UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

     

FORM 10-Q

     

x		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

     For the Quarterly Period Ended March 31, 2007

o		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

     Commission File No. 1-7170

     

Aleris International, Inc.

     

     Delaware

(State or other jurisdiction of incorporation or organization)

     75-2008280

(I.R.S. Employer Identification No.)

     25825 Science Park Drive, Suite 400
Beachwood, Ohio 44122

(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 x    No o

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

Large accelerated filer o            Accelerated filer o            Non-accelerated filer x

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the close of business on April 30, 2007.

     Common Stock, $0.01 par value: 900 shares

 

 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ALERIS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
(in millions, except share and per share data)

		(Successor)
		March 31,				December 31,
		2007				2006
		(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents		$	85.9			$	126.1
Accounts receivable (net of allowance of $9.4 and $9.9 at March 31, 2007 and December 31, 2006, respectively)			776.7				692.5
Inventories			972.6				1,023.6
Deferred income taxes			4.8				34.6
Prepaid expenses			28.6				20.6
Derivative financial instruments			67.7				77.5
Other current assets			18.8				18.3
Total Current Assets			1,955.1				1,993.2
Property, plant and equipment, net			1,239.6				1,223.1
Goodwill			1,404.0				1,362.4
Intangible assets, net			81.6				84.1
Derivative financial instruments			46.7				48.5
Deferred income taxes			8.1				8.1
Other assets			86.5				89.0
		$	4,821.6			$	4,808.4
LIABILITIES AND STOCKHOLDER’S EQUITY
Current Liabilities
Accounts payable		$	628.1			$	554.3
Accrued liabilities			309.6				338.7
Deferred income taxes			37.7				37.7
Current maturities of long-term debt			19.0				20.5
Total Current Liabilities			994.4				951.2
Long-term debt			2,581.4				2,567.5
Deferred income taxes			140.5				141.2
Accrued pension benefits			179.1				179.2
Accrued postretirement benefits			56.5				57.5
Other long-term liabilities			68.3				66.4
Stockholder’s Equity
Preferred stock; par value $.01; 100 shares authorized; none issued at March 31 2007 and December 31, 2006, respectively			—				—
Common stock; par value $.01; 900 shares authorized and issued at March 31, 2007 and December 31, 2006, respectively			—				—
Additional paid-in capital			849.6				848.8
Retained deficit			(56.5	)			(3.4	)
Accumulated other comprehensive income			8.3				—
Total Stockholder’s Equity			801.4				845.4
		$	4,821.6			$	4,808.4

See Notes to Consolidated Financial Statements.

ALERIS INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(in millions)

		(Successor)					(Predecessor)
		For the three					For the three
		months ended					months ended
		March 31, 2007					March 31, 2006
Revenues		$	1,599.1				$	847.6
Cost of sales			1,532.3					757.2
Gross profit			66.8					90.4
Selling, general and administrative expense			61.7					26.8
Restructuring and other charges			7.2					—
(Gains) losses on derivative financial instruments			(5.4	)				4.1
Operating income			3.3					59.5
Interest expense			55.8					14.0
Interest income			(1.4	)				(0.2	)
Other expense, net			1.7					0.5
(Loss) income before provision for income taxes and minority interests			(52.8	)				45.2
Provision for income taxes			0.1					16.8
(Loss) income before minority interests			(52.9	)				28.4
Minority interests, net of provision for income taxes			0.2					0.2
Net (loss) income		$	(53.1	)			$	28.2

See Notes to Consolidated Financial Statements.

ALERIS INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(in millions)

		(Successor)					(Predecessor)
		For the three					For the three
		months ended					months ended
		March 31, 2007					March 31, 2006
Operating activities
Net (loss) income		$	(53.1	)			$	28.2
Depreciation and amortization			40.1					15.7
(Benefit from) provision for deferred income taxes			(0.7	)				5.4
Excess income tax benefits from exercise of stock options			—					(1.4	)
Restructuring and other charges:
Charges			7.2					—
Payments			(6.1	)				(0.3	)
Stock-based compensation expense			0.7					1.8
Unrealized (gains) losses on derivative financial instruments			(0.9	)				0.8
Charges related to step up in carrying value of inventory			55.2					—
Other non-cash charges			3.0					1.4
Changes in operating assets and liabilities:
Accounts receivable			(80.2	)				(75.3	)
Inventories			(0.3	)				4.3
Other assets			1.5					(1.5	)
Accounts payable and accrued liabilities			36.4					56.3
Net cash provided by operating activities			2.8					35.4
Investing activities
Acquisition of Aleris International, Inc.			(7.4	)				—
Payments for property, plant and equipment			(44.7	)				(11.0	)
Proceeds from sale of property, plant and equipment			0.2					—
Other			(0.1	)				—
Net cash used by investing activities			(52.0	)				(11.0	)
Financing activities
Net proceeds from (payments of) long-term revolving credit facilities			7.7					(30.7	)
Proceeds from issuance of long-term debt			—					5.3
Decrease in restricted cash			0.1					—
Proceeds from exercise of stock options			—					0.9
Excess income tax benefits from exercise of stock options			—					1.4
Other			—					(0.1	)
Net cash provided (used) by financing activities			7.8					(23.2	)
Effect of exchange rate differences on cash and cash equivalents			1.2					0.2
Net (decrease) increase in cash and cash equivalents			(40.2	)				1.4
Cash and cash equivalents at beginning of period			126.1					6.8
Cash and cash equivalents at end of period		$	85.9				$	8.2

See Notes to Consolidated Financial Statements.

ALERIS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2007
(amounts in millions, except share and per share data)

NOTE A – BASIS OF PRESENTATION

     On July 14, 2006, Texas Pacific Group (“TPG”) formed Aurora Acquisition Holdings, Inc. (“Holdings”) and Aurora Acquisition Merger Sub, Inc. (“Merger Sub”), for purposes of acquiring Aleris International, Inc. (“we,” “our” or the “Company”). On August 7, 2006, we entered into an Agreement and Plan of Merger with Holdings, pursuant to which each share of our common stock (other than shares held in treasury or owned by Holdings) would be converted into the right to receive $52.50 in cash, subject to stockholder approval. The acquisition of the Company (the “Acquisition”) was completed on December 19, 2006 at which time TPG and certain members of our management made a cash contribution of $844.9 and a non-cash contribution of $3.9 to Holdings in exchange for 8,520,000 shares of Holdings stock. The non-cash contribution consisted of shares of common stock held by management. Holdings contributed this amount to Merger Sub in exchange for the Merger Sub issuing 900 shares of its common stock to Holdings. The cash contribution, along with the additional indebtedness jointly entered into by us and Merger Sub, was used to acquire and retire all of our then outstanding common stock, redeem all stock options and non-vested stock, refinance substantially all of our indebtedness and to pay fees and expenses associated with the Acquisition. Immediately upon consummation of the Acquisition, the Merger Sub was merged with and into the Company. As the surviving corporation in the merger, we assumed, by operation of law, all of the rights and obligations of Merger Sub.

     The Acquisition was recorded as of December 19, 2006. The accompanying consolidated financial statements for the three months ended March 31, 2007 (the “Successor” period) include the preliminary application of purchase accounting and the establishment of a new basis of accounting necessitated by the Acquisition. The accompanying financial statements for the three months ended March 31, 2006 (the “Predecessor” period) does not reflect this new basis of accounting.

     The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles 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. Operating results for the three months ended March 31, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007. The accompanying 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” or similar terms). All intercompany accounts and transactions have been eliminated. For further information, refer to the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2006.

NOTE B – INVENTORIES

     The components of inventories are:

		(Successor)
		March 31,				December 31,
		2007				2006
Finished goods		$	315.7			$	344.4
Raw materials			333.0				369.3
Work in process			284.9				270.7
Supplies			39.0				39.2
		$	972.6			$	1,023.6

     At December 31, 2006, consolidated inventories included approximately $58.0 associated with the write-up of acquired inventory to fair value in connection with the Acquisition. Substantially all of this write-up was included within “Cost of Sales” in the consolidated statement of operations for the three months ended March 31, 2007.

NOTE C – GOODWILL

     The following table details the changes in the carrying amount of goodwill for the three months ended March 31, 2007. Due to the proximity of the Acquisition to March 31, 2007, the allocation of goodwill to our reporting units has not yet

been determined. As a result, no goodwill is presented within our reportable segments as of March 31, 2007. We expect the allocation of goodwill to our reportable segments to be completed during 2007.

		Unallocated
		goodwill
Balance at December 31, 2006		$	1,362.4
Purchase price allocation adjustments			40.1
Currency translation adjustments			1.5
Balance at March 31, 2007		$	1,404.0

     During the three months ended March 31, 2007 we recorded adjustments to the preliminary purchase price allocation to finalize the adjustment necessary to state the acquired inventories to their fair value, to record certain liabilities assumed and to record deferred income taxes related to purchase price allocation adjustments. The purchase price allocation remains preliminary and subject to the completion of valuations of the acquired intangible long-lived assets, the finalization of our restructuring activities and the determination of deferred income taxes. In addition, the purchase price paid to acquire the downstream aluminum business of Corus Group plc (“Corus Aluminum”) in August 2006 is subject to the finalization of an adjustment that is based upon the working capital delivered and the net debt assumed. As of March 31, 2007, we estimate that this adjustment will result in $65.0 being paid by us to Corus Group plc and have accrued this amount within “Accrued liabilities” in the consolidated balance sheet. Any change in this estimate will result in an adjustment to goodwill.

     The purchase price allocation is expected to be completed in 2007 and may result in significant changes to the long-lived assets included in our consolidated balance sheet as of March 31, 2007 and to the amount of depreciation and amortization expense associated with these long-lived assets.

     NOTE D – LONG-TERM DEBT

     Our long-term debt is summarized as follows:

		(Successor)
		March 31,				December 31,
		2007				2006
Revolving Credit Facility		$	338.0			$	328.6
Term Loan Facility			1,229.7				1,225.0
9% Senior Notes, due December 15, 2014			600.0				600.0
10% Senior Subordinated Notes, due December 15, 2016			400.0				400.0
7.65% Morgantown, Kentucky Solid Waste Disposal Facilities Revenue Bonds-1996 Series, due May 1, 2016, net			5.7				5.7
7.45% Morgantown, Kentucky Solid Waste Disposal Facilities Revenue Bonds-1997 Series, due May 1, 2022			4.6				4.6
6.00% Morgantown, Kentucky Solid Waste Disposal Facilities Revenue Bonds-1998 Series, due May 1, 2023			4.1				4.1
Morgantown, Kentucky Solid Waste Disposal Facilities Revenue Bonds-2004 Series, due October 1, 2027 bearing interest at 3.90% at March 31, 2007			5.0				5.0
Other			13.3				15.0
Subtotal			2,600.4				2,588.0
Less current maturities			19.0				20.5
Total		$	2,581.4			$	2,567.5

     On December 19, 2006, in conjunction with the Acquisition, we amended and restated the $750.0 revolving credit facility entered into on August 1, 2006 in connection with the acquisition of Corus Aluminum (the “Revolving Credit Facility”) to, in part, increase the maximum borrowings by $100.0, subject to lender approval. In addition, we amended and restated the term loan facility entered into on August 1, 2006 in connection with the acquisition of Corus Aluminum to increase the maximum borrowings to $825.0 and €303.0 (the “Term Loan Facility” and, together with the Revolving Credit Facility, the “2006 Credit Facilities”). We also issued $600.0 of senior notes (the “Senior Notes”) and $400.0 of senior subordinated notes (the “Senior Subordinated Notes”). We used proceeds from these facilities to refinance substantially all of

our existing indebtedness and to fund a portion of the purchase price of the Acquisition. We incurred $86.0 of fees and expenses associated with the refinancing which have been capitalized as debt issuance costs.

Revolving Credit Facility

     Our Revolving Credit Facility provides senior secured financing of up to $750.0. We and certain of our U.S. and international subsidiaries are borrowers under this Revolving Credit Facility. The availability of funds to the borrowers located in each jurisdiction is subject to a borrowing base for that jurisdiction, calculated on the basis of a predetermined percentage of the value of selected accounts receivable and U.S. and Canadian inventory, less certain ineligible amounts. Non-U.S. borrowers will also have the ability to borrow under this Revolving Credit Facility based on excess availability under the borrowing base applicable to U.S. borrowers, subject to certain sublimits. The Revolving Credit Facility provides for the issuance of up to $50.0 of letters of credit as well as borrowings on same-day notice, referred to as swingline loans, and will be available in U.S. dollars, Canadian dollars, euros and certain other currencies. As of March 31, 2007, we estimate that our borrowing base would have supported borrowings of $750.0, the maximum amount under the terms of the Revolving Credit Facility. After giving effect to the $338.0 of outstanding borrowings as well as outstanding letters of credit of $23.3, we had $388.7 available for borrowing as of March 31, 2007.

     The weighted average interest rate under the Revolving Credit Facility as of March 31, 2007 was 6.90%.

     There is no scheduled amortization under the Revolving Credit Facility. The principal amount outstanding will be due and payable in full at maturity, on December 19, 2011.

Term Loan Facility

     Our Term Loan Facility is a seven-year credit facility maturing on December 19, 2013. The Term Loan Facility permits $825.0 in U.S. dollar borrowings and €303.0 in euro borrowings. We have borrowed the maximum amount under this Term Loan Facility as of March 31, 2007. On March 16, 2007, the Company entered into a First Amendment (the “First Amendment”) to the Term Loan Agreement, pursuant to which, the pricing grid for loans under the Term Loan Agreement has been reduced by 37.5 basis points. In addition, the First Amendment provides that in the case of certain future repricing transactions, the Company will pay the existing lenders under the Term Loan Agreement a fee equal to 1% of the aggregate principal amount of all loans prepaid, converted or outstanding in the repricing transaction.

     At March 31, 2007, the weighted average interest rate for borrowings under the Term Loan Facility was 6.92%.

     In March 2007, we entered into an interest rate swap to fix the base interest rate paid on $700.0 of the amount outstanding under the Term Loan Facility. Under the terms of the swap agreement, we will receive interest based upon LIBOR and pay a base rate of 4.93%. The swap matures in March 2010.

Senior Notes

     On December 19, 2006, Merger Sub, Inc. issued $600.0 aggregate original principal amount of 9.0% / 9.75% Senior Notes under a senior indenture (the “Senior Indenture”) with LaSalle Bank National Association, as trustee. As the surviving corporation in the Acquisition, we assumed all the obligations of Merger Sub under the Senior Indenture. The Senior Notes mature on December 15, 2014.

     For any interest payment period through December 15, 2010, we may, at our option, elect to pay interest on the Senior Notes entirely in cash (“Cash Interest”), entirely by increasing the principal amount of the outstanding Senior Notes or by issuing additional Senior Notes (“PIK Interest”) or by paying 50% of the interest on the Senior Notes in Cash Interest and the remaining portion of such interest in PIK Interest. Cash Interest on the Senior Notes accrues at the rate of 9% per annum. PIK Interest on the Senior Notes accrues at the rate of 9.75% per annum. After December 15, 2010, we will make all interest payments on the Senior Notes entirely in cash. All Senior Notes mature on December 15, 2014 and have the same rights and benefits as the Senior Notes issued on December 19, 2006. Interest on the Senior Notes is payable semi-annually in arrears on each June 15 and December 15, commencing on June 15, 2007.

Senior Subordinated Notes

     On December 19, 2006, Merger Sub issued $400.0 aggregate original principal amount of 10.0% Senior Subordinated Notes under a senior subordinated indenture (the “Senior Subordinated Indenture”) with LaSalle Bank National Association, as trustee. As the surviving corporation in the Acquisition, we assumed all the obligations of Merger Sub under the Senior Subordinated Indenture. The Senior Subordinated Notes mature on December 15, 2016. Interest on the Senior Subordinated Notes is payable in cash semi-annually in arrears on each June 15 and December 15, commencing June 15, 2007.

NOTE E – COMMITMENTS AND CONTINGENCIES

Environmental Proceedings and Asset Retirement Obligations

     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.

     Currently and from time to time, we are a party to notices of violation brought by environmental agencies concerning the laws governing air emissions. In connection with certain pending proceedings, we are in discussions with government authorities for the purpose of resolving similar issues that have arisen at a number of our facilities in different states. At present, discussions are not sufficiently advanced to determine the scope of relief or the amount of penalties. However, with respect to these pending proceedings, the company does not anticipate that the amount of penalties would have a material adverse effect on our financial position or results of operations.

     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 state 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 or results of operations.

     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 by agencies in four states for environmental remediation at five sites, two of which are located at our operating facilities.

     Our reserves for environmental remediation liabilities totaled $15.0 at March 31, 2007 and December 31, 2006 and have been classified as “Other long-term liabilities” in the consolidated balance sheet.

     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 March 31, 2007 and December 31, 2006, our total asset retirement obligations for our landfills were $12.0.

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.

NOTE F – COMPREHENSIVE (LOSS) INCOME

     The following table presents the components of comprehensive (loss) income for the three ended March 31, 2007 and 2006.

		(Successor)					(Predecessor)
		For the three					For the three
		months ended					months ended
		March 31, 2007					March 31, 2006
Net (loss) income		$	(53.1	)			$	28.2
Changes in other comprehensive (loss) income, net of tax:
Currency translation adjustments			8.4					3.7
Unrealized (losses) gains on derivative financial instruments:
Net change from periodic revaluations			(0.2	)				(13.1	)
Net amount reclassified to income			—					(3.0	)
Income tax effect			0.1					6.1
Net unrealized (losses) gains on derivative financial instruments			(0.1	)				(10.0	)
Comprehensive (loss) income		$	(44.8	)			$	21.9

     See Note K for further information relating to our derivative financial instruments.

NOTE G – SEGMENT REPORTING

     The acquisition of Corus Aluminum increased the size and scope of our international operations substantially and, as a result, we re-aligned our reporting structure into global business units that offer different types of metal products and services. Our operating segments consist of global rolled and extruded products, global recycling, global specification alloy,

and global zinc. As a result, the former international segment is now included within the global recycling and global specification alloy segments. The Predecessor Period has been restated to reflect this change.

     Our global rolled and extruded products segment produces aluminum sheet, plate and extruded and fabricated products for distributors and customers serving the aerospace, building and construction, transportation and consumer durables industry segments. For financial reporting purposes, the global recycling and global specification alloy operating segments have been aggregated into the global recycling reportable segment. The global recycling segment represents all of our aluminum melting, processing, alloying and salt cake recycling activities. We have aggregated these businesses because the products produced are identical (except for minor differences in chemical composition), are delivered in the same manner (either molten or in bars), the raw materials used are very similar, the production processes and equipment used are identical and the long-term gross margins have been and are expected to remain similar. Our global zinc segment represents all of our zinc melting, processing and trading activities.

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. Our measure of the profitability of our operating segments is referred to as segment income. Segment income excludes provisions for income taxes, restructuring and other charges, interest, unrealized losses (gains) on derivative financial instruments, corporate general and administrative costs, including depreciation of corporate assets and amortization of capitalized debt issuance costs. Intersegment sales and transfers are recorded at market value. Consolidated cash, long-term debt, net capitalized debt costs, deferred tax assets and assets located at our headquarters office are not allocated to the reportable segments.

Reportable Segment Information

     The following table shows our segment assets as of March 31, 2007 and December 31, 2006:

		(Successor)
		March 31,				December 31,
		2007				2006
Assets:
Global rolled and extruded products		$	2,484.3			$	2,480.7
Global recycling			605.0				597.8
Global zinc			172.8				184.4
Other unallocated assets			1,559.5				1,545.5
Total assets		$	4,821.6			$	4,808.4

     The following table shows our revenues and segment income for the three months ended March 31, 2007 and 2006:

		(Successor)					(Predecessor)
		For the three					For the three
		months ended					months ended
		March 31, 2007					March 31, 2006
Revenues:
Global rolled and extruded products		$	1,063.6				$	412.5
Global recycling			424.1					345.6
Global zinc			142.6					96.9
Intersegment revenues			(31.2	)				(7.4	)
Total revenues		$	1,599.1				$	847.6
Segment income (loss):
Global rolled and extruded products		$	10.8				$	42.4
Global recycling			15.7					18.1
Global zinc			(0.6	)				15.1
Total segment income		$	25.9				$	75.6
Unallocated amounts:
Corporate general and administrative expenses		$	(18.1	)			$	(15.4	)
Restructuring and other charges			(7.2	)				—
Interest expense			(55.8	)				(14.0	)
Unrealized gains (losses) on derivative financial instruments			0.9					(0.8	)
Interest and other income, net			1.5					(0.2	)
(Loss) income before provision for income taxes and minority interests		$	(52.8	)			$	45.2

NOTE H – STOCK-BASED COMPENSATION

     In February 2007 the Board of Directors of Holdings approved the Aurora Acquisition Holdings, Inc. Amended and Restated Management Equity Incentive Plan (“2007 Plan”). Under the 2007 Plan, Holdings may grant up to 740,870 stock options. During the three months ended March 31, 2007, Holdings granted 637,866 stock options to certain members of the Company’s senior management. The options have an exercise price of $100.00 and a ten year life with 60% of the options vesting ratably over five years and 40% vesting upon the occurrence of a “liquidity event,” as defined under the terms of the 2007 Plan agreement, and the achievement of certain returns on TPG’s investment. A portion of the time-based options will be paid out upon a liquidity event should the event occur prior to full vesting of these awards. While the time based portion of the options will be expensed over the requisite service period, the event-based awards will not be expensed until the occurrence of the liquidity event.

     During the three months ended March 31, 2007, we recorded $0.7 of compensation expense associated with these options. We have recorded the expense under the push down accounting provisions of SEC Staff Accounting Bulletin No. 107. The weighted-average fair value of the time and event-based options was approximately $51.00 and $36.00 per option, respectively. At March 31, 2007, there was $18.7 of compensation expense that will be expensed over the next five years and $9.2 of compensation expense that will be expensed upon the occurrence of the liquidity event.

     The Company used the Monte Carlo simulation method to estimate the fair value of the stock options granted in 2007. Under this method, the estimate of fair value is affected by the assumptions included in the following table, certain of which are highly complex and subjective. Expected equity volatility was determined based upon historical stock prices of our peer companies. The expected term of the event-based options granted was determined based upon a range of estimates regarding of the timing of a liquidity event. The following table summarizes the significant assumption used to determine the fair value of the stock options granted during the three months ended March 31, 2007:

Expected timing of liquidity event in years			2-7
Weighted average expected option life in years			4.6
Risk-free interest rate			4.8	%
Equity volatility factor			66.3	%
Dividend yield			0.0	%

     As of December 31, 2006 185,017 share units were granted prior to the Acquisition remained outstanding. During the three months ended March 31, 2007, the Company paid $7.4 to holders of certain of these share units. The payment has been classified as “Investing activities” in the consolidated statement of cash flows. Additional payments for the remaining share units totaling $4.1 were made in April 2007.

NOTE I — INCOME TAXES

     Our effective tax rate was 1.2% and 36.8% for the three months ended March 31, 2007 and 2006, respectively. The effective tax rate for the three months ended March 31, 2007 differed from the federal statutory rate applied to losses before income taxes primarily as a result of the mix of income, losses and tax rates between tax jurisdictions.

     We have valuation allowances recorded to reduce certain deferred tax assets to amounts that are more likely than not to be realized. The remaining valuation allowances relate to our potential inability to utilize certain foreign net operating loss carry forwards and U.S. state net operating loss and tax credit carry forwards. We intend to maintain these valuation allowances until sufficient positive evidence exists (such as cumulative positive earnings and estimated future taxable income) to support their reversal. Any subsequent reversal of the state income tax valuation allowance will result in a reduction in the otherwise determinable income tax expense, and any reversal of the international valuation allowance will result in a reduction of goodwill and other identifiable intangible assets.

     We adopted the provisions of Financial Accounting Standards Board Interpretation (FIN) No. 48, “Accounting for Uncertainty in Income Taxes-an Interpretation of FASB Statement No. 109” on January 1, 2007. The effect of adoption was not material. As of the date of adoption, we had $1.9 of unrecognized tax benefits, all of which would be recorded against goodwill and other identifiable intangible assets. As of March 31, 2007, we have $2.3 of unrecognized tax benefits. The incremental $0.4 of unrecognized benefit will impact our effective rate if recognized.

     We recognize interest and penalties related to uncertain tax positions within the “Provision for income taxes” in the consolidated statement of operations. As of March 31, 2007, we had approximately $0.1 of accrued interest related to uncertain tax positions.

     The 2001 through 2006 tax years remain open to examination by the major taxing jurisdictions to which we are subject. We do not anticipate any significant changes to our total unrecognized tax benefits through the end of the first quarter of 2008.

NOTE J — EMPLOYEE BENEFITS

Defined Benefit Pension Plans

     Components of the net periodic benefit expense for the three months ended March 31, 2007 and 2006 are as follows:

											European and Canadian
		U.S. pension benefits									pension benefits
		(Successor)					(Predecessor)				(Successor)					(Predecessor)
		For the three					For the three				For the three					For the three
		months ended					months ended				months ended					months ended
		March 31, 2007					March 31, 2006				March 31, 2007					March 31, 2006
Service cost		$	0.6				$	0.9			$	1.2				$	0.1
Interest cost			1.9					1.7				2.8					0.3
Amortization of net loss			—					—				—					0.1
Expected return on plan assets			(2.2	)				(1.9	)			(1.8	)				—
Net periodic benefit cost		$	0.3				$	0.7			$	2.2				$	0.5

Other Postretirement Benefit Plans

     The components of net postretirement benefit expense for the three ended March 31, 2007 and 2006 are as follows:

		(Successor)					(Predecessor)
		For the three					For the three
		months ended					months ended
		March 31, 2007					March 31, 2006
Service cost		$	0.3				$	0.2
Interest cost			0.8					0.7
Net periodic benefit cost		$	1.1				$	0.9

NOTE K – DERIVATIVE FINANCIAL INSTRUMENTS

     We enter into derivatives to hedge the cost of energy, the sale and purchase prices of certain aluminum and zinc products as well as certain alloys used in our production processes, and certain currency and interest rate exposures. The fair value gains (losses) of outstanding derivative contracts are included in the consolidated balance sheet as “Derivative financial instruments” and “Other current liabilities.” The fair value of our derivative financial instruments and amounts deferred in “Accumulated other comprehensive income” as of March 31, 2007 and December 31, 2006:

		(Successor)
		March 31, 2007								December 31, 2006
						Deferred gains
						(losses),								Deferred gains,
		Fair value				net of tax				Fair value				net of tax
Natural gas		$	1.5			$	0.6			$	(1.0	)		$	—
Aluminum			79.3				—				89.7				—
Zinc			(0.4	)			—				0.4				—
Currency			10.9				—				11.2				—
Interest rate			(1.1	)			(0.7	)			—				—

     During the three months ended March 31, 2006, our natural gas, zinc and certain of our aluminum derivative financial instruments were accounted for as hedges and met SFAS No. 133’s requirements for hedge accounting treatment. As such, the changes in the fair value of certain of these cash flow hedges accumulated on our consolidated balance sheet (in “Accumulated other comprehensive income”) until the underlying hedged item impacted earnings. In conjunction with the preliminary purchase price allocation related to the Acquisition, all amounts previously included within “Accumulated other comprehensive income” were eliminated. Subsequent to the Acquisition, we have elected not to treat our aluminum, zinc and currency derivative financial instruments as hedges for accounting purposes and, as a result, all future changes in the fair value of these derivatives will be included within our results of operations.

     Both realized and unrealized gains and losses on those derivative financial instruments that are not accounted for as hedges are included within “(Gains) losses on derivative financial instruments” in the consolidated statement of operations while realized gains and (losses) on those derivative financial instruments that are accounted for as hedges are included within “Cost of sales.” Realized (losses) gains totaled the following in the three ended March 31, 2007 and 2006:

		(Successor)									(Predecessor)
		March 31, 2007									March 31, 2006
						Gains (losses) on									Gains (losses) on
						derivative financial									derivative financial
		Cost of sales				instruments					Cost of sales				instruments
Natural gas		$	1.5			$	—				$	1.6			$	—
Aluminum			—				1.9					—				(3.3	)
Zinc			—				3.1					0.3				—
Currency			—				(0.5	)				—				—

Natural Gas Hedging

     In order to manage our price exposure for natural gas purchases, we have fixed 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. These contracts are accounted for as cash flow hedges, with all gains and losses recognized in “Cost of sales” when the gas is consumed. In addition, we have cost escalators included in some of our long-term supply contracts with customers, which limit our exposure to natural gas price risk.

Aluminum Hedging

     The selling prices of the majority of the global rolled and extruded products segment’s customer orders 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, the global rolled and extruded products segment is subject to the risk of changes in the purchase price of the raw materials it purchases. In order to manage this exposure, London Metal Exchange (“LME”) future or forward purchase contracts are entered into at the time the selling prices are fixed. In addition, the global rolled and extruded products segment enters into future sales contracts to protect the fair value of a portion of its aluminum inventory against a potential decline in aluminum selling prices. We do not treat these derivative financial instruments as hedges for accounting purposes. Accordingly, the changes in the fair value of the contracts are recorded in earnings as “(Gains) losses on derivative financial instruments” rather than being deferred in “Accumulated other comprehensive income.”

     The global recycling segment also enters into LME high-grade aluminum forward sales and purchase contracts to mitigate the risk associated with changes in metal prices. These contracts are not accounted for as hedges and, as a result, the

changes in fair value of the contracts are recorded within “(Gains) losses on derivative financial instruments” in the consolidated statement of operations.

Zinc Hedging

     In the normal course of business, the global zinc segment enters into fixed-price sales and purchase contracts with a number of its customers and suppliers. In order to hedge the risk of changing LME zinc prices, we enter into LME forward sale and future purchase contracts. During 2006 effective portions of these hedges were included within “Other comprehensive income (loss)” while the ineffective portions were included within “(Gains) losses on derivative financial instruments.”

     During 2007, we also entered into price collars and swaps designed to protect a portion of our forecasted zinc sales from changes in the LME price of zinc. These derivatives have not been accounted for as hedges and the changes in their fair value are included within “(Gains) losses on derivative financial instrument” in the consolidated statement of operations.

     Subsequent to the Acquisition, we no longer treat our zinc derivative financial instruments as hedges for accounting purposes. As a result, the changes in fair value of the contracts are recorded within “(Gains) losses on derivative financial instruments” in the consolidated statement of operations.

Currency Hedging

     Certain of our purchases and sales are denominated in currencies other than the functional currency of the entities entering into these agreements. We have entered into foreign currency forward contracts to mitigate the impact of currency fluctuations associated with these transactions. As with the acquired aluminum and zinc derivatives, we do not account for currency derivatives as hedges and, as a result, the changes in their fair value are recorded within “(Gains) losses on derivative financial instruments” within the statement of operations.

Interest Rate Hedging

     As discussed in Note D, during the three months ended March 31, 2007, we entered into an interest rate swap to fix the interest rate on a portion of our variable rate borrowings under the Term Loan Facility. Changes in the fair value of the interest rate swap are recorded within “Accumulated other comprehensive income.”

NOTE L – RESTRUCTURING AND OTHER CHARGES

     During the three months ended March 31, 2007, we incurred $7.2 of costs primarily related to a potential acquisition that was not consummated.

NOTE M – RELATED PARTY TRANSACTIONS

     As discussed in Note H, we recorded $0.7 of compensation expense associated with the stock option plan of Holdings, the beneficiaries of which are members of our senior management. In addition, we recorded $2.3 of management fees payable to affiliates of TPG which have been included within “Accrued liabilities” in the consolidated balance sheet.

NOTE N – CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

     Certain of our subsidiaries (the “Guarantor Subsidiaries”) are guarantors of the indebtedness under our Senior Notes and Senior Subordinated Notes. 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 or the Senior Subordinated Notes (the “Non-Guarantor Subsidiaries”) are presented below. The condensed consolidating balance sheets are presented as of March 31, 2007 and December 31, 2006 and the condensed consolidating statements of operations and cash flows are presented for the three months ended March 31, 2007 and 2006.

		As of March 31, 2007 (Successor)
		Aleris				Combined				Combined
		International,				guarantor				non-guarantor
		Inc.				subsidiaries				subsidiaries				Eliminations				Consolidated
ASSETS
Current Assets
Cash and cash equivalents		$	0.8			$	12.2			$	72.9			$	—			$	85.9
Accounts receivable, net			10.6				334.4				431.7				—				776.7
Inventories			4.5				396.9				571.2				—				972.6
Deferred income taxes			3.9				—				0.9				—				4.8
Prepaid expenses			2.7				12.4				13.5				—				28.6
Derivative financial instruments			3.3				6.3				58.1				—				67.7
Other current assets			9.8				1.7				7.3				—				18.8
Total Current Assets			35.6				763.9				1,155.6				—				1,955.1
Property, plant and equipment, net			42.3				336.5				860.8				—				1,239.6
Goodwill			1,404.0				—				—				—				1,404.0
Intangible assets, net			—				28.8				52.8				—				81.6
Deferred income taxes			—				—				8.1				—				8.1
Other assets			68.1				0.9				64.9				—				133.9
Investments in subsidiaries/intercompany receivable (payable), net			1,454.8				(15.0	)			124.8				(1,565.3	)			(0.7	)
		$	3,004.8			$	1,115.1			$	2,267.0			$	(1,565.3	)		$	4,821.6
LIABILITIES AND STOCKHOLDER’S EQUITY
Current Liabilities
Accounts payable		$	53.2			$	205.3			$	369.6			$	—			$	628.1
Accrued liabilities			23.4				126.0				160.2				—				309.6
Deferred income taxes			—				—				37.7				—				37.7
Current maturities of long-term debt			8.3				0.6				10.1				—				19.0
Total Current Liabilities			84.9				331.9				577.6				—				994.4
Long-term debt			2,064.1				2.1				515.2				—				2,581.4
Deferred income taxes			43.9				—				96.6				—				140.5
Accrued pension benefits			—				25.5				153.6				—				179.1
Accrued post-retirement benefits			—				49.3				7.2				—				56.5
Other long-term liabilities			10.5				14.5				43.3				—				68.3
Stockholder’s Equity			801.4				691.8				873.5				(1,565.3	)			801.4
		$	3,004.8			$	1,115.1			$	2,267.0			$	(1,565.3	)		$	4,821.6

		As of December 31, 2006 (Successor)
		Aleris				Combined				Combined
		International,				guarantor				non-guarantor
		Inc.				subsidiaries				subsidiaries				Eliminations				Consolidated
ASSETS
Current Assets
Cash and cash equivalents		$	3.4			$	9.8			$	112.9			$	—			$	126.1
Accounts receivable, net			11.3				324.2				357.0				—				692.5
Inventories			8.0				433.7				581.9				—				1,023.6
Deferred income taxes			33.8				—				0.8				—				34.6
Prepaid expenses			1.0				11.1				8.5				—				20.6
Derivative financial instruments			1.9				5.6				70.0				—				77.5
Other current assets			4.6				4.5				9.2				—				18.3
Total Current Assets			64.0				788.9				1,140.3				—				1,993.2
Property, plant and equipment, net			43.4				339.3				840.4				—				1,223.1
Goodwill			1,362.4				—				—				—				1,362.4
Intangible assets, net			—				29.3				54.8				—				84.1
Deferred income taxes			—				—				8.1				—				8.1
Other assets			87.7				0.6				49.2				—				137.5
Investments in subsidiaries/intercompany receivable (payable), net			1,400.6				46.9				157.1				(1,604.6	)			—
		$	2,958.1			$	1,205.0			$	2,249.9			$	(1,604.6	)		$	4,808.4
LIABILITIES AND STOCKHOLDER’S EQUITY
Current Liabilities
Accounts payable		$	53.9			$	210.8			$	289.6			$	—			$	554.3
Accrued liabilities			11.2				169.7				157.8				—				338.7
Deferred income taxes			—				—				37.7				—				37.7
Current maturities of long-term debt			8.3				0.7				11.5				—				20.5
Total Current Liabilities			73.4				381.2				496.6				—				951.2
Long-term debt			2,001.7				2.3				563.5				—				2,567.5
Deferred income taxes			28.6				—				112.6				—				141.2
Accrued pension benefits			—				27.8				151.4				—				179.2
Accrued post-retirement benefits			—				50.3				7.2				—				57.5
Other long-term liabilities			9.1				13.0				44.3				—				66.4
Stockholder’s Equity			845.3				730.4				874.3				(1,604.6	)			845.4
		$	2,958.1			$	1,205.0			$	2,249.9			$	(1,604.6	)		$	4,808.4

		For the three months ended March 31, 2007 (Successor)
		Aleris				Combined				Combined
		International,				guarantor				non-guarantor
		Inc.				subsidiaries				subsidiaries				Eliminations				Consolidated
Revenues		$	35.6			$	796.2			$	880.7			$	(113.4	)		$	1,599.1
Cost of sales			32.1				759.4				854.2				(113.4	)			1,532.3
Gross profit			3.5				36.8				26.5				—				66.8
Selling, general and administrative expense			3.6				25.5				32.6				—				61.7
Restructuring and other charges			—				7.2				—				—				7.2
Losses (gains) on derivative financial instruments			5.6				(4.6	)			(6.4	)			—				(5.4	)
Operating (loss) income			(5.7	)			8.7				0.3				—				3.3
Interest expense			7.5				48.0				9.8				(9.5	)			55.8
Other expense (income), net			0.7				(1.0	)			(8.9	)			9.5				0.3
Equity in net (earnings) loss of affiliates			38.6				0.8				—				(39.4	)			—
(Loss) income before income taxes			(52.5	)			(39.1	)			(0.6	)			39.4				(52.8	)
Provision (benefit) for income taxes			0.6				(0.5	)			—				—				0.1
(Loss) income  before minority interest			(53.1	)			(38.6	)			(0.6	)			39.4				(52.9	)
Minority interests, net of provision for income taxes			—				—				0.2				—				0.2
Net (loss) income		$	(53.1	)		$	(38.6	)		$	(0.8	)		$	39.4			$	(53.1	)

		For the three months ended March 31, 2006 (Predecessor)
		Aleris				Combined				Combined
		International,				guarantor				non-guarantor
		Inc.				subsidiaries				subsidiaries				Eliminations				Consolidated
Revenues		$	38.2			$	742.5			$	175.9			$	(109.0	)		$	847.6
Cost of sales			34.1				666.3				165.8				(109.0	)			757.2
Gross profit			4.1				76.2				10.1				—				90.4
Selling, general and administrative expense			0.5				23.3				3.0				—				26.8
(Gains) losses on derivative financial instruments			—				2.2				1.9				—				4.1
Operating income			3.6				50.7				5.2				—				59.5
Interest expense			13.4				0.1				0.5				—				14.0
Other (income) expense, net			(0.6	)			0.8				0.1				—				0.3
Equity in net (earnings) loss of affiliates			(34.2	)			—				—				34.2				—
Income before income taxes			25.0				49.8				4.6				(34.2	)			45.2
(Benefit from) provision for income taxes			(3.2	)			18.3				1.7				—				16.8
Income (loss) before minority interest			28.2				31.5				2.9				(34.2	)			28.4
Minority interests, net of provision for income taxes			—				—				0.2				—				0.2
Net income (loss)		$	28.2			$	31.5			$	2.7			$	(34.2	)		$	28.2

		For the three months ended March 31, 2007 (Successor)
		Aleris				Combined				Combined
		International,				guarantor				non-guarantor
		Inc.				subsidiaries				subsidiaries				Eliminations				Consolidated
Net cash provided by operating activities		$	39.1			$	(45.9	)		$	9.6			$	—			$	2.8
Investing activities
Acquisition of Aleris International, Inc.			(7.4	)			—				—				—				(7.4	)
Payments for property, plant and equipment			(0.3	)			(9.3	)			(35.1	)			—				(44.7	)
Proceeds from sale of property, plant and equipment			—				0.2				—				—				0.2
Other			—				—				(0.1	)			—				(0.1	)
Net cash used by investing activities			(7.7	)			(9.1	)			(35.2	)			—				(52.0	)
Financing activities
Net proceeds from (payments on) long-term revolving credit facilities			62.4				(0.1	)			(54.6	)			—				7.7
Decrease in restricted cash			—				0.1				—				—				0.1
Net transfers with subsidiaries			(96.4	)			57.4				39.0				—				—
Net cash provided (used) by financing activities			(34.0	)			57.4				(15.6	)			—				7.8
Effect of exchange rate differences on cash and cash equivalents			—				—				1.2				—				1.2
Net (decrease) increase in cash and cash equivalents			(2.6	)			2.4				(40.0	)			—				(40.2	)
Cash and cash equivalents at beginning of period			3.4				9.8				112.9				—				126.1
Cash and cash equivalents at end of period		$	0.8			$	12.2			$	72.9			$	—			$	85.9

		For the three months ended March 31, 2006 (Predecessor)
		Aleris				Combined				Combined
		International,				guarantor				non-guarantor
		Inc.				subsidiaries				subsidiaries				Eliminations				Consolidated
Net cash provided by (used) operating activities		$	21.6			$	21.9			$	(8.1	)		$	—			$	35.4
Investing activities:
Payments for property and equipment			(1.2	)			(8.1	)			(1.7	)			—				(11.0	)
Other			—				(0.1	)			0.1				—				—
Net cash used by investing activities			(1.2	)			(8.2	)			(1.6	)			—				(11.0	)
Financing activities:
Net payments of long-term revolving credit facility			(30.7	)			—				—				—				(30.7	)
Proceeds from issuance of long-term debt			—				(0.1	)			5.4				—				5.3
Proceeds from exercise of stock options			0.9				—				—				—				0.9
Excess income tax benefits from exercise of stock options			1.4				—				—				—				1.4
Net transfers with subsidiaries			8.4				(14.4	)			6.0				—				—
Other			—				0.3				(0.4	)			—				(0.1	)
Net cash provided by (used) financing activities			(20.0	)			(14.2	)			11.0				—				(23.2	)
Effect of exchange rate changes on cash			—				—				0.2				—				0.2
Net decrease in cash and cash equivalents			0.4				(0.5	)			1.5				—				1.4
Cash and cash equivalents at beginning of period			0.4				(0.3	)			6.7				—				6.8
Cash and cash equivalents at end of period		$	0.8			$	(0.8	)		$	8.2			$	—			$	8.2

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars and pounds in millions, except per pound data)

CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION

     The following is a discussion of our financial condition and results of operations for the periods presented. This discussion should be read in conjunction with the financial statements and notes and other financial information appearing elsewhere in this Form 10-Q, as well as in our Annual Report on Form 10-K for the year ended December 31, 2006.

     Our discussion 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. Statements contained in this Form 10-Q 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. The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “will,” “look forward to” and similar expressions are intended to identify forward-looking statements. Forward-looking statements contained in this Form 10-Q and elsewhere are based on certain assumptions that we consider reasonable.

     The expectations set forth in this report regarding, among other things, achievement of anticipated cost savings and synergies; 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. Actual results could differ materially from these expectations, depending on certain risk factors that generally affect our business such as:

•

The operations of Aleris, Corus Aluminum and the “2005 Acquisitions’ (acquisitions in 2005 of (i) ALSCO Holdings, Inc., (ii) Alumitech, Inc., (iii) Tomra Latasa Reciclagem and (iv) certain assets of Ormet Corporation) may not be integrated successfully.

	•		If we fail to implement our business strategy, our financial condition and results of operations could be adversely affected.
	•		The cyclical nature of the metals industry, our end-use segments and our customers’ industries could limit our operating flexibility, which could negatively impact our financial condition and results of operations.
	•		Our substantial leverage and debt service obligations could adversely affect our financial condition and restrict our operating flexibility.
	•		The loss of certain members of our management may have an adverse effect on our operating results.
	•		In addition to our net loss for the three months ended March 31, 2007, we had substantial historical net losses prior to 2005, and any continuation of net losses in the future may reduce our ability to raise needed capital.
	•		We may encounter issues under the Sarbanes-Oxley Act that require our management to provide a management report containing an assessment that our internal controls over financial reporting are ineffective.
	•		We may encounter increases in the cost of raw materials and energy, which could cause our cost of goods sold to increase thereby reducing operating results and limiting our operating flexibility.
	•		We may be unable to manage effectively our exposure to commodity price fluctuations, and our hedging activities may affect profitability in a changing metals price environment and subject our earnings to greater volatility from period-to-period.
	•		If we were to lose order volumes from any of our largest customers, our sales volumes and revenues could be reduced and our cash flows lessened.
	•		We do not have long-term contractual arrangements with a substantial number of our customers, and our sales volumes and revenues could be reduced if our customers switch their suppliers.
	•		We may not be able to generate sufficient cash flows to fund our capital expenditure requirements or to meet our debt service obligations. Our ability to generate cash depends on many factors beyond our control, and any failure to meet our debt service obligations could harm our business, financial condition and results of operations.

	•		Our business requires substantial capital investments that we may be unable to fulfill.
	•		We may not be able to compete successfully in the industry segments we serve and aluminum may become less competitive with alternative materials, which could reduce our share of industry sales, lower our selling prices and reduce our sales volumes.
	•		As a result of the acquisition of Corus Aluminum, a growing portion of our sales is expected to be derived from our international operations, which exposes us to certain risks inherent in doing business abroad.
	•		Current environmental liabilities, as well as the cost of compliance with and liabilities under health and safety laws, could increase our operating costs, negatively impacting our financial condition and results of operations.
	•		We could experience labor disputes that could disrupt our business.
	•		We may have to take further charges to earnings if our goodwill or asset values are impaired.
	•		Despite current indebtedness levels, we and our subsidiaries may still be able to incur substantially more debt. This could further exacerbate the risks associated with our substantial leverage.
	•		The terms of our 2006 Credit Facilities and the indentures governing our issued $600.0 senior notes (“Senior Notes”) and $400.0 senior subordinated notes (“Senior Subordinated Notes”) (Senior Notes and Senior Subordinated Notes collectively referred to as the “Notes”) may restrict our current and future operations, particularly our ability to respond to changes in our business or to take certain actions.