Good day, and welcome everyone, to the Kaiser Aluminum ThirdQuarter 2007 Earnings Results Conference Call. Today's call is being recorded. At this time for opening remarks and introductions, I wouldlike to turn the call over to Mr. Geoff Mordock. Please go ahead, sir.

Good afternoon everyone, and welcome Kaiser Aluminum's thirdquarter 2007 earnings conference call. If you've not seen a copy of today'searnings release, please visit the Investor Relations page on ourkaiseraluminum.com Web site. We've also posted a PDF version of the slides thataccompany this call. Joining me today are Chairman, President and Chief ExecutiveOfficer, Jack Hockema, Executive Vice President and Chief Financial Officer,Joe Bellino, Vice President and Treasurer, Dan Rinkenberger and ChiefAccounting Officer, Lynton Roswell. The information contained in this presentation includesstatements based on management's current expectations, estimates andprojections that constitute forward-looking statements within the meaning ofthe Private Securities Litigation Reform Act of 1995. Such statements include statements regarding the company'santicipated financial and operating performance, relate to future events andexpectations and involve known and unknown risks and uncertainties. For a summary of specific risk factors that could causeresults to differ materially from those expressed in the forward-lookingstatements, please refer to the company's earnings release for the quarterended September 30, 2007 and reports filed with the Securities and ExchangeCommission including the company's Form 10-Q for the quarter ended September30, 2007, and Form 10-K for the year ended December 31, 2006. All information in this presentation is as of the date ofthe presentation. The company undertakes no duty to update any forward-lookingstatement to conform the statement to actual results or changes in thecompany's expectations. Non-run rate items to us are items that, while they mayoccur from period to period are, one, particularly material to results, two,impact costs as a result of external market forces, and three, may not reoccurin future periods at the same level of underlying performance were to occur. These are certainly part of our business and operatingenvironment but are worthy of being highlighted for the benefit of the users ofour financial statements. Management's intent is to neutralize the FabricatedProducts segment from fluctuations in underlying metal prices. We characterize metal profits and LIFO charges as non-runrate items that eventually offset to a great extent over the course offull-year. Further, presentations including such terms as net income oroperating income before non-run rate are not intended to be and should not berelied on in lieu of the comparable caption under Generally Accepted AccountingPrinciples, or GAAP, to which is reconciled. Such presentations are solely intended to provide greaterclarity of the impact of certain material items on the GAAP measure and are notintended to imply such items should be excluded. I would now like to turn the meeting over to Jack Hockema,who will provide overall commentary on Kaiser Aluminum. At the conclusion ofthe company's presentation we will allow for questions and answers. Jack?

Thanks, Geoff. As Geoff mentioned, you may follow ourremarks by viewing the slide presentation on our Web site at kaiseraluminum.com.My remarks begin with a brief overview on slide five. Our organic growth program has strong momentum. The $139million Trentwood expansion remains on schedule and is making a significantcontribution to improved results, and activities are under way on $91 millionof initiatives to achieve improved efficiencies within our rod, bar and tubevalue streams. Our financial condition is strong and improving and we havesignificant financial capacity to fund additional growth initiatives. Ourfinancial results this year are a step change compared to prior year and theTrentwood expansion is a key element driving the improved results. Slide six provides an overview of the Trentwood expansion.The first phase of the expansion became fully operational early this year, andas mentioned on the prior slide, the year-to-date results reflect significantbenefits from this investment. The second phase is scheduled to be fully operational earlynext year, and the third phase is scheduled to be fully operational late nextyear. We anticipate that heat-treat plate output in 2008 will be impacted byplanned heat-treat furnace downtime related to Phase III construction,scheduled for mid-year 2008. Slide seven summarizes the $91 million investment programwhich has a focus on improving efficiencies within our rod, bar and tube valuestreams. Our Web site has more detailed information illustrating the rationalfor these investments. We expect the program to be fully implemented by the endof 2009. Turning to Page eight, we reported consolidated operatingincome of $139 million for the nine months year-to-date, up 88% from prioryear. Record operating income from our core Fabricated Products businesssegment was driven by benefits from the Trentwood expansion. The record Fabricated Products results was achieved despitesoft ground transportation and general industrial demand and service centerdestocking of rod and bar. Joe will provide additional color in his remarks, whichfollow.

Thanks, Jack. We are pleased to have reported that ouroperating income for the first nine months of 2007 was $139 million. Wegenerated $89 million in cash flow from operations, which has funded ourcapital spending of $43 million, primarily at our Trentwood facility. In 2007 we have continued to strengthen our balance sheet.Turning to slide 11. Our net sales on a consolidated basis for the first ninemonths of 2007 was $1.14 billion, up 12% over last year. We have continued tobenefit from favorable product mix and value added pricing and in addition fromhigher underlying metals prices. Total Fabricated Products shipments were up 3% year-to-date.Shipments of heat-treat plate were up significantly compared to the first ninemonths of 2006, and this is what contributed to the richer product mix. On slide 12 we discuss net income results. Net incomeyear-to-date was $77 million, and it reflects strong results in both FabricatedProducts and Primary Products segments. Net income included an effective taxrate of 46%. When taking into account the use of tax attributes in theincome statement, the cash tax rate would have been approximately 11%. Weexpect this 11% rate to continue in the fourth quarter and the full-year aswell. Our 10-Q provides more details. On slide 13; we discuss operating results, which we believeprovide a more meaningful metric for making period-to-period comparisons.Operating income of $139 million for the first nine months of 2007 include $21million in non-run rate items. Operating income before these non-run rate items improved66% year-over-year, from strong results in both Fabricated Products and PrimaryProducts. On the slides, which follow, we'll discuss the financial performanceof our three reporting segments in more detail. In Jack's earlier comments, he noted that quarterly andyear-over-year results were a step change from prior year. This is reflected inviewing our Fabricated Products results on slide 14. Our reported segment…

Thanks, Joe. Slides 18 through 20 address the near-termoutlook for the company. Aerospace plate demand is robust but the ramp-up indemand is slower than anticipated. However, strong demand for armor plate isexpected to cushion the impact. Our current view is that the weakness in groundtransportation and general industrial markets will continue into the first halfof next year. And although the destocking by service centers may continue inthe fourth quarter, rod and bar inventories are currently at historic lows. Weanticipate a swing to restocking when industry demand eventually begins to strengthen. Slide 19 translates the market environment to Kaiser'ssituation in Fabricated Products. Although there is some downward pressure onspot prices for heat-treat plate, we expect that our very rich price and mixfor heat-treat plate will continue into the first half of 2008. As indicated in my earlier remarks regarding the Trentwoodexpansion, we anticipate that 2008 output will be impacted by plannedheat-treat furnace downtime related to Phase III construction scheduledmid-year. Our expectation is to operate at approximately 95% of the Phase IIcapacity during the full year of 2008, with output increasing toward the end ofthe year. Soft demand in other products is exerting some competitivepressure on prices, although the impact has been relatively isolated. We expectnormal seasonality. In the fourth quarter that means fewer customer work days,but it also means that we are approaching the seasonally strong first half. Planned major maintenance costs are expected to be high inthe fourth quarter, but as we experienced in the third quarter, may bepartially offset with improved manufacturing cost performance. Slide 20 addresses the near-term outlook for PrimaryProducts. The fourth quarter result before non-run rate items is expected to beconsistent with the year-to-date trend. Looking into 2008, we will not enjoythe benefit from currency hedges that have had a favorable impact on 2007results. At the prevailing exchange rate in the third quarter, thegain from currency hedging averaged approximately $1 million per month. We alsoanticipate that unfavorable 2008 impact from freight costs on shipments ofalumina to the Anglesey smelter. We expect to experience higher freight costsof approximately $1 to $2 million per quarter beginning in April of 2008. Slide 21 summarizes today's report. We recorded anotherstrong quarter and excellent year-to-date financial results. Businessconditions through the first quarter, fourth quarter and into 2008 are expectedto be similar to what we've experienced so far in 2007 with normal seasonalityand the potential for softening in prices for certain products. The organic growth program has momentum and is alreadydelivering results. The $139 million Trentwood expansion is scheduled todeliver another step change in heat-treat capacity in 2008 and an additionalstep change in 2009. And the $91 million rod, bar and tube initiative is underway and is scheduled to deliver significant financial benefit by 2010. Ourfinancial condition is strong and improving and we have financial capacity tofund additional growth initiatives beyond the $230 million organic growthprogram. We will now accept questions.

(Operator Instructions) We'll take our first question fromTony Rizzuto with Bear Stearns.

Hi, Jack and Joe. How are you guys doing?

Good, great. Thanks, Tony.

Good. Regarding your commentary, guys, on the aerospace anddefense related applications increasing at a slower rate than anticipated, isthis due to the carryover of the A380 or other factors?

I would say it's primarily the A380 delays.

Are you seeing in any way, Jack, anything related topotential delays and, certainly the six- month delay in the 787 program?

We've not seen anything tangible. Obviously, in terms oftotal demand, it'll have some impact, but we don't anticipate it's anywherenear the magnitude of the A380.

In regards to the planned production interruption you'retalking about for mid- '08 when you come on with the Phase III construction,can you give us an idea of the magnitude of the impact on the heat-treat? Youmentioned for the full-year you're going to get 95%.

Yeah.

So can you be a little bit more specific perhaps in terms ofquantifying the impact?

Yeah, I would model it, if I were you folks, I'd model it inthe 90% to 95% range during the first three quarters and we think it'll berelatively consistent quarter-to-quarter. So it'll be ramping up in the firstquarter, then we'll have the production interruptions in the second and thethird quarter, and then operating in the 95% to 100% range in the fourthquarter. So it's not huge, a huge step down in the first threequarters from that 95% rate but it'll be slightly below that.

Now, also in regards to Trentwood, is it fair to assume thatthere are going to be higher incremental margins once you've gone beyond thesecosts related to the expansion? Would it be fair to say that there'll be higherincremental margins on the remaining two phases? I'm wondering how you're doingon the certification process with the thicker gauge plate?

We're doing well on the certification process. Some isactually already certified, but it's a lengthy, elaborate process that we gothrough. But the certifications are going very well and we expect to be fullycertified on everything by the end of the first quarter. The other question wasrelated to margins.

That's right.

In my comments, and let me go back to what I've been sayingfor the past three or four calls here, you'll recall I said late last year thatwe had, we expected exceptionally rich margins on heat-treat plate as weentered the first quarter and we experienced that. We didn't think those were sustainable. But we've prettywell sustained those through this year. And as I said in my remarks, we seethose being sustained into, even though we're seeing some pressure on prices,our total mix, we see that being sustained well into the first half of nextyear. But I'll stick with my comments that we do not expect thatmargins, when we look at our total mix of customers and products, we do notexpect to see those improving over time from what we've experienced this year. They continue to be extremely rich and it would be verydifficult to sustain these kinds of margins for the long-term and we certainlydon't expect to see an up tick in our margins going forward from where we aretoday.

All right, Jack. Just to follow-up on that, when I'mthinking about the thicker gauge plate and the costs involved in the hot stripmill and so on and so forth, to produce the three-inch plate seems to me therewould be more costs involved. So maybe part of what you're saying, I want to make sure Iunderstand this correctly, while there could be some downward pressure onpricing, and we've had a very good period of pricing for heat-treat, you know,maybe it's fair to say that the costs involved in producing a thicker gaugeplate might enable margins to be very similar overall. Is that a fairassessment?

Well, that could be but that's a very small portion of theequation. The bigger portion of the equation is the mix of products andcustomers that we sell, and I think we actually have a slide in the appendixhere, but it's a slide that we also show when we go out on the road, thatcharacterizes the shift in our mix, our spot and our contract mix, whichhistorically has been around 50-50, gravitating toward an 80-20. And we have come off a period here or we are still in aperiod, although we have seen some softening in spot prices, but we have hadexceptionally strong spot pricing. So the bad news is also the good news. As we go forward, we do not expect that we'll see acontinuation of the very rich spot prices that we've had over the past year toa year and a half, but that's the bad news. The good news is that our businessis shifting more dramatically to contract versus spot, and that puts a muchstronger floor under the margins that we will experience as the market beginsto loosen up a little bit. So it's really that whole, the character of the contractsversus spot and the total spot impact on our mix is the reason that I'vecontinued to characterize that our total mix of heat treat plate, price andmix, has been exceptionally rich here and we think it will be difficult tosustain that. I understand everyone on the outside looking at this looksat the heavy gauge plate and the implications of that, and while that'spositive, it's really the impact of spot prices as it applies to our total mixof products.

Right. And certainly we understand that you are moving tothe 80% kind of long-term contract spot. I have one final question here andthen I'll turn it over to others. But in regards to the rod, bar and tubeinvestment project, you kind of stated in the release, the intensive work beingdone. Is it reasonable to anticipate some of the economic benefitsprior to 2010?

Yes, but it will be very small. The bulk of it will start tocome in late 2009 and be fully realized by 2010. But yes, we will have some, wehave, one's relatively small project at Los Angeles that will be up and runningby the middle of next year and so that will start to generate some impact, butit won't be enough to move the needle in terms of total results. And then the Chandler will start to come on in early 2009and then the bigger project, the major rod and bar mill will be late 2009.That's the big impact.

Okay. So if you had to, we were thinking about trying toestimate on a percentage basis in terms of some of the numbers that you kind ofguided us to in the previous quarter in terms of the returns on the project,would it, it sounds like it could be maybe a 30/70 split?

Well, not even that much.

Not even that much?

Yes, I'm going to get into dangerous territory here but I amgoing to go there. In terms of second half next year, we're talking less than10% of the total return, probably closer to 5 than 10%. And then as we get andit'll start to ramp up slowly in 2009, but the preponderance of it starts tohit very late 2009. So in terms of modeling it, it's almost, you could almostignore it until you get to late 2009.

And would you expect there to be any dislocation as you guysare making these efforts and modernization efforts and so on and so forth?

We think it will be very modest. I think we've said beforethat we would expect any write off impacts to be less than $10 million,certainly single digits, and I think looking at it today, we think it would beconsiderably less than that.

All right. Great. Thanks very much.

So we don't expect any big impacts. There may be some smallones in terms of negatives. And most of the positive impact will be late 2009.

Appreciate you providing a lot of color. Thank you.

Thank you, Tony.

(Operator Instructions) We will go next to Timna Tannerswith UBS.

Good morning.

Good morning, Timna.

Good morning, Timna.

Thanks for the great detail. Wanted to just follow up withtwo questions. One on the discussion that we already went through a bit on thecomment on softening demand or at least the slower pace than expected onaerospace and defense demand. What does that mean for contracts if anything going out tothe extent that have you them and if you could remind us or give us an updateon the extent of your contracts?

Sure. Let me take a step back. In terms of contracts, wehave contracts with a number of customers and just about every contract or, infact, every contract is unique, and it ranges all the way from contracts thatare firm volumes and firm prices extending over a period of years, to contractsthat have options on capacity. And typically those options have min maxes and typically thecustomer has to declare, while it's a multi year contract, typically a customerwould need to declare a year ahead of time what kind of volume they expect totake over that next year. So the answer is, it depends and some customers next yearwould not be taking their maximums, but again, that's what we've said allalong, that our capacity is fully committed but that doesn't mean it will befully used. However, the spot market is strong enough that at this point, we'revery confident that we will run at capacity next year. And as I said, it'll be about 95% of capacity because of theconstruction interruptions. But we expect we'll sell every pound that we canproduce through our heat treat operations next year.

Okay. So the customers that had been lined up for thetonnage on the contracts are not necessarily taking all of the tons in the timeframe they had initially anticipated but the difference will be made up by thespot market?

Well, yes, it'll be made up by the spot market but also, again,remember, the customers give us min maxes and someone who wants an option oncapacity we price that very differently than someone who gives us a firmcommitment to take the production. So, did we expect that everyone would take the absolutemaximum of their contract every year? No, because someone who puts a min maxin, you would think they've given themselves some cushion on the top end of therange. We think it will be normal year-by-year that we could seesome erosion from the absolute maximum on the contract volumes.

That makes sense. Okay. And then the other question I wantedto explore with you is when we look at your balance sheet, certainly, you'renow net cash even with a pretty strong CapEx program. So I was wondering if youcould review for us the way you think strategically about priorities for cashuse?

Well, our first priority is growth and we have acted on thatwith substantial cash allocated to organic growth. We think we have used up mostof that opportunity, although we continue to search for other good organicgrowth opportunities, because those generally have the best return. We're shifting our focus now to acquisition growth. Wecontinue to believe that we're a very good platform for acquisition growth andwe expect that we will be funding acquisitions as we move forward as well. But then beyond that, if in fact we have excess cash and wedon't believe that there will be good opportunities, enhancing shareholdervalue with investments, we would then look to other alternatives to returnexcess cash to the shareholders, be that dividends. And we already have a regular dividend, but dividends ofsome sort, as well as stock repurchases. And there are some restrictions on ourability to repurchase stock in order to preserve the NOLs, but there could beopportunities to do stock repurchases as well as dividends. Although I come back and say, the board's view andmanagement's view is we hope that we use the excess cash that we have for goodinvestment opportunities, either organic or acquisition growth.

What type of investments might be attractive to you thistime or what type of acquisitions? Is there perfect markets or geographies thatyou are targeting?

Well, in terms of geographies, our first priority is assetsthat generate U.S. income, because we have a very attractive set of taxattributes that shelter the income and so it gives a boost to the return onU.S. income investments. That does not mean, however, that we won't make investmentsin foreign income if those are strategically attractive investments. And interms of the businesses that we're looking at, we're looking for businessesthat have synergy with the existing businesses that we are in. So we would look for like businesses or those that arelogical extensions to our current business frame.

Great. Thanks very much.

And we'll go next to Meryl Witmer, with Eagle Capital.

Hi, guys. Good quarter.

Good morning, Meryl.

You always talk about the stock market and I think, I don'tknow if you said it on this call but in other conversations how it's near or athistorical highs. I was just wondering if you've ever done any adjustments forthe change in the cost of other variable costs, like labor, gas andelectricity, today versus back in the prior peak?

You mean in terms of the impact on margins?

Well, just, I mean, the way it basically works as you buythe aluminum, you do something to it, it costs you a certain amount and therest is gravy, yes. So in other words, the gravy portion, is it just as largeas it was back at the prior peak or has, like, increases in gas prices andlabor and electricity eaten into the gravy portion? On a dollars per poundbasis, not even on a percentage margin.

Yes, when we look at the value added revenue, which is therevenue in excess of the price of aluminum ingot, our total mix, and this isspot as well as contract, because we don't separate it out, but when we look atthat total spread and the value over our typical cost, it's at the prior peakand the prior this peak has lasted for several quarters. The last peak that wesaw was 1998 and it spiked up for a few months and then immediately collapsedinto 1999. So the spreads are at historic levels. In terms of those other costs, and I don't know if we'veused this sound bite with you or not, Meryl, but we've spoken to the impact ofour Kaiser production system and while its major benefits are in terms ofquality and delivery and lead time. We've also been very successful in offsetting inflation inour costs and, in fact, Trent wood in particular has offset inflation and costsas well as reducing costs over time to the tune of 2% or 3% per year compoundreduction in cost compared to inflation. So in terms of impact on us specifically, we have very, veryrich margins, even considering inflation, because we've pretty much offsetthose with reductions in our costs over time, if that answers the question.

Partially, at least, and maybe fully. Is that the labor costyou're speaking about or even the other for gas and electricity?

It's everything, although energy we separate out. We don'tcall that a controllable cost but, so, we separate out energy. But I would sayeven including energy, given the magnitude of the cost reduction that we've hadon plate, or at Trentwood in total over time, I'd say we've more than offsetinflation including everything over the past 10 years.

Okay. That’s here would others have been able to have thesame kind of a labor offset? Because I guess…

Not necessarily, and again, we're not just looking at labor;we're looking at all costs, the total controllable cost equation.

How much have is there a way to give a rough estimate of howmuch the energy part has gone up on a, or down on a per pound basis from peakto peak?

There is, but I wouldn't venture there off the top of myhead.

Is that something we can give you a ring on, just out of anitem of curiosity?

I'm looking at my experts here. Yes, give us a call. We'llhave to research it with everybody and see what we can disclose and how wewould disclose that.

Yeah, but every time we've done a lot of work in cement, wehave sort of the rules of thumb, every pound of cement you need a certainamount of gas, a certain amount of electricity.

Yes.

And I assume there is some rules of thumb with aluminum.

Yes. Well, it depends by product. But yes, we have that andI don't have it at the top of my head.

Okay. All right. Great. Thank you.

(Operator Instructions) We'll go to Tony Rizzuto with BearStearns.

Thanks again for taking my question. Apologize about myvoice today, gentlemen, I've got a cold I'm just fighting. Got a question onthe smelter, is there any update on the viability of a smelter, were there anyinroads that have been made into extending the power contract?

No new news to report there. We continue to work that hard.When I say we, I'm talking the joint venture between Rio Tinto and us inAnglesey. The landscape is a little more positive today with the newadministration in the U.K. and their view on nuclear power. So if you would ask us to put probabilities on it, and I'mnot going to do that, but I would put a higher probability of success todaythan we would have 6 to 12 months ago. So we continue to work it hard. Is there a chance that we'll be able to extend the life ofthe smelter? Yes. But do we have anything concrete that we're planning on orthat anyone, any investor should plan on? The answer is no at this point.

Just to refresh my memory, I mean, the electricity supply isfired by nuclear reactor, correct?

That's correct.

All right.

And that's the issue. The Blair administration was intent oneliminating the nuclear power and basically had given us a decision that thelife of that plant would not be extended. It's under review again, but again,that doesn't mean that the life will be extended.

All right. And I just wanted to ask about your aluminacontract. If the power situation were to become more favorable, an extension,do you anticipate any problems? Like could you easily extend the aluminacontract from a supply standpoint and would that do you see any issues there?

No, we think we would be okay in terms of alumina. Thecritical issue is simply the availability to power.

Okay. And on the alumina side, should we be assuming forpurposes of modeling, 11% to 12% kind of index to metal, is that fair?

I'm looking here. Have we put the alumina price in the 10-Q?

We haven't.

Yes, it's in the mid-12s.

Mid-12s?

Yes. And it's consistent in '08 with what we've had in '07.

Okay. Very good. And the other question I have is yourcomments, Jack, on the uses of cash and you sounded like you felt you hadexhausted a lot of the exceptional investment opportunities, organic-wise, butshould we rule out any further incremental expansions at Trent wood? When I was out there, at least my impression was you had thecapability to incrementally expand perhaps with much less capital.

No, it should not be ruled out but, again, I'll replay thescenario here. We had the Phase I and then demand was overwhelming and wequickly moved to a Phase II. In Phase III, the genesis was announcement by orconcerns, public concerns, expressed by customers early this year that industrycapacity was insufficient and we went into a full court press with our entirecustomer base, which led then in the second quarter to an announcement of PhaseIII. But at this point, we believe our capacity/industry capacityis pretty well sufficient to satisfy demand over the next few years. However,should that change, or should specific customers come to us with a need, wecertainly believe that we're as well positioned or better positioned thananyone to meet that need with capital efficient capacity.

If you strictly look at narrow body, I mean, we've watched,obviously, in recent days and we've seen the Middle Eastern carriers andQuantas announced some very, very substantial orders for the A320 as well asthe Boeing 737-700, Could you give us an idea of what percentage of yourcurrent mix on the commercial side those aircraft would comprise?

I don't know that and I'm not sure my marketing people evenknow that. I mean, in the same plate is basically used in all aircraft. So whenwe have a bid with a Boeing or an Airbus or any other airframe manufacturer,they just give us a stock list of various plate sizes that they buy and wedon't know which specific aircraft in most cases those products go into. So from our view, we look at what are the aircraft beingbuilt and how much plate in total do we think is consumed by each of thoseaircraft. That's how we come up with our view of the size of the total marketand the growth of the total market.

Okay. Just a final question I mean, are their anydevelopments on the supply side for heat-treat that have occurred here? Anyincremental changes or announcements that have changed your view on therelative level of equilibrium?

None that have changed my view. Again, the only one ofconsequence I know of was our announcement in the third quarter and that was inresponse to customers concerned about the sufficiency of industry capacity andwe think we addressed that thoroughly, but again, who knows, things change inthis business and change rapidly. If there's another opportunity we'll move onthat opportunity.

All right, Jack. Thanks very much.

Thanks, Tony.

We'll go next to Timothy Hayes with Davenport & Company. Timothy Hayes - Davenport & Company: Good day, gentlemen.

Good morning. Timothy Hayes - Davenport & Company: Just one question on corporate expense. Saw that there wasabout $3 million less year-over-year. What should we be looking for as a runrate there?

We enjoyed a good quarter, Tim, and we put some additionalcolor in our MD&A. We had some lower tax services expenses and we also hadsome favorable medical cost experiences. It's probably not necessarilysustainable. I'll caveat that and we'll probably put it in our 10-K isthat we're finishing up our first full year of Sarbanes-Oxley compliance andthe costs with the integrated audit as well as some outside services, we thinkare front-loaded in this year. I think we said all along, we think that it ought to betrending down by $1 million, $1.5 million per quarter going into the next yearsand we'll be able to sustain that, net of the non-cash compensation expenseswhich are separate grants. Timothy Hayes - Davenport & Company: Very good. Thank you.

You're welcome.

We'll go next to Dan Whelan with Bear Stearns.

Most of my questions have been asked but just to touch backon the potential for acquisitions again, it sounds like just to take advantageof your tax position that you're maybe targeting domestic based acquisitions,but is it also fair to say that maybe to diversify your end market exposurethat you're looking at other end markets as well? It seems by the time we getout to '09, you know, maybe three-fourths of EBITDA could be aerospace related.

Well, I'll come back and say we're looking for relatedbusinesses and yes, we want to keep a diversified mix of end use products, butwe also believe we have a very strong position in aerospace so we certainlywould not rule out attractive acquisition as it relates to aerospace. So the answer is, we're going to go where there are goodsynergistic acquisition opportunities either in existing markets or other enduse markets where we don't currently participate but where we have technologiesor capabilities where we believe we can bring value. So I've left the fieldwide open there. Sorry.

Okay. Fair enough. Tough question.

We'll go next to Ron Silverton with Asgard.

Good morning, gentlemen. And congratulations on a solidquarter.

Thanks Ron.

A couple of q's. First off, the CapEx number, you guys hadpreviously guided for a CapEx for the year and it looks like you've only spentabout half of that so far. Maybe less than that.

We have guided, we have a corporate overview that we justposted also today. It's under Our Events. We have said we're going to spend approximately 80 to $90million this year in Cap Ex, while we've through three quarters spent $43million and we've said next year $80 to $90 million. That contemplates uscontinuing to build out phases and make down payments on certain things relatedto equipment at Trentwood and also it contemplates payments for our greenfieldsite. Most of that 80 to 90 will occur in '08 for that. So as we look at it we have a, as we look at our CapEx wehave about normal capital ex of growth for announced large projects of about$15 million a year, which is about similar to our currently calibrateddepreciation and then the rest is for growth. And the way we've spread it out is, again, just tosummarize, the balance of this year we'll continue to spend some monies on theTrentwood expansion, some for Phase III, as well as some down payments on thegreenfield site. And then next year a bulk of the spending will be the $15million plus a larger portion of spending for the greenfield site and then thefinal chunk of the Trentwood expansion.

Okay. I guess I was just a little surprised that it was solow right now given the amount of, you know, $139 million allocated for theTrentwood expansion, I would've thought the bulk of that, certainly, for PhaseI and Phase II would already be, already been spent given where you are …

I don't have the exact numbers with me right now and we'llprobably clarify that at year-end. But the expansion began, the original downpayments began in '05 and we did spend a considerable amount of money in '06 onTrentwood. So we've spent more than half and probably about 65 to 70% of ourtotal $139 million on Trentwood already. It's either in construction processorit has been capitalized.

Okay. And then apologies, I haven't had the chance to gothrough the Q and the MD&A section closely, obviously there's a little bitof commentary in your presentation here. But can you talk a little bit more about why we saw theoperating margin per pound drop this quarter? As you've talked about, clearly,it's a good number versus historically and certainly nothing to complain about,but just perhaps give a little more color around what's happening there.

We provide color in our overview with some backup slides. Weprefer to look at operating income per pound. It's before non-run rate items. Ibelieve if you looked at that, you would find that our income per pound in thethird quarter was very similar to our first half average.

Okay. Well, I guess, you know, it was $0.33 in the secondquarter, down to $0.29 this quarter and I was just really trying to understandwhat the drivers were behind that.

That's before non-run rate?

That's after …

Looking at reported.

No, no, I'm making all the usual adjustments.

We haven't analyzed that. It would be dangerous for us to gointo that territory because, frankly, we don't manage the business on thatbasis. But if you were to pin me down, I'd say that our mix may have changed alittle bit. That's a portion of it. That's a portion of it. And theother portion is we had higher major maintenance costs in the third quarterthan we had in some prior quarters. But again, we'd have to do some research onthat. We don't analyze it that way.

We focused on the year-to-date number of $0.31.

As clearly a tremendous year-over-year improvement. I'm justtrying to understand what happened in the recent quarter versus the priorquarter in terms of mix.

Let me make a point on this and again, this is, we do nothave an objective of margin per pound. We put it in there because so manyanalysts ask us about margin per pound. My goal is to drive that number down. And the reason I wantit to go down is that our lower value added products have been very soft thisyear. So it will be very good news if we move into next year and that numbercomes down because most likely it will be a consequence of strengthening inthose ground transportation and industrial markets that have relatively lowermargins per pound.

Understood, Jack. And that's part of what I'm trying to backinto because you guys are very cautious for competitive reasons but providing alots of detail on the heat-treat and even on your plate margins, so we've gotan aggregated number and I'm trying to understand what's happening withunderlying business. And, clearly, the op line number, given seasonality, yourtop line number for the quarter was very strong?

Yeah, I would, I'd characterize it as noise. I mean, when Ilook at the first half run rate versus the third quarter, what you're seeingthere is just quarter-to-quarter noise. There was not a significant change inthe business in the third quarter compared to the first half.

Okay. Would you say that the typical seasonality still holdstrue in terms of 55% of sales coming in the first half, 45% in the second half?That would apply for 2007?

Yeah, for products other than heat-treat plate and we saw,frankly, stronger shipments than we expected other than heat-treat plate in thethird quarter. We did not get as much seasonality ourselves as we typicallywould have experienced in the past.

And pricing, however, is that holding up or are you seeingreal pricing pressure outside of heat-treat?

There is some downward pressure on pricing and I think wementioned that in the Q and I know I referred to it several times in my remarkshere. But there has been some downward pressure on pricing in those groundtransportation and industrial markets.

And is that being made up for in volume? Becauseyear-over-year the difference is less than $1 million. I should say versus thethird quarter last year.

Yes, the third quarter, year-to-year, third quarter lastyear the third quarter was already beginning to deteriorate. And as I said, wehad a pretty strong third quarter in other than heat-treat plate volumes, allother things being equal.

So when I look at Slide 14, Fabricated Products, and there'sa comment there about unfavorable impact from volume and value-added price andground transport and general industrial, approximately $6 million, that wasover $5 million in the first half, so we're talking about less than $1 millionin the third quarter?

Yes.

It sounds like you guys are doing a pretty good job ofholding up in the industrial and, I guess, auto sector versus really versus theindustry. Is that a fair extrapolation or is it really volume making up a lotof difference or is the pricing just holding up really well? Or in fact,getting some increases there?

I'll put two points on it. One point is in the automotiveside, we've had some new programs launch in 2007 that have increased our share.So while we're moving with the total market and builds in automotive, we dohave some penetration in terms of new programs that we've captured. So that'sone element of it. In the truck and the trailer, I'll put a third point. Intruck and trailer, we're pretty much moving with what's happened in the marketin truck and trailer. In rod and bar, frankly, we were disappointed in oursituation in the first half of the year and in the third quarter, we had animproved position. We were back to what we would characterize as more normalmarket shares in rod and bar in the third quarter than we were in the firsthalf. So, and that's part of what you're seeing here is theautomotive new programs coming on as well as our market share got closer tonormal in the third quarter than it had been in the first half.

Got it. Again, thank you very much, gentlemen, andcongratulations on a solid quarter.

Okay. Thank you.

And we'll go next to Lee Lignos with Lakewood Capital.

Hey, guys, it's actually Rob Bledsoe. How are you doing?

Good, Rob.

So there's a few things that I want to try to clarify. One,you said you had some major maintenance in the quarter. Can you quantify that?In terms of dollars?

Yes, but not off my fingertips here. Do we quantify that inthe Q?

Yes.

It's a few million dollars. Yes, it's in the $3 to $5million range.

Okay. And then you talk several times in your presentation,your press release, your commentary about step change in '08 and '09 and I'massuming, I guess, even in '10 when you get the rod and bar going?

That's correct.

And the other thing you say a lot is, and you've been sayingthis now since I met you and, I guess, this is just the conservativeness inyou, that you think that prices are unsustainable or unsustainable prices ormixes or whatever, you made those kind of comments for several years now. Is it possible that this kind of commodity, and I thinkMeryl was trying to kind of allude to this in her question, you have copper,which historically had been trading at $0.50, is trading at $3.50. Oil's $100,aluminum prices, just raw aluminum prices have tripled. Is it possible that with this commodity boom that we'reseeing, that this quote unquote unsustainable level of pricing might besustainable for at least quite a while until the overall market calms down? Because in talking to people like Reliance who sell theproduct, that certainly would be consistent with what they would say. I don'tthink they view this as like a one-off market. I think what they would say isthat 2006 was a year where pricing in the spot market in aerospace plate wasoff the chart. It came back to reality in '07. I suspect maybe that's what you're alluding to in some ofyour commentary. But when you look at '08 and you ask them, they say they don'tsee anything changing from '07 to '08 in that market, unless the overallcommodity markets kind of implode. Am I out of bounds thinking about it in thatrespect?

Well, first of all, in terms of the commodity markets, whenyou talk about aluminum and copper and those commodities, we pass thosethrough. So those really don't have an impact on us. We look to be neutral onthat.

No, I understand that, but they definitely, and I think thisis what Meryl was trying to get out with her question. They've got to have somekind of impact as they are the, they're part of the input cost, so is energywhich is also, I mean, oil's gone from $30 to $90. You've just had a lot of inflation in the industrial sector,generally speaking, and everybody's been raising prices across the board andeffectively that's what's happened with your product. At least that's myimpression. And what I'm trying to figure out is, is there some reasonwhy yours is going to fall of a cliff and everyone else's is going to stay skyhigh when you have a very tight supply demand characteristic, you have a hugebacklog, pent-up backlog to build airplanes that has to have this product. It just doesn't seem, I mean, to expect the prices tocontinue to go into the sky, if that's what you're trying to keep people frombanking on, that's fair, but I mean, is it fair to say that it's going to comecrashing down next week or allude to that?

No, I've not alluded to that. Let me repeat what I've said. What I've said is that we are at historically rich price andmix and we now expect that to run well into 2008. So we're expecting a similarprice and mix in 2008 to what we experienced in 2007. However, we are veryconcerned that this rich price and mix is not sustainable for the long-term. And by not sustainable, I didn't say fall off a cliff and,in fact, I'm quick to point out that what's different today versus the oldpre-expansion Kaiser is I might be saying it would fall off a cliff because Ican assure you that the prices in 2003 for Kaiser with a very high percentageof spot business were significantly lower than they are now. We don't expect any kind of a return to that because we'llhave a much higher percentage of contract business. But contract business doesnot get booked at peak spot price levels. You just don't write five toseven-year contracts on that same kind of basis. And let me add another point, because I have extrapolatedwhat's happening to our stock price when metals distributors have theirearnings calls and make comments. What is a spot market for aluminumdistributors is not the spot market for a mill. The mill, our spot customersare people like Reliance and Castle. So, we're selling to them at a mill spot price and whatthey're seeing in terms of their spot prices could be a completely differentmarket and not could be, is a completely different market. And that's why yousee in the last two quarters comments that have been made by distributors aboutspot pricing have been very different from the comments that this mill has madeabout spot pricing.

Right. Okay. That's fair. Now, with respect to the balancesheet, I mean, obviously the Company is generating a significant amount ofcash, if it continues on at this pace you're going to have enormous pile ofcash in a couple of years assuming nothing gets done with it. Is there any type of time frame that we should think of asshareholders that we should be kind of thinking about the cash pile up and alsothe fact that you have a pristine balance sheet and you have a company thatcould probably withstand some amount of leverage. So, there's a lot of excesscapital sitting there on the balance sheet if you look at it that way.

We're not going to put a time frame on it but what I willtell you is that this has high visibility with us and the board. Going back towhen we formed the new board, we developed financial guidelines where we haveminimum thresholds of liquidity and, quote, maximum thresholds of liquiditythat we believe are prudent for the capital structure of the Company. And when we exceed the maximums, so we talk about thatintently with the board about what the plans for that excess are, with again,in priority sequence, the first priority being to fund good value creatinginvestments for the Company. And then secondly, if we don't see those on the horizon,moving to ways to get that back to the shareholders either through stockrepurchases and/or dividends, be they regular dividends or special dividends.

Right. Okay.

So, the point is, we're not going to let it build to thesky. We're either going to put it to work in terms of investments or we'regoing to find a way to get it back to the shareholders. It is not our money.

That makes perfect sense. And then with respect to the stepchange commentary, can you try to elaborate a little bit more on that and whatyou mean by that? And perhaps put a little bit of a definition on it or is thatnot what you really want to do?

No, I'll do that as well as I can. In 2007, and we've beentransparent in communicating the impact of the Phase I and if you look at ourcharts, a Phase I is roughly 1.6 times our baseline capacity in heat-treatplate. So, it's clear what a 0.6 increase in capacity has meant. And then if you look at Phase II, which is put in at 2times, and we said next year we're going to operate at 95% of that, that's 1.9.So, it would suggest that the step change in 2008 has roughly 50% of the valuethat the step change in 2007 had. And then Phase III and we'll be operating at that rate in 2008,is at 2.2, so it's another 0.3. So, what we're saying is the step in 2008 isroughly half of what we had in 2007. And the step in 2009 is roughly half ofwhat we had in 2007. And then we said in 2010, we said that the rod and barinitiative would deliver the equivalent of about a 3.5 times EBITDA return on a$91 million investment, which puts that in the mid-20s.

That's fair. And then, I guess, to come back to Tony'searlier question, when we visited your plant, I think, one of the comments thatwe heard is that as the full rollout happens, there will be some improvement,as you run more volumes through the system on a relatively fixed coststructure, there will definitely be improvement in the overall margin of theoperation. Is there some reason why we shouldn't look at it that way?

We will not add overhead a proportional basis. That'scorrect.

Okay. So then there will be, that's another kind of up tickopportunity.

I think we've always said that after the investments are inplace and through our TPM and other process of lean manufacturing we could getsome capacity creep to the tune of 2 to 3%.

Right. But then, it's the capacity creep's the longer-term.I'm talking about more just as you go from 1 to 1.6 to 2.0 to 2.2, the coststructure, you're going to get whatever you want to say you're getting perpound today, the net, net effect when you have it over a more fixed coststructure is going to be higher dollar on that last incremental pound than onthe first incremental pound.

That's correct, Rob. We do have…

That's what, I think, Tony was trying to ask and I think itgot lost somewhere in there.

No, no, I agree with you. That is correct. We do have someadditional overhead required to support the significant increases in volumethat we're putting through our operations. But the punch line is, that's notgoing up nearly proportional to the amount of capacity and throughput thatwe're adding.

Right. And then I would imagine that the stretcher gives youa little bit more juice as well, just given that it's the more specializedproduct that results from that process?

I stand on my earlier comments there.

Okay. Thanks a lot, guys.

Okay. Thank you.

And with no further questions, I'll turn the conference backto Mr. Mordock for any closing remarks.

Thank you, everyone, for joining us today. An audio replayof this conference call will be available on the Investor Relations page at thekaiseraluminum.com Web side for the next 30 days. Have a good afternoon.

Thank you. And once again, ladies and gentlemen, that willconclude today's conference. We thank you for your participation, and you maydisconnect at this time.