Metal	1.5			8.9
Natural gas	(3.7		)	3.7
Currency	(1.0		)	0.8
Total losses (gains)	$	3.3		$	(3.5	)

During the nine months ended September 30, 2012, we estimate that metal price lag favorably impacted gross profit by approximately $12.5 million while we experienced metal hedge losses of $0.4 million, including $0.8 million of economic losses not recorded within realized losses as discussed above. The resulting $12.1 million of net metal price lag improved our consolidated operating results for the nine months ended September 30, 2012. During the nine months ended September 30, 2011, we estimate that metal price lag negatively impacted gross profit by approximately $14.6 million while we experienced metal hedge gains of $20.8 million, including $2.2 million of economic gains not recorded within realized gains as discussed above. The resulting $6.3 million of net metal price lag improved our consolidated operating results for the nine months ended September 30, 2011.

Interest Expense, net

Interest expense, net for the nine months ended September 30, 2012 decreased $0.4 million from the comparable period of 2011. The decrease in interest expense is due to an increase in capitalized interest associated with in-process capital projects, including the construction of the Zhenjiang rolling mill, partially offset by higher average debt levels as a result of the issuance of our Senior Notes.

Provision for Income Taxes

Our effective tax rate was 18.4% and 6.3% for the nine months ended September 30, 2012 and 2011, respectively. The effective tax rate for the nine months ended September 30, 2012 and 2011 differed from the federal statutory rate applied to income and losses before income taxes primarily as a result of the mix of income, losses and tax rates between tax jurisdictions and valuation allowances.

Liquidity and Capital Resources

Based on our current and anticipated levels of operations and the condition in our markets and industry, we believe that our cash on hand, cash flows from operations and availability under the ABL Facility will enable us to meet our working capital, capital expenditures, debt service and other funding requirements for the foreseeable future. However, our ability to fund our working capital needs, debt payments and other obligations, and to comply with the financial covenants, including borrowing base limitations under the ABL Facility, depends on our future operating performance and cash flows and many factors outside of our control, including the costs of raw materials, the state of the overall industry and financial and economic conditions and other factors, including those described under “Risk Factors” in our Form 10-K filed with the Securities and Exchange Commission, as updated in our quarterly and periodic filings. Any future acquisitions, joint ventures or other similar

transactions will likely require additional capital and there can be no assurance that any such capital will be available to us on acceptable terms, if at all.

The following discussion provides a summary description of the significant components of our sources of liquidity and long-term debt:

Cash Flows

The following table summarizes our net cash provided (used) by operating, investing and financing activities for the nine months ended September 30, 2012 and 2011:



	For the nine months ended
	September 30,
	2012			2011
Net cash provided (used) by:	(in millions)
Operating activities	$	91.2		$	149.7
Investing activities	(307.2		)	(101.0		)
Financing activities	89.5			102.9

Cash Flows from Operating Activities

Cash flows provided by operating activities were $91.2 million for the nine months ended September 30, 2012, which resulted from $190.0 million of cash from earnings partially offset by a $98.9 million increase in net operating assets. The significant components of the change in net operating assets included increases of $97.4 million, $41.5 million and $69.6 million in accounts receivable, inventories and accounts payable, respectively, as a result of increased seasonal sales volumes across most segments. Our days sales outstanding (“DSO”) at September 30, 2012 remained consistent with the DSO at December 31, 2011, however, revenues in the month of September 2012 were approximately $77.1 million higher than the month of December 2011, leading to an increase in accounts receivable. Inventory levels increased from year-end to support seasonal demand as well as a 6% increase in LME aluminum prices when compared to the fourth quarter of 2011. Days inventory outstanding (“DIO”) remained consistent with the DIO at December 31, 2011. Our days payables outstanding (“DPO”) increased from 27 days at December 31, 2011 to 29 days at September 30, 2012. The increase in payables resulted from increased inventory levels and the additional days of payables outstanding. In addition to the higher working capital balances, $21.9 million of operating cash was used to reduce accrued liabilities, primarily related to interest and employee incentive plan payments.

Cash flows provided by operating activities were $149.7 million for the nine months ended September 30, 2011, which resulted from $212.4 million of cash from earnings, partially offset by a $62.7 million increase in net operating assets. The significant components of the change in net operating assets included increases of $130.7 million, $53.5 million, $88.4 million and $36.8 million in accounts receivable, inventories, accounts payable and accrued liabilities, respectively, as a result of increased sales volumes across most segments and the impact of higher aluminum prices.

Cash Flows from Investing Activities

Cash flows used by investing activities were $307.2 million for the nine months ended September 30, 2012 and included $285.5 million of capital expenditures, including $124.0 million of the $350.0 million in expected spending on the Zhenjiang rolling mill and other strategic spending, including the wide auto body sheet expansion project in Duffel, Belgium, the coatings project in Ashville, Ohio and furnace upgrades and scrap optimization initiatives in the North American recycling business. Cash used by investing activities for the nine months ended September 30, 2012 also includes $21.5 million to acquire certain aluminum casting assets from Voerde Aluminium GmbH.

Cash flows used by investing activities were $101.0 million for the nine months ended September 30, 2011 and included $108.4 million of capital expenditures, partially offset by $7.8 million of proceeds from the sale of property, plant and equipment.

We expect consolidated capital expenditures to be approximately $435.0 million in 2012. A portion of this spending relates to Aleris Zhenjiang and will be funded by the China Loan Facility (as defined below). After taking into account amounts funded by the China Loan Facility, we expect cash outflows related to total 2012 capital spending to total slightly over $305.0 million.

Cash Flows from Financing Activities

Cash flows from financing activities for the nine months ended September 30, 2012 included $88.5 million of proceeds from the China Loan Facility.

Cash flows from financing activities for the nine months ended September 30, 2011 included $490.0 million of net proceeds from the issuance of the Senior Notes and $11.5 million of proceeds from the China Loan Facility, partially offset by the payment of $400.0 million of dividends to Aleris Corporation.

ABL Facility

In connection with our emergence from bankruptcy, we entered into an asset backed multi-currency revolving credit facility (the “ABL Facility”). On June 30, 2011, we amended and restated the ABL Facility. The amended and restated ABL Facility is a $600.0 million revolving credit facility which permits multi-currency borrowings up to $600.0 million by our U.S. subsidiaries, up to $240.0 million by Aleris Switzerland GmbH (a wholly owned Swiss subsidiary), and up to $15.0 million by Aleris Specification Alloy Products Canada Company (a wholly owned Canadian subsidiary). We and certain of our U.S. and international subsidiaries are borrowers under this ABL Facility. The availability of funds to the borrowers located in each jurisdiction is subject to a borrowing base for that jurisdiction and the jurisdictions in which certain subsidiaries of such borrowers are located, calculated on the basis of a predetermined percentage of the value of selected accounts receivable and U.S., Canadian and certain European inventory, less certain ineligible accounts receivable and inventory. The level of our borrowing base and availability under the ABL Facility fluctuates with the underlying LME price of aluminum and the euro to U.S. dollar exchange rate which impact both accounts receivable and inventory values included in our borrowing base. Non-U.S. borrowers also have the ability to borrow under the ABL Facility based on excess availability under the borrowing base applicable to the U.S. borrowers, subject to certain sublimits. The ABL Facility provides for the issuance of up to $75.0 million of letters of credit as well as borrowings on same-day notice, referred to as swingline loans that are available in U.S. dollars, Canadian dollars, euros, and certain other currencies. As of September 30, 2012, we estimate that our borrowing base would have supported borrowings of $519.8 million. After giving effect to the outstanding letters of credit of $43.0 million, we had $476.9 million available for borrowing as of September 30, 2012.

Borrowings under the ABL Facility bear interest at a rate equal to the following, plus an applicable margin ranging from 0.75% to 2.50%:


▪	in the case of borrowings in U.S. dollars, a LIBOR Rate or base rate determined by reference to the higher of (1) Bank of America’s prime lending rate, (2) the overnight federal funds rate plus 0.5% or (3) a eurodollar rate determined by Bank of America plus 1.0%;


▪	in the case of borrowings in euros, a euro LIBOR rate determined by Bank of America; and


▪	in the case of borrowings in Canadian dollars, a Canadian prime rate.

As of September 30, 2012 and December 31, 2011, we had no amounts outstanding under the ABL Facility.

In addition, if at any time outstanding loans, unreimbursed letter of credit drawings and undrawn letters of credit under the ABL Facility exceed the applicable borrowing base in effect at such time, we are required to repay outstanding loans or cash collateralize letters of credit in an aggregate amount equal to such excess, with no reduction of the commitment amount. If the amount available under the ABL Facility is less than the greater of (x) $50.0 million and (y) 15.0% of the lesser of the total commitments or the borrowing base under the ABL Facility or an event of default is continuing, we are required to repay outstanding loans with the cash we are required to deposit in collection accounts maintained with the agent under the ABL Facility.

The ABL Facility is secured, subject to certain exceptions (including appropriate limitations in light of U.S. federal income tax considerations on guaranties and pledges of assets by foreign subsidiaries, and certain pledges of such foreign subsidiaries’ stock, in each case to support loans to us or our domestic subsidiaries), by a first-priority security interest in substantially all of our current assets and related intangible assets located in the U.S., substantially all of the current assets and related intangible assets of substantially all of our wholly-owned domestic subsidiaries located in the U.S., substantially all of the current assets and related intangible assets of the borrower located in Canada and substantially all of the current assets (other than inventory located outside of the United Kingdom) and related intangibles of Aleris Recycling (Swansea) Ltd., of Aleris Switzerland GmbH and certain of its subsidiaries. The borrowers’ obligations under the ABL Facility are guaranteed by certain of our existing and future direct and indirect subsidiaries.

The credit agreement governing the ABL Facility contains a number of covenants that, subject to certain exceptions, impose restrictions on us and certain of our subsidiaries, including without limitation restrictions on our ability to incur additional debt, pay dividends and make certain payments, create liens, merge, consolidate or sell assets, or enter into affiliate transactions, among other things. Although the credit agreement governing the ABL Facility generally does not require us to comply with any financial ratio maintenance covenants, if the amount available under the ABL Facility is less than the greater of (x) $45.0 million or (y) 12.5% of the lesser of (i) the total commitments or (ii) the borrowing base under the ABL Facility at any time, a minimum fixed charge coverage ratio (as defined in the credit agreement) of at least 1.0 to 1.0 will apply. The credit agreement also contains certain customary affirmative covenants and events of default. We were in compliance with all of the covenants set forth in the credit agreement as of September 30, 2012.

Senior Notes

On February 9, 2011, we issued $500.0 million aggregate original principal amount of 7⁵/8% Senior Notes due 2018 under an indenture (the “Indenture”) with U.S. Bank National Association, as trustee, and on October 14, 2011, we exchanged the $500.0 million aggregate original principal amount of 7⁵/8% Senior Notes for $500.0 million of our new 7⁵/8% Senior Notes due 2018 that have been registered under the Securities Act of 1933, as amended (the “Senior Notes”). The Senior Notes are unconditionally guaranteed on a senior unsecured basis by each of our restricted subsidiaries that is a domestic subsidiary and that guarantees our obligations under the ABL Facility. The Indenture contains a number of customary covenants that, subject to certain exceptions, impose restrictions on us and certain of our subsidiaries, including without limitation restrictions on our ability to incur additional debt, pay dividends and make certain payments, create liens, merge, consolidate or sell assets, or enter into affiliate transactions, among other things. Interest on the Senior Notes is payable in cash semi-annually in arrears on February 15th and August 15th of each year. The Senior Notes mature on February 15, 2018. We used a portion of the net proceeds from the sale of the Senior Notes to pay cash dividends of approximately $500.0 million to Aleris Corporation during the year ended December 31, 2011, which were then paid as dividends, pro rata, to the stockholders of Aleris Corporation.

6% Senior Subordinated Exchangeable Notes

In connection with our emergence from bankruptcy, we issued $45.0 million aggregate principal amount of 6.0% Senior Subordinated Exchangeable Notes (the “Exchangeable Notes”). The Exchangeable Notes are scheduled to mature on June 1, 2020. The Exchangeable Notes have exchange rights at the holder’s option, after June 1, 2013, and are exchangeable for Aleris Corporation common stock at a rate equivalent to 47.20 shares of Aleris Corporation common stock per $1,000 principal amount of Exchangeable Notes (after adjustment for the payments of dividends in 2011), subject to further adjustment. The Exchangeable Notes may be redeemed at the Company’s option at specified redemption prices on or after June 1, 2013 or upon a fundamental change of Aleris Corporation.

China Loan Facility

Aleris Zhenjiang entered into non-recourse multi-currency secured revolving and term loan facilities (the “China Loan Facility”). The China Loan Facility consists of a $30.6 million U.S. dollar term loan facility, an RMB 993.5 million term loan facility (or equivalent to approximately $157.3 million) and an RMB 232.8 million (or equivalent to approximately $36.9 million) revolving credit facility. The interest rate on the term U.S. dollar facility is six month U.S. dollar LIBOR plus 5.0% and the interest rate on the term RMB facility and the revolving credit facility is 110% of the base rate applicable to any loan denominated in RMB of the same tenor, as announced by the People’s Bank of China. As of September 30, 2012, $145.5 million was drawn under the term loan facilities. Draws on the revolving facility begin in 2013. The final maturity date for all borrowings under the China Loan Facility is May 18, 2021. Aleris Zhenjiang is an unrestricted subsidiary and non-guarantor under the indenture governing the Senior Notes.

The China Loan Facility contains certain customary covenants and events of default. The China Loan Facility requires Aleris Zhenjiang to, among other things, maintain a certain ratio of outstanding term loans to invested equity capital. In addition, Aleris Zhenjiang is restricted from, subject to certain exceptions, repaying loans or distributing dividends to stockholders, disposing of assets, providing third party guarantees, or entering into additional financing to expand the capacity of the project, among other things.

Aleris Zhenjiang was in compliance with all of the covenants set forth in the China Loan Facility as of September 30, 2012. Aleris Zhenjiang has had delays in its ability to make timely draws of amounts committed under the China Loan Facility in the past and we cannot be certain that Aleris Zhenjiang will be able to draw all amounts committed under the China Loan Facility in the future or as to the timing or cost of any such draws.

Non-GAAP Financial Measures

We report our financial results in accordance with GAAP. However, our management believes that certain non-GAAP performance measures, which we use in managing the business, may provide investors with additional meaningful comparisons between current results and results in prior periods. EBITDA, Adjusted EBITDA, segment Adjusted EBITDA, commercial margin and segment commercial margin are examples of non-GAAP financial measures that we believe provide investors and other users of our financial information with useful information.

Management uses EBITDA, Adjusted EBITDA, segment Adjusted EBITDA, commercial margin and segment commercial margin as performance metrics and believes these measures provide additional information commonly used by the holders of the Senior Notes and parties to our ABL Facility with respect to the ongoing performance of our underlying business activities, as well as our ability to meet our future debt service, capital expenditures and working capital needs. In addition, EBITDA with certain adjustments is a component of certain covenants under the indenture governing our Senior Notes. Adjusted EBITDA, including the impacts of metal price lag, is a component of certain financial covenants under the credit agreement governing the ABL Facility. Management also uses commercial margin, including segment commercial margin, as a performance metric and believes that it provides useful information regarding the performance of our segments because it measures the price at which we sell our aluminum products above the hedged cost of the metal and the effects of metal price lag, thereby reflecting the value-added components of our commercial activities independent of aluminum prices which we cannot control.

Our EBITDA calculations represent net income and loss attributable to Aleris International, Inc. before interest income and expense, provision for and benefit from income taxes and depreciation and amortization. Adjusted EBITDA is defined as EBITDA excluding metal price lag, reorganization items, net, unrealized gains and losses on derivative financial instruments, restructuring items, net, the impact of recording inventory and other items at fair value through fresh-start and purchase accounting, currency exchange gains and losses on debt, stock-based compensation expense, start-up expenses, and certain other gains and losses. Segment Adjusted EBITDA represents Adjusted EBITDA on a per segment basis. EBITDA as defined in the indenture governing our Senior Notes also limits the amount of adjustments for cost savings, operational improvement and synergies for the purpose of determining our compliance with such covenants. Adjusted EBITDA as defined under our ABL Facility also limits the amount of adjustments for restructuring charges incurred after June 1, 2010 and requires additional adjustments be made if certain annual pension funding levels are exceeded. Commercial margin represents revenues less the hedged cost of metal and the effects of metal price lag. Segment commercial margin represents commercial margin on a per segment basis.

EBITDA, Adjusted EBITDA, segment Adjusted EBITDA, commercial margin and segment commercial margin, as we use them may not be comparable to similarly titled measures used by other companies. We calculate EBITDA, Adjusted EBITDA and segment Adjusted EBITDA by eliminating the impact of a number of items we do not consider indicative of our

ongoing operating performance and certain other items. You are encouraged to evaluate each adjustment and the reasons we consider it appropriate for supplemental analysis. However, EBITDA, Adjusted EBITDA, segment Adjusted EBITDA, commercial margin and segment commercial margin are not financial measurements recognized under GAAP, and when analyzing our operating performance, investors should use EBITDA, Adjusted EBITDA, segment Adjusted EBITDA, commercial margin and segment commercial margin in addition to, and not as an alternative for, net income and loss attributable to Aleris International, Inc., operating income and loss, or any other performance measure derived in accordance with GAAP, or in addition to, and not as an alternative for, cash flow from operating activities as a measure of our liquidity. EBITDA, Adjusted EBITDA, segment Adjusted EBITDA, commercial margin and segment commercial margin have limitations as analytical tools, and they should not be considered in isolation, or as a substitute for, or superior to, our measures of financial performance prepared in accordance with GAAP. These limitations include:


▪	They do not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;


▪	They do not reflect changes in, or cash requirements for, working capital needs;


▪	They do not reflect interest expense or cash requirements necessary to service interest expense or principal payments under our Exchangeable Notes, our Senior Notes or our ABL Facility;


▪	They do not reflect certain tax payments that may represent a reduction in cash available to us;


▪	Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and EBITDA and Adjusted EBITDA, including segment Adjusted EBITDA, do not reflect cash requirements for such replacements; and


▪	Other companies, including companies in our industry, may calculate these measures differently and, as the number of differences in the way companies calculate these measures increases, the degree of their usefulness as a comparative measure correspondingly decreases.

In addition, in evaluating Adjusted EBITDA, including segment Adjusted EBITDA, it should be noted that in the future we may incur expenses similar to the adjustments in the below presentation. Our presentation of Adjusted EBITDA, including segment Adjusted EBITDA, should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

For reconciliations of EBITDA, Adjusted EBITDA and commercial margin to their most directly comparable financial measures presented in accordance with GAAP, see the tables below. For a reconciliation of segment Adjusted EBITDA to segment income and a reconciliation of segment commercial margin to segment revenues, which are the most directly comparable financial measures presented in accordance with GAAP, for each of RPNA, RPEU, Extrusions, RSAA and RSEU segments, see the reconciliations in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Our Segments.”

The following tables provide reconciliations of EBITDA and Adjusted EBITDA to net income attributable to Aleris International, Inc. and a reconciliation of commercial margin to revenues, which are the most directly comparable financial measures presented in accordance with GAAP.



	For the three months ended						For the nine months ended
	September 30,						September 30,
	2012			2011			2012			2011
	(in millions)
Net income attributable to Aleris International, Inc.	$	32.8		$	27.9		$	114.5		$	141.8
Interest expense, net	10.7			11.8			33.8			34.2
Provision for (benefit from) income taxes	7.5			(0.3		)	25.6			9.6
Depreciation and amortization	20.0			17.0			59.2			50.9
EBITDA	71.0			56.4			233.1			236.5
Unrealized losses (gains) on derivative financial instruments	0.5			22.3			(3.2		)	13.4
Impact of recording assets at fair value through fresh-start and purchase accounting	(0.2		)	0.9			(0.8		)	2.2
Currency exchange (gains) losses on debt	(1.0		)	5.0			0.3			(1.0		)
Stock-based compensation expense	2.8			2.8			8.1			7.3
Start-up expenses	8.3			4.0			17.5			8.2
Favorable metal price lag	(4.7		)	(8.7		)	(12.1		)	(6.3		)
Other (including research and development contract termination costs)	1.7			13.7			5.7			9.6
Adjusted EBITDA	$	78.4		$	96.4		$	248.6		$	269.9

Our reconciliation of Adjusted EBITDA to net income attributable to Aleris International, Inc. and net cash provided by operating activities is as follows:



	For the three months ended						For the nine months ended
	September 30,						September 30,
	2012			2011			2012			2011
	(in millions)
Adjusted EBITDA	$	78.4		$	96.4		$	248.6		$	269.9
Unrealized (losses) gains on derivative financial instruments	(0.5		)	(22.3		)	3.2			(13.4		)
Impact of recording assets at fair value through fresh-start and purchase accounting	0.2			(0.9		)	0.8			(2.2		)
Currency exchange gains (losses) on debt	1.0			(5.0		)	(0.3		)	1.0
Stock-based compensation expense	(2.8		)	(2.8		)	(8.1		)	(7.3		)
Start-up expenses	(8.3		)	(4.0		)	(17.5		)	(8.2		)
Favorable metal price lag	4.7			8.7			12.1			6.3
Other (including research and development contract termination costs)	(1.7		)	(13.7		)	(5.7		)	(9.6		)
EBITDA	71.0			56.4			233.1			236.5
Interest expense, net	(10.7		)	(11.8		)	(33.8		)	(34.2		)
(Provision for) benefit from income taxes	(7.5		)	0.3			(25.6		)	(9.6		)
Depreciation and amortization	(20.0		)	(17.0		)	(59.2		)	(50.9		)
Net income attributable to Aleris International, Inc.	32.8			27.9			114.5			141.8
Net loss attributable to noncontrolling interest	(0.3		)	(0.3		)	(0.9		)	(0.1		)
Net income	32.5			27.6			113.6			141.7
Depreciation and amortization	20.0			17.0			59.2			50.9
Provision for deferred income taxes	1.3			0.7			8.3			1.5
Stock-based compensation expense	2.8			2.8			8.1			7.3
Unrealized losses (gains) on derivative financial instruments	0.5			22.3			(3.2		)	13.4
Unrealized currency exchange (gains) losses on debt	(0.4		)	5.3			0.5			(1.0		)
Amortization of debt issuance costs	1.6			1.5			4.7			4.5
Other non-cash (gains) charges, net	(0.8		)	2.0			(1.1		)	(5.9		)
Change in operating assets and liabilities:
Change in accounts receivable	0.2			30.0			(97.4		)	(130.7		)
Change in inventories	11.3			7.4			(41.5		)	(53.5		)
Change in other assets	(6.0		)	4.1			(7.7		)	(3.7		)
Change in accounts payable	(0.1		)	16.4			69.6			88.4
Change in accrued liabilities	(7.3		)	(11.8		)	(21.9		)	36.8
Net cash provided by operating activities	$	55.6		$	125.3		$	91.2		$	149.7

Our reconciliation of revenues to commercial margin is as follows:



	For the three months ended						For the nine months ended
	September 30,						September 30,
	2012			2011			2012			2011
	(in millions)
Revenues	$	1,081.0		$	1,247.1		$	3,392.2		$	3,766.7
Hedged cost of metal	(649.9		)	(785.0		)	(2,089.6		)	(2,408.1		)
Favorable metal price lag	(4.7		)	(8.7		)	(12.1		)	(6.3		)
Commercial margin	$	426.4		$	453.4		$	1,290.5		$	1,352.3

Critical Accounting Policies and Estimates

The preparation of our financial statements in conformity with GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date

of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we evaluate our estimates, including those related to the valuation of inventory, property and equipment, allowances for doubtful accounts, workers’ compensation liabilities, income taxes, pension and other postretirement benefits and environmental liabilities. Our management bases its estimates on historical experience, actuarial valuations and other assumptions believed to be reasonable under the circumstances. Actual results could differ from those estimates.

A summary of our significant accounting policies and estimates is included in our Form 10-K filed with the Securities and Exchange Commission on February 29, 2012 for the year ended December 31, 2011. There have been no significant changes to our critical accounting policies or estimates during the nine months ended September 30, 2012.

Off-Balance Sheet Transactions

We had no off-balance sheet arrangements at September 30, 2012.

Forward-Looking Statements

This Form 10-Q contains forward-looking statements that are based on current expectations, estimates, forecasts and projections about us and the industry in which we operate and beliefs and assumptions made by our management. Statements about our beliefs and expectations and statements containing the words “may”, “could”, “would”, “should”, “will”, “believe”, “expect”, “anticipate”, “plan”, “estimate”, “target”, “project”, “look forward to”, “intend” and similar expressions intended to connote future events and circumstances constitute forward-looking statements. Statements contained in this document that are not historical in nature are considered to be forward-looking statements. They include statements regarding our expectations, hopes, beliefs, estimates, intentions or strategies regarding the future. Our expectations, beliefs and projections are expressed in good faith, and we believe we have a reasonable basis to make these statements through our management’s examination of historical operating trends, data contained in our records and other data available from third parties, but there can be no assurance that our management’s expectations, beliefs or projections will result or be achieved.

The discussions of our financial condition and results of operations may include various forward-looking statements about, among other things, future costs and prices of commodities, production volumes, industry trends, demand for our products and services, anticipated cost savings, anticipated benefits from new products or facilities and projected results of operations. In addition, our forward-looking statements in this document regarding, among other things, achievement of production efficiencies, capacity expansions, estimates of volumes, revenues, profitability and net income in future quarters, future prices and demand for our products, and estimated cash flows and sufficiency of cash flows to fund capital expenditures, reflect only our expectations regarding these matters. Forward-looking statements involve known and unknown risks and uncertainties, which could cause actual results to differ materially from those contained in or implied by any forward-looking statement. Important factors that could cause actual results to differ materially from the forward-looking statements include, but are not limited to:


▪	our ability to successfully implement our business strategy;


▪	the cyclical nature of the aluminum industry, our end-use segments and our customers’ industries;


▪	our ability to fulfill our substantial capital investment requirements;


▪	variability in general economic conditions on a global or regional basis;


▪	our ability to retain the services of certain members of our management;


▪	our ability to enter into effective metal, natural gas and other commodity derivatives or arrangements with customers to manage effectively our exposure to commodity price fluctuations and changes in the pricing of metals;


▪	our internal controls over financial reporting and our disclosure controls and procedures may not prevent all possible errors that could occur;


▪	increases in the cost of raw materials and energy;


▪	the loss of order volumes from any of our largest customers;


▪	our ability to retain customers, a substantial number of whom do not have long-term contractual arrangements with us;


▪	our ability to generate sufficient cash flows to fund our capital expenditure requirements and to meet our debt service obligations;


▪	competitor pricing activity, competition of aluminum with alternative materials and the general impact of competition in the industry segments we serve;


▪	risks of investing in and conducting operations on a global basis, including political, social, economic, currency and regulatory factors;


▪	current environmental liabilities and the cost of compliance with and liabilities under health and safety laws;


▪	labor relations (i.e., disruptions, strikes or work stoppages) and labor costs;


▪	our levels of indebtedness and debt service obligations;


▪	the possibility that we may incur additional indebtedness in the future; and


▪	limitations on operating our business as a result of covenant restrictions under our indebtedness.

The above list is not exhaustive. Some of these factors and additional risks, uncertainties and other factors that may cause our actual results, performance or achievements to be different from those expressed or implied in our written or oral forward-looking statements may be found in our public filings with the Securities and Exchange Commission, including the sections entitled “Risk Factors” included therein.

These factors and such other risk factors are not necessarily all of the important factors that could cause our actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors could also harm our results. Consequently, there can be no assurance that the actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, us. Given these uncertainties, you are cautioned not to place undue reliance on such forward-looking statements.

Except to the extent required by law, we do not undertake, and specifically decline any obligation, to update any forward-looking statements or to publicly announce the results of any revisions to any of such statements to reflect future events or developments.



Item 3.	Quantitative and Qualitative Disclosures About Market Risk.

In the ordinary course of our business, we are exposed to earnings and cash flow volatility resulting from changes in the prices of aluminum, and, to a lesser extent, hardeners such as zinc and copper, and natural gas, as well as changes in currency and interest rates. For aluminum hedges, we use derivative instruments, such as forwards, futures, options, collars and swaps to manage the effect, both favorable and unfavorable, of such changes. For electricity and some natural gas price exposures, fixed price commitments are used.

Derivative contracts are used primarily to reduce uncertainty and volatility and cover underlying exposures and are held for purposes other than trading. Our commodity and derivative activities are subject to the management, direction and control of our Risk Management Committee, which is composed of our chief financial officer and other officers and employees that the chief executive officer designates. The Risk Management Committee reports to the Audit Committee of our Board of Directors, which has supervisory authority over all of its activities.

We are exposed to losses in the event of non-performance by the counterparties to the derivative contracts discussed below. Although non-performance by counterparties is possible, we do not currently anticipate any nonperformance by any of these parties. Counterparties are evaluated for creditworthiness and risk assessment prior to our initiating contract activities. The counterparties’ creditworthiness is then monitored on an ongoing basis, and credit levels are reviewed to ensure that there is not an inappropriate concentration of credit outstanding to any particular counterparty.

Metal Hedging

Aluminum ingots, copper and zinc are internationally produced, priced and traded commodities, with the LME being the primary exchange. As part of our efforts to preserve margins, we also enter into forward, future and call option contracts. For accounting purposes, we do not consider our metal derivative instruments as hedges and, as a result, changes in the fair value of these derivatives are recorded immediately in our consolidated operating results.

We also maintain a significant amount of inventory on-hand to meet anticipated and unpriced future sales. In order to preserve the value of this inventory, LME future or forward contracts are sold at the time inventory is purchased. As sales orders are priced, LME future or forward contracts are purchased. These derivatives generally settle within three months.

We can also use call option contracts, which function in a manner similar to the natural gas, call option contracts discussed below, and put option contracts for managing metal price exposures. Option contracts require the payment of a premium which is recorded as a realized loss upon settlement or expiration of the option contract. Upon settlement of a put option contract, we receive cash and recognize a related gain if the LME closing price is less than the strike price of the put option. If the put option strike price is less than the LME closing price, no amount is paid and the option expires. As of September 30, 2012 and December 31, 2011, we had 0.2 million and 0.2 million metric tons of metal buy and sell forward contracts, respectively.

Natural Gas Hedging

To manage the price exposure for natural gas purchases, we can fix the future price of a portion or all of our natural gas requirements by entering into financial hedge agreements.

We do not consider our natural gas derivative instruments as hedges for accounting purposes and as a result, changes in the fair value of these derivatives are recorded immediately in our consolidated operating results. Under these agreements, payments are made or received based on the differential between the monthly closing price on the New York Mercantile Exchange (“NYMEX”) and the contractual hedge agreement price. We can also enter into call option contracts to manage the exposure to increasing natural gas prices while maintaining the benefit from declining prices. Upon settlement of call option contracts, we receive cash and recognize a related gain if the NYMEX closing price exceeds the strike price of the call option. If the call option strike price exceeds the NYMEX closing price, no amount is received and the option expires. Option contracts require the payment of a premium which is recorded as a realized loss upon settlement or expiration of the option contract.

Natural gas cost can also be managed through the use of cost escalators included in some of our long-term supply contracts with customers, which limits exposure to natural gas price risk. As of September 30, 2012 and December 31, 2011, we had 3.1 trillion and 2.3 trillion, respectively, of British thermal unit forward buy contracts.

Fair Values and Sensitivity Analysis

The following table shows the fair values of outstanding derivative contracts at September 30, 2012 and the effect on the fair value of a hypothetical adverse change in the market prices that existed at September 30, 2012:



				Impact of
(in millions)	Fair			10% Adverse
Derivative	Value			Price Change
Metal	$	(14.1	)	$	(7.6	)
Natural gas	(0.5		)	(1.1		)

The disclosures above do not take into account the underlying commitments or anticipated transactions. If the underlying items were included in the analysis, the gains or losses on our derivative instruments would be offset by gains and losses realized on the purchase of the physical commodities. Actual results will be determined by a number of factors outside of our control and could vary significantly from the amounts disclosed. For additional information on derivative financial instruments, see Note 10, “Derivative and Other Financial Instruments,” to our unaudited consolidated financial statements included elsewhere in this report on Form 10-Q.

Currency Exchange Risks

The construction of the Zhenjiang rolling mill has increased Aleris Zhenjiang’s exposure to fluctuations in the euro as certain of the contracts to purchase equipment are denominated in euros while the source of funding is the U.S. dollar and RMB denominated China Loan Facility. Our equity contributions are primarily made in euros to mitigate this exposure. In addition, Aleris Zhenjiang has entered into euro call option contracts to manage this exposure if the U.S. dollar weakens while maintaining the benefit if the U.S. dollar strengthens. As with all of our other derivative financial instruments, these call option contracts are not accounted for as hedges, and as a result, the changes in fair value are recorded immediately in the consolidated statements of comprehensive income. These call option contracts cover periods consistent with known or

expected exposures through 2012. As of September 30, 2012 and December 31, 2011, Aleris Zhenjiang had euro call option contracts covering a notional amount of $7.4 million and $48.5 million, respectively.

The financial condition and results of operations of some of our operating entities are reported in various currencies and then translated into U.S. dollars at the applicable exchange rate for inclusion in our consolidated financial statements. As a result, appreciation of the U.S. dollar against these currencies will have a negative impact on reported revenues and operating profit, while depreciation of the U.S. dollar against these currencies will generally have a positive effect on reported revenues and operating profit. In addition, a portion of the revenues generated by our international operations are denominated in U.S. dollars, while the majority of costs incurred are denominated in local currencies. As a result, appreciation in the U.S. dollar will have a positive impact on earnings while depreciation of the U.S. dollar will have a negative impact on earnings.

Interest Rate Risks

As of September 30, 2012, approximately 80% of our debt obligations were at fixed rates. We are subject to interest rate risk related to our ABL Facility and China Loan Facility, to the extent borrowings are outstanding under these facilities. As of September 30, 2012, we had no borrowings under the ABL Facility and Aleris Zhenjiang had $145.5 million of borrowings under the China Loan Facility. Due to the fixed-rate nature of the majority of our debt, there would not be a significant impact on our interest expense or cash flows from either a 10% increase or decrease in market rates of interest.



Item 4.	Controls and Procedures.

Disclosure Controls and Procedures

During the fiscal period covered by this report, the Company’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, completed an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”)). Based upon this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the fiscal period covered by this report, the disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

Changes in Internal Control Over Financial Reporting

There were no changes in internal control over financial reporting during the fiscal third quarter ended September 30, 2012, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION



Item 1.	Legal Proceedings.

We are a party from time to time to what we believe are routine litigation and proceedings considered part of the ordinary course of our business. We believe that the outcome of such existing proceedings would not have a material adverse effect on our financial position, results of operations or cash flows.



Item 1A.	Risk Factors.

Except for the risk factors updated in our first quarter Form 10-Q, there have been no material changes to the risk factors included in the Risk Factors section in our Form 10-K for the fiscal year ended December 31, 2011. There have been no material changes to the risk factors disclosed in the Risk Factors section of our first quarter Form 10-Q.



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

None.



Item 3.	Defaults Upon Senior Securities.

None.



Item 4.	Mine Safety Disclosures.

None.



Item 5.	Other Information.

None.



Item 6.	Exhibits.



Exhibit Number		Description

4.1		Indenture, dated as of October 23, 2012, among the Company, the guarantors named therein and U.S. Bank National Association, as trustee (filed as Exhibit 4.1 to Aleris International, Inc.'s Current Report on Form 8-K (File No. 333-173180) filed October 25, 2012, and incorporated herein by reference).

4.2		Form of 7 7/8% Senior Notes due 2020 (included within the Indenture filed as Exhibit 4.1 to Aleris International, Inc.'s Current Report on Form 8-K (File No. 333-173180) filed October 25, 2012, and incorporated herein by reference).

4.3		Registration Rights Agreement, dated as of October 23, 2012, among the Company, the guarantors named therein and J.P. Morgan Securities LLC, Barclays Capital Inc., Deutsche Bank Securities Inc., Credit Suisse Securities (USA) LLC, Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Keybanc Capital Markets Inc., Moelis & Company LLC and UBS Securities LLC (filed as Exhibit 4.3 to Aleris International, Inc.'s Current Report on Form 8-K (File No. 333-173180) filed October 25, 2012, and incorporated herein by reference).

31.1		Rule 13a-14(a)/15d-14(a) Certification of Aleris International, Inc.’s Chief Executive Officer.

31.2		Rule 13a-14(a)/15d-14(a) Certification of Aleris International, Inc.’s Chief Financial Officer.

32.1		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*101.INS		XBRL Instance Document
*101.SCH		XBRL Taxonomy Extension Schema
*101.CAL		XBRL Taxonomy Extension Calculation Linkbase
*101.DEF		XBRL Taxonomy Extension Definition Linkbase
*101.LAB		XBRL Taxonomy Extension Label Linkbase
*101.PRE		XBRL Taxonomy Extension Presentation Linkbase


*	Filed herewith, XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Section 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.

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.




	ALERIS INTERNATIONAL, INC.

Date: November 2, 2012	By:	/s/ SEAN M. STACK
	Name:	Sean M. Stack
	Title:	Executive Vice President and Chief Financial Officer (Principal Financial Officer)

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Aleris International Inactive 10-Q2012 Q3 Quarterly report

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