News Column

KAISER ALUMINUM CORP - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

July 24, 2014

This Item should be read in conjunction with Part I, Item 1. "Financial Statements" of this Quarterly Report on Form 10-Q (this "Report").

This Report contains statements which constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements appear in a number of places in this Report and can be identified by the use of forward-looking terminology such as "believes," "expects," "may," "estimates," "will," "should," "plans," or "anticipates" or comparable terminology, or by discussions of strategy. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties, and that actual results may vary materially from those in the forward-looking statements as a result of various factors. These factors include: the effectiveness of management's strategies and decisions; general economic and business conditions including cyclicality and other conditions in the aerospace, automobile and other end market segments we serve; developments in technology; new or modified statutory or regulatory requirements; and changing prices and market conditions. Part I, Item 1A. "Risk Factors" included in our Annual Report on Form 10-K for the year ended December 31, 2013 identifies other factors that could cause actual results to vary. No assurance can be given that these are all of the factors that could cause actual results to vary materially from the forward-looking statements. Management's discussion and analysis of financial condition and results of operations ("MD&A") is designed to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. Our MD&A is presented in the following sections: • Overview;



• Highlights of the Quarter Ended June 30, 2014;

• Results of Operations;

• Liquidity and Capital Resources;

• Contractual Obligations, Commercial Commitments, and Off-Balance-Sheet

and Other Arrangements;

• Critical Accounting Estimates and Policies;

• New Accounting Pronouncements; and

• Available Information.

We believe our MD&A should be read in conjunction with the consolidated financial statement and related notes thereto included under Part I, Item 1. "Financial Statements" included in this Report and the consolidated financial statements and related notes included in Part II, Item 8. "Financial Statements and Supplementary Data" of our Annual Report on Form 10-K for the year ended December 31, 2013. In the discussion of operating results below, certain items are referred to as non-run-rate items. For purposes of such discussion, non-run-rate items are items that, while they may recur from period-to-period, (i) are particularly material to results, (ii) affect costs primarily as a result of external market factors, and (iii) may not recur in future periods if the same level of underlying performance were to occur. Non-run-rate items are part of our business and operating environment but are worthy of being highlighted for the benefit of readers of our financial statements. Our intent is to allow readers of the financial statements to consider our results both in light of and separately from items such as unrealized, mark-to-market gains or losses on derivatives related to fluctuations in underlying metal prices, energy prices, our stock price and currency exchange rates. For a reconciliation of operating income excluding non-run-rate items to operating income, see "Results of Operations - Segment and Business Unit Information" below. We also provide information regarding value added revenue which represents net sales less the hedged cost of alloyed metal. A fundamental part of our business model is to mitigate the impact of aluminum price volatility through pricing policies that allow us to pass metal cost fluctuations through to our customers and a hedging program that addresses metal price exposure in circumstances in which we are unable to pass metal cost fluctuations through to our customers due to firm-price customer sales agreements that specify the underlying metal price plus a conversion price. As a result of our pricing policies and hedging program, fluctuations in underlying metal price do not directly impact our profitability. Accordingly, value added revenue (including average realized value added revenue, third party value added revenue and value added revenue of the product categories of our Fabricated Products segment) is worthy of being highlighted for the benefit of users of our financial statements. Our intent is to allow readers of the financial statements to consider our net sales information both with and without the metal cost component thereof. For a reconciliation of valued added revenue to net sales, see "Results of Operations - Segment and Business Unit Information" below. 39 --------------------------------------------------------------------------------



Overview

We are a leading North American manufacturer of semi-fabricated specialty aluminum products for the following end market applications: aerospace and high strength products (which we refer to as Aero/HS products); general engineering products (which we refer to as GE products); extrusions for automotive applications (which we refer to as Automotive Extrusions); and other industrial products (which we refer to as Other products). At June 30, 2014, we operated 11 focused production facilities in the United States and one facility in Canada that produce rolled, extruded, and drawn aluminum products used principally for aerospace and defense, automotive, consumer durables, electronics, electrical, and machinery and equipment end market applications. Through these facilities, we recorded net sales of approximately $679.2 million on shipments of approximately 303.5 million pounds of semi-fabricated aluminum products during the six months ended June 30, 2014. We have long-standing relationships with our customers, which consist primarily of blue-chip companies including leading aerospace companies, automotive suppliers and metal distributors. In our served markets, we seek to be the supplier of choice by providing "Best in Class" customer satisfaction and offering a broad product portfolio. We have a culture of continuous improvement that is facilitated by the Kaiser Production System ("KPS"), an integrated application of tools such as Lean Manufacturing, Six Sigma and Total Productive Manufacturing. We believe KPS enables us to continuously reduce our own manufacturing costs, eliminate waste throughout the value chain, and deliver "Best in Class" customer service through consistent, on-time delivery of quality products on short lead times. We strive to tightly integrate the management of the operations within our Fabricated Products segment across multiple production facilities, product lines and target markets in order to maximize the efficiency of product flow to our customers. A fundamental part of our business model is to mitigate the impact of aluminum price volatility on our cash flow. We purchase primary and scrap aluminum from third party suppliers to manufacture our products, and the price for the aluminum we purchase is typically based on the Average Midwest Transaction Price ("Midwest Price"). The Midwest Price represents the London Metal Exchange price ("LME") plus a Midwest premium which fluctuates in response to the aluminum supply/demand dynamics in North America. We manage the risk of fluctuations in the price of aluminum through either (i) pricing policies that allow us to pass the underlying cost of metal onto customers or (ii) hedging by purchasing financial derivatives to shield us from exposure related to firm-price sales contracts that specify the underlying metal price plus a conversion price. While we can generally pass metal price movement through to customers, for some of our higher value added products sold on a spot basis, the pass through of metal price movements can sometimes lag by as much a several months, with a favorable impact to us when metal prices decline and an adverse impact to us when metal prices increase. The average London Metal Exchange ("LME") plus Midwest premium transaction price per pound of primary aluminum for the quarters ended June 30, 2014 and June 30, 2013 was $0.81 + $0.19 and $0.83 + $0.12, respectively. The LME plus Midwest premium transaction price per pound of primary aluminum for the six months ended June 30, 2014 and June 30, 2013 was $0.79 + $0.19 and $0.87 + $0.11, respectively. At July 21, 2014, the LME plus Midwest premium transaction price per pound was $0.90 + $0.20. Our highly engineered products are manufactured to meet demanding requirements of aerospace/high strength, general engineering, automotive and other industrial end market applications. We have focused our business on select end market applications where we believe we have sustainable competitive advantages and opportunities for long-term profitable growth. We believe that we differentiate ourselves with "Best in Class" customer satisfaction and a broad product offering, including our KaiserSelect® product line. Our KaiserSelect® products are manufactured to deliver enhanced product characteristics with improved consistency which results in such benefits as better performance, lower waste, and, in many cases, lower cost for our customers. In the commercial aerospace sector, we believe that global economic growth and development will continue to drive growth in airline passenger miles. In addition, trends such as longer routes, larger payloads and focus on fuel efficiency have increased the demand for new and larger aircraft. We believe that the long-term demand drivers, including growing build rates, larger airframes and increased use of monolithic design (where aluminum plate is heavily machined to form the desired part from a single piece of metal as opposed to using aluminum sheet, extrusions or forgings that are affixed to one another using rivets, bolts or welds) throughout the industry will continue to increase demand for our high strength aerospace plate. We believe the strength of overall plate demand is demonstrated by the existing greater than eight-year backlog for the two primary manufacturers of commercial aircraft. Our Aero/HS and GE products are also sold for use in defense end market applications. Requirements of military engagements and sequestration of spending by the United States government will determine near-term demand for our Aero/HS and GE products for use in such applications. In the long-term, we expect the production of the F-35, or Joint Strike Fighter, to be a demand driver for our Aero/HS products. 40 -------------------------------------------------------------------------------- Commercial aerospace and defense end market applications have demanding customer requirements for quality and consistency. As a result, there are a limited number of suppliers worldwide who are qualified to serve these market segments. We believe barriers to entry include significant capital requirements, technological expertise and a rigorous qualification process for safety-critical applications. We expect the 2014 North American automotive sector build rates to increase approximately 5.2% over 2013 based on data from IHS, a provider of technical information. Our Automotive Extrusions typically have specific performance attributes in terms of machinability and/or mechanical properties for specific applications across a broad mix of North American original equipment manufacturers ("OEMs") and automotive platforms. We believe that these attributes are not easily replicated by our competitors and are important to our customers, who are typically first tier automotive suppliers. Additionally, we believe that in North America, from 2001 to 2013, the aluminum extrusion content per vehicle grew at a compound annual growth rate of 2.7% based on data provided by the Aluminum Association and IHS, as automotive OEMs and their suppliers found opportunities to decrease weight without sacrificing structural integrity and safety performance. We also believe the United States' Corporate Average Fuel Economy ("CAFE") regulations, which increase fuel efficiency standards on an annual basis, will continue to drive growth in demand for aluminum extruded components in passenger vehicles as a replacement for the heavier weight of steel components. Our GE products serve the North American industrial market segments, and demand for these products generally tracks the broader economic environment. Highlights of the quarter ended June 30, 2014 include: • Fabricated Products segment shipments of 151.7 million pounds, a 4%



increase from the second quarter of 2013, reflecting record heat treat

plate and automotive extrusion shipments

• Consolidated net income of $24.5 million and earnings per diluted share of

$1.33; • Combined cash and cash equivalents, short-term investments, and net borrowing availability under our revolving credit facility of approximately $552.3 million, with no borrowings under the revolving credit facility, as of June 30, 2014;



• Declaration and payment of a regular dividend of $0.35 per common share,

or $6.4 million; and

• Repurchase of 162,381 shares of our common stock at the weighted average

price per share of $69.46.

Results of Operations Consolidated Results of Operations Net Sales. Net sales for the quarter ended June 30, 2014 totaled $344.1 million and $328.9 million for the quarter ended June 30, 2013. This increase in Net sales was due to a 5% increase in Fabricated Products segment shipment volume. Aero/HS shipment volume increased 10% and Automotive Extrusions shipment volume increased 28%, which together accounted for 7% of the increase in Fabricated Products segment shipment volume. The 7% increase was partially offset by a decrease in shipment volume from Other Products and GE Products. The average realized sales price per pound was relatively the same at $2.27 for the quarter ended June 30, 2014 compared to $2.26 for the quarter ended June 30, 2013. Net sales for the six months ended June 30, 2014 totaled $679.2 million, reflecting a slight increase compared to $666.3 million for the six months ended June 30, 2013, as a 6% increase in Fabricated Products segment shipment volume was partially offset by a 4% decrease in average realized sales price per pound. The increase in Fabricated Products segment shipment volume was due primarily to a 27% increase in Automotive Extrusions shipment volume and a 5% increase in both aero/HS and GE Products shipment volume. The decline in the average realized sales price per pound in the six months ended June 30, 2014 reflected both lower hedged cost of alloyed metal which we pass onto customers and lower average realized value added revenue per pound. Fluctuation in underlying primary aluminum market prices does not necessarily directly impact profitability because (i) a substantial portion of the business conducted by the Fabricated Products segment passes primary aluminum price changes directly onto customers and (ii) our hedging activities in support of the Fabricated Products segment's firm price sales agreements limit our losses, as well as gains, from primary metal price changes. The reduction in average realized value added revenue per pound reflected (i) revenue recognized in the six months ended June 30, 2013 due to a $4.5 million payment from a customer in lieu of fulfilling minimum volume obligations under a multi-year contract as well as (ii) a 10% decrease in value added revenue per pound for Aero/HS Products due to lower pricing, offset by (iii) higher value added revenue per pound for Automotive Extrusions due to a richer mix of higher valued products. 41 -------------------------------------------------------------------------------- Cost of Products Sold Excluding Depreciation and Amortization and Other Items. Cost of products sold, excluding depreciation and amortization and other items in the quarter ended June 30, 2014 totaled $275.5 million, or 80% of Net sales, compared to $261.5 million, or 80% of Net sales, in the quarter ended June 30, 2013. The $14.0 million increase in Cost of products sold excluding depreciation and amortization and other items for the quarter ended June 30, 2014 as compared to June 30, 2013 was due primarily to higher shipment volume. See "Segment and Business Unit Information" below for a further discussion of the comparative results of operations for the quarters ended June 30, 2014 and June 30, 2013.) Cost of products sold, excluding depreciation and amortization and other items in the six months ended June 30, 2014 totaled $558.4 million, or 82% of Net sales, compared to $525.1 million, or 79% of Net sales, in the six months ended June 30, 2013. Approximately $28.2 million of the increase in Cost of products sold excluding depreciation and amortization and other items for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013 was due to higher shipment volume at a higher LIFO cost of inventory. The increase was also due to higher major maintenance of $3.1 million related to the ramp up of major 2013 capital improvement projects, and higher energy cost of $1.9 million related to the severe 2014 winter season. Selling, Administrative, Research and Development, and General. Selling, administrative, research and development, and general expense totaled $22.0 million in the quarter ended June 30, 2014 compared to $21.8 million in the quarter ended June 30, 2013. The slight increase was primarily due to increases in employee incentive compensation relating to the Company's long-term incentive programs. Selling, administrative, research and development, and general expense for the six months ended June 30, 2014 totaled $42.3 million compared to $43.5 million in the six months ended June 30, 2013. The decrease was due primarily to a $2.2 million decrease in employee incentive compensation primarily as a result of changes to the Company's short-term incentive plan and vesting provision upon retirement with respect to certain non-vested common shares and market-based shares in the first quarter of 2014, partially offset by a $0.7 million increase in research and development costs. Net Periodic Pension Benefit Income Relating to VEBAs. Net periodic pension benefit income relating to two voluntary employee's beneficiary associations that provide benefits for certain eligible retirees, their surviving spouses and eligible dependents ("VEBAs") totaled $6.1 million and $5.7 million for the quarters ended June 30, 2014 and June 30, 2013, respectively. Net periodic pension benefit income relating to VEBAs totaled $11.7 million and $11.3 million for the six months ended June 30, 2014 and June 30, 2013, respectively. The increase was primarily due to an increase in expected return on plan assets. Interest Expense. Interest expense of $9.2 million and $18.0 million in the quarter and six months ended June 30, 2014, respectively, was primarily related to interest expense incurred on our 4.5% Cash Convertible Senior Notes due April 1, 2015 (the "Convertible Notes") and our 8.250% Senior Notes due June 1, 2020 (the "Senior Notes") issued on May 23, 2012, net of $0.8 million and $1.9 million of interest expense capitalized as part of Construction in progress, respectively, for the two periods. Non-cash amortization of the discount on the Convertible Notes accounted for $2.3 million and $4.4 million of the total interest expense in the quarter and six months ended June 30, 2014, respectively. Interest expense of $9.0 million and $18.3 million in the quarter and six months ended June 30, 2013, respectively, was primarily related to interest expense incurred on the Convertible Notes and Senior Notes, net of $0.7 million and $1.1 million of interest expense capitalized as part of Construction in progress, respectively, for the two periods. Non-cash amortization of the discount on the Convertible Notes accounted for $2.1 million and $4.0 million of the total interest expense in the quarter and six months ended June 30, 2013, respectively. Income Tax Provision. See Note 4 of Notes to Interim Consolidated Financial Statements included in Part I, Item 1. "Financial Statements" of this Report for disclosure regarding our income tax provision. Derivatives See Note 8 of Notes to Interim Consolidated Financial Statements included in Part I, Item 1. "Financial Statements" of this Report for disclosure regarding our derivatives. Fair Value Measurements See Note 9 of Notes to Interim Consolidated Financial Statements included in Part I, Item 1. "Financial Statements" of this Report for disclosure regarding our fair value measurements. 42

-------------------------------------------------------------------------------- Deferred Tax Assets The Company's non-current net deferred tax assets were $45.8 million and $69.1 million at June 30, 2014 and December 31, 2013, respectively, of which, $158.4 million and $152.4 million were related to a deferred tax liability for the Company's VEBA postretirement medical obligations at June 30, 2014 and December 31, 2013, respectively. See Note 6 of Notes to Consolidated Financial Statements included in Part II, Item 8. "Financial Statements and Supplementary Data" in the Company's Annual Report Form 10-K for the year ended December 31, 2013 for additional information regarding our deferred tax assets. Segment and Business Unit Information Consistent with the manner in which our chief operating decision maker reviews and evaluates our business, we have one operating segment, which we refer to as Fabricated Products, that produces semi-fabricated specialty aluminum products, such as aluminum sheet and plate and extruded and drawn products, primarily used in aerospace/high strength, general engineering, automotive and other industrial end market applications. We categorize our products by these end market applications as follows: Aero/HS products, GE products, Automotive Extrusions, and Other products. We also have a business unit, All Other, which provides general and administrative support for our operations. For purposes of segment reporting under GAAP, we treat the Fabricated Products segment as a reportable segment. All Other is not considered a reportable segment. The accounting policies of the segment and business unit are the same as those described in Note 1 of Notes to Interim Consolidated Financial Statements in Part I, Item 1. "Financial Statements" of this Report. Segment results are evaluated internally before interest expense, other (expense) income and income taxes. The following data should be read in conjunction with our consolidated financial statements and the notes thereto included in Part I, Item 1. "Financial Statements" of this Report. See Note 11 of Notes to Interim Consolidated Financial Statements included in Part I, Item 1. "Financial Statements" of this Report for further information regarding segments. Interim results are not necessarily indicative of those for a full year. Fabricated Products The table below provides selected operational and financial information (in millions of dollars except shipments and average realized sales price) for our Fabricated Products segment, for each period presented. 43 --------------------------------------------------------------------------------

Quarter Ended Six Months Ended June 30, June 30, 2014 2013 2014 2013 Shipments (mm lbs) 151.7 145.4 303.5 285.4 Composition of average realized third-party sales price (per pound): Average realized third-party sales price1 $ 2.27$ 2.26$ 2.24$ 2.33 Less: hedged cost of alloyed metal price (1.02 ) (1.00 ) (1.00 ) (1.03 ) Average realized third-party value added revenue $ 1.25$ 1.26$ 1.24$ 1.30 Composition of net sales: Net sales $ 344.1$ 328.9$ 679.2$ 666.3 Less: hedged cost of alloyed metal (154.5 ) (145.4 ) (304.0 ) (295.4 ) Third-party value added revenue $ 189.6$ 183.5 $



375.2 $ 370.9

Segment operating income $ 50.2$ 45.0$ 85.6$ 100.2 Impact to operating income of non-run-rate items: Adjustments to plant-level LIFO2 0.5 0.7 (4.1 ) 5.4 Mark-to-market gains (losses) on derivative instruments 1.5 (4.2 ) 3.5 (4.9 ) Workers' compensation benefit due to discounting 0.1 0.8 0.3 0.8 Impairment loss (0.2 ) - (0.2 ) - Environmental expenses (0.1 ) - (0.3 ) (0.3 ) Total non-run-rate items 1.8 (2.7 ) (0.8 ) 1.0 Segment operating income excluding non-run-rate items $ 48.4$ 47.7$ 86.4$ 99.2 _____________________



1 Average realized prices for our Fabricated Products segment are subject to

fluctuations due to changes in product mix and underlying primary aluminum

prices, and are not necessarily indicative of changes in underlying profitability.



2 We manage our Fabricated Products segment business on a monthly LIFO basis

at each plant, but report inventory externally on an annual LIFO basis in

accordance with GAAP on a consolidated basis. This amount represents the

conversion from GAAP LIFO applied on a consolidated basis for the

Fabricated Products segment to monthly LIFO applied on a plant-by-plant

basis.

As noted above, operating income excluding identified non-run-rate items for the quarter ended June 30, 2014 was $0.7 million higher than operating income excluding such items for the quarter ended June 30, 2013. Higher operating income in the quarter ended June 30, 2014 reflected the $1.6 million impact from higher shipment volume and improved manufacturing cost efficiencies of $1.1 million partially offset by higher depreciation of $0.8 million and higher energy costs of $0.6 million. Segment operating income excluding identified non-run-rate items for the six months ended June 30, 2014 was $12.8 million lower than operating income excluding such items for the six months ended June 30, 2013. Lower segment operating income in the six months ended June 30, 2014 primarily reflected the impact of (i) the $4.5 million customer payment received in the quarter ended March, 31, 2013, (ii) $3.1 million of higher planned major maintenance expense, (iii) $1.9 million of higher energy costs and (iv) $1.1 million of higher depreciation expense. The table below provides shipment and value added revenue information (in millions of dollars except shipments and value added revenue per pound) for each of the product categories (which are based on end market applications) of our Fabricated Products segment, for each period presented: 44 --------------------------------------------------------------------------------

Quarter Ended Six Months Ended June 30, June 30, 2014 2013 2014 2013 Aero/HS Products: Shipments (mmlbs) 60.5 54.8 117.2 111.5 $ $ / lb $ $ / lb $ $ / lb $ $ / lb Net sales $ 173.0$ 2.86$ 165.1$ 3.01$ 336.6$ 2.87$ 344.7$ 3.09 Less: hedged cost of alloyed metal (62.8 ) (1.04 ) (55.8 ) (1.01 ) (120.0 ) (1.02 ) (116.7 ) (1.04 ) Value added revenue $ 110.2$ 1.82$ 109.3$ 2.00$ 216.6$ 1.85$ 228.0$ 2.05 GE Products: Shipments (mmlbs) 58.4 60.1 120.9 114.9 $ $ / lb $ $ / lb $ $ / lb $ $ / lb Net sales $ 107.3$ 1.84$ 110.2$ 1.83$ 219.5$ 1.82$ 216.0$ 1.88 Less: hedged cost of alloyed metal (59.7 ) (1.03 ) (60.6 ) (1.01 ) (121.8 ) (1.01 ) (120.0 ) (1.04 ) Value added revenue $ 47.6$ 0.81$ 49.6$ 0.82$ 97.7$ 0.81$ 96.0$ 0.84 Automotive Extrusions: Shipments (mmlbs) 20.2 15.9 39.7 31.2 $ $ / lb $ $ / lb $ $ / lb $ $ / lb Net sales $ 44.7$ 2.21$ 31.0$ 1.95$ 85.5$ 2.15$ 61.8$ 1.98 Less: hedged cost of alloyed metal (20.4 ) (1.01 ) (15.7 ) (0.98 ) (39.3 ) (0.99 ) (31.9 ) (1.02 ) Value added revenue $ 24.3$ 1.20$ 15.3$ 0.97$ 46.2$ 1.16$ 29.9$ 0.96

Other Products: Shipments (mmlbs) 12.6 14.6 25.7 27.8 $ $ / lb $ $ / lb $ $ / lb $ $ / lb Net sales $ 19.1$ 1.52$ 22.6$ 1.55$ 37.6$ 1.46$ 43.8$ 1.58 Less: hedged cost of alloyed metal (11.6 ) (0.92 ) (13.3 ) (0.91 ) (22.9 ) (0.89 ) (26.8 ) (0.97 ) Value added revenue $ 7.5$ 0.60$ 9.3$ 0.64$ 14.7$ 0.57$ 17.0$ 0.61 Total: Shipments (mmlbs) 151.7 145.4 303.5 285.4 $ $ / lb $ $ / lb $ $ / lb $ $ / lb Net sales $ 344.1$ 2.27$ 328.9$ 2.26$ 679.2$ 2.24$ 666.3$ 2.33 Less: hedged cost of alloyed metal (154.5 ) (1.02 ) (145.4 ) (1.00 ) (304.0 ) (1.00 ) (295.4 ) (1.03 ) Value added revenue $ 189.6$ 1.25$ 183.5$ 1.26$ 375.2$ 1.24$ 370.9$ 1.30 For the quarter ended June 30, 2014, Net sales of fabricated products increased by 5% to $344.1 million, as compared to the quarter ended June 30, 2013, due primarily to an increase in Fabricated Products segment shipment volume, as discussed in further detail above in "Consolidated Results of Operations." For the six months ended June 30, 2014, Net sales of fabricated products increased by 2% to $679.2 million, as compared to the six months ended June 30, 2013, due primarily to an increase in Fabricated Products segment shipment volume that was partially offset by a decrease in average realized sales price per pound. See "Consolidated Results of Operations" above for further discussion. 45 --------------------------------------------------------------------------------



Outlook

Despite strong underlying demand and record build rates for commercial aircraft, we continue to experience the effect from excess aerospace supply chain inventory and destocking. For aerospace products other than plate and extruded shapes, we are continuing to see modestly improving demand, however, we anticipate that the supply chain inventory overhang for plate and aerospace extruded shapes will continue to dampen demand potentially through early 2015. As we look to the second half of 2014, we anticipate strong heat treat plate and automotive shipments and improved manufacturing efficiency as we capture further benefits from our Phase 5 heat treat plate expansion and the new casting complex at our Spokane (Trentwood), Washington facility. Building upon the favorable trends, we expect the second half of 2014 value added revenue for automotive extrusions will be similar to the first half of 2014 as growing content from new product launches of crash management and structural applications offsets lower seasonal build rates. We anticipate normal seasonal demand weakness in the second half of 2014 with continuing competitive price pressure on heat treat plate products. Overall, we anticipate value added revenue, EBITDA and EBITDA margin in the second half of 2014 will be favorable to the prior year period and we continue to anticipate 2014 full year results will be similar to the full year 2012 and 2013. Looking beyond 2014, we remain very positive on the long-term prospects for our Company as we continue to realize the full benefits from strong secular demand fundamentals for our aerospace and automotive extrusion applications and continued improvement in our manufacturing efficiencies as a result of the organic capital investments we have made to support growth. The investments to expand capacity and our capabilities to further enhance our product quality will continue to allow us to capture additional opportunities for profitable growth in our served markets for aerospace, automotive and general industrial applications. All Other Operating expenses within the All Other business unit represent general and administrative expenses that are not allocated to our Fabricated Products segment. The table below presents non-run-rate items within All Other, operating expense and operating expense excluding non-run-rate items (in millions of dollars): Quarter Ended Six Months Ended June 30, June 30, 2014 2013 2014 2013 Operating expense $ (3.8 )$ (4.9 )



$ (7.1 )$ (10.1 ) Impact to operating expense of non-run-rate items: VEBA net periodic benefit income

6.1 5.7 11.7 11.3 Environmental expense - - - (0.3 ) Workers' compensation benefit due to discounting - 0.1 - 0.1 Operating non-run-rate items 6.1 5.8



11.7 11.1 Operating expense excluding non-run-rate items $ (9.9 )$ (10.7 )$ (18.8 )$ (21.2 )

Operating expenses of All Other excluding non-run-rate items for the quarter ended June 30, 2014 were $0.8 million lower than such expenses for the comparable period in 2013 due primarily to decreases in short-term employee incentive compensation expenses as a result of changes to the Company's short-term incentive plan and vesting provision upon retirement with respect to certain non-vested common shares and market-based shares. Operating expenses of All Other excluding non-run-rate items for the six months ended June 30, 2014 were $2.4 million lower than such expenses for the comparable period in 2013 due primarily to a decrease in short-term and long-term employee incentive compensation expense, as discussed above in more detail. 46

-------------------------------------------------------------------------------- Liquidity and Capital Resources Summary The following table summarizes our liquidity at the end of the periods presented (in millions of dollars): June 30, 2014 December 31, 2013 Available cash and cash equivalents $ 174.2 $ 169.5 Short-term investments 127.2 129.5 $ 301.4 $ 299.0



Net borrowing availability on Revolving Credit Facility after borrowings and letters of credit

250.9 253.1 Total liquidity $ 552.3 $ 552.1 Cash equivalents consist primarily of money market accounts and investments with an original maturity of 90 days or less when purchased. We place our cash in bank deposits and money market funds with high credit quality financial institutions which invest primarily in commercial paper and time deposits of prime quality, short-term repurchase agreements, and U.S. government agency notes. Short-term investments represent holdings in investment-grade commercial paper and corporate bonds with a maturity of greater than 90 days. Available cash and cash equivalents and short term investments were $301.4 million at June 30, 2014, compared to $299.0 million at December 31, 2013. The increase was primarily driven by cash inflow from operating activities and proceeds from the disposition of available for sale securities. These increases were partially offset by i) cash outflows from certain investing and financing activities consisting of capital expenditures, purchases of available for sale securities, repurchases of common stock and the payment of quarterly dividends, and ii) the payments during the first quarter of 2014 to the VEBAs of $16.0 million of annual variable cash contributions with respect to 2013. In addition to our unrestricted cash and cash equivalents described above, we have restricted cash totaling $9.6 million at June 30, 2014 that is pledged or held as collateral in connection with workers' compensation requirements and certain other agreements. From time to time, such restricted funds could be returned to us or we could be required to pledge additional cash (see Note 2 of Notes to Interim Consolidated Financial Statements included in Part I, Item 1. "Financial Statements" of this Report). We and certain of our subsidiaries have a credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and the other financial institutions party thereto (the "Revolving Credit Facility") (see Note 3 of Notes to Interim Consolidated Financial Statements included in Part I, Item 1. "Financial Statements" of this Report). There were no borrowings under the Revolving Credit Facility as of June 30, 2014, or as of December 31, 2013. Cash Flows The following table summarizes our cash flows from operating, investing and financing activities for each of the periods presented (in millions of dollars): Six Months Ended June 30, 2014 2013 Total cash provided by (used in): Operating activities: Fabricated Products $ 116.7$ 103.7 All Other (45.4 ) (54.8 ) Total cash flow provided by operating activities $ 71.3$ 48.9 Investing activities: Fabricated Products $ (29.5 )$ (25.4 ) All Other 1.0 37.6 Total cash flow (used in) provided by investing activities $ (28.5 )$ 12.2 Financing activities: Fabricated Products $ - $ - All Other (38.1 ) (52.8 ) Total cash flow used in financing activities $ (38.1 )$ (52.8 ) 47

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Operating Activities

Fabricated Products - For the six months ended June 30, 2014, Fabricated Products segment operating activities provided $116.7 million of cash. Cash provided in the six months ended June 30, 2014 was primarily related to (i) $85.6 million of operating income, (ii) adjustments for non-cash items and depreciation and amortization of $13.7 million, (iii) a decrease in inventory of $16.4 million due primarily to a lower inventory level following Trentwood's capital improvement project and increased shipment volume, and (iv) an increase in accounts payable of $13.6 million due to an increase in general business activities and the timing of payments. Cash provided in the six months ended June 30, 2014 was partially offset by (i) an increase in accounts receivable of $2.0 million, (ii) an increase in prepaid assets of $2.3 million and (iii) a $7.9 million decrease in other accrued liabilities due primarily to a decrease in accrued salaries and wages. Fabricated Products segment operating activities provided $103.7 million of cash during the six months ended June 30, 2013. Cash provided in the six months ended June 30, 2013 was primarily related to $100.2 million of operating income, (i) adjustments for non-cash items and depreciation and amortization of $17.3 million, (ii) an increase in accounts payable and other accrued liabilities of $10.9 million due to an increase in general business activities including inventory purchases, partially offset by (iii) an increase in inventory of $17.0 million primarily as a result of production requirements and planned equipment outages at certain production facilities and (iv) an increase in accounts receivable of $12.3 million due to the recognition of a $7.7 million receivable relating to a tax refund from the Canadian Revenue Agency and increase in sales. For additional information regarding Fabricated Products operating income excluding non-run-rate items, see "Results of Operations - Segment and Business Unit Information" above. All Other - Cash used in operating activities of $45.4 million during the six months ended June 30, 2014 consisted primarily of payments relating to (i) general and administrative costs of $14.8 million, (ii) an annual variable cash contribution to the VEBAs of $16.0 million with respect to the 2013 year, (iii) our short-term incentive program in the amount of $4.3 million, and (iv) interest on the Convertible Notes, Senior Notes, and Revolving Credit Facility of $14.0 million. Cash used in operating activities of $54.8 million during the six months ended June 30, 2013 consisted primarily of payments relating to (i) general and administrative costs of $14.1 million, (ii) an annual variable cash contribution to the VEBAs of $20.0 million with respect to the 2012 year, (iii) our short-term incentive program in the amount of $4.5 million, and (iv) interest on the Convertible Notes, Senior Notes, and Revolving Credit Facility of $14.0 million. Investing Activities Fabricated Products - Cash used in investing activities for the Fabricated Products segment during the six months ended June 30, 2014 was $29.5 million, compared to $25.4 million of cash used during the six months ended June 30, 2013. Cash used during the six months ended June 30, 2014 and June 30, 2013 was primarily related to capital expenditures. All Other - Cash provided by investing activities for All Other during the six months ended June 30, 2014 was $1.0 million which primarily consisted of $1.6 million net cash inflow in conducting investment activities with respect to our available for sale securities, partially offset by $0.6 million of capital expenditures. Cash provided by investing activities for All Other during the six months ended June 30, 2013 was $37.6 million which primarily consisted of $37.5 million net cash inflow in conducting investment activities with respect to our available for sale securities and $0.7 million of cash returned to us from the State of Washington relating to workers' compensation deposits, partially offset by $0.6 million of capital expenditures. Financing Activities All Other - Cash used in financing activities during the six months ended June 30, 2014 was $38.1 million, representing (i) $23.7 million of cash used to repurchase our common stock under our stock repurchase program, (ii) $12.8 million of cash dividends paid to our stockholders, including holders of restricted stock, and dividend equivalents paid to holders of certain restricted stock units and to holders of performance shares with respect to approximately one-half of the performance shares, (iii) $2.4 million of cash used to repurchase our common stock to satisfy withholding taxes resulting from the vesting of employee restricted stock, restricted stock units and performance shares, partially offset by (iv) $0.8 million of additional tax benefit in connection with the vesting of employee non-vested shares, restricted stock units and performance shares. Cash used in financing activities during the six months ended June 30, 2013 was $52.8 million, representing (i) $39.9 million of cash used to repurchase our common stock under our stock repurchase program, (ii) $11.6 million of cash dividends paid to our stockholders, including holders of restricted stock, and dividend equivalents paid to holders of restricted stock units and to holders of performance shares with respect to approximately one-half of the performance shares, (iii) $2.2 million of cash used to repurchase our common stock to satisfy withholding taxes resulting from the vesting of employee restricted stock, restricted stock units and performance shares, partially offset by (iv) $0.9 million of additional tax benefit in connection with the vesting of employee restricted stock, restricted stock units and performance shares. See "Repurchases of Common Stock" below and Part II, Item 2. "Unregistered Sales of Equity Securities and Use of Proceeds" of this Report. 48 -------------------------------------------------------------------------------- Sources of Liquidity We believe our available cash and cash equivalents, short-term investments, borrowing availability under the Revolving Credit Facility, and funds generated from operations are our most significant sources of liquidity. We believe these sources will be sufficient to finance our cash requirements, including those associated with our planned capital expenditures and investments, for at least the next 12 months. Nevertheless, our ability to fund our working capital requirements, debt service obligations, the full amount of any variable cash contribution to the VEBAs, and planned capital expenditures and investments will depend upon our future operating performance (which will be affected by prevailing economic conditions) and financial, business and other factors, some of which are beyond our control. The Revolving Credit Facility matures in September 2016 and provides for borrowings up to $300.0 million (subject to borrowing base limitations), of which up to a maximum of $60.0 million may be utilized for letters of credit. The Revolving Credit Facility may, subject to certain conditions and the agreement of lenders thereunder, be increased up to $350.0 million. The table below summarizes recent availability and usage of the Revolving Credit Facility (in millions of dollars except for borrowing rate): July 21, 2014 June 30, 2014 Revolving Credit Facility borrowing commitment $ 300.0$ 300.0 Borrowing base availability 258.1 258.3 Less: Outstanding borrowings under Revolving Credit Facility - -



Less: Outstanding letters of credit under Revolving Credit Facility

(7.4 ) (7.4 ) Net remaining borrowing availability $ 250.7$ 250.9 Borrowing rate (if applicable)1 4.0 % 4.0 %



_______________________

1 Such borrowing rate, if applicable, represents the interest rate for any

overnight borrowings under the Revolving Credit Facility.

We do not believe that covenants contained in the Revolving Credit Facility are reasonably likely to limit our ability to raise additional debt or equity should we choose to do so during the next 12 months, nor do we believe it is likely that during the next 12 months we will trigger the availability threshold that would require measuring and maintaining a fixed charge coverage ratio. See Note 3 of Notes to Consolidated Financial Statements included in Part II, Item 8. "Financial Statements and Supplementary Data" in the Form 10-K for the year ended December 31, 2013 for information regarding the Revolving Credit Facility. Debt We have mandatory principal and cash interest payments on the outstanding borrowings under the Convertible Notes and the Senior Notes. Pursuant to one of the early conversion provisions related to the Convertible Notes, if our closing stock price exceeds 130% of the conversion price for 20 trading days during the final 30 consecutive trading days of a quarter, holders may convert the Convertible Notes during the following quarter. Under this provision, an immaterial amount of Convertible Notes was presented for conversion during the second quarter of 2014 for settlement in the third quarter, and holders are also able to present Convertible Notes for early conversion during the third quarter of 2014. The market value of the Convertible Notes has generally exceeded the amount of the cash payable upon conversion, which we believe makes early conversion of the Convertible Notes economically less attractive to holders than selling. We expect to have sufficient liquidity to repay the principal amount of the Convertible Notes and any accrued interest payable upon conversion. Additionally, we expect to exercise the cash-settled Call Options relating to shares of our common stock that we acquired in connection with the issuance of the Convertible Notes to cover the amount of cash payable upon conversion of the Convertible Notes in excess of the principal amount thereof and interest payable thereon. See Note 3 of Notes to Consolidated Financial Statements included in Part II, Item 8. "Financial Statements and Supplementary Data" in the Form 10-K for the year ended December 31, 2013 for further details on the Convertible Notes and the Senior Notes. We do not believe that covenants in the indentures governing the Convertible Notes and the Senior Notes are reasonably likely to limit our ability to obtain additional debt or equity financing should we choose to do so during the next 12 months. 49 -------------------------------------------------------------------------------- Capital Expenditures and Investments A component of our long-term strategy is our capital expenditure program, including organic growth initiatives and value-creating acquisitions. Total capital expenditures were $30.1 million and $26.0 million for the six months ended June 30, 2014 and June 30, 2013, respectively. Capital spending during the six months ended June 30, 2014 included spending on major projects at our Spokane (Trentwood), Washington facility, including a new casting complex to expand our rolling ingot capacity and reduce costs and a project to further expand heat treat plate capacity. Other projects include capital upgrades at several of our extrusion facilities to support new automotive programs that launched in 2013 or will launch over the next few years. The rest of our capital spending was spread among our manufacturing locations on projects expected to reduce operating costs, improve quality, increase capacity or enhance operational security. In total, we anticipate capital spending in 2014 will be in the $50.0 million to $60.0 million range. Capital investment will be funded using cash generated from operations, available cash and cash equivalents, short-term investments, borrowings under the Revolving Credit Facility and/or other third-party financing arrangements. The level of anticipated capital expenditures may be adjusted from time to time depending on our business plans, our price outlook for fabricated aluminum products, our ability to maintain adequate liquidity and other factors. No assurance can be provided as to the timing of any such expenditures or as to achievement of the operational benefits expected therefrom. Dividends During the six months ended June 30, 2014 and June 30, 2013, we paid a total of $12.8 million and $11.6 million, or $0.70 and $0.60 per common share, respectively, in cash dividends to our stockholders, including the holders of restricted stock, and dividend equivalents to the holders of certain restricted stock units and the holders of performance shares with respect to approximately one-half of the performance shares. On July 15, 2014, we announced that our Board of Directors declared a cash dividend of $0.35 per share on our common stock to be paid on August 15, 2014 to stockholders of record at the close of business on July 25, 2014. The future declaration and payment of dividends, if any, will be at the discretion of our Board of Directors and will depend on a number of factors, including our financial and operating results, financial condition, and anticipated cash requirements and contractual restrictions under the Revolving Credit Facility and the indenture for our Senior Notes, or other indebtedness we may incur in the future. We can give no assurance that dividends will be declared and paid in the future. Repurchases of Common Stock See Note 6 and Note 10 of Notes to Interim Consolidated Financial Statements included in Part I, Item 1. "Financial Statements" of this Report for disclosure regarding our repurchases of common stock. Restrictions Related to Equity Capital As discussed in our Annual Report on Form 10-K for the year ended December 31, 2013, there are restrictions on the transfer of our common shares. These restrictions are intended to reduce the risk that an ownership change within the criteria under Section 382 of the Internal Revenue Code of 1986 would jeopardize our ability to fully use our federal income tax attributes. Environmental Commitments and Contingencies We are subject to a number of environmental laws and regulations, to potential fines or penalties assessed for alleged breaches of the environmental laws and regulations, and to potential claims and litigation based upon such laws and regulations. We have established procedures for regularly evaluating our environmental loss contingencies. Our environmental accruals represent our undiscounted estimate of costs reasonably expected to be incurred based on presently enacted laws and regulations, existing requirements, currently available facts, existing technology, and our assessment of the likely remediation actions to be taken. See Note 7 of Notes to Interim Consolidated Financial Statements included in Part I, Item 1. "Financial Statements" of this Report for additional information regarding our environmental commitments and contingencies. Contractual Obligations, Commercial Commitments, and Off-Balance Sheet and Other Arrangements During the six months ended June 30, 2014, we granted additional stock-based awards to certain members of management and our non-employee directors under our equity and performance incentive plan (see Note 6 of Notes to Interim Consolidated Financial Statements included in Part I, Item 1. "Financial Statements" of this Report). Additional awards are expected to be made in future years. In accordance with our funding obligation to the VEBAs (see Note 5 of Notes to Interim Consolidated Financial Statements included in Part 1, Item 1. "Financial Statements" of this Report), we paid $16.0 million to the VEBAs during the first quarter of 2014 with respect to 2013. 50 -------------------------------------------------------------------------------- With the exception of the above-mentioned transactions and as otherwise disclosed herein, there has been no material change in our contractual obligations, commercial commitments, off-balance sheet or other arrangements other than in the ordinary course of business since the end of fiscal 2013. See Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year ended December 31, 2013 for additional information regarding our contractual obligations, commercial commitments, and off-balance-sheet and other arrangements. Critical Accounting Estimates and Policies Our consolidated financial statements are prepared in accordance with GAAP. In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events, and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material. Our significant accounting policies are discussed in Note 1 of Notes to Consolidated Financial Statements included in Part II, Item 8. "Financial Statements and Supplementary Data" of our Annual Report on Form 10-K for the year ended December 31, 2013 and Note 1 of Notes to Interim Consolidated Financial Statements included in Part I, Item 1. "Financial Statements" of this Report. We discuss our critical accounting estimates in Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year ended December 31, 2013. There has been no material change in our critical accounting estimates and policies since December 31, 2013. New Accounting Pronouncements For a discussion of all recently adopted and recently issued but not yet adopted accounting pronouncements, see "New Accounting Pronouncements" in Note 1 of Notes to Interim Consolidated Financial Statements included in Part I, Item 1. "Financial Statements" of this Report. Available Information Our website is located at www.kaiseraluminum.com. The website includes a section for investor relations under which we provide notifications of news or announcements regarding our financial performance, including Securities and Exchange Commission (the "SEC") filings, investor events, and press and earnings releases. In addition, all Kaiser Aluminum Corporation filings submitted to the SEC, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and Proxy Statements for our annual meeting of stockholders, as well as other Kaiser Aluminum Corporation reports and statements, are available on the SEC's web site at www.sec.gov. Such filings are also available for download free of charge on our website. In addition, we provide and archive on our website webcasts of our quarterly earnings calls and certain events in which management participates or hosts with members of the investment community, and related investor presentations. The contents of the website are not intended to be incorporated by reference into this Report or any other report or document filed by us, and any reference to the websites are intended to be inactive textual references only. Item 3. Quantitative and Qualitative Disclosures About Market Risk Our operating results are sensitive to changes in the prices of primary aluminum and fabricated aluminum products, and also depend to a significant degree upon the volume and mix of all products sold. As discussed more fully in Note 8 of Notes to Interim Consolidated Financial Statements included in Part I, Item 1. "Financial Statements" of this Report, we have historically utilized hedging transactions to lock in a specified price or range of prices for certain products which we sell or consume in our production process and to mitigate our exposure to changes in energy prices and foreign currency exchange rates. Aluminum Our pricing of fabricated aluminum products is generally intended to lock in a conversion margin (representing the value added from the fabrication process(es)) and to pass metal price fluctuations to our customers. Accordingly, fluctuations in underlying aluminum prices generally have no material impact on our earnings or cash flow. 51

-------------------------------------------------------------------------------- In certain instances, we enter into firm-price arrangements with our customers for stipulated volumes to be delivered in the future. Because we generally purchase primary and secondary aluminum on a floating price basis, pounds that we have committed to sell to customers under such firm-price arrangements create metal price risk for us. We use third-party hedging instruments to limit exposure to metal price risks related to firm-price customer sales contracts. Total fabricated products shipments during the six months ended June 30, 2014 that contained firm-price terms were (in millions of pounds) 68.5. At June 30, 2014, we had customer sales contracts for the delivery of fabricated aluminum products pursuant to firm-price arrangements for the remainder of 2014 and 2015, totaling approximately (in millions of pounds) 49.3 and 4.3, respectively. Based on the aluminum derivative positions held by us to hedge firm-price customer sales agreements, we estimate that a $0.10 per pound decrease in the LME market price of aluminum, with all other variables held constant, would have resulted in unrealized mark-to-market losses of $4.3 million and $6.4 million on June 30, 2014 and December 31, 2013, respectively, with corresponding changes to the net fair value of our aluminum derivative positions. The balances of such financial instruments may change in future periods, and therefore the amounts discussed above may not be indicative of future results. Foreign Currency. Our primary foreign exchange exposure is our operating costs of our London, Ontario facility. A 10% change in the Canadian dollar exchange rate is estimated to have an annual operating cost impact of $2.1 million. Additionally, on occasion cash commitments for equipment purchases denominated in foreign currencies create foreign currency exchange rate exposure, and we generally hedge such exposure with foreign exchange forward contracts. Our foreign currency hedging transactions have been immaterial. Energy. We are exposed to energy price risk from fluctuating prices for natural gas and electricity. We estimate that, before consideration of any hedging activities and the potential to pass through fluctuations in natural gas and electricity prices to customers, each $1.00 change in natural in natural gas prices (per mmbtu) and electricity prices (per MWH) impact our 2014 annual operating costs by approximately $4.0 million and $0.3 million, respectively. We, from time to time, in the ordinary course of business, enter into hedging transactions with third parties to mitigate our risk from fluctuations in natural gas and electricity prices. As of June 30, 2014, financial derivative positions had substantially reduced our exposure to fluctuations in natural gas prices for approximately 88%, 82% and 30% of the expected natural gas purchases for the remainder of 2014, 2015 and 2016, respectively. We estimate that a $1.00 per mmbtu decrease in natural gas prices would have resulted in unrealized mark-to-market losses of $6.1 million and $6.5 million on June 30, 2014 and December 31, 2013, respectively, with corresponding changes to the net fair value of our natural gas derivative positions. As of June 30, 2014, financial derivative positions had substantially reduced our exposure to fluctuations in electricity prices for approximately 46% and 45% of the expected electricity purchases for the remainder of 2014 and 2015, respectively. We estimate that a $5.00 per MWH decrease in electricity prices would have resulted in unrealized mark-to-market losses of $1.4 million and $1.9 million on June 30, 2014 and December 31, 2013, respectively, with corresponding changes to the net fair value of our electricity derivative positions. The balances of such financial instruments for hedging of natural gas and electricity may change in future periods however, and therefore the amounts discussed above may not be indicative of future results. Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures. We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934 is processed, recorded, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and that such information is accumulated and communicated to management, including the principal executive officer and principal financial officer, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures was performed as of the end of the period covered by this Report under the supervision of and with the participation of our management, including the principal executive officer and principal financial officer. Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of June 30, 2014 at the reasonable assurance level. 52 -------------------------------------------------------------------------------- Changes in Internal Control Over Financial Reporting. We had no changes in our internal control over financial reporting during the quarter ended June 30, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 53 -------------------------------------------------------------------------------- PART II - OTHER INFOMRATION


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