KAISER ALUMINUM CORP, S-3, 1996-01-05

KAISER ALUMINUM CORP
S-3, 1996-01-05
PRIMARY PRODUCTION OF ALUMINUM

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 5, 1996
REGISTRATION NO. 33-

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- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

----------------
FORM S-3

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

----------------
KAISER ALUMINUM CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 94-3030279
(I.R.S. EMPLOYER
(STATE OR OTHER JURISDICTION IDENTIFICATION NUMBER)
OF INCORPORATION OR ORGANIZATION)

5847 SAN FELIPE, SUITE 2600
HOUSTON, TEXAS 77057
(713) 267-3777
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

ANTHONY R. PIERNO
VICE PRESIDENT AND GENERAL COUNSEL
KAISER ALUMINUM CORPORATION
5847 SAN FELIPE, SUITE 2600
HOUSTON, TEXAS 77057
(713) 267-3777
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

COPIES TO:
JOHN WM. NIEMAND II HOWARD A. SOBEL, ESQ.
SENIOR CORPORATE COUNSEL KRAMER, LEVIN, NAFTALIS,
KAISER ALUMINUM CORPORATION NESSEN, KAMIN & FRANKEL
6177 SUNOL BOULEVARD 919 THIRD AVENUE
PLEASANTON, CALIFORNIA 94566 NEW YORK, NEW YORK 10022
(510) 847-5790 (212) 715-9100

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after this Registration Statement becomes effective, as determined by
market conditions and other factors.

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]

If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED MAXIMUM
AMOUNT TO OFFERING PRICE PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF BE PER AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED SHARE(1) PRICE (1) FEE
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<S> <C> <C> <C> <C>
Common Stock, par value $.01 per
share............................... 10,000,000 $12.8125 $128,125,000 $44,182
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</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) on the basis of the average of the high and low
reported sales prices on December 29, 1995.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.

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<PAGE>

KAISER ALUMINUM CORPORATION

----------------
CROSS REFERENCE SHEET

(SHOWING LOCATION IN PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS OF FORM S-3
PURSUANT TO ITEM 501(B) OF REGULATION S-K)

<TABLE>
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus.... Outside Front Cover Page of Prospectus;
Prospectus Supplement
2. Inside Front and Outside Back Cover Pages
of Prospectus............................. Inside Front and Outside Back Cover Pages
of Prospectus; Available Information;
Incorporation of Certain Documents by
Reference; Prospectus Supplement
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges.............. The Company; Risk Factors; Selected
Historical Consolidated Financial Data
4. Use of Proceeds............................ Use of Proceeds; Prospectus Supplement
5. Determination of Offering Price............ Outside Front Cover Page of Prospectus;
Plan of Distribution; Prospectus Supplement
6. Dilution................................... *
7. Selling Security Holder.................... Selling Stockholder; Prospectus Supplement
8. Plan of Distribution....................... Outside Front Cover Page of Prospectus;
Plan of Distribution; Prospectus Supplement
9. Description of Securities to be Registered. Description of Capital Stock; Prospectus
Supplement
10. Interests of Named Experts and Counsel..... Legal Matters; Experts
11. Material Changes........................... Risk Factors; Selected Historical
Consolidated Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management
12. Incorporation of Certain Information by
Reference................................. Incorporation of Certain Documents by
Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................... *
</TABLE>
- --------
* Not Applicable
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JANUARY 5, 1996

PROSPECTUS

10,000,000 SHARES

KAISER ALUMINUM CORPORATION

COMMON STOCK
(PAR VALUE $.01 PER SHARE)

MAXXAM Inc., a Delaware corporation ("MAXXAM" or the "Selling Shareholder"),
may offer from time to time up to 10,000,000 shares of the common stock, par
value $.01 per share (the "Common Stock"), of Kaiser Aluminum Corporation, a
Delaware corporation (the "Company" or "Kaiser"), owned by MAXXAM. When an
offering of all or a part of the Common Stock offered hereby is made, a
supplement to this Prospectus ("Prospectus Supplement") will be delivered with
this Prospectus. The Prospectus Supplement will set forth the terms of the
offering of Common Stock, the initial offering price and the net proceeds to
the Selling Stockholder of the sale thereof.

The Common Stock is listed and traded on the New York Stock Exchange (the
"NYSE") under the symbol "KLU". The closing sale price of the Common Stock on
the NYSE on December 29, 1995, was $13 1/8 per share.

Any statement contained in the Prospectus will be deemed to be modified or
superseded by an inconsistent statement contained in the Prospectus Supplement.

SEE "RISK FACTORS" IN THIS PROSPECTUS FOR A DESCRIPTION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS IN EVALUATING AN INVESTMENT IN
THE COMMON STOCK.

-----------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

-----------

The Common Stock offered hereby may be sold directly to purchasers (including
the offering of Common Stock in connection with any offering by MAXXAM of debt
securities of its own which are convertible, exchangeable or redeemable into or
for the Common Stock, and upon conversion, exchange or redemption of any such
debt securities of MAXXAM) or through agents designated from time to time by
MAXXAM or to or through one or more underwriters or dealers. If any agents of
the Company or MAXXAM or any underwriters or dealers are involved in the sale
of Common Stock in respect of which this Prospectus is being delivered, the
names of such agents or underwriters or dealers and any applicable commissions
or discounts will be set forth in the accompanying Prospectus Supplement.

This Prospectus may not be used to consummate sales of Common Stock unless
accompanied by a Prospectus Supplement.

The date of this Prospectus is January , 1996
<PAGE>

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy
statements and other information filed by the Company with the Commission can
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the Commission's regional offices located at Seven World Trade Center, Suite
1300, New York, New York 10048, and Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials
can be obtained from the Public Reference Section of the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Company's Common Stock and 8.255% PRIDES, Convertible Preferred Stock, par
value $.05 per share (the "PRIDES") are listed on the NYSE, and reports, proxy
statements and other information concerning the Company may be inspected at the
offices of the NYSE, 20 Broad Street, New York, New York 10005.

This Prospectus constitutes a part of a Registration Statement on Form S-3
filed by the Company with the Commission under the Securities Act of 1933, as
amended (the "Securities Act"). This Prospectus omits certain of the
information contained in the Registration Statement, and reference is hereby
made to the Registration Statement and related exhibits for further information
with respect to the Company and the Common Stock. Statements contained herein
concerning the provisions of any document are not necessarily complete and, in
each instance, reference is made to the copy of such documents filed as an
exhibit to the Registration Statement or otherwise filed with the Commission.
Each such statement is qualified in its entirety by such reference.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents filed by the Company with the Commission are
incorporated by reference in this Prospectus.

(1) The Company's Annual Report on Form 10-K for the year ended December 31,
1994.

(2) The Company's Quarterly Reports on Form 10-Q for the fiscal quarters
ended March 31, June 30, and September 30, 1995.

(3) Form 8-A, filed on January 27, 1994, for registration of the Company's
PRIDES and Common Stock.

All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of any offering of the Common Stock pursuant hereto shall be
deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the date of the filing of such documents. The Company will provide
a copy of any and all of such documents (exclusive of exhibits unless such
exhibits are specifically incorporated by reference therein) without charge to
each person to whom a copy of this Prospectus is delivered, upon written or
oral request to Kaiser Aluminum Corporation at 5847 San Felipe, Suite 2600,
Houston, Texas 77057, Attention: Investor Relations Coordinator, telephone
number: (713) 267-3675. Copies of exhibits will be made for a nominal fee,
which covers the Company's copying costs.

Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or replaced for
purposes of this Prospectus to the extent that a statement contained herein or
in any subsequently filed document which also is incorporated or deemed to be
incorporated by reference herein modifies or replaces such statement. Any
statement so modified or replaced shall not be deemed, except as so modified or
replaced, to constitute a part of this Prospectus.

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<PAGE>

THE COMPANY

The Company is a direct subsidiary of MAXXAM. MAXXAM owns approximately 62.2%
of the Common Stock, assuming the conversion of each outstanding share of
PRIDES into one share of Common Stock. The Company operates through its wholly-
owned subsidiary, Kaiser Aluminum & Chemical Corporation ("KACC"). The Company
maintains its principal executive offices at 5847 San Felipe, Suite 2600,
Houston, Texas 77057-3010 and its telephone number is (713) 267-3777. Unless
the context otherwise requires, all references herein to the "Company" or
"Kaiser" include Kaiser Aluminum Corporation and its majority owned and wholly
owned subsidiaries. All references to tons in this Prospectus refer to metric
tons of 2,204.6 pounds.

Kaiser, through KACC, operates in all principal aspects of the aluminum
industry--the mining of bauxite (the major aluminum-bearing ore), the refining
of bauxite into alumina (the intermediate material), the production of primary
aluminum, and the manufacture of fabricated and semi-fabricated aluminum
products. Kaiser is one of the largest U.S. aluminum producers in terms of
primary smelting capacity and is the Western world's second largest
producer/seller of alumina, accounting for approximately 8% of the Western
world's alumina capacity and production in 1994. Kaiser's production levels of
alumina and primary aluminum exceed its internal processing needs, which allows
it to be a major seller of alumina (approximately 2.1 million tons in 1994 or
71% of production) and primary aluminum (approximately 224,000 tons in 1994 or
54% of production) to third parties.

RISK FACTORS

Prospective purchasers of the Common Stock should carefully consider the
following risk factors, as well as the other information contained in, and
incorporated by reference in, this Prospectus, before making an investment in
the Common Stock.

1. Sensitivity to Prices. Kaiser's operating results are sensitive to changes
in the prices of alumina, primary aluminum and fabricated aluminum products and
also depend to a significant degree upon the volume and mix of all products
sold and on KACC's hedging strategies. Fabricated aluminum prices, which vary
considerably among products, are heavily influenced by changes in the price of
primary aluminum and generally lag behind primary aluminum prices for periods
of up to six months. Changes in the market price of primary aluminum also
affect Kaiser's production costs of fabricated products because they influence
the price of aluminum scrap purchased by Kaiser and Kaiser's labor costs, to
the extent such costs are indexed to primary aluminum prices. Consequently,
Kaiser has employed strategies to mitigate its exposure to possible declines in
the market prices of alumina, primary aluminum, and fabricated aluminum
products while retaining the ability to participate in favorable pricing
environments that may materialize.

As of December 21, 1995, Kaiser had sold approximately 73% and 45% of the
alumina available to it in excess of its projected internal smelting
requirements for 1996 and 1997, respectively. Approximately 56% of such alumina
sold for 1996 and all of such alumina sold for 1997 has been sold at prices
linked to the future prices of primary aluminum, and approximately 44% of such
alumina sold for 1996 has been sold at fixed prices.

KACC enters into primary aluminum hedging transactions with off-balance sheet
risk in the normal course of business. The prices realized by KACC under
certain sales contracts for alumina, primary aluminum, and fabricated aluminum
products, as well as the costs incurred by KACC for certain items, such as
aluminum scrap, rolling ingot, power, and bauxite, fluctuate with the market
price of primary aluminum, together resulting in a "net exposure" of earnings.
The primary aluminum hedging transactions are designed to mitigate the net
exposure of earnings to declines in the market price of primary aluminum, while
retaining the ability to participate in favorable pricing environments that may
materialize. KACC has employed strategies which include forward sales of
primary aluminum at fixed prices and the purchase or sale of options for
primary aluminum. In respect of its 1996 anticipated net exposure, at November
30, 1995, KACC had

3
<PAGE>

purchased approximately 45,000 tons of primary aluminum at fixed prices as a
partial hedge against approximately 147,000 tons of fabricated aluminum
products sold to customers at fixed or capped prices, and had sold forward
15,750 tons of primary aluminum at fixed prices.

See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Trends--Sensitivity to Prices and Hedging Programs," Note 10 of
the Notes to Consolidated Financial Statements, and Note 5 of the Notes to
Interim Consolidated Financial Statements.

2. Environmental Matters and Litigation. Kaiser and KACC are subject to a
wide variety of international, federal, state and local environmental laws and
regulations (the "Environmental Laws"), to fines or penalties assessed for
alleged breaches of the Environmental Laws, and to claims and litigation based
upon the Environmental Laws. KACC is currently subject to a number of lawsuits
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986
("CERCLA"). Under CERCLA and other related laws, past disposal of wastes,
whether on-site or at other locations, may result in the imposition of clean-up
obligations by federal or state regulatory authorities. KACC, along with
certain other entities, has been named as a potentially responsible party for
remedial costs at certain third-party sites listed on the National Priorities
List under CERCLA. In certain instances, KACC may be exposed to joint and
several liability for remedial action or damages to natural resources, which
could effectively expose KACC to liability for all costs associated with any
such remedial actions irrespective of its degree of culpability for the
environmental damages related thereto. For a discussion of certain KACC
environmental litigation, see "Business--Legal Proceedings."

Based on its evaluation of these and other environmental matters, Kaiser has
established environmental accruals primarily related to potential solid waste
disposal and soil and groundwater remediation matters. At September 30, 1995,
the balance of such accruals, which is primarily included in Long-term
liabilities, was $39.7 million. These environmental accruals represent Kaiser's
estimate of costs reasonably expected to be incurred based on presently enacted
laws and regulations, currently available facts, existing technology, and
Kaiser's assessment of the likely remediation action to be taken. Kaiser
expects that these remediation actions will be taken over the next several
years and estimates that annual expenditures to be charged to these
environmental accruals will be approximately $3.0 million to $12.0 million for
the years 1995 through 1999 and an aggregate of approximately $11.0 million
thereafter. As additional facts are developed and definitive remediation plans
and necessary regulatory approvals for implementation of remediation are
established or alternative technologies are developed, changes in these and
other factors may result in actual costs exceeding the current environmental
accruals. Kaiser believes that it is reasonably possible that costs associated
with these environmental matters may exceed current accruals by amounts that
could range, in the aggregate, up to approximately $22.0 million.

KACC is also a defendant in a number of lawsuits, some of which involve
claims of multiple persons, in which the plaintiffs allege that certain of
their injuries were caused by, among other things, exposure to asbestos during,
and as a result of, their employment or association with KACC or exposure to
products containing asbestos produced or sold by KACC. The lawsuits generally
relate to products KACC has not manufactured for at least 15 years. At October
31, 1995, the number of such claims pending was approximately 58,200, as
compared to 31,700 at June 30, 1995, and 25,200 at December 31, 1994. In the
first ten months of 1995, approximately 39,400 of such claims were received and
6,400 settled or dismissed. KACC has been advised by its regional counsel that,
although there can be no assurance, the recent increase in pending claims may
be attributable in part to tort reform legislation in Texas which was passed by
the legislature in March 1995 and which became effective on September 1, 1995.
The legislation, among other things, is designed to restrict, beginning
September 1, 1995, the filing of cases in Texas that do not have a sufficient
nexus to that jurisdiction, and to impose, generally as of September 1, 1996,
limitations relating to joint and several liability in tort cases. A
substantial portion of the asbestos-related claims that were filed and served
on KACC between June 30, 1995, and October 31, 1995, were filed in Texas prior
to September 1, 1995.

4
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Based on past experience and reasonably anticipated future activity, the
Company has established an accrual for estimated asbestos-related costs for
claims filed and estimated to be filed and settled through 2008. There are
inherent uncertainties involved in estimating asbestos-related costs and the
Company's actual costs could exceed these estimates. The Company's accrual was
calculated based on the current and anticipated number of asbestos-related
claims, the prior timing and amounts of asbestos-related payments, the current
state of case law related to asbestos claims, and the advice of counsel.
Accordingly, an asbestos-related cost accrual of $155.3 million, before
consideration of insurance recoveries, is included primarily in Long-term
liabilities at September 30, 1995. The Company estimates that annual future
cash payments in connection with such litigation will be approximately $11.0
million to $19.0 million for each of the years 1995 through 1999, and an
aggregate of approximately $90.8 million thereafter through 2008. While the
Company does not presently believe there is a reasonable basis for estimating
such costs beyond 2008 and, accordingly, no accrual has been recorded for such
costs which may be incurred beyond 2008, there is a reasonable possibility that
such costs may continue beyond 2008, and such costs may be substantial.

The Company believes that KACC has insurance coverage available to recover a
substantial portion of its asbestos-related costs. Claims for recovery from
some of KACC's insurance carriers are currently subject to pending litigation
and other carriers have raised certain defenses, which have resulted in delays
in recovering costs from the insurance carriers. The Company believes, based on
prior insurance-related recoveries in respect of asbestos-related claims,
existing insurance policies, and the advice of counsel, that substantial
recoveries from the insurance carriers are probable. Accordingly, an estimated
aggregate insurance recovery of $134.7 million, determined on the same basis as
the asbestos-related cost accrual, is recorded primarily in Other assets at
September 30, 1995.

While uncertainties are inherent in the final outcome of these asbestos
matters and it is presently impossible to determine the actual costs that
ultimately may be incurred and the insurance recoveries that will be received,
management currently believes that, based on the factors discussed in the
preceding paragraphs, the resolution of the asbestos-related uncertainties and
the incurrence of asbestos-related costs net of related insurance recoveries
should not have a material adverse effect on the Company's consolidated
financial position or results of operations.

See "Business--Environmental Matters," "Legal Proceedings," Note 9 of the
Notes to Consolidated Financial Statements, and Note 4 of the Notes to Interim
Consolidated Financial Statements.

3. Power Supply. Electric power represents an important production cost for
KACC at its aluminum smelters. From 1981 until 1995, electric power for KACC's
Mead and Tacoma smelters in Washington was purchased exclusively from the
Bonneville Power Administration (the "BPA") by KACC under a contract which
expires in 2001. In April 1995 the BPA agreed to allow each of its direct
service industrial customers (the "DSIs"), which include KACC, to purchase a
portion of its requirement for electric power from sources other than the BPA
beginning October 1, 1995. In June 1995 KACC entered into an agreement with The
Washington Water Power Company (the "WWP") to purchase up to 50 megawatts of
electric power for its Northwest facilities for a five year term beginning
October 1, 1995. KACC is receiving power under that contract, which power
displaces a portion of KACC's interruptible power from the BPA. In addition, in
1995 KACC entered into a new power purchase contract with the BPA, which amends
the existing BPA power contract and which contemplates reductions during 1996
in the amount of power which KACC is obligated to purchase from the BPA and
which the BPA is obligated to sell to KACC, and the replacement of such power
with power to be purchased from other suppliers. KACC is negotiating power
purchase agreements for such power with suppliers other than the BPA, and
agreements in principle for the supply of substantially all of such power
through March 1997 have been reached. However, definitive contracts for the
purchase of such power have not been finalized. Two lawsuits were filed in
December 1995 against the BPA by various parties, one of which petitions for a
review of the BPA's "Record of Decision on Direct Service Industrial Customer
Requirements Power Sales Contract" issued on September 28, 1995, and one of
which petitions for review of, and to set aside, suspend, or modify the action
of the BPA to decide to offer 5-year "block" power

5
<PAGE>

sales to the DSIs. The effect of such lawsuits, if any, on KACC's new power
purchase contract with the BPA is not known. Certain of the DSIs, including
KACC, intend to file motions to intervene in the two lawsuits.

In 1995 KACC also entered into agreements with the BPA and with the WWP, with
terms ending in 2001, pursuant to which the BPA and the WWP would provide to
KACC transmission services for power purchased from sources other than the BPA.
The term of the transmission services agreement with the BPA was subsequently
extended for an additional fifteen years, which extension has been challenged.
Four lawsuits have been filed against the BPA by various parties, which
lawsuits either challenge the BPA's record of decision offering such an
extension agreement to the DSIs or challenge the BPA's Business Plan
Environmental Impact Statement record of decision in connection therewith. In
December 1995, certain of the DSIs, including KACC, filed motions to intervene
in the four lawsuits.

KACC manages, and holds a 90% interest in, the Volta Aluminium Company
Limited ("Valco") aluminum smelter in Ghana. Power for the Valco smelter is
supplied under an agreement which expires in 2017. The agreement indexes two-
thirds of the price of the contract quantity to the market price of primary
aluminum. The agreement also provides for a review and adjustment of the base
power rate and the price index every five years. The most recent review was
completed in April 1994 for the 1994-1998 period. Valco has entered into an
agreement with the government of Ghana under which Valco has been assured
(except in cases of force majeure) that it will receive sufficient electric
power to operate at its current level of three and one-half potlines through
December 31, 1996. Kaiser believes that assuming normal rainfall during 1996,
Valco should have available sufficient electric power to operate at its current
level through 1996. KACC also has a 49% interest in the Anglesey Aluminium
Limited ("Anglesey") aluminum smelter and port facility at Holyhead, Wales.
Power for the Anglesey aluminum smelter is supplied under an agreement which
expires in 2001.

See "Business--Production Operations--Primary Aluminum Products."

4. Leverage. Kaiser is highly leveraged, with total consolidated indebtedness
of $810.6 million and stockholders' equity of $43.2 million at September 30,
1995. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources." Kaiser's leverage is
substantially greater than the leverage of most of its North American
competitors, which generally have greater financial resources than Kaiser. Due
to its highly leveraged condition, Kaiser is more sensitive than less leveraged
companies to factors affecting its operations, including changes in the prices
for its products, the availability of power and the rates charged for power at
its various facilities, and general economic conditions.

5. Controlling Stockholder and Possible Effects; Possible Equity
Recapitalization. As of the date of this Prospectus, MAXXAM owns approximately
62.2% of the outstanding Common Stock, assuming the conversion of each
outstanding share of PRIDES into one share of Common Stock, with public
stockholders owning the balance. Accordingly, MAXXAM will be able to control
the outcome of all matters required to be submitted to Kaiser's stockholders
for approval, including decisions relating to the election of the directors of
Kaiser, the determination of day-to-day corporate and management policies of
Kaiser, the merger or acquisition of Kaiser, the sale of substantially all of
the assets of Kaiser and other significant corporate transactions. In addition,
such concentration of ownership may discourage third parties from seeking to
acquire control of Kaiser, which may adversely affect the market price of
Kaiser's equity securities. Mr. Charles E. Hurwitz, Chairman of the Board,
President and Chief Executive Officer of MAXXAM, together with a wholly-owned
subsidiary of Federated Development Company ("Federated"), a New York business
trust that is wholly owned by Mr. Hurwitz, members of his immediate family and
trusts for the benefit thereof, collectively own approximately 60.8% of the
aggregate voting power of MAXXAM. A special committee of Kaiser's Board of
Directors is also considering whether to propose an equity recapitalization
transaction which, if implemented, would result in classes of equity with
differential voting rights. See "Description of Capital Stock--Possible Equity
Recapitalization."

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<PAGE>

6. Other Shares Eligible for Future Sale. As of the date of this Prospectus,
MAXXAM owns 50,000,000 shares of Common Stock (the "MAXXAM Common Stock").
MAXXAM has pledged 28 million of such shares of Common Stock as security for
approximately $225.7 million aggregate principal amount (at maturity) of the
debt of its wholly-owned subsidiary MAXXAM Group Inc. Further, MAXXAM has
entered into a demand loan and pledge agreement with Custodial Trust Company
which provides for up to $25.0 million in borrowings, of which no amounts were
outstanding at the date of this Prospectus, which agreement contains a negative
pledge on the remaining 22,000,000 of such shares of Common Stock (the terms of
which provide that MAXXAM may sell MAXXAM Common Stock upon 24 hours notice to
Custodial Trust Company). Sales of such unpledged stock by MAXXAM may not be
made in a public distribution unless registered under the Securities Act or
sold pursuant to Rule 144 thereunder. Sales of substantial amounts of the
MAXXAM Common Stock in the public market, and the possibility that such sales
may be made, could adversely affect the prevailing market price of Kaiser's
equity securities.

7. Foreign Activities. Kaiser's operations are located in many foreign
countries, including Australia, Canada, China, Ghana, Jamaica, and the United
Kingdom. Foreign operations in general may be more vulnerable than domestic
operations to a variety of political and other risks.

8. Restrictions on and Factors Affecting Ability to Pay Dividends. Kaiser
conducts all of its operations through KACC. Under the Credit Agreement, dated
as of February 15, 1994, among KACC, Kaiser, the financial institutions which
are party thereto, and BankAmerica Business Credit, Inc., as Agent (as amended,
the "1994 Credit Agreement"), Kaiser is not permitted to pay any dividends on
its Common Stock. In addition, the declaration and payment of dividends by KACC
on its shares of common stock are subject to certain limitations under the 1994
Credit Agreement and under the Indentures in respect of KACC's Senior Notes and
12 3/4% Notes (as defined below).

USE OF PROCEEDS

The Company will not receive any of the proceeds from the sale of the Common
Stock offered by MAXXAM.

DIVIDEND POLICY

The Company is prohibited from paying cash dividends on its Common Stock by
the 1994 Credit Agreement. See "Risk Factors".

7
<PAGE>

CAPITALIZATION

The following table summarizes the consolidated capitalization of the Company
at September 30, 1995. This table should be read in conjunction with the
Consolidated Financial Statements of the Company and the Notes thereto
appearing elsewhere herein.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
------------------------
(IN MILLIONS OF DOLLARS)
<S> <C>
Short-term debt (1):.................................. $ 12.1
------
Long-term debt (1):
1994 Credit Agreement (2)........................... 62.4
9 7/8% Senior Notes (net of discount of $1.2)....... 223.8
Pollution Control and Solid Waste Disposal
Facilities Obligations
(less current portion of $1.2)..................... 35.7
Alpart CARIFA Loan.................................. 60.0
Alpart Term Loan (less current portion of $9.4)..... 6.2
12 3/4% Senior Subordinated Notes................... 400.0
Other borrowings (less current portion of $1.5)..... 10.4
------
Total long-term debt.............................. 798.5
------
Minority interests.................................... 118.1
------
Stockholders' Equity:
Preferred stock..................................... .4
Common stock........................................ .7
Additional capital.................................. 530.0
Accumulated deficit................................. (478.8)
Additional minimum pension liability................ (9.1)
------
Total stockholders' equity........................ 43.2
------
Total capitalization............................ $971.9
======
</TABLE>
- --------
(1) Does not give effect to $85.7 of guaranteed unconsolidated joint venture
indebtedness of the Company and $21.3 of other guarantees and letters of
credit. For a description of the Company's long term debt, see Note 5 of
the Notes to Consolidated Financial Statements.
(2) As of November 30, 1995, $250.2 (of which $72.4 could have been used for
letters of credit) was available to the Company under the 1994 Credit
Agreement.

8
<PAGE>

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

The following selected historical consolidated financial data should be read
in conjunction with the Consolidated Financial Statements of the Company and
the Notes thereto appearing elsewhere in this Prospectus and the information
contained in "Management's Discussion and Analysis of Financial Condition and
Results of Operations." The selected historical consolidated financial data as
of and for the years ended December 31, 1994, 1993, 1992, 1991 and 1990, are
derived from the Company's Consolidated Financial Statements which have been
audited by independent public accountants. The selected historical
consolidated financial data as of and for the nine months ended September 30,
1995, and for the nine months ended September 30, 1994, have not been audited,
but in the opinion of management contain all adjustments (consisting of normal
recurring adjustments) necessary to present fairly the consolidated financial
position and consolidated results of operations of the Company as of such date
and for such periods.

<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER
30, YEAR ENDED DECEMBER 31,
------------------ ---------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- --------
(IN MILLIONS OF DOLLARS, EXCEPT RATIOS AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Net sales.............. $1,646.7 $1,335.7 $1,781.5 $1,719.1 $1,909.1 $2,000.8 $2,095.0
Cost of products sold.. 1,329.8 1,222.8 1,625.5 1,587.7 1,619.3 1,594.2 1,525.2
Gross profit........... 316.9 112.9 156.0 131.4 289.8 406.6 569.8
Depreciation........... 71.1 72.8 95.4 97.1 80.3 73.2 70.5
Selling,
administrative,
research and
development and
general............... 96.4 86.8 116.8 121.9 119.6 117.4 123.2
Operating income
(loss)................ 149.4 (46.7) (56.2) (123.4) 89.9 216.0 376.1
Interest expense....... 71.3 65.9 88.6 84.2 78.7 93.9 96.6
Income (loss) before
income taxes, minority
interests,
extraordinary loss and
cumulative effect of
changes in accounting
principles............ 68.3 (110.1) (152.1) (208.5) 32.1 142.4 297.1
Income (loss) before
extraordinary loss and
cumulative effect of
changes in accounting
principles............ 39.3 (73.7) (101.4) (123.1) 26.9 108.4 213.7
Net income (loss)...... 39.3 (79.1) (106.8) (652.2)(1) 26.9 108.4 213.7
Earnings (loss) per
common and common
equivalent share
before extraordinary
loss and cumulative
effect of changes in
accounting
principles(2)......... $ .40 $ (1.53) $ (2.09) $ (2.25) $ .47 $ 2.03 $ 4.27
Earnings (loss) per
common and common
equivalent share(2):
Primary................ $ .40 $ (1.62) $ (2.18) $ (11.47) $ .47 $ 2.03 $ 4.27
Fully diluted.......... $ .46
Weighted average number
of common and common
equivalent shares
outstanding (in
thousands)(2):
Primary................ 59,015 58,118 58,139 57,423 57,250 53,297 50,000
Fully diluted.......... 71,613
Dividends declared:
Per common share....... $ .20 $ 1.10 $ 3.00
Per Depositary Share... $ .47 $ .49 $ .65 $ .33
Per share of PRIDES.... $ .73 $ .60 $ .85
Ratio of earnings to
combined fixed charges
and preferred stock
dividends(3)........... 1.6x 1.3x 2.3x 3.5x
Fixed charge coverage
and preferred stock
dividend requirement
deficiency............. $ 113.4 $ 160.5 $ 215.7
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, --------------------------------------------
1995 1994 1993 1992 1991 1990
------------- -------- -------- -------- -------- --------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital........ $ 378.2 $ 259.7 $ 278.6 $ 310.3 $ 242.2 $ 264.4
Total assets........... 2,787.5 2,698.1 2,527.9 2,172.6 2,134.1 2,118.5
Long-term liabilities.. 573.3 495.5 501.8 281.7 212.9 310.8
Accrued postretirement
medical benefit
obligation, less
current portion....... 739.1 734.9 713.1
Long-term debt, less
current portion....... 798.5 751.1 720.2 765.1 681.5 631.5
Notes payable to
parent................ 150.0
Minority interests..... 118.1 116.2 105.0 104.9 108.9 123.2
Total stockholders'
equity................ 43.2 17.3 29.4 565.2 555.8 356.0
</TABLE>
- -------
(1) Includes extraordinary loss on early extinguishment of debt of $21.8, net
of tax benefit of $11.2 and cumulative effect of changes in accounting
principles of $507.3, net of tax benefit of $237.7.
(2) As a result of the conversion of the Company's Mandatory Conversion
Premium Dividend Preferred Stock (the "Series A Stock") and the
simultaneous redemption of the $.65 Depositary Shares, each representing
one-tenth of a share of Series A Stock, during 1995, fully diluted
earnings per share are presented even though the results are antidilutive.
For the 1994 and 1993 periods, common equivalent shares attributable to
preferred stock and non-qualified stock options were excluded from the
calculation of weighted average shares because they were antidilutive.
(3) For the purpose of calculating the ratio of earnings to combined fixed
charges and preferred stock dividends, "earnings" consist of the sum of
(i) income (loss) before extraordinary loss and cumulative effect of
changes in accounting principles of the Company and its consolidated
subsidiaries, (ii) undistributed (earnings) losses of less-than-fifty-
percent-owned companies, (iii) minority interest share of income (losses)
of majority-owned subsidiaries that have fixed charges, (iv) consolidated
provision for income taxes, (v) minority interest share of tax provision
(credit) of majority-owned subsidiaries that have fixed charges, (vi)
fixed charges, excluding capitalized interest, (vii) equity in losses of
less-than-fifty-percent-owned companies where the Company has guaranteed
the debt of such companies, and (viii) previously capitalized interest
amortized during the period. Fixed charges consist of the sum of interest
expense, amortization of deferred financing costs, the portion of rents
representative of the interest factor, preferred stock dividend
requirements, interest expense related to the guaranteed debt of less-
than-fifty-percent-owned companies incurring a loss, and capitalized
interest.

9
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(IN MILLIONS OF DOLLARS, EXCEPT SHIPMENTS, PRICES, AND PER SHARE AMOUNTS)

RESULTS OF OPERATIONS

The Company, through KACC, operates in two business segments: bauxite and
alumina, and aluminum processing. The Company's operating results are sensitive
to changes in prices of alumina, primary aluminum, and fabricated aluminum
products, and also depend to a significant degree upon the volume and mix of
all products sold and on KACC's hedging strategies. The following table
provides selected operational and financial information for the nine months
ended September 30, 1995 and 1994 and for the years ended December 31, 1994,
1993 and 1992. As an integrated aluminum producer, the Company uses a portion
of its bauxite, alumina, and primary aluminum production for additional
processing at certain of its other facilities. Intracompany shipments and sales
are excluded from the information set forth below. The following should be read
in conjunction with the Company's Consolidated Financial Statements contained
elsewhere herein.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------ ----------------------------
1995 1994 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Shipments:(1)
Alumina................ 1,494.6 1,577.3 2,086.7 1,997.5 2,001.3
Aluminum products:
Primary aluminum..... 184.5 175.8 224.0 242.5 355.4
Fabricated aluminum
products............ 284.3 307.1 399.0 373.2 343.6
-------- -------- -------- -------- --------
Total aluminum
products.......... 468.8 482.9 623.0 615.7 699.0
======== ======== ======== ======== ========
Average realized sales
price:
Alumina (per ton)...... $ 203 $ 162 $ 169 $ 169 $ 195
Primary aluminum (per
pound)................ .82 .56 .59 .56 .66
Net sales:
Bauxite and alumina:
Alumina.............. $ 303.8 $ 255.3 $ 352.8 $ 338.2 $ 390.8
Other(2)(3).......... 65.3 60.6 79.7 85.2 75.7
-------- -------- -------- -------- --------
Total bauxite and
alumina........... 369.1 315.9 432.5 423.4 466.5
-------- -------- -------- -------- --------
Aluminum processing:
Primary aluminum..... 335.0 218.2 292.0 301.7 515.0
Fabricated aluminum
products............ 929.0 790.8 1,043.0 981.4 913.7
Other(3)............. 13.6 10.8 14.0 12.6 13.9
-------- -------- -------- -------- --------
Total aluminum
processing........ 1,277.6 1,019.8 1,349.0 1,295.7 1,442.6
-------- -------- -------- -------- --------
Total net sales.. $1,646.7 $1,335.7 $1,781.5 $1,719.1 $1,909.1
======== ======== ======== ======== ========
Operating income (loss):
Bauxite and alumina.... $ 36.4 $ 5.3 $ 19.8 $ (4.5) $ 62.6
Aluminum processing.... 170.9 1.4 (8.4) (46.3) 104.9
Corporate.............. (57.9) (53.4) (67.6) (72.6) (77.6)
-------- -------- -------- -------- --------
Total operating
income (loss)....... $ 149.4 (46.7) $ (56.2) $ (123.4) $ 89.9
======== ======== ======== ======== ========
Income (loss) before
extraordinary loss and
cumulative effect of
changes in accounting
principles.............. $ 39.3 $ (73.7) $ (101.4) $ (123.1) $ 26.9
Extraordinary loss on
early extinguishment of
debt, net of tax........ (5.4) (5.4) (21.8)
Cumulative effect of
changes in accounting
principles, net of tax.. (507.3)
-------- -------- -------- -------- --------
Net income (loss)........ $ 39.3 $ (79.1) (106.8) (652.2) 26.9
======== ======== ======== ======== ========
Capital expenditures..... $ 53.2 $ 37.5 $ 70.0 $ 67.7 $ 114.4
======== ======== ======== ======== ========
</TABLE>
- -------
(1) In thousands of metric tons.
(2) Includes net sales of bauxite.
(3) Includes the portion of net sales attributable to minority interests in
consolidated subsidiaries.

10
<PAGE>

NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1994

Net Sales

Bauxite and Alumina--Revenue from net sales to third parties for the bauxite
and alumina segment was 17% higher in the first nine months of 1995 than in the
first nine months of 1994. Revenue from alumina increased 19% in the first nine
months of 1995 from the first nine months of 1994, due to higher average
realized prices partially offset by lower shipments.

Aluminum Processing--Revenue from net sales to third parties for the aluminum
processing segment was 25% higher in the first nine months of 1995 than in the
first nine months of 1994. Revenue from primary aluminum increased 54% in the
first nine months of 1995 from the first nine months of 1994, due primarily to
higher average realized prices and higher shipments. The increase in revenue
for the first nine months of 1995 was partially offset by decreased shipments
caused by the strike by the United Steelworkers of America ("USWA") discussed
below. Shipments of primary aluminum to third parties were approximately 39% of
total aluminum products shipments in the first nine months of 1995, compared
with approximately 36% in the first nine months of 1994. Revenue from
fabricated aluminum products increased 17% in the first nine months of 1995
from the first nine months of 1994, due to higher average realized prices
partially offset by lower shipments for most of these products.

Operating Income (Loss)

Improved operating results in the nine months ended September 30, 1995, were
partially offset by third quarter expenditures related to the Company's joint
venture in China, accelerated expenditures on the Company's micromill
technology, maintenance expenses as a result of an electrical lightning strike
at the Company's Trentwood, Washington, facility, and a work slowdown at the
Company's 49%-owned Kaiser Jamaica Bauxite Company prior to signing a new labor
contract. The combined impact of these expenditures on the results for the nine
months ended September 30, 1995, was approximately $6.0 (on a pre-tax basis).
Operating results in the nine months ended September 30, 1995, were further
impacted by (i) an eight-day strike at five major domestic locations by the
USWA, (ii) a six-day strike by the National Workers Union at the Company's 65%-
owned Alumina Partners of Jamaica ("Alpart") alumina refinery in Jamaica, and
(iii) a four-day disruption of alumina production at Alpart caused by a boiler
failure. The combined impact of these events on the results for the nine months
ended September 30, 1995, was approximately $17.0 in the aggregate (on a pre-
tax basis) principally from lower production volume and other related costs.

Bauxite and Alumina--This segment's operating income was $36.4 in the first
nine months of 1995, compared with $5.3 in the first nine months of 1994,
principally due to higher revenue. Improved results for the first nine months
of 1995 were partially offset by the effect of the strikes and boiler failure.

Aluminum Processing--This segment's operating income was $170.9 in the first
nine months of 1995, compared with $1.4 in the first nine months of 1994,
principally due to higher revenue. Improved results for the first nine months
of 1995 were partially offset by the effect of the strike by the USWA.

Corporate--Corporate operating expenses represented corporate general and
administrative expenses which are not allocated to the Company's segments.

Net Income (Loss)

The Company had net income of $.40 per common share ($.46 on a fully diluted
basis) for the first nine months of 1995, compared with a net loss of $1.62 per
common share for the first nine months of 1994. The principal reason for these
changes was the improvement in operating income previously described partially
offset by other charges in the third quarter of 1995, principally related to
the establishment of additional litigation reserves.

11
<PAGE>

THREE YEARS ENDED DECEMBER 31, 1994

Net Sales

Bauxite and Alumina--Revenue from net sales of bauxite and alumina to third
parties was $432.5 in 1994, compared with $423.4 in 1993 and $466.5 in 1992.
Revenue from alumina increased 4% to $352.8 in 1994 from $338.2 in 1993 because
of increased shipments. Revenue from alumina decreased 13% to $338.2 in 1993
from $390.8 in 1992 because of lower average realized prices. The remainder of
the segment's sales revenues were from sales of bauxite, which remained about
the same throughout the three years, and the portion of sales of alumina
attributable to the minority interest in Alpart.

Aluminum Processing--Revenue from net sales to third parties for the aluminum
processing segment was $1,349.0 in 1994, compared with $1,295.7 in 1993 and
$1,442.6 in 1992. The bulk of the segment's sales represents Kaiser's primary
aluminum and fabricated aluminum products, with the remainder attributable to
the portion of sales of primary aluminum related to the minority interest in
Valco.

Revenue from primary aluminum decreased 3% to $292.0 in 1994 from $301.7 in
1993 as higher average realized prices were more than offset by lower
shipments. Average realized prices in 1994 reflected the defensive hedging of
primary aluminum prices in respect of 1994 shipments, which was initiated prior
to improvements in metal prices in 1994. In 1994, the Company's average
realized price from sales of primary aluminum was approximately $.59 per pound,
compared to the average Midwest United States transaction price of
approximately $.72 per pound during the year. Shipments in 1994 reflected
production curtailments at the Company's smelters in the Pacific Northwest and
Ghana (see "Business--Primary Aluminum Products"). Revenue from primary
aluminum decreased 41% to $301.7 in 1993 from $515.0 in 1992 because of lower
shipments and lower average realized prices. Shipments of primary aluminum to
third parties were approximately 36% of total aluminum products shipments in
1994, compared with approximately 39% in 1993 and 51% in 1992.

Revenue from fabricated aluminum products increased 6% to $1,043.0 in 1994
from $981.4 in 1993, principally due to increased shipments of most of these
products. Revenue from fabricated aluminum products increased 7% to $981.4 in
1993 from $913.7 in 1992, principally due to increased shipments of most
fabricated aluminum products, partially offset by a decrease in average
realized prices of most of these products.

Operating Income (Loss)

The Company had an operating loss of $56.2 in 1994, compared with a loss of
$123.4 in 1993 and income of $89.9 in 1992. In 1993, the Company recorded a
pre-tax charge of $35.8 related to restructuring charges (see Note 2 of the
Notes to Consolidated Financial Statements) and a pre-tax charge of $19.4
($29.0 in 1992) because of a reduction in the carrying value of its inventories
caused principally by prevailing lower prices for alumina, primary aluminum,
and fabricated aluminum products.

Bauxite and Alumina--This segment's operating income in 1994 was $19.8,
compared with a loss of $4.5 in 1993 and income of $62.6 in 1992. In 1994
compared with 1993, operating income was favorably affected by increased
shipments and lower manufacturing costs. In 1993 compared with 1992, operating
income was adversely affected principally due to a decrease in average realized
prices for alumina, which more than offset above-market prices for virtually
all of the Company's excess alumina sold forward in prior periods under long-
term contracts.

Aluminum Processing--This segment's operating loss was $8.4 in 1994, compared
with $46.3 in 1993 and income of $104.9 in 1992. The decrease in operating loss
in 1994 compared with 1993 was caused principally by the $35.8 of restructuring
charges previously described, increased shipments of fabricated aluminum
products and higher average realized prices of primary aluminum, partially
offset by lower shipments of primary aluminum.

12
<PAGE>

The decrease in 1993 compared with 1992 was caused principally by reduced
shipments and lower average realized prices of primary aluminum, which more
than offset increased shipments of fabricated aluminum products. In October
1993 KACC announced that it was restructuring its flat-rolled products
operation at its Trentwood plant to reduce that facility's annual operating
costs by at least $50.0 after full implementation. Additionally, KACC
implemented a plan to streamline its casting operations, which included the
shutdown of two facilities located in Ohio. This entire restructuring was
successfully completed by the end of 1995. The pre-tax charge for this
restructuring of $35.8 included $25.2 for pension, severance, and other
termination benefits at Trentwood; $8.0 related to casting facilities; and $2.6
for various other items. Other contributing factors to the 1993 decrease in
operating results were lower production at the Company's smelters in the
Pacific Northwest in 1993 as a result of the removal of three reduction
potlines from production in January 1993 in response to the BPA's reduction
during the first quarter of 1993 of the amount of power it normally provides to
the Company, and the increased cost of substitute power in such quarter. In
both 1993 and 1992, the Company realized above-market prices for significant
quantities of primary aluminum sold forward in prior periods under long-term
contracts.

Corporate--Corporate operating expenses of $67.6, $72.6, and $77.6 in 1994,
1993, and 1992, respectively, represented corporate general and administrative
expenses that were not allocated to segments.

Income (Loss) Before Extraordinary Loss and Cumulative Effect of Changes in
Accounting Principles

Loss before extraordinary loss and cumulative effect of changes in accounting
principles was $101.4 in 1994, compared with $123.1 in 1993, as a result of the
reduction in operating loss previously described, partially offset by a lower
credit for income taxes. Loss before extraordinary loss and cumulative effect
of changes in accounting principles was $123.1 in 1993, compared with income of
$26.9 in 1992. This decrease resulted from the lower operating income
previously described and $10.8 of other pre-tax charges in 1993, principally
related to establishing additional litigation and environmental reserves.

Net Income (Loss)

The Company reported a net loss of $106.8 or $2.18 per common and common
equivalent share in 1994, compared with $652.2 or $11.47 per common and common
equivalent share in 1993 and net income of $26.9 or $.47 per common share in
1992. The principal reasons for reduced net loss in 1994 compared with 1993
were the reduction in the operating loss previously described and the
cumulative effect of changes in accounting principles of $507.3 related to
adoption of Statement of Financial Accounting Standards No. 106, 109, and 112
(see Note 1 of the Notes to Consolidated Financial Statements). The principal
reasons for the earnings decline in 1993 compared with 1992 were the cumulative
effect of changes in accounting principles of $507.3 (see above), the
extraordinary loss on early extinguishment of debt of $21.8, and the operating
losses described above.

LIQUIDITY AND CAPITAL RESOURCES

Capital Structure

On February 17, 1994, the Company and KACC entered into the 1994 Credit
Agreement. The 1994 Credit Agreement consists of a $325.0 five-year secured,
revolving line of credit, scheduled to mature in 1999, and replaced the credit
agreement entered into in December 1989 by the Company and KACC with a
syndicate of commercial banks and other financial institutions (as amended, the
"1989 Credit Agreement"). KACC is able to borrow under the facility by means of
revolving credit advances and letters of credit (up to $125.0) in an aggregate
amount equal to the lesser of $325.0 or a borrowing base relating to eligible
accounts receivable plus eligible inventory. At November 30, 1995, $250.2 (of
which $72.4 could have been used for letters of credit) was available to KACC
under the 1994 Credit Agreement. The 1994 Credit Agreement is unconditionally
guaranteed by the Company and by certain significant subsidiaries of KACC.
Loans under the 1994 Credit Agreement bear interest at a rate per annum, at
KACC's election, equal to a Reference Rate

13
<PAGE>

(as defined) plus 1 1/2% or LIBO Rate (Reserve Adjusted) (as defined) plus 3
1/4%. After June 30, 1995, the interest rate margins applicable to borrowings
under the 1994 Credit Agreement may be reduced by up to 1 1/2% (non-
cumulatively), based upon a financial test, determined quarterly. As of
September 30, 1995, the financial test permitted a reduction of 1% per annum in
margins effective October 1, 1995.

The 1994 Credit Agreement requires KACC to maintain certain financial
covenants and places restrictions on the Company's and KACC's ability to, among
other things, incur debt and liens, make investments, pay dividends, undertake
transactions with affiliates, make capital expenditures, and enter into
unrelated lines of business. The 1994 Credit Agreement is secured by, among
other things, (i) mortgages on KACC's major domestic plants (excluding the
Gramercy plant); (ii) subject to certain exceptions, liens on the accounts
receivable, inventory, equipment, domestic patents and trademarks, and
substantially all other personal property of KACC and certain of its
subsidiaries; (iii) a pledge of all the stock of KACC owned by Kaiser; and (iv)
pledges of all of the stock of a number of KACC's wholly owned domestic
subsidiaries, pledges of a portion of the stock of certain foreign
subsidiaries, and pledges of a portion of the stock of certain partially owned
foreign affiliates.

In the first quarter of 1994, the Company consummated the public offering of
8,855,550 shares of the PRIDES. The net proceeds from the sale of the shares of
PRIDES were approximately $100.1. On February 17, 1994, KACC issued $225.0 of
its 9 7/8% Senior Notes due 2002 (the "Senior Notes").

The offering of the PRIDES, the issuance of the Senior Notes, and the
replacement of the 1989 Credit Agreement were the final steps of a
comprehensive refinancing plan which the Company and KACC began in January 1993
to extend the maturities of the Company's outstanding indebtedness, enhance its
liquidity, and raise new equity capital. At September 30, 1995, the Company's
total consolidated indebtedness was $810.6 compared to $762.6 at December 31,
1994, and $729.4 at December 31, 1993.

On February 1, 1993, KACC issued $400.0 of its 12 3/4% Senior Subordinated
Notes due 2003 (the "12 3/4% Notes"). The obligations of KACC with respect to
the Senior Notes and the 12 3/4% Notes are guaranteed, jointly and severally,
by certain subsidiaries of KACC. The indentures governing the Senior Notes and
the 12 3/4% Notes restrict, among other things, KACC's ability to incur debt,
undertake transactions with affiliates, and pay dividends.

See Note 5 of the Notes to Consolidated Financial Statements.

Cash from Operations

Cash used for operations was $41.3 in 1994, compared with cash provided by
operations of $24.2 in 1993 and $26.3 in 1992. The decrease in cash provided in
1994 compared with 1993 was primarily due to margin deposits of $50.5 under
certain hedging contracts and an increase in inventories.

Capital Expenditures

The Company's capital expenditures of $53.2 (of which $4.7 was funded by the
Company's minority partners in certain foreign joint ventures) during the first
nine months of 1995 and of $252.1 (of which $34.0 was funded by the Company's
minority partners in certain foreign joint ventures) during the three years
ended December 31, 1994, were made primarily to improve production efficiency,
reduce operating costs, expand capacity at existing facilities, and construct
new facilities. Total consolidated capital expenditures were $70.0 in 1994,
compared with $67.7 in 1993 and $114.4 in 1992 (of which $7.5, $9.4, and $17.1
were funded by the minority partners in certain foreign joint ventures in 1994,
1993, and 1992, respectively). Total consolidated capital expenditures (of
which approximately 11% is expected to be funded by the minority partners in
certain foreign joint ventures) are expected to be between $80.0 and $130.0 per
year in the years 1995-1997, subject to necessary approvals, if required, from
the lenders under the 1994 Credit Agreement.

14
<PAGE>

Dividends and Distributions

The declaration and payment of dividends by the Company and KACC on shares of
their common stock is subject to certain covenants contained in the 1994 Credit
Agreement and, in the case of KACC, the Senior Note Indenture and the 12 3/4%
Note Indenture. The 1994 Credit Agreement does not permit the Company or KACC
to pay any dividends on their common stock. The declaration and payment of
dividends by the Company on the PRIDES is expressly permitted by the terms of
the 1994 Credit Agreement to the extent the Company receives payments on the
intercompany notes or certain other permitted distributions from KACC.

Operating Activities

At September 30, 1995, the Company had working capital of $378.2, compared
with working capital of $259.7 at December 31, 1994. The increase in working
capital was due primarily to an increase in Receivables and Inventories and a
decrease in Accrued interest and Other accrued liabilities, partially offset by
a decrease in Prepaid expenses and other current assets (principally due to
lower margin deposits related to hedging activities).

Investing Activities

The Company historically has participated in various raw material joint
ventures outside the United States. At September 30, 1995, the Company was
unconditionally obligated for $85.7 of indebtedness of one such joint venture
affiliate. Cash used for investing activities in the first nine months of 1995
consisted primarily of capital expenditures to improve production efficiency,
reduce operating costs, expand capacity at existing facilities, and invest in a
joint venture in China.

Environmental Contingencies

The Company and KACC are subject to the Environmental Laws, to fines or
penalties assessed for alleged breaches of the Environmental Laws, and to
claims and litigation based upon the Environmental Laws. KACC currently is
subject to a number of lawsuits under CERCLA, and, along with certain other
entities, has been named as a potentially responsible party for remedial costs
at certain third-party sites listed on the National Priorities List under
CERCLA.

Based on the Company's evaluation of these and other environmental matters,
the Company has established environmental accruals, primarily related to
potential solid waste disposal and soil and groundwater remediation matters,
totaling $39.7 at September 30, 1995, which are primarily included in Long-term
liabilities. These environmental accruals represent the Company's estimate of
costs reasonably expected to be incurred based on presently enacted laws and
regulations, currently available facts, existing technology, and the Company's
assessment of the likely remediation action to be taken. The Company expects
that these remediation actions will be taken over the next several years and
estimates that annual expenditures to be charged to these environmental
accruals will be approximately $3.0 to $12.0 for the years 1995 through 1999
and an aggregate of approximately $11.0 thereafter.

As additional facts are developed and definitive remediation plans and
necessary regulatory approvals for implementation of remediation are
established or alternative technologies are developed, changes in these
and other factors may result in actual costs exceeding the current
environmental accruals. The Company believes that it is reasonably possible
that costs associated with these environmental matters may exceed current
accruals by amounts that could range, in the aggregate, up to approximately
$22.0. While uncertainties are inherent in the final outcome of these
environmental matters, and it is presently impossible to determine the actual
costs that ultimately may be incurred, management currently believes that the
resolution of such uncertainties should not have a material adverse effect on
the Company's consolidated

15
<PAGE>

financial position or results of operations. For a discussion of certain
environmental matters involving the Company or KACC, see "Business--
Environmental Matters" and "Legal Proceedings".

See "Risk Factors--Environmental Matters and Litigation."

Asbestos Contingencies

KACC is a defendant in a number of lawsuits, some of which involve claims of
multiple persons, in which the plaintiffs allege that certain of their injuries
were caused by, among other things, exposure to asbestos during, and as a
result of, their employment or association with KACC or exposure to products
containing asbestos produced or sold by KACC. The lawsuits generally relate to
products KACC has not manufactured for at least 15 years. At October 31, 1995,
the number of such claims pending was approximately 58,200, as compared to
31,700 at June 30, 1995, and 25,200 at December 31, 1994. In the first ten
months of 1995, approximately 39,400 of such claims were received and 6,400
settled or dismissed. KACC has been advised by its regional counsel that,
although there can be no assurance, the recent increase in pending claims may
be attributable in part to tort reform legislation in Texas which was passed by
the legislature in March 1995 and which became effective on September 1, 1995.
The legislation, among other things, is designed to restrict, beginning
September 1, 1995, the filing of cases in Texas that do not have a sufficient
nexus to that jurisdiction, and to impose, generally as of September 1, 1996,
limitations relating to joint and several liability in tort cases. A
substantial portion of the asbestos-related claims that were filed and served
on KACC between June 30, 1995, and October 31, 1995, were filed in Texas prior
to September 1, 1995.

Based on past experience and reasonably anticipated future activity, the
Company has established an accrual for estimated asbestos-related costs for
claims filed and estimated to be filed and settled through 2008. There are
inherent uncertainties involved in estimating asbestos-related costs and the
Company's actual costs could exceed these estimates. The Company's accrual was
calculated based on the current and anticipated number of asbestos-related
claims, the prior timing and amounts of asbestos-related payments, the current
state of case law related to asbestos claims, and the advice of counsel.
Accordingly, an asbestos-related cost accrual of $155.3, before consideration
of insurance recoveries, is included primarily in Long-term liabilities at
September 30, 1995. The Company estimates that annual future cash payments in
connection with such litigation will be approximately $11.0 to $19.0 for each
of the years 1995 through 1999, and an aggregate of approximately $90.8
thereafter through 2008. While the Company does not presently believe there is
a reasonable basis for estimating such costs beyond 2008 and, accordingly, no
accrual has been recorded for such costs which may be incurred beyond 2008,
there is a reasonable possibility that such costs may continue beyond 2008, and
such costs may be substantial.

The Company believes that KACC has insurance coverage available to recover a
substantial portion of its asbestos-related costs. Claims for recovery from
some of KACC's insurance carriers are currently subject to pending litigation
and other carriers have raised certain defenses, which have resulted in delays
in recovering costs from the insurance carriers. The Company believes, based on
prior insurance-related recoveries in respect of asbestos-related claims,
existing insurance policies, and the advice of counsel, that substantial
recoveries from the insurance carriers are probable. Accordingly, an estimated
aggregate insurance recovery of $134.7, determined on the same basis as the
asbestos-related cost accrual, is recorded primarily in Other assets at
September 30, 1995.

16
<PAGE>

TRENDS

Sensitivity to Prices and Hedging Programs

KACC enters into primary aluminum hedging transactions with off-balance sheet
risk in the normal course of business. The prices realized by KACC under
certain sales contracts for alumina, primary aluminum and fabricated aluminum
products, as well as the costs incurred by KACC for certain items, such as
aluminum scrap, rolling ingot, power and bauxite, fluctuate with the market
price of primary aluminum, together resulting in a "net exposure" of earnings.
The primary aluminum hedging transactions are designed to mitigate the net
exposure of earnings to declines in the market price of primary aluminum, while
retaining the ability to participate in favorable pricing environments that may
materialize. KACC has employed strategies which include forward sales of
primary aluminum at fixed prices and the purchase or sale of options for
primary aluminum. In respect of its 1996 anticipated net exposure, at November
30, 1995, KACC had purchased approximately 45,000 tons of primary aluminum at
fixed prices as a partial hedge against approximately 147,000 tons of
fabricated aluminum products sold to customers at fixed or capped prices, and
had sold forward 15,750 tons of primary aluminum at fixed prices.

KACC also enters into hedging transactions in the normal course of business
that are designed to reduce its exposure to fluctuations in foreign exchange
rates. At September 30, 1995, KACC had net forward foreign exchange contracts
totaling approximately $125.9 for the purchase of 174.0 Australian dollars
through April 1997.

KACC has established margin accounts with its counterparties related to
forward aluminum sales and option contracts. KACC is entitled to receive
advances from counterparties related to unrealized gains and, in turn, is
required to make margin deposits with counterparties to cover unrealized losses
related to these contracts. At September 30, 1995, KACC had $2.5, compared with
$50.5 at December 31, 1994, on deposit with a counterparty in respect of such
contracts. These amounts are recorded in Prepaid expenses and other current
assets.

See "Risk Factors--Sensitivity to Prices."

INCOME TAX MATTERS

The Company's net deferred income tax assets as of December 31, 1994, were
$281.0, net of valuation allowances of $133.9. Approximately $125.1 of these
net deferred income tax assets relate to the benefit of loss and credit
carryforwards, net of valuation allowances. The Company evaluated all
appropriate factors to determine the proper valuation allowances for these
carryforwards, including any limitations concerning their use and the year the
carryforwards expire, as well as the levels of taxable income necessary for
utilization. The Company believes, based on the cyclical nature of its
business, its history of prior operating earnings, and its expectations for
future years, that it will more likely than not generate sufficient taxable
income to realize the benefit attributable to the loss and credit carryforwards
for which valuation allowances were not provided. A principal component of the
remaining amount of the net deferred income tax assets is the tax benefit
associated with the accrual for postretirement benefits other than pensions.
The future tax deductions with respect to the turnaround of this accrual will
occur over a thirty to forty-year period. The Company believes a long-term view
of profitability is appropriate and has concluded that this net deferred income
tax asset will more likely than not be realized despite the operating losses
incurred in recent years. See Note 6 of the Notes to Consolidated Financial
Statements for a discussion of these and other income tax matters.

RECENT ACCOUNTING PRONOUNCEMENT

In March 1995, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of
("SFAS 121"). SFAS 121 requires that long-lived assets and certain identifiable
intangibles

17
<PAGE>

to be held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. SFAS 121 requires that long-lived assets and certain
identifiable intangibles to be disposed of be reported at the lower of carrying
amount or fair value less cost to sell. The Company is required to adopt SFAS
121 no later than January 1, 1996. The Company does not expect that the
adoption of SFAS 121 will have a material impact on the Company's consolidated
financial statements.

18
<PAGE>

BUSINESS

The Company engages in aluminum operations through its principal operating
subsidiary, KACC. KACC is a fully integrated aluminum producer operating in all
principal aspects of the aluminum industry--the mining of bauxite (the major
aluminum-bearing ore), the refining of bauxite into alumina (the intermediate
material), the production of primary aluminum and the manufacture of fabricated
(including semi-fabricated) aluminum products. KACC is one of the largest U.S.
aluminum producers in terms of primary smelting capacity and is the western
world's second largest producer/seller of alumina, accounting for approximately
8% of the world's alumina production and for approximately 8% of the Western
world's alumina capacity in 1994. Kaiser's production levels of alumina and
primary aluminum exceed its internal processing needs which allows it to be a
major seller of alumina to third parties (approximately 2.1 million tons in
1994 or 71% of 1994 production) and primary aluminum (approximately 224,000
tons in 1994 or 54% of 1994 production).

STRATEGY

Kaiser's strategic objectives include (i) increasing the competitiveness of
its existing facilities through the application of capital and its proprietary
technology, (ii) developing new technologies and participating in additional
markets for engineered products and other value-added products, and (iii)
increasing its level of foreign activities by using its technical expertise and
capital investments to form joint ventures or acquire equity in aluminum-
related facilities in foreign countries.

During 1994 the Company created a new organization, Kaiser Aluminum
International, with the mission of identifying growth opportunities in targeted
emerging markets and developing the needed "country" competence to match the
Company's product and process competence in capitalizing on such opportunities.
This organization is actively pursuing opportunities in various countries. An
example of the strategic initiatives the Company is undertaking is a new joint
venture in the People's Republic of China (the "PRC") which is designed to
utilize Kaiser's unique technologies for retrofitting older primary aluminum
smelters in order to modernize and expand existing Chinese facilities. See "--
Operations in China."

The Company has also developed a unique micromill for the production of can
sheet from molten metal based on a proprietary thin-strip, high-speed,
continuous-belt casting technique linked directly to hot rolling and cold
rolling mills. The conversion and capital costs of these micromills are
expected to be significantly lower than conventional rolling mills and to
result in improved economics compared with historical manufacturing and
transportation costs for can stock. Most micromills are expected to be
installed in emerging markets in Asia and Latin America where demand for can
sheet is growing rapidly and there is limited indigenous supply. The first
micromill will be constructed in Nevada in 1996 as a demonstration production
facility, and Kaiser expects operational startup of the facility by the end of
1996. See "--Research and Development."

In 1995 the Company's Primary Aluminum Products business unit successfully
restructured electric power purchase agreements for the Company's facilities in
the Pacific Northwest. See "--Primary Aluminum Products." The Company
anticipates that such restructuring will result in significantly lower electric
power costs in 1996 and beyond for the Mead and Tacoma, Washington, smelters
and the Trentwood, Washington, rolling mill. The Flat Rolled Products business
unit is engaged in a major cost reduction and productivity improvement program
at the Trentwood rolling mill based on a cooperative team-based effort with its
employees, including the members of the USWA. This effort includes a
significant shift in the mix of products produced at the mill toward the
products where the Company has particular technological competence. Similar
strategies to improve the Company's competitive position and enhance earnings
are being implemented in each of the Company's businesses.

INDUSTRY OVERVIEW

Primary aluminum is produced by the refining of bauxite into alumina and the
reduction of alumina into primary aluminum. Approximately two pounds of bauxite
are required to produce one pound of alumina,

19
<PAGE>

and approximately two pounds of alumina are required to produce one pound of
primary aluminum. Aluminum's valuable physical properties include its light
weight, corrosion resistance, thermal and electrical conductivity, and high
tensile strength.

Demand

The packaging, transportation and construction industries are the principal
consumers of aluminum in the United States, Japan, and Western Europe. In the
packaging industry, which accounted for approximately 22% of consumption in
1993, aluminum's recyclability and weight advantages have enabled it to gain
market share from steel and glass, primarily in the beverage container area.
Nearly all beer cans and approximately 95% of the soft drink cans manufactured
for the United States market are made of aluminum. Kaiser believes that growth
in the packaging area is likely to continue in the 1990s due to general
population increase and to further penetration of the beverage container market
in Asia and Latin America, where aluminum cans are a substantially lower
percentage of the total beverage container market than in the United States.
Kaiser believes that growth in demand for can sheet in the United States will
follow the growth in population, offset by the effects of the use of lighter
gauge aluminum for can sheet and of plastic container production from newly
installed capacity.

In the transportation industry, which accounted for approximately 29% of
aluminum consumption in the United States, Japan, and Western Europe in 1993,
automotive manufacturers use aluminum instead of steel or copper for an
increasing number of components, including radiators, wheels, and engines, in
order to meet more stringent environmental and fuel efficiency requirements
through vehicle weight reduction. Kaiser believes that sales of aluminum to the
transportation industry have considerable growth potential due to projected
increases in the use of aluminum in automobiles. Kaiser believes that
consumption of aluminum in the construction industry will follow the cyclical
growth pattern of that industry.

Supply

As of year-end 1994, Western world aluminum capacity from 108 smelting
facilities was approximately 16.3 million tons per year. Annual Western world
production of primary aluminum was curtailed during 1994 by approximately .7
million tons compared to 1993. Western world production of primary aluminum for
the first nine months of 1995 increased slightly compared to the first nine
months of 1994. Net exports of aluminum from the former Sino Soviet bloc
increased approximately threefold from 1990 levels during the period from 1991
through 1994 to approximately 2.0 million tons per year. These exports
contributed to a significant increase in London Metal Exchange ("LME") stocks
of primary aluminum which peaked in June 1994. Through September 1995, LME
stocks of primary aluminum declined 2.1 million tons from this peak level. See
"--Recent Industry Trends."

Based upon information currently available, the Company believes that only
moderate additions will be made during 1995-1996 to Western world alumina and
primary aluminum production capacity. The increases in alumina capacity during
1995-1996 are expected to come from one new refinery and incremental expansions
of existing refineries. In addition, at the current time, Kaiser believes that
there is approximately 1.2 million tons of curtailed smelting capacity that
could be restarted by aluminum producers.

Recent Industry Trends

Aluminum industry fundamentals improved significantly in 1994 as Western
world consumption of aluminum grew strongly, particularly in the United States,
and aluminum producers worldwide curtailed primary aluminum production. In the
first nine months of 1995, consumption of aluminum continued to grow, but at a
lower rate than in 1994, and production of primary aluminum increased slightly.
There was a significant decline of 1.1 million tons in the inventories of
primary aluminum on the LME during the first nine months of 1995. The Midwest
U.S. transaction price for primary aluminum in 1995 averaged approximately 86
cents per pound, compared to a 1994 annual average of approximately 72 cents
per pound. The Midwest U.S. transaction price for primary aluminum averaged
approximately 79 cents per pound in December 1995.

20
<PAGE>

Western world demand for alumina, and the price of alumina, declined in 1994
in response to the curtailment of Western smelter production of primary
aluminum, partially offset by increased usage of Western world alumina by
smelters in the Commonwealth of Independent States (the "CIS") and in the PRC.
Slightly increased Western world production of primary aluminum, as well as
continued imports of Western world alumina by the CIS and the PRC, during the
first nine months of 1995 resulted in higher demand for Western world alumina
and significantly stronger spot alumina pricing.

United States shipments of fabricated aluminum products grew 11% in 1994, as
a result of significant growth in all major consuming sections--transportation,
packaging, construction and exports. In the first nine months of 1995, United
States shipments of fabricated aluminum products were 5% higher than in the
first nine months of 1994.

Overall, Kaiser believes that there will be relatively strong demand for
aluminum for the near future, barring an economic recession. This demand is
expected to come both from continued growth in the developed markets through
increased penetration of the automotive sector, and from general uses in
emerging markets.

GENERAL

Kaiser is a direct subsidiary of MAXXAM which, through its subsidiary, KACC,
operates in all principal aspects of the aluminum industry. In addition to the
production utilized by KACC in its operations, KACC sells significant amounts
of alumina and primary aluminum in domestic and international markets. In 1994,
KACC produced approximately 2,928,500 tons of alumina, of which approximately
71% was sold to third parties, and produced 415,000 tons of primary aluminum,
of which approximately 54% was sold to third parties. KACC is also a major
domestic supplier of fabricated aluminum products. In 1994, KACC shipped
approximately 399,000 tons of fabricated aluminum products to third parties,
which accounted for approximately 6% of the total tonnage of United States
domestic shipments in 1994. A majority of KACC's fabricated products are used
by customers as components in the manufacture and assembly of finished end-use
products. See Note 11 of the Notes to the Consolidated Financial Statements.

The following table sets forth total shipments and intracompany transfers of
KACC's alumina, primary aluminum, and fabricated aluminum operations:

<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, -----------------------
1995 1994 1993 1992
------------- ------- ------- -------
(IN THOUSANDS OF TONS)
<S> <C> <C> <C> <C>
ALUMINA:
Shipments to Third Parties.............. 1,494.6 2,086.7 1,997.5 2,001.3
Intracompany Transfers.................. 546.3 820.9 807.5 878.2
PRIMARY ALUMINUM:
Shipments to Third Parties.............. 184.5 224.0 242.5 355.4
Intracompany Transfers.................. 171.3 225.1 233.6 224.4
FABRICATED ALUMINUM PRODUCTS:
Shipments to Third Parties.............. 284.3 399.0 373.2 343.6
</TABLE>

SENSITIVITY TO PRICES AND HEDGING PROGRAMS

Kaiser's operating results are sensitive to changes in the prices of alumina,
primary aluminum, and fabricated aluminum products, and also depend to a
significant degree upon the volume and mix of all products sold and on KACC's
hedging strategies. Fabricated aluminum prices, which vary considerably among
products, are heavily influenced by changes in the price of primary aluminum
and generally lag behind primary aluminum prices for periods of up to six
months. Changes in the market price of primary aluminum

21
<PAGE>

also affect Kaiser's production costs of fabricated products because they
influence the price of aluminum scrap purchased by Kaiser and Kaiser's labor
costs, to the extent such costs are indexed to primary aluminum prices. Through
its variable cost structures, forward sales, and hedging programs, KACC has
attempted to mitigate its exposure to possible declines in the market prices of
alumina, primary aluminum, and fabricated aluminum products while retaining the
ability to participate in favorable pricing environments that may materialize.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Trends--Sensitivity to Prices and Hedging Programs," Note 10 of the
Notes to Consolidated Financial Statements, and Note 5 of the Notes to Interim
Consolidated Financial Statements.

PRODUCTION OPERATIONS

Kaiser's operations are conducted through KACC's decentralized business units
which compete throughout the aluminum industry.

. The alumina business unit, which mines bauxite and obtains additional
bauxite tonnage under long-term contracts, produced approximately 8% of
Western world alumina in 1994. During 1994, KACC utilized approximately 80%
of its bauxite production at its alumina refineries and the remainder was
either sold to third parties or tolled into alumina by a third party. In
addition, during 1994 KACC utilized approximately 29% of its alumina for
internal purposes and sold the remainder to third parties. KACC's share of
total Western world alumina capacity was approximately 8% in 1994.

. The primary aluminum products business unit operates two domestic smelters
wholly owned by KACC and two foreign smelters in which KACC holds
significant ownership interests. In 1994, KACC utilized approximately 46% of
its primary aluminum for internal purposes and sold the remainder to third
parties. KACC's share of total Western world primary aluminum capacity was
approximately 3% in 1994.

. Fabricated aluminum products are manufactured by three business units--flat-
rolled products, extruded products and forgings--which manufacture a variety
of fabricated products (including body, lid, and tab stock for beverage
containers, sheet and plate products, screw machine stock, redraw rod,
forging stock, truck wheels and hubs, air bag canisters, and other forgings
and extruded products) and operate plants located in principal marketing
areas of the United States and Canada. Substantially all of the primary
aluminum utilized in KACC's fabricated products operations is obtained
internally, with the balance of the metal utilized in its fabricated
products operations obtained from scrap metal purchases.

ALUMINA

The following table lists KACC's bauxite mining and alumina refining
facilities as of December 31, 1995:

<TABLE>
<CAPTION>
ANNUAL
PRODUCTION
CAPACITY TOTAL
AVAILABLE ANNUAL
COMPANY TO THE PRODUCTION
ACTIVITY FACILITY LOCATION OWNERSHIP COMPANY CAPACITY
-------- ----------- --------- --------- ---------- ----------
(TONS) (TONS)
<S> <C> <C> <C> <C> <C>
Bauxite Mining............ KJBC(/1/) Jamaica 49% 4,500,000 4,500,000
Alpart(/2/) Jamaica 65% 2,275,000 3,500,000
--------- ---------
6,775,000 8,000,000
========= =========
Alumina Refining.......... Gramercy Louisiana 100% 1,000,000 1,000,000
Alpart Jamaica 65% 943,000 1,450,000
QAL Australia 28.3% 934,000 3,300,000
--------- ---------
2,877,000 5,750,000
========= =========
</TABLE>
- --------
(1) Although KACC owns 49% of Kaiser Jamaica Bauxite Company, it has the right
to receive all of such entity's output.
(2) Alpart bauxite is refined into alumina at the Alpart refinery.

22
<PAGE>

Bauxite mined in Jamaica by Kaiser Jamaica Bauxite Company ("KJBC") is
refined into alumina at KACC's plant at Gramercy, Louisiana, or is sold to
third parties. In 1979, the Government of Jamaica granted KACC a mining lease
for the mining of bauxite sufficient to supply KACC's then-existing Louisiana
alumina refineries at their annual capacities of 1,656,000 tons per year until
January 31, 2020. Alumina from the Gramercy plant is sold to third parties.

Alpart holds bauxite reserves and owns a 1,450,000 tons per year alumina
plant located in Jamaica. KACC has a 65% interest in Alpart and Hydro Aluminium
a.s ("Hydro") owns the remaining 35% interest. KACC has management
responsibility for the facility on a fee basis. KACC and Hydro have agreed to
be responsible for their proportionate shares of Alpart's costs and expenses.
The Government of Jamaica has granted Alpart a mining lease and has entered
into other agreements with Alpart designed to assure that sufficient reserves
of bauxite will be available to Alpart to operate its refinery as it may be
expanded to a capacity of 2,000,000 tons per year through the year 2024.

Alpart has entered into an agreement for the supply of substantially all of
its fuel oil through 1996. The balance of Alpart's fuel oil requirements
through 1996 will be purchased in the spot market.

KACC holds a 28.3% interest in Queensland Alumina Limited ("QAL"), which owns
the largest and one of the most efficient alumina refineries in the world,
located in Queensland, Australia. QAL refines bauxite into alumina, essentially
on a cost basis, for the account of its stockholders pursuant to long-term
tolling contracts. The stockholders, including KACC, purchase bauxite from
another QAL stockholder pursuant to long-term supply contracts. KACC has
contracted to take approximately 792,000 tons per year of capacity or pay
standby charges. KACC is unconditionally obligated to pay amounts calculated to
service its share ($85.7 million at September 30, 1995) of certain debt of QAL,
as well as other QAL costs and expenses, including bauxite shipping costs.
QAL's annual production capacity is approximately 3,300,000 tons, of which
approximately 934,000 tons are available to KACC.

KACC's principal customers for bauxite and alumina consist of large and small
domestic and international aluminum producers that purchase bauxite and
reduction-grade alumina for use in their internal refining and smelting
operations and trading intermediaries who resell raw materials to end-users. In
1994, KACC sold all of its bauxite to one customer, and sold alumina to 12
customers, the largest and top five of which accounted for approximately 19%
and 82% of such sales, respectively. Among alumina producers, the Company
believes KACC is now the world's second largest seller of alumina to third
parties. KACC's strategy is to sell a substantial portion of the bauxite and
alumina available to it in excess of its internal refining and smelting
requirements pursuant to multi-year sales contracts.

PRIMARY ALUMINUM PRODUCTS

The following table lists KACC's primary aluminum smelting facilities as of
December 31, 1995:

<TABLE>
<CAPTION>
FIRST NINE
ANNUAL RATED TOTAL MONTHS
CAPACITY ANNUAL 1994 1995
COMPANY AVAILABLE TO RATED OPERATING OPERATING
ACTIVITY FACILITY OWNERSHIP THE COMPANY CAPACITY RATE RATE
-------- -------- --------- ------------ -------- --------- ----------
(TONS) (TONS)
<S> <C> <C> <C> <C> <C> <C>
Domestic
Washington............ Mead 100% 200,000 200,000 80% 78%
Washington............ Tacoma 100% 73,000 73,000 76% 77%
------- -------
Subtotal............ 273,000 273,000
======= =======
International
Ghana................. Valco 90% 180,000 200,000 70% 68%
Wales, United Kingdom. Anglesey 49% 55,000 112,000 113% 117%
------- -------
Subtotal............ 235,000 312,000
------- -------
Total............... 508,000 585,000
======= =======
</TABLE>

23
<PAGE>

KACC owns two smelters located at Mead and Tacoma, Washington, where alumina
is processed into primary aluminum. The Mead facility uses pre-bake technology
and produces primary aluminum, almost all of which is used at KACC's Trentwood
fabricating facility and the balance of which is sold to third parties. The
Tacoma plant uses Soderberg technology and produces primary aluminum and high-
grade, continuous-cast, redraw rod, which currently commands a premium price in
excess of the price of primary aluminum. Both smelters have achieved
significant production efficiencies in recent years through retrofit
technology, cost controls, and semi-variable wage and power contracts, leading
to increases in production volume and enhancing their ability to compete with
newer smelters. At the Mead plant, KACC has converted to welded anode
assemblies to increase energy efficiency, extended the anode life-cycle in the
smelting process, changed from pencil to liquid pitch to produce carbon anodes
which achieved environmental and operating savings, and engaged in efforts to
increase production through the use of improved, higher-efficiency reduction
cells.

Electric power represents an important production cost for KACC at its
aluminum smelters. In 1995 electric power purchase agreements for the Company's
facilities in the Pacific Northwest were successfully restructured, which the
Company anticipates will result in significantly lower electric power costs in
1996 and beyond for the Mead and Tacoma, Washington, smelters and the
Trentwood, Washington, rolling mill. From 1981 until 1995, electric power for
KACC's Mead and Tacoma smelters in Washington was purchased exclusively from
the BPA by KACC under a contract which expires in 2001. In April 1995 the BPA
agreed to allow each of the DSIs, which include KACC, to purchase a portion of
its requirement for electric power from sources other than the BPA beginning
October 1, 1995. In June 1995 KACC entered into an agreement with the WWP to
purchase up to 50 megawatts of electric power for its Northwest facilities for
a five year term beginning October 1, 1995. KACC is receiving power under that
contract, which power displaces a portion of KACC's interruptible power from
the BPA. In addition, in 1995 KACC entered into a new power purchase contract
with the BPA, which amends the existing BPA power contract and which
contemplates reductions during 1996 in the amount of power which KACC is
obligated to purchase from the BPA and which the BPA is obligated to sell to
KACC, and the replacement of such power with power to be purchased from other
suppliers. KACC is negotiating power purchase agreements for such power with
suppliers other than the BPA, and agreements in principle for the supply of
substantially all of such power through March 1997 have been reached. However,
definitive contracts for the purchase of such power have not been finalized.
Two lawsuits were filed in December 1995 against the BPA by various parties,
one of which petitions for a review of the BPA's "Record of Decision on Direct
Service Industrial Customer Requirements Power Sales Contract" issued on
September 28, 1995, and one of which petitions for review of, and to set aside,
suspend, or modify the action of the BPA to decide to offer 5-year "block"
power sales to the DSIs. The effect of such lawsuits, if any, on KACC's new
power purchase contract with the BPA is not known. Certain of the DSIs,
including KACC, intend to file motions to intervene in the two lawsuits.

KACC began operating its Mead and Tacoma smelters in Washington at
approximately 75% of their full capacity in January 1993, when three reduction
potlines were removed from production (two at its Mead smelter and one at its
Tacoma smelter) in response to a power reduction imposed by the BPA. In March
1995, the BPA offered to its industrial customers, including KACC, surplus firm
power at a discounted rate for the period April 1, 1995, through July 31, 1995,
to enable such customers to restart idle industrial loads. In April 1995, KACC
and the BPA entered into a contract for an amount of such power, and thereafter
KACC restarted one-half of an idle potline (approximately 9,000 tons of annual
capacity) at its Tacoma,

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Washington, smelter. The Tacoma smelter was returned to full production in
October 1995. In 1995 KACC entered into a one-year power supply contract with
the BPA, for a term ending September 30, 1996, in connection with the restart
of idled capacity at its Mead smelter. The restart began in late October 1995
and the Mead smelter has returned to full production.

KACC manages, and holds a 90% interest in, the Valco aluminum smelter in
Ghana. The Valco smelter uses pre-bake technology and processes alumina
supplied by KACC and the other participant into primary aluminum under long-
term tolling contracts which provide for proportionate payments by the
participants in amounts intended to pay not less than all of Valco's operating
and financing costs. KACC's share of the primary aluminum is sold to third
parties. Power for the Valco smelter is supplied under an agreement which
expires in 2017. The agreement indexes two-thirds of the price of the contract
quantity to the market price of primary aluminum. The agreement also provides
for a review and adjustment of the base power rate and the price index every
five years. The most recent review was completed in April 1994 for the 1994-
1998 period. Valco has entered into an agreement with the government of Ghana
under which Valco has been assured (except in cases of force majeure) that it
will receive sufficient electric power to operate at its current level of three
and one-half potlines through December 31, 1996. Kaiser believes that assuming
normal rainfall during 1996, Valco should have available sufficient electric
power to operate at its current level through 1996.

KACC has a 49% interest in the Anglesey aluminum smelter and port facility at
Holyhead, Wales. The Anglesey smelter uses pre-bake technology. KACC supplies
49% of Anglesey's alumina requirements and purchases 49% of Anglesey's aluminum
output. KACC sells its share of Anglesey's output to third parties. Power for
the Anglesey aluminum smelter is supplied under an agreement which expires in
2001.

KACC has developed and installed proprietary retrofit technology in all of
its smelters. This technology--which includes the redesign of the cathodes and
anodes that conduct electricity through reduction cells, improved feed systems
that add alumina to the cells, and a computerized system that controls energy
flow in the cells--enhances KACC's ability to compete more effectively with the
industry's newer smelters. KACC is actively engaged in efforts to license this
technology and sell technical and managerial assistance to other producers
worldwide, and may participate in joint ventures or similar business
partnerships which employ KACC's technical and managerial knowledge. See "--
Research and Development."

KACC's principal primary aluminum customers consist of large trading
intermediaries and metal brokers, who resell primary aluminum to fabricated
product manufacturers, and large and small international aluminum fabricators.
In 1994, KACC sold its primary aluminum production not utilized for internal
purposes to approximately 35 customers, the largest and top five of which
accounted for approximately 25% and 68% of such sales, respectively. Marketing
and sales efforts are conducted by a small staff located at the business unit's
headquarters in Pleasanton, California, and by senior executives of KACC who
participate in the structuring of major sales transactions. A majority of the
business unit's sales are based upon long-term relationships with metal
merchants and end-users.

FABRICATED ALUMINUM PRODUCTS

KACC manufactures and markets fabricated aluminum products for the packaging,
transportation, construction, and consumer durables markets in the United
States and abroad. Sales in these markets are made directly and through
distributors to a large number of customers, both domestic and foreign. In
1994, seven domestic beverage container manufacturers constituted the leading
customers for KACC's fabricated products and accounted for approximately 17% of
KACC's sales revenue.

KACC's fabricated products compete with those of numerous domestic and
foreign producers and with products made with steel, copper, glass, plastic,
and other materials. Product quality, price, and availability are the principal
competitive factors in the market for fabricated aluminum products. KACC has
refocused its fabricated products operations to concentrate on selected
products in which KACC has production expertise, high quality capability, and
geographic and other competitive advantages.

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Flat-Rolled Products. The flat-rolled products business unit, the largest of
KACC's fabricated products businesses, operates the Trentwood sheet and plate
mill at Spokane, Washington. The Trentwood facility is KACC's largest
fabricating plant and accounted for substantially more than one-half of KACC's
1994 fabricated aluminum products shipments. The business unit supplies the
beverage container market (producing body, lid, and tab stock), the aerospace
market, and the tooling plate, heat-treated alloy and common alloy coil
markets, both directly and through distributors. KACC announced in October 1993
that it was restructuring its flat-rolled products operation at its Trentwood
plant to reduce that facility's annual operating costs by at least $50.0
million after full implementation. Such restructuring was successfully
completed in 1995.

KACC's flat-rolled products are sold primarily to beverage container
manufacturers located in the western United States and in the Asian Pacific Rim
countries where the Trentwood plant's location provides KACC with a
transportation advantage. Quality of products for the beverage container
industry and timeliness of delivery are the primary bases on which KACC
competes. Kaiser believes that KACC's capital improvements at Trentwood have
enhanced the quality of KACC's products for the beverage container industry and
the capacity and efficiency of KACC's manufacturing operations, and that KACC
is one of the highest quality producers of aluminum beverage can stock in the
world.

In 1994, the flat-rolled products business unit had 25 domestic and foreign
can stock customers, the majority of which were beverage can manufacturers
(including five of the six major domestic beverage can manufacturers) and the
balance of which were brewers. The largest and top five of such customers
accounted for approximately 26% and 51%, respectively, of the business unit's
revenue. In 1994, the business unit shipped products to over 200 customers in
the aerospace, transportation, and industrial ("ATI") markets, most of which
were distributors who sell to a variety of industrial end-users. The top five
customers in the ATI markets for flat-rolled products accounted for
approximately 13% of the business unit's revenue. The marketing staff for the
flat-rolled products business unit is located at the Trentwood facility and in
Pleasanton, California. Sales are made directly to customers (including
distributors) from eight sales offices located throughout the United States.
International customers are served by sales offices in the Netherlands and
Japan and by independent sales agents in Asia and Latin America.

Extruded Products. The extruded products business unit is headquartered in
Dallas, Texas, and operates soft-alloy extrusion facilities in Los Angeles,
California; Santa Fe Springs, California; Sherman, Texas; and London, Ontario,
Canada; a cathodic protection business located in Tulsa, Oklahoma, that also
extrudes both aluminum and magnesium; rod and bar facilities in Newark, Ohio; a
facility in Jackson, Tennessee, which produces screw machine stock, redraw rod,
forging stock, and billet; and a facility in Richland, Washington, which
produces seamless tubing in both hard and soft alloys for the automotive, other
transportation, export, recreation, agriculture, and other industrial markets.
Each of the soft-alloy extrusion facilities has fabricating capabilities and
provides finishing services.

The extruded products business unit's major markets are in the transportation
industry, to which it provides extruded shapes for automobiles, trucks,
trailers, cabs, and shipping containers, and in the distribution, durable
goods, defense, building and construction, ordnance and electrical markets. In
1994, the extruded products business unit had over 950 customers for its
products, the largest and top five of which accounted for approximately 6% and
20%, respectively, of its revenue. Sales are made directly from plants as well
as marketing locations across the United States.

Forgings. The forgings business unit operates forging facilities at Erie,
Pennsylvania; Oxnard, California; and Greenwood, South Carolina; and a machine
shop at Greenwood, South Carolina. The forgings business unit is one of the
largest producers of aluminum forgings in the United States and is a major
supplier of high-quality forged parts to customers in the automotive,
commercial vehicle and ordnance markets. The high strength-to-weight properties
of forged aluminum make it particularly well-suited for automotive
applications.

In 1994, the forgings business unit had over 300 customers for its products,
the largest and top five of which accounted for approximately 30% and 69%,
respectively, of the forgings business unit's revenue. The

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forgings business unit's headquarters is located in Erie, Pennsylvania, and
there is a sales and engineering office located in Detroit, Michigan.

COMPETITION

Aluminum products compete in many markets with steel, copper, glass, plastic,
and numerous other materials. In recent years, plastic containers have
increased and glass containers have decreased their respective shares of the
soft drink sector of the beverage container market. In the United States
beverage container materials, including aluminum, face increased competition
from plastics as increased polyethylene ("PET") container capacity is brought
on line by plastics manufacturers. Within the aluminum business, KACC competes
with both domestic and foreign producers of bauxite, alumina and primary
aluminum, and with domestic and foreign fabricators. Many of KACC's competitors
have greater financial resources than KACC. KACC's principal competitors in the
sale of alumina include Alcoa Alumina and Chemicals LLC, Billiton Marketing and
Trading BV, and Alcan Aluminium Limited. KACC competes with most aluminum
producers in the sale of primary aluminum.

Primary aluminum and, to some degree, alumina are commodities with generally
standard qualities, and competition in the sale of these commodities is based
primarily upon price, quality and availability. KACC also competes with a wide
range of domestic and international fabricators in the sale of fabricated
aluminum products. Competition in the sale of fabricated products is based upon
quality, availability, price and service, including delivery performance. KACC
concentrates its fabricating operations on selected products in which KACC has
production expertise, high quality capability, and geographic and other
competitive advantages. Kaiser believes that, assuming the current relationship
between worldwide supply and demand for alumina and primary aluminum does not
change materially, the loss of any one of KACC's customers, including
intermediaries, would not have a material adverse effect on KACC's financial
condition or results of operations.

RESEARCH AND DEVELOPMENT

KACC conducts research and development activities principally at four
facilities: the Center for Technology ("CFT") in Pleasanton, California; the
Primary Aluminum Products Division Technology Center ("DTC") adjacent to the
Mead smelter in Washington; the Alumina Development Laboratory ("ADL") at the
Gramercy, Louisiana refinery, which supports Kaiser Alumina Technical Services
("KATS"), and the Automotive Product Development Office located near Detroit,
Michigan. Net expenditures for Company-sponsored research and development
activities were $16.7 million in 1994, $18.5 million in 1993, and $13.5 million
in 1992. KACC's research staff totaled 166 at December 31, 1994. KACC estimates
that research and development net expenditures will be in the range of
approximately $17.0 to $19.0 million in 1995.

CFT performs research and development across a range of aluminum process and
product technologies to support KACC's business units and new business
opportunities. It also selectively offers technical services to third parties.
A significant effort is directed at the automotive market. One project directed
at automotive sheet development is carried out cooperatively with Furukawa
Electric Co., Ltd. of Japan, Pechiney Rhenalu of France, and Kawasaki Steel
Corporation of Japan. The largest and most notable single project being
developed at CFT is a micromill process for producing can body sheet. A pilot
facility has been constructed and operated at CFT. The first micromill will be
constructed in Nevada in 1996 as a demonstration production facility, and KACC
expects operational startup of the facility at the end of 1996.

DTC maintains specialized laboratories and a miniature carbon plant where
experiments with new anode and cathode technology are performed. DTC supports
KACC's primary aluminum smelters, and concentrates on the development of cost-
effective technical innovations such as equipment and process improvements.
KATS, including ADL, provides improved alumina process technology to KACC
facilities and technical support to new business ventures in cooperation with
KACC's international business development group. The Automotive Product
Development Office is a sales and application engineering facility located near
Detroit-area car makers and works with customers, CFT and plant personnel to
create new automotive component designs and improve existing products.

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KACC is actively engaged in efforts to license its technology and sell
technical and managerial assistance to other producers worldwide. Pursuant to
various arrangements, KACC's technology has been installed in alumina
refineries, aluminum smelters and rolling mills located in the United States,
Jamaica, Sweden, Germany, Russia, India, Australia, Korea, New Zealand, Ghana,
Europe, and the United Kingdom. KACC's technology sales and revenue from
technical assistance to third parties were $10.0 million in 1994, $12.8
million in 1993, and $14.1 million in 1992.

KACC has entered into agreements with respect to the Krasnoyarsk smelter
located in Russia pursuant to which KACC has licensed certain of its
technology for use in such facility and agreed to provide purchasing services
in obtaining Western-sourced technology and equipment to be used in such
facility. These agreements were entered into in November 1990, and the
services under them are expected to be completed in 1996. In addition, in 1993
KACC entered into agreements with respect to the Nadvoitsy smelter located in
Russia and the Korba smelter of the Bharat Aluminum Co. Ltd., located in
India, pursuant to which KACC has licensed certain of its technology for use
in such facilities. Services under the Nadvoitsy agreement were completed in
1995, and KACC expects that services under the Korba agreement will be
completed in 1996.

OPERATIONS IN CHINA

In 1994, KACC commenced efforts to increase its activities in certain
countries that are expected to be important suppliers of aluminum and large
customers for aluminum and alumina. KACC intends to use its technical skills,
together with capital investments, to form joint ventures or acquire equity in
facilities in such countries.

In 1995, Kaiser Yellow River Investment Limited ("KYRIL") was formed to
participate in the privatization, modernization, expansion and operation of
aluminum smelting facilities in the PRC. KYRIL has entered into a Joint
Venture Agreement and related agreements (the "Joint Venture Agreements") with
the Lanzhou Aluminum Smelters ("LAS") of the China National Nonferrous Metals
Industry Corporation relating to the formation and operation of Yellow River
Aluminum Industry Company Limited, a Sino-foreign joint equity enterprise
organized under PRC law (the "Joint Venture").

The Joint Venture constitutes the first large-scale privatization in the
Chinese aluminum smelting industry. The Joint Venture's assets and operations
are located primarily in the industrial city of Lanzhou, the capital of Gansu
Province in northwestern China, and in nearby Lianhai, a special economic zone
also in Gansu Province. The smelter at Lanzhou is the fifth largest aluminum
smelter in the PRC and produces approximately 55,000 tons of aluminum ingots
per year. The smelter at Lianhai produces approximately 30,000 tons of
aluminum ingots per year. LAS's capital contribution to the Joint Venture
consisted primarily of the Lanzhou and Lianhai smelters.

The Joint Venture Agreements include provisions for KYRIL to contribute up
to $59.7 million to the Joint Venture in exchange for up to a 49% interest in
the Joint Venture (the "Capital Contribution") and contemplate that such
capital may be used to expand LAS's production capacity from 85,000 to 115,000
metric tons, construct a dry Soderberg paste plant, install and upgrade
pollution control equipment, and provide for general corporate purposes,
including working capital. KYRIL contributed $9.0 million as a contribution to
the capital of the Joint Venture in July 1995. The parties to the Joint
Venture are currently engaged in discussions concerning the amount, timing and
other conditions relating to KYRIL's additional contributions to the Joint
Venture. Governmental approval in the PRC will be necessary in order to
implement any arrangements agreed to by the parties, and there can be no
assurance such approvals will be obtained.

KACC, through its Extruded Products business unit, has entered into
contracts to form two small joint venture companies in the PRC. KACC will
indirectly acquire equity interests of approximately 45% and

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49%, respectively, in these two companies which will manufacture aluminum
extrusions, in exchange for the contribution to those companies of certain used
equipment, technology, services and cash. The majority equity interests in the
two companies will be owned by affiliates of Guizhou Guang Da Construction
Company.

EMPLOYEES

During 1994, KACC employed an average of 9,744 persons, compared with an
average of 10,220 employees in 1993, and 10,130 employees in 1992. At September
30, 1995, KACC's work force was 9,593, including a domestic work force of
5,937, of whom 4,024 were paid at an hourly rate. Most hourly paid domestic
employees are covered by collective bargaining agreements with various labor
unions. Approximately 72% of such employees are covered by a master agreement
(the "Labor Contract") with the USWA. The Labor Contract covers KACC's plants
in Spokane (Trentwood and Mead) and Tacoma, Washington; Gramercy, Louisiana;
and Newark, Ohio. The Labor Contract replaced a contract that expired October
31, 1994 and was reached after an eight-day work stoppage by the USWA at these
plants in February 1995. In February 1995, Alpart's employees engaged in a six-
day work stoppage by its National Workers Union, which was settled by a new
contract.

The Labor Contract provides for base wages at all covered plants. In
addition, workers covered by the Labor Contract may receive quarterly bonus
payments based on various indices of profitability, productivity, efficiency,
and other aspects of specific plant performance, as well as, in certain cases,
the price of alumina or primary aluminum. Pursuant to the Labor Contract, base
wage rates were raised effective January 2, 1995, were raised effective
November 6, 1995, and will be raised an additional amount effective November 3,
1997, and an amount in respect of the cost of living adjustment under the
previous master agreement will be phased into base wages during the term of the
Labor Contract. In the second quarter of 1995, KACC acquired up to $2,000 of
preference stock held in a stock plan for the benefit of each of approximately
82% of the employees covered by the Labor Contract and in the first half of
1998 will acquire up to an additional $4,000 of such preference stock held in
such plan for the benefit of substantially the same employees. In addition, if
a profitability test is satisfied, KACC will acquire during 1996 or 1997 up to
an additional $1,000 of such preference stock held in such plan for the benefit
of substantially the same employees. KACC made and will make comparable
acquisitions of preference stock held for the benefit of each of certain
salaried employees. Management considers KACC's employee relations to be
satisfactory.

ENVIRONMENTAL MATTERS

Kaiser and KACC are subject to a wide variety of Environmental Laws. Such
laws are periodically amended and from time to time new ones are adopted. The
Environmental Laws regulate, among other things, air and water emissions and
discharges; the generation, storage, treatment, transportation, and disposal of
solid and hazardous waste; the release of hazardous or toxic substances,
pollutants and contaminants into the environment; and, in certain instances,
the environmental condition of industrial property prior to transfer or sale.
In addition, Kaiser and KACC are subject to various federal, state, and local
workplace health and safety laws and regulations ("Health Laws").

From time to time, KACC is subject, with respect to its current and former
operations, to fines or penalties assessed for alleged breaches of the
Environmental and Health Laws and to claims and litigation brought by federal,
state or local agencies and by private parties seeking remedial or other
enforcement action under the Environmental and Health Laws or damages related
to alleged injuries to health or to the environment, including claims with
respect to certain waste disposal sites and the remediation of sites presently
or formerly operated by KACC. See"--Legal Proceedings." KACC currently is
subject to a number of lawsuits under CERCLA. KACC, along with certain other
entities, has been named as a Potentially Responsible Party ("PRP") for
remedial costs at certain third-party sites listed on the National Priorities
List under CERCLA and, in certain instances, may be exposed to joint and
several liability for those costs or damages to natural resources. KACC's Mead,
Washington, facility has been listed on the National Priorities List under
CERCLA. In addition, in connection with certain of its asset sales, KACC has
indemnified the

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purchasers of assets with respect to certain liabilities (and associated
expenses) resulting from acts or omissions arising prior to such dispositions,
including environmental liabilities. While uncertainties are inherent in the
final outcome of these matters, and it is presently impossible to determine the
actual costs that ultimately may be incurred, Kaiser believes that the
resolution of such uncertainties should not have a material adverse effect on
KACC's consolidated financial position or results of operations.

Environmental capital spending was $11.9 million in 1994, $12.6 million in
1993, and $13.1 million in 1992. Annual operating costs for pollution control,
not including corporate overhead or depreciation, were approximately $23.1
million in 1994, $22.4 million in 1993, and $21.6 million in 1992. Legislative,
regulatory, and economic uncertainties make it difficult to project future
spending for these purposes. However, Kaiser currently anticipates that in the
1995-1996 period, environmental capital spending will be within the range of
approximately $15.0-$18.0 million per year, and operating costs for pollution
control will be within the range of $25.0-$27.0 million per year. In addition,
$3.6 million in cash expenditures in 1994, $7.2 million in 1993, and $9.6
million in 1992 were charged to previously established reserves relating to
environmental costs. Approximately $4.0 million is expected to be charged to
such reserves in 1995.

Based on Kaiser's evaluation of these and other environmental matters, Kaiser
has established environmental accruals primarily related to potential solid
waste disposal and soil and groundwater remediation matters. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Trends--Environmental Contingencies", Note 9 of the Notes to Consolidated
Financial Statements, and Note 4 of the Notes to Interim Consolidated Financial
Statements.

PROPERTIES

The locations and general character of the principal plants, mines, and other
materially important physical properties relating to KACC's operations are
described in "Business--Production Operations" and those descriptions are
incorporated herein by reference. KACC owns in fee or leases all the real
estate and facilities used in connection with its business. Plants and
equipment and other facilities are generally in good condition and suitable for
their intended uses, subject to changing environmental requirements. Although
KACC's domestic aluminum smelters and alumina facility were initially designed
early in KACC's history, they have been modified frequently over the years to
incorporate technological advances in order to improve efficiency, increase
capacity, and achieve energy savings. Kaiser believes that KACC's domestic
plants are cost competitive on an international basis. Due to KACC's variable
cost structure, the plants' operating costs are relatively lower in periods of
low primary aluminum prices and relatively higher in periods of high primary
aluminum prices.

KACC's obligations under the 1994 Credit Agreement are secured by, among
other things, mortgages on KACC's major domestic plants (other than the
Gramercy alumina plant). See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources--Capital
Structure."

LEGAL PROCEEDINGS

ENVIRONMENTAL LITIGATION

Aberdeen Pesticide Dumps Site Matter

The Aberdeen Pesticide Dumps Site, listed on the Superfund National
Priorities List, is composed of five separate sites around the town of
Aberdeen, North Carolina (collectively, the "Sites"). The Sites are of concern
to the United States Environmental Protection Agency (the "EPA") because of
their past use as either pesticide formulation facilities or pesticide disposal
areas from approximately the mid-1930's through the late-1980's. The United
States filed a cost recovery complaint (the "Complaint") in the United States
District Court for the Middle District of North Carolina, Rockingham Division,
No. C-89-231-R, which, as

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amended, includes KACC and a number of other defendants. The Complaint, as
amended, seeks reimbursement for past and future response costs and a
determination of liability of the defendants under Section 107 of CERCLA. The
EPA has performed a Remedial Investigation/Feasibility Study and issued a
Record of Decision ("ROD") for the Sites in September 1991. The estimated cost
of the major soil remediation remedy selected for the Sites is approximately
$32 million. Other possible remedies described in the ROD would have estimated
costs of approximately $53 million and $222 million, respectively. The EPA has
stated that it has incurred past costs at the Sites in the range of $7.5-$8
million as of February 9, 1993, and alleges that response costs will continue
to be incurred in the future.

On May 20, 1993, the EPA issued three unilateral Administrative Orders under
Section 106(a) of CERCLA ordering the respondents, including KACC, to perform
the soil remedial design and remedial action described in the ROD for three of
the Sites. The estimated cost as set forth in the ROD for the remedial action
at the three Sites is approximately $27 million. A number of other companies
are also named as respondents. KACC has entered into a PRP Participation
Agreement with certain of the respondents to participate jointly in responding
to the Administrative Orders dated May 20, 1993, regarding soil remediation, to
share costs incurred on an interim basis, and to seek to reach a final
allocation of costs through agreement or to allow such final allocation and
determination of liability to be made by the United States District Court. By
letter dated July 6, 1993, KACC has notified the EPA of its ongoing
participation with such group of respondents which, as a group, are intending
to comply with the Administrative Orders to the extent consistent with
applicable law. By letters dated December 30, 1993, the EPA notified KACC of
its potential liability for, and requested that KACC, along with a number of
other companies, undertake or agree to finance, groundwater remediation at
certain of the Sites. The ROD-selected remedy for the groundwater remediation
selected by EPA includes a variety of techniques. The EPA has estimated the
total present worth cost, including thirty years of operation and maintenance,
at approximately $11.8 million. On June 22, 1994, the EPA issued two unilateral
Administrative Orders under Section 106(a) of CERCLA ordering the respondents,
including KACC, to undertake the groundwater remediation at three of the Sites.
A PRP Participation Agreement with respect to groundwater remediation has been
entered into by certain of the respondents, including KACC, and these
respondents are proceeding with work required under the Administrative Orders
dated June 22, 1994.

Based upon the information presently available to it, Kaiser is unable to
determine whether KACC has any liability with respect to any of the Sites or,
if there is any liability, the amount thereof. Two government witnesses have
testified that KACC acquired pesticide products from the operator of the
formulation site over a two to three year period. KACC has been unable to
confirm the accuracy of this testimony.

United States of America v. Kaiser Aluminum & Chemical Corporation

In February 1989, a civil action was filed by the United States Department of
Justice (the "DOJ") at the request of the EPA against KACC in the United States
District Court for the Eastern District of Washington, Case No. C-89-106-CLQ.
The complaint alleged that emissions from certain stacks at KACC's Trentwood
facility in Spokane, Washington intermittently violated the opacity standard
contained in the Washington State Implementation Plan ("SIP"), approved by the
EPA under the federal Clean Air Act. The complaint sought injunctive relief,
including an order that KACC take all necessary action to achieve compliance
with the SIP opacity limit and the assessment of civil penalties of not more
than $25,000 per day.

In the course of the litigation, questions arose as to whether the observers
who recorded the alleged exceedances were qualified under the SIP to read
opacity. In July 1990, KACC and the DOJ agreed to a voluntary dismissal of the
action. At that time, however, the EPA had arranged for increased surveillance
of the Trentwood facility by consultants and the EPA's personnel. From May 1990
through May 1991, these observers recorded approximately 130 alleged
exceedances of the SIP opacity rule. DOJ representatives have stated their
intent to file a second lawsuit against KACC based on the opacity observations
recorded during that period.

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KACC and the EPA, without adjudication of any issue of fact or law, and
without any admission of the violations alleged in the underlying complaint,
have entered into a Consent Decree, which on October 31, 1995, was lodged in
United States District Court for the Eastern District of Washington for
approval. If approved, the Consent Decree will settle the underlying disputes
and require KACC to (i) pay a $.5 million civil penalty, (ii) complete a
program of plant improvements and operational changes that began in 1990 at its
Trentwood facility, including the installation of an emission control system to
capture particulate emissions from certain furnaces, and (iii) achieve and
maintain furnace compliance with the opacity standard in the SIP by no later
than February 28, 1997. The Company anticipates that capital expenditures for
the environmental upgrade of the furnace operation at its Trentwood facility,
including the improvements and changes required by the Consent Decree, will be
approximately $20.0 million.

Catellus Development Corporation v. Kaiser Aluminum & Chemical Corporation and
James L. Ferry & Son Inc.

In January 1991, the City of Richmond, et al. (the "Plaintiffs") filed a
Second Amended Complaint for Damages and Declaratory Relief against the United
States, Catellus Development Corporation ("Catellus") and other defendants
(collectively, the "Defendants") alleging, among other things, that the
Defendants caused or allowed hazardous substances, pollutants, contaminants,
debris and other solid wastes to be discharged, deposited, disposed of or
released on certain property located in Richmond, California (the "Property")
formerly owned by Catellus and leased to KACC for the purpose of shipbuilding
activities conducted by KACC on behalf of the United States during World War
II. The Plaintiffs sought recovery of response costs and natural resource
damages under CERCLA. Certain of the Plaintiffs alleged they had incurred or
expected to incur costs and damages of approximately $49 million. Catellus
subsequently filed a third party complaint (the "Third Party Complaint")
against KACC in the United States District Court for the Northern District of
California, Case No. C-89-2935 DLJ. Thereafter, the Plaintiffs filed a separate
complaint against KACC, Case No. C-92-4176. The Plaintiffs settled their CERCLA
and tort claims against the United States for $3.5 million plus 35 percent of
future response costs.

The trial involving this case commenced in March 1995. During the trial,
Plaintiffs settled their claims against Catellus in exchange for payment of
approximately $3.25 million. Subsequently, on June 2, 1995, the United States
District Court for the Northern District of California issued an order on the
remaining claims in that action. On December 7, 1995, the District Court issued
the Final Judgment on those claims concluding that KACC is liable for various
costs and interest, aggregating approximately $2.2 million, fifty percent (50%)
of future costs of cleaning up certain parts of the Property and certain fees
and costs associated specifically with the claim by Catellus against KACC.
Based on KACC's estimate of future costs of cleanup, resolution of the Catellus
matter is not expected to have a material adverse effect on Kaiser's
consolidated financial condition or results of operations.

Waste Inc. Superfund Site

On December 8, 1995, the EPA issued a unilateral Administrative Order for
Remedial Design and Remedial Action under CERCLA to KACC and thirty-one other
respondents for remedial design and action at the Waste Inc. Superfund Site at
Michigan City, Indiana. This site was operated as a landfill from 1965 to 1982.
KACC is alleged to have arranged for the disposal of waste from its formerly-
owned plant at Wanatah, Indiana, during the period from 1964 to 1972. In its
Record of Decision, the EPA estimated the cost of the work to be performed to
have a present value of $15.7 million. KACC's share of the total waste sent to
the site is unknown. A consultant retained by a group of PRPs estimated that
KACC contributed 2.0% of the waste sent to the site by the forty-one largest
contributors. KACC believes that the total amount that could be reasonably
allocated to KACC is substantially less than the volume computed by the PRPs'
consultant. KACC's ultimate exposure will depend on the number of PRPs that
participate and the volume of waste properly allocable to KACC. Based on the
EPA's cost estimate, KACC believes that its financial exposure for remedial
design and remedial action at this site is less than $500,000.

32
<PAGE>

ASBESTOS-RELATED LITIGATION

KACC is a defendant in a number of lawsuits, some of which involve claims of
multiple persons, in which the plaintiffs allege that certain of their injuries
were caused by, among other things, exposure to asbestos during, and as a
result of, their employment or association with KACC or exposure to products
containing asbestos produced or sold by KACC. The lawsuits generally relate to
products KACC has not manufactured for at least 15 years. At October 31, 1995,
the number of such claims pending was approximately 58,200 as compared to
31,700 at June 30, 1995, and 25,200 at December 31, 1994. In the first ten
months of 1995, approximately 39,400 of such claims were received and 6,400
settled or dismissed. KACC has been advised by its regional counsel that,
although there can be no assurance, the recent increase in pending claims may
be attributable in part to tort reform legislation in Texas which was passed by
the legislature in March 1995 and which became effective on September 1, 1995.
The legislation, among other things, is designed to restrict, beginning
September 1, 1995, the filing of cases in Texas that do not have a sufficient
nexus to that jurisdiction, and to impose, generally as of September 1, 1996,
limitations relating to joint and several liability in tort cases. A
substantial portion of the asbestos-related claims that were filed and served
on KACC between June 30, 1995, and October 31, 1995, were filed in Texas prior
to September 1, 1995. For additional information, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources--Asbestos Contingencies", Note 9 of the Notes to Consolidated
Financial Statements, and Note 4 of the Notes to Interim Consolidated Financial
Statements.

OTHER PROCEEDINGS

On August 24, 1994, the DOJ issued Civil Investigative Demand No. 11356 ("CID
No. 11356") requesting information from Kaiser regarding (i) its production,
capacity to produce, and sales of primary aluminum from January 1, 1991, to the
date of the response; (ii) any actual or contemplated reduction in its
production of primary aluminum during that period; and (iii) any communications
with others regarding any actual, contemplated, possible or desired reductions
in primary aluminum production by Kaiser or any of its competitors during that
period. Management believes that Kaiser's actions have at all times been
appropriate, and Kaiser has submitted documents and interrogatory answers to
the DOJ responding to CID No. 11356.

On March 27, 1995, the DOJ issued Civil Investigative Demand No. 12503 ("CID
No. 12503"), as part of an industry-wide investigation, requesting information
from KACC regarding (i) any actual or contemplated changes in its method of
pricing can stock from January 1, 1994, through March 31, 1995, (ii) the
percentage of aluminum scrap and primary aluminum ingot used by KACC to produce
can stock and the manner in which KACC's cost of acquiring aluminum scrap is
factored into its can stock prices, and (iii) any communications with others
regarding any actual or contemplated changes in its method of pricing can stock
from January 1, 1994, through March 31, 1995. Kaiser believes that KACC's
actions have at all times been appropriate, and KACC has submitted documents
and interrogatory answers to the DOJ responding to CID No. 12503.

Various other lawsuits and claims are pending against KACC. While
uncertainties are inherent in the final outcome of such matters and it is
presently impossible to determine the actual costs that ultimately may be
incurred, management believes that the resolution of such uncertainties and the
incurrence of such costs should not have a material adverse effect on the
Company's consolidated financial position or results of operations.

33
<PAGE>

MANAGEMENT

The following table sets forth certain information, as of December 1, 1995,
with respect to the executive officers and directors of the Company.

<TABLE>
<CAPTION>
NAME POSITIONS AND OFFICES WITH THE COMPANY
---- --------------------------------------
<S> <C>
George T. Haymaker, Jr..... Chairman of the Board, Chief Executive Officer and
Director
Joseph A. Bonn............. Vice President, Planning and Administration
John T. La Duc............. Vice President, Chief Financial Officer and
Treasurer
Anthony R. Pierno.......... Vice President and General Counsel
Byron L. Wade.............. Vice President, Secretary and Deputy General Counsel
Robert E. Cole............. Vice President, Government Affairs of KACC
John E. Daniel............. Vice President, and President of Kaiser Primary
Products, of KACC
Richard B. Evans........... Vice President, and President of Kaiser Micromills,
of KACC
Robert W. Irelan........... Vice President, Public Relations of KACC
Alan G. Longmuir........... Vice President of KACC
Raymond J. Milchovich...... Vice President, and President of Kaiser Flat-Rolled
Products, of KACC
James T. Owen.............. Vice President, and President of Kaiser Extruded
Products, of KACC
Geoffrey W. Smith.......... Vice President, and President of Kaiser Alumina, of
KACC
Kris S. Vasan.............. Vice President, Financial Risk Management, of KACC
Lawrence L. Watts.......... Vice President, and President of Kaiser Aluminum
International, of KACC
Charlie Alongi............. Controller
Robert J. Cruikshank....... Director
Charles E. Hurwitz ........ Director and Vice Chairman
Ezra G. Levin ............. Director
Robert Marcus ............. Director
Robert J. Petris........... Director
</TABLE>

George T. Haymaker, Jr. Mr. Haymaker, age 57, assumed the positions of
Chairman of the Board and Chief Executive Officer of the Company and KACC
effective January 1, 1994. From May 1993 to December 1993, Mr. Haymaker served
as President and Chief Operating Officer of the Company and KACC. Mr. Haymaker
became a director of the Company in May 1993, and a director of KACC in June
1993. From 1987 to April 1993, Mr. Haymaker had been a partner in a partnership
which acquired, redirected and operated small to medium sized companies in the
metals industry. He served as President from February 1992 through March 1993,
and has been a director since July 1987 of Metalmark Corporation, which is in
the business of semi-fabrication of aluminum specialty foils and extrusions.
From May 1986 until February 1993, he also served as President of West Coast
Sales Corp., which provides management and acquisition services. Mr. Haymaker
also served as Chief Executive Officer and a director of Amarlite Architectural
Products, Inc. ("Amarlite"), a producer of architectural curtain wall and
entrance products, from August 1990 to April 1992 and from April 1989 to
February 1993, respectively. He was a director of American Powdered Metals
Company, which is engaged in the manufacture of powdered metal components, from
August 1988 to March 1993, and Hayken Metals Asia Limited, which represents
manufacturers of aluminum and metal products, from January 1988 to April 10,
1993. From 1984 to 1986, Mr. Haymaker served as Executive Vice President--
Aluminum Operations of Alumax Incorporated, being responsible for all primary
aluminum and semifabricating activities.

Joseph A. Bonn. Mr. Bonn, age 51, has been Vice President, Planning and
Administration of the Company and KACC since February 1992 and July 1989,
respectively. Mr. Bonn has served as a Vice

34
<PAGE>

President of KACC since April 1987 and served as Senior Vice President--
Administration of MAXXAM from September 1991 through December 1992. He was also
KACC's Director of Strategic Planning from April 1987 until July 1989.

John T. La Duc. Mr. La Duc, age 52, has been Vice President and Chief
Financial Officer of the Company since June 1989 and May 1990, respectively and
has been Treasurer of the Company since August 1995. He has been Treasurer of
KACC since June 1995, Chief Financial Officer of KACC since January 1990 and a
Vice President of KACC since June 1989. From January 1993 until April 1993, Mr.
La Duc served as Treasurer of the Company and KACC, having previously served as
Treasurer of the Company from September 1987 to May 1990. Mr. La Duc also
previously served as Treasurer of KACC from September 1987 until January 1990.
Since September 1990, Mr. La Duc has served as Senior Vice President of MAXXAM.
Mr. La Duc also serves as a Vice President and a director of MAXXAM Group Inc.
("MGI"), a wholly owned subsidiary of MAXXAM, The Pacific Lumber Company
("Pacific Lumber"), an indirect subsidiary of MAXXAM engaged in forest products
operations, and Pacific Lumber's subsidiary, Scotia Pacific Holding Company
("Scotia Pacific"). He previously served as Chief Financial Officer of MAXXAM
and MGI from September 1990 until December 1994 and February 1995,
respectively, and of Pacific Lumber from October 1990, and Scotia Pacific from
November 1992, until February 1995.

Anthony R. Pierno. Mr. Pierno, age 63, has served as Vice President and
General Counsel of the Company and KACC since January 1992. He also serves as
Senior Vice President and General Counsel of MAXXAM, positions he has held
since February 1989. Mr. Pierno has also served as Vice President and General
Counsel of MGI, Pacific Lumber and Scotia Pacific and as a director of MGI and
Pacific Lumber since November 1993. Immediately prior to joining MAXXAM, Mr.
Pierno served as partner in charge of the business practice group in the Los
Angeles office of the law firm of Pillsbury, Madison & Sutro. He has served as
the Commissioner of Corporations of the state of California and as chair of
several committees of the State Bar of California. Mr. Pierno is Chairman of
the Board of Trustees of Whittier College, and a former member and Chairman of
the Board of Trustees of Marymount College.

Byron L. Wade. Mr. Wade, age 48, has served as Vice President and Secretary
of the Company and KACC since January 1992, and Deputy General Counsel of the
Company and KACC since May and June 1992, respectively. Mr. Wade has also
served as Vice President and Deputy General Counsel of MAXXAM since May 1990,
and Secretary of MAXXAM since October 1988. He previously served as Assistant
Secretary and Assistant General Counsel of MAXXAM from November 1987 to October
1988 and May 1990, respectively. Mr. Wade has served as Vice President,
Secretary and Deputy General Counsel of Pacific Lumber and Scotia Pacific since
June 1990 and November 1992, respectively, and as Vice President, Secretary and
Deputy General Counsel of MGI since July 1990. He had previously served as Vice
President, Secretary and General Counsel of MCO Resources, Inc., a publicly
traded oil and gas company, which was majority owned by MAXXAM.

Robert E. Cole. Mr. Cole, age 49, has been a Vice President of KACC since
March 1981. Since September 1990, Mr. Cole also has served as Vice President--
Federal Government Affairs of MAXXAM, MGI and Pacific Lumber. He also currently
serves as Chairman of the Board of National Environmental Development
Association, and as a director, Secretary and Treasurer of Global Climate
Coalition, both of which are nonprofit organizations.

John E. Daniel. Mr. Daniel, age 59, has been a Vice President of KACC since
January 1992, President of Kaiser Primary Products since June 1995, and has
been the General Manager of KACC's primary aluminum products business unit
since November 1990. From November 1990 to January 1992, he was Divisional Vice
President of KACC's primary aluminum products business unit. From December 1989
to November 1990, Mr. Daniel was Reduction Plant Manager of KACC's Tacoma,
Washington plant. From July 1986 to December 1989, he was Reduction Plant
Manager of KACC's formerly owned Ravenswood, West Virginia plant.

35
<PAGE>

Richard B. Evans. Mr. Evans, age 47, has been a Vice President of KACC since
January 1, 1992, and has been responsible for the worldwide commercial
development of KACC's proprietary micromill rolling process for canstock
production since April 1994. Mr. Evans has been President of Kaiser Micromills
since June 1995. He previously served as General Manager of KACC's flat-rolled
products business unit from January 1989 to April 1994. From July 1986 to
January 1992, he was Divisional Vice President of KACC's flat-rolled products
business unit.

Robert W. Irelan. Mr. Irelan, age 58, has served KACC as Vice President,
Public Relations since February 1988. He has also been Vice President--Public
Relations of MGI, Pacific Lumber and MAXXAM since September 1990. From June
1985 to February 1988, Mr. Irelan served as Divisional Vice President--
Corporate Public Relations of KACC, and from 1968 to June 1985 he served KACC
and certain affiliated companies in a variety of positions.

Alan G. Longmuir. Mr. Longmuir, age 54, has been a Vice President of KACC
since June 1995, and previously was Vice President--Research and Development of
KACC since October 1988. Mr. Longmuir served as KACC's Director of
Manufacturing Systems from August 1987 to October 1988, and from January 1978
to August 1987 he served as KACC's Manager--Metals Automation.

Raymond J. Milchovich. Mr. Milchovich, age 46, has been a Vice President, and
President of Kaiser Flat-Rolled Products, of KACC since June 1995. From July
1986 to June 1995, Mr. Milchovich served as divisional Vice President of KACC's
flat-rolled products business unit and Works Manager of KACC's Trentwood
facility in Spokane, Washington.

James T. Owen. Mr. Owen, age 58, has been a Vice President, and President of
Kaiser Extruded Products, of KACC since June 1995. Mr. Owen previously served
as a divisional Vice President and General Manager of KACC's extruded products
business unit from February 1988 to June 1995.

Geoffrey W. Smith. Mr. Smith, age 48, has been a Vice President of KACC since
January 1992. From December 1994 until June 1995, Mr. Smith was General Manager
of KACC's alumina business unit. Mr. Smith has been President of Kaiser Alumina
since June 1995. Mr. Smith previously served as Co-General Manager of KACC's
alumina business unit from September 1991 through December 1994. From September
1990 to January 1992, Mr. Smith was Divisional Vice President of KACC's alumina
business unit. From August 1988 to August 1990, Mr. Smith was Director of
Business Development for the alumina business unit, and from 1982 to August
1988, he was Operations/Technical Manager for KACC's Gramercy, Louisiana,
facility.

Kris S. Vasan. Mr. Vasan, age 46, has been Vice President, Financial Risk
Management of KACC since June 1995. Mr. Vasan previously served as Treasurer of
the Company and KACC from April 1993 until June 1995. Prior to that time Mr.
Vasan served the Company and KACC as Director of Financial Planning and
Analysis from June 1990 until April 1993. From October 1987 until June 1990, he
served as Associate Director of Financial Planning and Analysis.

Lawrence L. Watts. Mr. Watts, age 48, has been a Vice President of KACC since
January 1992. From April 1994 until June 1995, Mr. Watts was General Manager--
International Development. Mr. Watts has been President of Kaiser Aluminum
International since June 1995. Mr. Watts previously served as Co-General
Manager of KACC's alumina business unit since September 1991 until December
1994. From June 1989 to January 1992, Mr. Watts was Divisional Vice President,
Governmental Affairs and Human Resources, for the alumina business unit, and
from July 1988 to June 1989, he was Divisional Vice President, Public Relations
and Governmental Relations, for the alumina business unit. From September 1984
to July 1988, Mr. Watts was Manager, Human Resources for the alumina business
unit.

Charlie Alongi. Mr. Alongi, age 65, has been the Controller of the Company
and KACC since July 1989, and was the Assistant Controller of KACC from
February 1982 until July 1989.

36
<PAGE>

Robert J. Cruikshank. Mr. Cruikshank, age 65, has served as a director of the
Company and KACC since January 1994. In addition, he has been a director of
MAXXAM since May 1993. Mr. Cruikshank was a Senior Partner in the international
public accounting firm of Deloitte & Touche from December 1989 until his
retirement in March 1993. Prior to its merger with Touche Ross & Co. in
December 1989, Mr. Cruikshank served as Managing Partner of Deloitte Haskins &
Sells from June 1974 until the merger, and served on such firm's board of
directors from 1981 to 1985. Mr. Cruikshank also serves as a director and on
the Compensation Committee of Houston Industries Incorporated, a public utility
holding company with interests in electric utilities, coal and transportation
businesses; a director of Texas Biotechnology Incorporated; and as Advisory
Director of Compass Bank--Houston.

Charles E. Hurwitz. Mr. Hurwitz, age 55, was appointed Vice Chairman of KACC
in December 1994 and has served as a director of the Company and KACC since
October and November 1988, respectively. Mr. Hurwitz has also served as a
member of the Board of Directors and the Executive Committee of MAXXAM since
August 1978 and was elected Chairman of the Board and Chief Executive Officer
of MAXXAM in March 1980. Since May 1982, Mr. Hurwitz has been Chairman of the
Board and Chief Executive Officer of MGI. Since January 1993, Mr. Hurwitz has
also served MAXXAM and MGI as President. From May 1986 until February 1993, Mr.
Hurwitz served as a director of Pacific Lumber, and from December, 1992 until
February 1993, he served as Chairman of the Board of Pacific Lumber. Mr.
Hurwitz has been, since January 1974, Chairman of the Board and Chief Executive
Officer of Federated.

Ezra G. Levin. Mr. Levin, age 61, has been a director of the Company since
July 1991. He has been a director of KACC since November 1988, and a director
of MAXXAM since May 1978. Mr. Levin also served as a director of the Company
from April 1988 to May 1990, and as a director of MGI from May 1982 through
December 1993. Mr. Levin is a partner in the law firm of Kramer, Levin,
Naftalis, Nessen, Kamin & Frankel. He also serves as a trustee of Federated and
as a director of Pacific Lumber, Scotia Pacific and United Mizrahi Bank and
Trust Company.

Robert Marcus. Mr. Marcus, age 70, has been a director of the Company and
KACC since September 1991. From 1987 to January 1992, Mr. Marcus was a partner
in American Industrial Partners, a San Francisco and New York based firm
specializing in private equity investments in industrial companies. From 1983
to 1991, Mr. Marcus was a director of Domtar Inc., a Canadian resource-based
multi-business corporation. From 1982 to 1987, Mr. Marcus served as President
and Chief Executive Officer of Alumax Inc., an integrated aluminum company.

Robert J. Petris. Mr. Petris, age 70, has been a director of the Company
since May 1995 and KACC since June 1995. He became Special Assistant to the
International President of the United Steelworkers of America on June 1, 1995.
Since 1977, Mr. Petris has been a member of the International Union Executive
Board and Director of District 38, where he has been exposed to a wide range of
issues and problems in the aluminum, steel, container and non-ferrous metals
industries.

37
<PAGE>

CERTAIN TRANSACTIONS

For periods through June 30, 1993, the Company and its subsidiaries
(including KACC) were members of an affiliated group of corporations (an
"Affiliated Group") within the meaning of Section 1504 of the Code, of which
MAXXAM is the common parent corporation (the "MAXXAM Tax Group"). Effective
July 1, 1993, the Company and its subsidiaries are no longer members of the
MAXXAM Tax Group (the "Deconsolidation") but are members of a new Affiliated
Group of which the Company is the common parent corporation (the "New Kaiser
Tax Group"). The taxable income and loss and tax credits for the Company and
its subsidiaries for the period January 1, 1993 through June 30, 1993, was
included in the 1993 MAXXAM Tax Group consolidated Federal income tax return
(the "MAXXAM 1993 Tax Return"). For periods beginning on or after July 1, 1993
(the "Post Deconsolidation Periods"), the taxable income and loss and tax
credits for the Company and its subsidiaries was and will be included in the
consolidated Federal income tax returns to be filed for the New Kaiser Tax
Group.

As a consequence of the Deconsolidation, the KACC Tax Allocation Agreement
(as defined below) and the Kaiser Tax Allocation Agreement (as defined below)
(collectively, the "Tax Allocation Agreements") terminated pursuant to their
terms, effective with respect to Post Deconsolidation Periods. The provisions
of the Tax Allocation Agreements will continue to govern taxable periods ending
before the date of the Deconsolidation (the "Pre Deconsolidation Periods").
Therefore, payments or refunds may still be required by or payable to the
Company or KACC under the Tax Allocation Agreements for Pre Deconsolidation
Periods due to the final resolution of audits, amended returns and related
matters with respect to such Pre Deconsolidation Periods. The 1994 Credit
Agreement prohibits any cash payments by KACC to MAXXAM pursuant to the KACC
Tax Allocation Agreement after February 15, 1994; however, MAXXAM may offset
amounts owing to it under the KACC Tax Allocation Agreement against amounts
owed by it under the KACC Tax Allocation Agreement, and KACC may make certain
cash payments to MAXXAM that are required as a result of audits of MAXXAM's tax
returns and only to the extent of any amounts paid after February 15, 1994 by
MAXXAM to KACC under the KACC Tax Allocation Agreement. To the extent the New
Kaiser Tax Group generates unused tax losses or tax credits in Post
Deconsolidation Periods, such amounts will not be available to obtain refunds
of amounts paid by the Company or KACC to MAXXAM for Pre Deconsolidation
Periods pursuant to the Tax Allocation Agreements. It is anticipated that such
losses and credits will be carried forward to offset future Federal income
taxes payable by the New Kaiser Tax Group.

Unused tax attribute carryforwards existing as of the date of the
Deconsolidation under the terms of the Tax Allocation Agreements were
eliminated and are not available to offset Federal income tax liabilities of
the New Kaiser Tax Group for Post Deconsolidation Periods. Upon the filing of
the MAXXAM 1993 Tax Return, the tax attribute carryforwards of the MAXXAM Tax
Group as of December 31, 1993 were apportioned in part to the New Kaiser Tax
Group, based upon the provisions of the relevant consolidated return
regulations. The benefit of such tax attribute carryforwards apportioned to the
New Kaiser Tax Group approximate the benefit of tax attribute carryforwards
eliminated under the Tax Allocation Agreements. The amounts of tax attribute
carryforwards apportioned to the New Kaiser Tax Group are available, subject to
certain limitations, to reduce Federal income taxes payable by the New Kaiser
Tax Group for Post Deconsolidation Periods.

In 1989, KACC and MAXXAM entered into a tax allocation agreement (the "KACC
Tax Allocation Agreement"). Pursuant to the terms of the KACC Tax Allocation
Agreement, MAXXAM pays any consolidated Federal income tax liability for the
MAXXAM Tax Group. KACC is liable to MAXXAM for the Federal income tax liability
of KACC and its subsidiaries (collectively, the "KACC Subgroup") computed as if
the KACC Subgroup were a separate Affiliated Group which was never affiliated
with the MAXXAM Tax Group (taking into account all limitations under the Code
and regulations applicable to the KACC Subgroup), except that the KACC Subgroup
excludes interest income received or accrued on an intercompany note issued by
the Company in connection with a financing consummated in December 1989 (the
"KACC Subgroup's Separate Income Tax Liability"). To the extent such
calculation results in a net

38
<PAGE>

operating loss or a net capital loss or credit which the KACC Subgroup could
have carried back to a prior taxable period under the principles of Sections
172 and 1502 of the Code, MAXXAM pays to KACC an amount equal to the tax refund
to which KACC would have been entitled (but not in excess of the aggregate
amount previously paid by KACC to MAXXAM for the current year and the three
prior taxable years). If such separately calculated net operating loss or net
capital loss or credit of the KACC Subgroup cannot be carried back to a prior
taxable year of the KACC Subgroup for which the KACC Subgroup paid its separate
tax liability to MAXXAM, the net operating loss or net capital loss or credit
becomes a loss or credit carryover of the KACC Subgroup to be used in computing
the KACC Subgroup's Separate Income Tax Liability for future taxable years. The
same principles are applied to any consolidated or combined state or local
income tax returns filed by the MAXXAM Tax Group with respect to KACC and its
subsidiaries. Although, under Treasury regulations, all members of the MAXXAM
Tax Group, including the members of the KACC Subgroup, are severally liable for
the MAXXAM Tax Group's Federal income tax liability for all of 1993 and
applicable prior periods, under the KACC Tax Allocation Agreement, MAXXAM
indemnifies each KACC Subgroup member for all Federal income tax liabilities
relating to taxable years during which such KACC Subgroup member was a member
of the MAXXAM Tax Group, except for payments required under the KACC Tax
Allocation Agreement.

In 1991, MAXXAM also entered into a tax allocation agreement with the Company
(the "Kaiser Tax Allocation Agreement"). Pursuant to the terms of the Kaiser
Tax Allocation Agreement, the Federal income tax liability of the Company and
its subsidiaries (collectively, the "Kaiser Subgroup") is computed using the
same principles used in the KACC Tax Allocation Agreement to determine the KACC
Subgroup's income tax liability. To the extent such tax liability ("Kaiser's
Separate Income Tax Liability") for any applicable period exceeds the KACC
Subgroup's Separate Income Tax Liability for such period, the Company is
obligated to pay the amount of such difference to MAXXAM. To the extent that
Kaiser's Separate Income Tax Liability for any applicable period is less than
the KACC Subgroup's Separate Income Tax Liability for such period, MAXXAM is
obligated to pay the amount of such difference to the Company (but not in
excess of the aggregate net amount previously paid by the Company and KACC to
MAXXAM for the current year and the three prior years). The foregoing
principles also are applied to any consolidated or combined state or local
income tax returns filed by the MAXXAM Tax Group with respect to the Company.
While the Company is severally liable for the MAXXAM Tax Group's Federal income
tax liability for all of 1993 and applicable prior periods, pursuant to the
Kaiser Tax Allocation Agreement, MAXXAM indemnifies the Company according to
the same principles as those applied to KACC Subgroup members under the KACC
Tax Allocation Agreement.

Under the existing consolidated return regulations, the Deconsolidation
caused certain tax basis adjustments and the recognition of certain types of
taxable income (including amounts that were previously deferred), none of which
were material.

On June 30, 1993, the Company and KACC entered into a tax allocation
agreement (the "New Tax Allocation Agreement") effective for Post
Deconsolidation periods. The terms of the New Tax Allocation Agreement are
identical in all material respects to those of the KACC Tax Allocation
Agreement except that KACC is liable to the Company.

KACC and MAXXAM have an arrangement pursuant to which they reimburse each
other for certain allocable costs associated with the performance of services
by their respective employees, and KACC also pays to MAXXAM amounts in respect
of directors' fees for directors of KACC who are not employees of KACC and who
are directors of MAXXAM. During 1994, KACC paid a total of approximately $2.5
million to MAXXAM pursuant to such arrangements and MAXXAM paid approximately
$0.7 million to KACC pursuant to such arrangements. Generally, KACC and MAXXAM
endeavor to minimize the need for reimbursement by ensuring that employees are
employed by the entity to which the majority of their services are rendered.

39
<PAGE>

In January 1995, Mr. Pierno repaid a $150,000 loan which had been guaranteed
by MAXXAM. Pursuant to the terms of Mr. Pierno's employment agreement with
MAXXAM (which expired in March 1995), his personal loans outstanding on the
date of the agreement were forgiven at the rate of $15,000 per year beginning
March 8, 1991 through March 8, 1995. At the time of the agreement, MAXXAM had
loaned an aggregate of $150,000 at 6% interest to Mr. Pierno. Upon expiration
of Mr. Pierno's employment agreement on March 8, 1995, Mr. Pierno's principal
balance on such loans was $75,000. As of February 28, 1995, MAXXAM entered into
an amendment of Mr. Pierno's promissory note evidencing such loans. The
amendment provides that installments of $18,750 be paid by Mr. Pierno on each
of December 31, 1995, 1996 and 1997, with any remaining principal balance,
together with accrued interest, to be paid in full on December 31, 1998. The
amendment also provides that the loans be secured by any amounts to which Mr.
Pierno may be entitled pursuant to the MAXXAM's Revised Capital Accumulation
Plan. Mr. Pierno's employment agreement also provided for up to an additional
$200,000 in loans to Mr. Pierno bearing interest at 6% per annum, with interest
being payable monthly and principal being due December 15, 1994 (with
prepayments due upon the exercise by Mr. Pierno of any stock appreciation
rights granted pursuant to the agreement or employee benefit plan). All of such
amount has been borrowed by Mr. Pierno. Such promissory note was also amended,
extending the due date to December 15, 1998 and securing such loan with any
amounts to which Mr. Pierno may be entitled pursuant to MAXXAM's Revised
Capital Accumulation Plan.

In July 1993, MAXXAM loaned Mr. Wade $50,000 in connection with his purchase
of an interest in Sam Houston Race Park, Ltd. ("SHRP, Ltd."), a subsidiary of
MAXXAM. The loan was evidenced by an unsecured promissory note, interest on
which was payable monthly at an annual rate of 6%. As of June 30, 1995, Mr.
Wade had $20,000 in principal amount outstanding on this loan. In August 1995,
Mr. Wade repaid the principal of this loan, together with accrued interest
thereon.

Mr. Levin, a director of the Company and KACC, is a partner in the law firm
of Kramer, Levin, Naftalis, Nessen, Kamin & Frankel, which provides legal
services for the Company and its subsidiaries.

On April 17, 1995, SHRP, Ltd. and two affiliated entities, SHRP Acquisition,
Inc. and SHRP Capital Corp., filed voluntary corporate petitions under Chapter
11 of the United States Bankruptcy Code. Their bankruptcy reorganization plan
has since been confirmed and the transactions contemplated by the bankruptcy
reorganization plan have been consummated. Since July 1993, Mr. Wade has served
as a director, Vice President and Secretary of SHRP Inc., SHRP Ltd.'s sole
general partner prior to SHRP Ltd.'s bankruptcy reorganization, and of SHRP
Capital Corp. Also since July 1993, Mr. Hurwitz has served as director and
Chairman of the Board of SHRP Inc. and director, Chairman of the Board and
President of SHRP Capital Corp.

In October 1990, Amarlite Architectural Products, Inc. ("Amarlite") filed a
voluntary corporate petition under Chapter 11, Title 11, of the United States
Code in the United States Bankruptcy Court for the Northern District of
Georgia. In December 1991, Amarlite obtained approval of its reorganization
plan, which was funded and substantially consummated on January 14, 1992. Mr.
Haymaker was Chief Executive Officer and a director of Amarlite during such
period.

40
<PAGE>

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 100,000,000 shares of
Common Stock, and 20,000,000 shares of preferred stock, par value $.05 per
share (the "Preferred Shares"). The following is a summary of the material
terms of the capital stock of the Company, but does not purport to be complete
or to give full effect to the provisions of statutory or common law, and is
subject in all respects to the applicable provisions of the Company's
Certificate of Incorporation.

COMMON STOCK

The Company is authorized by its Certificate of Incorporation to issue
100,000,000 shares of Common Stock, of which 71,637,654 shares were issued and
outstanding as of November 30, 1995. See "--Possible Equity Recapitalization."

The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. The Common Stock
does not have cumulative voting rights. Subject to the rights of holders of any
Preferred Shares, the holders of Common Stock are entitled to receive ratably
such dividends as may be declared by the Board of Directors out of funds
legally available therefor. In the event of a liquidation, dissolution or
winding up of the Company, holders of Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities an the liquidation
preference of any then outstanding Preferred Shares. Holders of Common Stock
have no preemptive, conversion or redemption rights. All outstanding shares of
Common Stock are duly and validly issued, fully paid and nonassessable.

PREFERRED STOCK

General

The Board of Directors has the authority (without action by the stockholders)
to issue the authorized and unissued Preferred Shares in one or more classes or
one or more series within any class thereof and to determine the voting rights
(including the right to vote as a class of series on particular matters and
elect directors in certain circumstances), preferences, conversion,
liquidation, dividend, and other rights of each such series. A total of
9,200,000 Preferred Shares were designated as PRIDES in connection with the
February 1994 offering of the PRIDES.

The PRIDES

The PRIDES are Preferred Shares and rank senior as to dividends and upon
liquidation to the Company's Common Stock. The PRIDES convert automatically
into shares of Common Stock on December 31, 1997 (the "Mandatory Conversion
Date") or earlier in the event of certain mergers, consolidations or similar
extraordinary transactions involving the Company. See "--Mandatory Conversion."
In addition, the Company has the option to redeem the shares of the PRIDES, in
whole or in part, at any time or from time to time after December 31, 1996 (the
"Initial Redemption Date") and prior to the Mandatory Conversion Date. See "--
Right to Call for Redemption." At any time prior to the Mandatory Conversion
Date, unless previously redeemed, each share of the PRIDES is convertible at
the option of the holder thereof into .8333 of a share of Common Stock, subject
to adjustment for stock splits and certain other events. See "--Conversion at
the Option of the Holder."

Dividends.

The holders of shares of PRIDES are entitled to receive (when, as and if the
Board of Directors declares dividends out of funds legally available therefor)
cumulative preferential cash dividends at the rate of $.97 per annum or $.2425
per quarter for each share of the PRIDES, payable quarterly in arrears on the
last day of each March, June, September and December, provided, however, that,
with respect to any dividend period

41
<PAGE>

during which a redemption occurs, the Company may, at its option, declare
accrued dividends on the shares of PRIDES, in which case such dividends shall
not be included in the calculations of the call price. Dividends cease to
accrue in respect of the PRIDES on the earliest of (i) the day immediately
prior to the Mandatory Conversion Date, or (ii) the day immediately prior to
the date of redemption of any such shares.

Mandatory Conversion.

On the Mandatory Conversion Date each outstanding share of the PRIDES will
convert automatically into one share of Common Stock (subject to adjustment for
certain events), and the right to receive an amount in cash equal to all
accrued and unpaid dividends.

Right to Call for Redemption.

Shares of the PRIDES are not redeemable by the Company before the Initial
Redemption Date. At any time or from time to time after the Initial Redemption
Date and prior to the Mandatory Conversion Date, the Company may call, in whole
or in part, the outstanding shares of PRIDES for redemption. For each share of
PRIDES called for redemption the holder thereof is entitled to receive the
number of shares of Common Stock equal to the greater of (i) the Call Price (as
defined below) in effect on the redemption date divided by the current market
price (as defined) per share of Common Stock as of the second trading day
immediately preceding the notice date or (ii) .8333 of a share of Common Stock
(subject to adjustment for stock splits and certain other events). The Call
Price of each share of PRIDES is the sum of (i) $11.9925 on and after the
Initial Redemption Date, to and including March 30, 1997; $11.9319 on and after
March 31, 1997, to and including June 29, 1997; $11.8713 on and after June 30,
1997, to and including September 29, 1997; $11.8106 on and after September 30,
1997, and including November 29, 1997; and $11.75 on and after November 30,
1997, to and including December 30, 1997; and (ii) all accrued and unpaid
dividends thereon.

Conversion at the Option of the Holder.

The shares of PRIDES are convertible at the option of the holders thereof, at
any time before the Mandatory Conversion Date, unless previously redeemed, into
shares of Common Stock, at a rate of .8333 of a share of Common Stock for each
share of PRIDES, subject to adjustment for stock splits and certain other
events. The right to convert shares of PRIDES called for redemption will
terminate immediately before the close of business on the day prior to any
redemption date with respect to such shares.

Adjustment for Certain Consolidations or Mergers.

In the case of any consolidation or merger to which the Company is a party
(other than certain ones in which the Company is the surviving or continuing
corporation and as otherwise specified), or in the case of any sale or transfer
to another corporation of the property of the Company as an entirety or
substantially as an entirety, or in the case of a statutory exchange of
securities with another corporation (other than in connection with a merger or
acquisition), each share of the PRIDES shall, after consummation of such
transaction, be subject to (a) conversion at the option of the holder into the
kind and amount of securities, cash, or other property receivable upon
consummation of such transaction by a holder of the number of shares of Common
Stock into which such share of PRIDES might have been converted immediately
before the consummation of the transaction, (b) conversion on the Mandatory
Conversion Date into the kind and amount of securities, cash, or other property
receivable upon consummation of such transaction by a holder of the number of
shares of Common Stock in to which such share of PRIDES would have been
converted if the conversion on the Mandatory Conversion Date had occurred
immediately before the date of consummation of such transaction, plus the right
to receive cash in an amount equal to all accrued and unpaid dividends, and (c)
redemption on any redemption date in exchange for the kind and amount of
securities, cash, or other property receivable upon consummation of such
transaction by a holder of the number of shares of Common Stock that would have
been issuable at the call price in effect on the redemption date upon a
redemption of such shares of PRIDES immediately before consummation of such
transaction.

42
<PAGE>

Liquidation Rights.

The PRIDES are shares of Preferred Stock and rank senior in right and
priority of payment to the Common Stock upon liquidation. Subject to the terms
of any stock ranking senior to, or on a parity with, the shares of PRIDES, the
liquidation preference applicable to each share of the PRIDES will be an amount
equal to the sum of (i) $11.75 and (ii) an amount equal to all accrued and
unpaid dividends payable with respect to such share of PRIDES.

Voting Rights.

Holders of shares of PRIDES have 4/5 vote for each share held of record and,
except as required by law, are entitled to vote with the holders of Common
Stock on all matters submitted to a vote of common stockholders and together
with the holders of any other classes or series of stock who are entitled to
vote in such manner on all matters submitted to a vote of common stockholders.
In addition, subject to certain exceptions, the affirmative vote of two-thirds
of the shares of PRIDES actually voting (voting separately as a class) is
required to permit the Company to (i) issue any class or series of stock, or
any security convertible at the option of the holder thereof into shares of any
class or series of stock, ranking senior to the PRIDES as to dividends or upon
liquidation, (ii) modify the terms of a certain intercompany note (which
provides funds to the Company to enable the Company to make dividend payments
on the PRIDES) in a manner that materially adversely affects the Company as the
holder of such intercompany note or the holders of the PRIDES, (iii) amend the
Certificate of Incorporation in a manner that materially adversely affects the
holders of the PRIDES, or (iv) consummate a merger or consolidation of the
Company with KACC (a "KACC Merger Event") if (a) each outstanding share of
PRIDES, upon the effectiveness of the KACC Merger Event, neither remains
outstanding nor is converted into one share of preferred stock of the surviving
corporation ("KACC Preferred Stock") identical as near as practicable to a
share of PRIDES, (b) such shares of KACC Preferred Stock (if issued in the KACC
Merger Event) are not to be deposited with a bank or trust company upon or
prior to the effectiveness of the KACC Merger Event, or (c) the covenants in
the debt instruments of the surviving corporation of the KACC Merger Event, at
the time of the KACC Merger Event, prohibit the payment of any of the dividends
on the PRIDES or the KACC Preferred Stock, as the case may be, in accordance
with the terms thereof through and including the day immediately prior to the
Mandatory Conversion Date, or (v) consummate a merger or consolidation of the
Company with any other corporation, unless each holder of shares of PRIDES
immediately preceding such merger or consolidation receives or continues to
hold in the surviving corporation the same number of shares, with, subject to
certain exceptions, substantially the same rights and preferences, as
correspond to the shares of PRIDES so held. In the event that dividends payable
on the PRIDES or any other series of Preferred Stock are in arrears in an
aggregate amount equivalent to six full quarterly dividends, and in certain
other circumstances, the holders of the outstanding PRIDES are entitled to
elect, together with the holders of all classes or series of outstanding
Preferred Stock as to which voting rights are exercisable, voting separately as
a class, two directors of the Company, such directors to be in addition to the
number of directors constituting the board of directors immediately before the
accrual of such right.

POSSIBLE EQUITY RECAPITALIZATION

Since July 1995, an independent committee of the Board of Directors (the
"Independent Committee") has been considering the desirability of a
recapitalization transaction whereby a separate class of lesser voting or non-
voting capital stock would be created for Kaiser and distributed to its
stockholders on a pro rata basis. The purpose of such recapitalization would
be, among other things, to provide Kaiser with a form of consideration to be
used in connection with future acquisitions and financings, if any, and to
lessen the likelihood of possible repurchase obligations with respect to
various issues of Kaiser indebtedness, which would occur in the event that
MAXXAM no longer beneficially owned a minimum percentage of Kaiser's voting
stock (defined to range from 30%-40% of such voting stock, depending upon
various circumstances). The Independent Committee retained an investment
banking firm which is advising it in connection with a possible
recapitalization transaction and the various alternative structures and methods
by which it might be

43
<PAGE>

implemented. The Independent Committee's advisor is continuing to review the
trading history and minority protection provisions of other corporations with
dual capital stock structures, and is continuing to consider the impact of any
such transaction on (i) the aggregate market value of Kaiser's stock, (ii) the
ability of Kaiser's stockholders to dispose of their shares, and (iii) the
ability of Kaiser to raise equity capital. The Independent Committee is
continuing to study this matter but there can be no assurance that it will
propose a recapitalization transaction or as to its terms.

SELLING STOCKHOLDER

The Company has been a subsidiary of MAXXAM since October 28, 1988. As of
November 30, 1995, MAXXAM owned approximately 62.2% of the Company's Common
Stock, assuming the conversion of each outstanding share of PRIDES into one
share of the Company's Common Stock. The number of shares of Common Stock to be
offered and the percentage and number of shares of Common Stock which will be
held by MAXXAM after the offering of Common Stock by MAXXAM will be set forth
in the Prospectus Supplement.

PLAN OF DISTRIBUTION

The Company has been advised that the distribution of the Common Stock by
MAXXAM may be effected in and/or outside the United States: (i) through
underwriters or dealers; (ii) directly to a limited number of purchasers or to
a single purchaser; (iii) through agents; or (iv) through the offering of
Common Stock in connection with any offering by MAXXAM of debt securities of
its own which are convertible, exchangeable or redeemable into or for the
Common Stock, and upon the conversion, exchange or redemption of such debt
securities of MAXXAM. The Prospectus Supplement with respect to the Common
Stock being offered (the "Offered Shares") will set forth the terms of the
offering of the Offered Shares, including the name or names of any underwriters
or agents, the purchase price of the Offered Shares and the proceeds to MAXXAM
from such sale, any delayed delivery arrangements, any underwriting discounts
and other items constituting underwriters' compensation, any initial public
offering price and any discounts or concessions allowed or reallowed or paid to
dealers. Any initial public offering price and any discounts or concessions
allowed or reallowed or paid to dealers may be changed from time to time.

The Company has been further advised that, if underwriters are used in the
sale, the Offered Shares will be acquired by the underwriters for their own
account and may be resold from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering price or at
varying prices determined at the time of sale. The Common Stock may be offered
to the public either through underwriting syndicates represented by one or more
managing underwriters or directly by one or more firms acting as underwriters.
The underwriter or underwriters with respect to a particular underwritten
offering of Common Stock will be named in the Prospectus Supplement relating to
such offering and, if an underwriting syndicate is used, the managing
underwriter or underwriters, will be set forth on the cover of such Prospectus
Supplement. Unless otherwise set forth in the Prospectus Supplement relating
thereto, the obligations of the underwriters to purchase the Offered Shares
will be subject to conditions precedent and the underwriters will be obligated
to purchase all the Offered Shares if any are purchased.

If dealers are utilized in the sale of Offered Shares in respect of which
this Prospectus is delivered, the Company has been advised that MAXXAM will
sell such Offered Shares to the dealers as principals. The dealers may then
resell such Offered Shares to the public at varying prices to be determined by
such dealers at the time of resale. The names of the dealers and the terms of
the transaction will be set forth in the Prospectus Supplement relating
thereto.

In addition, the Company has been advised that the Common Stock may be sold
directly by MAXXAM or through agents designated by MAXXAM from time to time.
Any agent involved in the offer or sale of the Offered Shares in respect of
which this Prospectus is delivered will be named, and any commissions payable
by MAXXAM to such agent will be set forth, in the Prospectus Supplement
relating thereto.

44
<PAGE>

The Common Stock may be sold directly by MAXXAM to institutional investors or
others, who may be deemed to be underwriters within the meaning of the Act with
respect to any resale thereof. The terms of any such sales will be described in
the Prospectus Supplement relating thereto.

Agents, dealers and underwriters may be entitled under agreements entered
into with MAXXAM and the Company to indemnification by the Company and MAXXAM
against certain civil liabilities, including liabilities under the Act, or to
contribution with respect to payments which the agents or underwriters may be
required to make in respect thereof. Agents, dealers and underwriters may be
customers of, engage in transactions with, or perform services for, the Company
and MAXXAM in the ordinary course of business.

In connection with the sale of the Common Stock, underwriters or agents may
be deemed to have received compensation from MAXXAM in the form of underwriting
discounts or commissions and may also receive commissions from purchasers of
the Common Stock for who they may act as agent. Underwriters or agents may sell
the Common Stock to or through dealers, and such dealers may receive
compensation in the form of discounts, concessions or commissions from the
underwriters or commissions from the purchasers for whom they may act as agent.

Any underwriters, dealers or agents participating in the distribution of the
Common Stock may be deemed to be underwriters, and any discounts and
commissions received by them and any profit realized by them on resale of the
Common Stock may be deemed to be underwriting discounts and commissions under
the Securities Act of 1933.

LEGAL MATTERS

Certain legal matters in connection with the Common Stock offered hereby will
be passed upon for the Company by Anthony R. Pierno, Esq., Vice President and
General Counsel of the Company.

EXPERTS

The Consolidated Financial Statements for the years ended December 31, 1994,
1993 and 1992 included in this Prospectus and elsewhere in the registration
statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
giving said report.

45
<PAGE>

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

AUDITED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
Report of Independent Public Accountants................................ F-2
Consolidated Balance Sheets at December 31, 1994 and 1993............... F-3
Statements of Consolidated Income (Loss) for the Years Ended December
31, 1994, 1993 and 1992................................................ F-4
Statements of Consolidated Cash Flows for the Years Ended December 31,
1994, 1993
and 1992............................................................... F-5
Notes to Consolidated Financial Statements.............................. F-6

UNAUDITED QUARTERLY FINANCIAL INFORMATION

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
Consolidated Balance Sheets at September 30, 1995 and December 31, 1994. F-30
Statements of Consolidated Income (Loss) for the Nine Months Ended
September 30, 1995 and 1994............................................ F-31
Statements of Consolidated Cash Flows for the Nine Months Ended
September 30, 1995 and 1994............................................ F-32
Notes to Interim Consolidated Financial Statements...................... F-33
Unaudited Summary Quarterly Financial Data.............................. F-37
</TABLE>

F-1
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders and the Board of Directors of Kaiser Aluminum Corporation:

We have audited the accompanying consolidated balance sheets of Kaiser
Aluminum Corporation (a Delaware corporation) and subsidiaries as of December
31, 1994 and 1993, and the related statements of consolidated income and cash
flows for each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Kaiser Aluminum Corporation
and subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.

As explained in Note 1 of the Notes to Consolidated Financial Statements,
effective January 1, 1993, the Company changed its methods of accounting for
postretirement benefits other than pensions, postemployment benefits and income
taxes.

Arthur Andersen LLP

Houston, Texas
February 17, 1995

F-2
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1994 1993
ASSETS -------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................ $ 17.6 $ 14.7
Receivables:
Trade, less allowance for doubtful receivables of $4.2
in 1994 and $2.9 in 1993.............................. 150.7 156.1
Other.................................................. 48.5 78.6
Inventories.............................................. 468.0 426.9
Prepaid expenses and other current assets................ 158.0 60.7
-------- --------
Total current assets................................... 842.8 737.0
Investments in and advances to unconsolidated affiliates... 169.7 183.2
Property, plant, and equipment--net........................ 1,133.2 1,163.7
Deferred income taxes...................................... 271.2 210.8
Other assets............................................... 281.2 233.2
-------- --------
Total.................................................. $2,698.1 $2,527.9
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable......................................... $ 152.1 $ 126.3
Accrued interest......................................... 32.6 23.6
Accrued salaries, wages, and related expenses............ 77.7 56.1
Accrued postretirement medical benefit obligation--
current portion......................................... 47.0 47.6
Other accrued liabilities................................ 176.9 133.2
Payable to affiliates.................................... 85.3 62.4
Short-term borrowings.................................... .5
Long-term debt--current portion.......................... 11.5 8.7
-------- --------
Total current liabilities.............................. 583.1 458.4
Long-term liabilities...................................... 495.5 501.8
Accrued postretirement medical benefit obligation.......... 734.9 713.1
Long-term debt............................................. 751.1 720.2
Minority interests......................................... 116.2 105.0
Stockholders' equity:
Preferred stock, par value $.05, authorized 20,000,000
shares;
Series A Convertible, stated value $.10, issued and
outstanding, 1,938,295 in 1994 and 1993............... .2 .2
PRIDES Convertible, par value $.05, issued and
outstanding, 8,855,550 and nil in 1994 and 1993....... .4
Common stock, par value $.01, authorized 100,000,000
shares; issued and outstanding, 58,205,083 and
58,095,599 shares in 1994 and 1993...................... .6 .6
Additional capital....................................... 527.8 425.9
Accumulated deficit...................................... (502.6) (375.7)
Additional minimum pension liability..................... (9.1) (21.6)
-------- --------
Total stockholders' equity............................. 17.3 29.4
-------- --------
Total.................................................. $2,698.1 $2,527.9
======== ========
</TABLE>

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

F-3
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

STATEMENTS OF CONSOLIDATED INCOME (LOSS)

(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Net sales........................................ $1,781.5 $1,719.1 $1,909.1
-------- -------- --------
Costs and expenses:
Cost of products sold.......................... 1,625.5 1,587.7 1,619.3
Depreciation................................... 95.4 97.1 80.3
Selling, administrative, research and
development, and general...................... 116.8 121.9 119.6
Restructuring of operations.................... 35.8
-------- -------- --------
Total costs and expenses..................... 1,837.7 1,842.5 1,819.2
-------- -------- --------
Operating income (loss).......................... (56.2) (123.4) 89.9
Other income (expense):
Interest and other income--net................... (7.3) (.9) 20.9
Interest expense................................. (88.6) (84.2) (78.7)
-------- -------- --------
Income (loss) before income taxes, minority
interests, extraordinary loss, and cumulative
effect of changes in accounting principles...... (152.1) (208.5) 32.1
Credit (provision) for income taxes.............. 53.8 86.9 (5.3)
Minority interests............................... (3.1) (1.5) .1
-------- -------- --------
Income (loss) before extraordinary loss and
cumulative effect of changes in accounting
principles...................................... (101.4) (123.1) 26.9
Extraordinary loss on early extinguishment of
debt, net of tax benefit of $2.9 and $11.2 for
1994 and 1993, respectively..................... (5.4) (21.8)
Cumulative effect of changes in accounting
principles, net of tax benefit of $237.7........ (507.3)
-------- -------- --------
Net income (loss)................................ (106.8) (652.2) 26.9
Dividends on preferred stock..................... (20.1) (6.3)
-------- -------- --------
Net income (loss) attributable to common
shareholders.................................... $ (126.9) $ (658.5) $ 26.9
======== ======== ========
Per common and common equivalent share:
Income (loss) before extraordinary loss and
cumulative effect of changes in accounting
principles.................................... $ (2.09) $ (2.25) $ .47
Extraordinary loss............................. (.09) (.38)
Cumulative effect of changes in accounting
principles.................................... (8.84)
-------- -------- --------
Net income (loss).............................. $ (2.18) $ (11.47) $ .47
======== ======== ========
Weighted average common and common equivalent
shares outstanding (000)........................ 58,139 57,423 57,250
======== ======== ========
</TABLE>

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

F-4
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

STATEMENTS OF CONSOLIDATED CASH FLOWS

(IN MILLIONS OF DOLLARS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1994 1993 1992
------- --------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................ $(106.8) $ (652.2) $ 26.9
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating
activities:
Depreciation................................... 95.4 97.1 80.3
Amortization of deferred financing costs and
discount on long-term debt.................... 6.2 11.2 11.5
Non-cash postretirement medical benefit
expenses...................................... 13.9 19.2
Restructuring of operations.................... 35.8
Minority interests............................. 3.1 1.5 (.1)
Extraordinary loss on early extinguishment of
debt--net..................................... 5.4 21.8
Cumulative effect of changes in accounting
principles--net............................... 507.3
(Decrease) increase in accrued and deferred
income taxes.................................. (68.8) (96.4) 3.5
Equity in losses of unconsolidated affiliates.. 1.9 3.3 1.9
Recognition of previously deferred income from
a forward alumina sale........................ (.6) (25.7)
Increase (decrease) in accrued interest........ 9.3 19.2 (.3)
Incurrence of financing costs.................. (19.2) (12.7) (5.5)
Decrease (increase) in receivables............. 36.4 (6.1) (57.8)
(Increase) decrease in inventories............. (41.1) 13.0 58.7
(Increase) decrease in prepaid expenses and
other current assets.......................... (49.7) 7.4 7.6
Increase (decrease) in accounts payable........ 25.8 (10.3) (5.2)
Increase (decrease) in payable to affiliates
and accrued liabilities....................... 36.9 57.7 (88.7)
Other.......................................... 10.0 8.0 19.2
------- --------- -------
Net cash (used for) provided by operating
activities................................... (41.3) 24.2 26.3
------- --------- -------
Cash flows from investing activities:
Net proceeds from disposition of property and
investments..................................... 4.1 13.1 26.1
Capital expenditures............................. (70.0) (67.7) (114.4)
------- --------- -------
Net cash used for investing activities........ (65.9) (54.6) (88.3)
------- --------- -------
Cash flows from financing activities:
Repayments of long-term debt, including revolving
credit.......................................... (345.1) (1,134.5) (221.4)
Borrowings of long-term debt, including revolving
credit.......................................... 378.9 1,068.1 303.8
Borrowings from MAXXAM Group Inc. (see
supplemental disclosure below).................. 15.0 2.5
Tender premiums and other costs of early
extinguishment of debt.......................... (27.1)
Net short-term debt repayments................... (.5) (4.3) (1.5)
Dividends paid................................... (14.8) (6.3) (11.4)
Capital stock issued............................. 100.1 119.3 .6
Redemption of minority interests' preference
stock........................................... (8.5) (4.2) (7.3)
------- --------- -------
Net cash provided by financing activities..... 110.1 26.0 65.3
------- --------- -------
Net increase (decrease) in cash and cash
equivalents during the year...................... 2.9 (4.4) 3.3
Cash and cash equivalents at beginning of year.... 14.7 19.1 15.8
------- --------- -------
Cash and cash equivalents at end of year.......... $ 17.6 $ 14.7 $ 19.1
======= ========= =======
Supplemental disclosure of cash flow information:
Interest paid, net of capitalized interest....... $ 73.1 $ 53.7 $ 68.1
Income taxes paid................................ 16.0 13.5 1.8
Tax allocation payments to (from) MAXXAM Inc..... (3.9) 28.0
Supplemental disclosure of non-cash financing
activities:
Exchange of the borrowings from MAXXAM Group Inc.
for capital stock............................... $ 15.0
</TABLE>

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

F-5
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the statements of Kaiser
Aluminum Corporation ("Kaiser" or the "Company") and its majority-owned
subsidiaries. Investments in 50%-or-less-owned entities are accounted for
primarily by the equity method. Intercompany balances and transactions are
eliminated. The Company is a subsidiary of MAXXAM Inc. ("MAXXAM") and conducts
its operations through its wholly owned subsidiary, Kaiser Aluminum & Chemical
Corporation ("KACC"). Certain reclassifications of prior-year information were
made to conform to the current presentation.

Changes in Accounting Principles

The Company adopted Statement of Financial Accounting Standards No. 106,
Employers' Accounting for Postretirement Benefits Other Than Pensions ("SFAS
106"), and Statement of Financial Accounting Standards No. 112, Employers'
Accounting for Postemployment Benefits ("SFAS 112"), as of January 1, 1993. The
costs of postretirement benefits other than pensions and postemployment
benefits are now accrued over the period employees provide services to the date
of their full eligibility for such benefits. Previously, such costs were
expensed as actual claims were incurred. The cumulative effect of the changes
in accounting principles for the adoption of SFAS 106 and SFAS 112 were
recorded as charges to results of operations of $497.7 and $7.3, net of related
income taxes of $234.2 and $3.5, respectively. These deferred income tax
benefits were recorded at the federal statutory rate in effect on the date the
accounting standards were adopted, before giving effect to certain valuation
allowances. The new accounting standards had no effect on the Company's cash
outlays for postretirement or postemployment benefits, nor did these one-time
charges affect the Company's compliance with its existing debt covenants. The
Company reserves the right, subject to applicable collective bargaining
agreements and applicable legal requirements, to amend or terminate these
benefits.

The Company adopted Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes ("SFAS 109"), as of January 1, 1993. The adoption
of SFAS 109 changes the Company's method of accounting for income taxes to an
asset and liability approach from the deferral method prescribed by Accounting
Principles Board Opinion No. 11, Accounting for Income Taxes ("APB 11"). The
asset and liability approach requires the recognition of deferred income tax
assets and liabilities for the expected future tax consequences of events that
have been recognized in the Company's financial statements or tax returns.
Under this method, deferred income tax assets and liabilities are determined
based on the temporary differences between the financial statement and tax
bases of assets and liabilities using enacted tax rates. The cumulative effect
of the change in accounting principle reduced the Company's results of
operations by $2.3. The adoption of SFAS 109 required the Company to restate
certain assets and liabilities to their pre-tax amounts from their net-of-tax
amounts originally recorded in connection with the acquisition by MAXXAM in
October 1988. As a result of restating the assets and liabilities, the loss
before income taxes, minority interests, extraordinary loss, and cumulative
effect of changes in accounting principles for the year ended December 31,
1993, was increased by $9.3.

Cash and Cash Equivalents

The Company considers only those short-term, highly liquid investments with
original maturities of 90 days or less to be cash equivalents.

F-6
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)

Inventories

Substantially all product inventories are stated at last-in, first-out
("LIFO") cost, not in excess of market value. Replacement cost is not in excess
of LIFO cost. Other inventories, principally operating supplies and repair and
maintenance parts, are stated at the lower of average cost or market. Inventory
costs consist of material, labor, and manufacturing overhead, including
depreciation. Inventories consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1994 1993
------ ------
<S> <C> <C>
Finished fabricated products..................................... $ 49.4 $ 83.7
Primary aluminum and work in process............................. 203.1 141.4
Bauxite and alumina.............................................. 102.3 94.0
Operating supplies and repair and maintenance parts.............. 113.2 107.8
------ ------
$468.0 $426.9
====== ======
</TABLE>

Depreciation

Depreciation is computed principally by the straight-line method at rates
based on the estimated useful lives of the various classes of assets. The
principal estimated useful lives by class of assets are:

<TABLE>
<S> <C>
Land improvements................................................ 8 to 25 years
Buildings........................................................ 15 to 45 years
Machinery and equipment.......................................... 10 to 22 years
</TABLE>

Other Income

Other income in 1994 and 1993 includes $10.3 and $10.8 of pre-tax charges
related principally to establishing additional litigation and environmental
reserves in the fourth quarters, respectively. Other income in 1992 includes
$14.0 of pre-tax income for non-recurring adjustments to previously recorded
liabilities and reserves in the fourth quarter.

Deferred Financing Costs

Costs incurred to obtain debt financing are deferred and amortized over the
estimated term of the related borrowing. Amortization of deferred financing
costs of $6.0, $11.2, and $10.9 for the years ended December 31, 1994, 1993,
and 1992, respectively, are included in interest expense.

Foreign Currency

The Company uses the United States dollar as the functional currency for its
foreign operations.

Derivative Financial Instruments

Gains and losses arising from the use of derivative financial instruments are
reflected in the Company's operating results concurrently with the consummation
of the underlying hedged transactions. Deferred gains or losses as of December
31, 1994, are included in Prepaid expenses and other current assets and Other
accrued liabilities. The Company does not hold or issue derivative financial
instruments for trading purposes (see Note 10).

F-7
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)

Fair Value of Financial Instruments

The following table presents the estimated fair value of the Company's
financial instruments, together with the carrying amounts of the related assets
or liabilities. Unless otherwise noted, the carrying amount of all financial
instruments is a reasonable estimate of fair value.

<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1993
------------------ ------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Debt...................................... $762.6 $747.6 $728.9 $734.1
Foreign currency contracts................ 3.5
</TABLE>

The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:

Debt - The quoted market prices were used for the Senior Notes and 12 3/4%
Notes (see Note 5). The fair value of all other debt is based on discounting
the future cash flows using the current rate for debt of similar maturities and
terms.

Foreign Currency Contracts - The fair value generally reflects the estimated
amounts that the Company would receive to enter into similar contracts at the
reporting date, thereby taking into account unrealized gains or losses on open
contracts (see Note 10).

Net Income (Loss) per Common and Common Equivalent Share

Net income (loss) per common and common equivalent share is computed based on
the weighted average number of common and common equivalent shares outstanding
during each period. For the year ended December 31, 1994, common stock
equivalents of 19,382,950 attributable to the Series A Shares, 8,855,550 shares
attributable to the PRIDES, and 1,122,380 attributable to nonqualified stock
options and for the year ended December 31, 1993, common stock equivalents of
19,382,950 attributable to the Series A Shares and 664,400 attributable to
nonqualified stock options were excluded from the calculation of weighted
average shares because they were antidilutive (see Notes 7 and 8). Dividends
declared on the Series A Shares and the PRIDES ($20.1 and $6.3 for the years
ended December 31, 1994 and 1993) are added to net loss for the purpose of
calculating loss per common and common equivalent share.

2. RESTRUCTURING OF OPERATIONS

In 1993, KACC implemented a restructuring plan primarily for its flat-rolled
products operation at its Trentwood plant in response to overcapacity in the
aluminum rolling industry, flat demand in the U.S. can stock markets, and
declining demand for aluminum products sold to customers in the commercial
aerospace industry, all of which had resulted in declining prices in
Trentwood's key markets. As of December 31, 1994, the costs related to the 1993
pre-tax charge for this restructuring of $35.8 have been substantially
incurred.

3. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES

Summary combined financial information is provided below for unconsolidated
aluminum investments, most of which supply and process raw materials. The
investees are Queensland Alumina Limited ("QAL") (28.3% owned), Anglesey
Aluminium Limited ("Anglesey") (49.0% owned), and Kaiser Jamaica Bauxite
Company (49.0% owned). The equity in earnings (losses) before income taxes of
such operations is treated as a reduction (increase) in cost of products sold.
At December 31, 1994 and 1993, KACC's net receivables from these affiliates
were not material.

F-8
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)

Summary of Combined Operations

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Net sales........................................... $ 489.8 $ 510.3 $ 586.6
Costs and expenses.................................. (494.8) (527.2) (586.7)
Provision (credit) for income taxes................. (6.3) 1.9 6.9
------- ------- -------
Net income (loss)................................... $ (11.3) $ (15.0) $ 6.8
======= ======= =======
Company's equity in losses.......................... $ (1.9) $ (3.3) $ (1.9)
======= ======= =======
</TABLE>

Summary of Combined Financial Position

<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1994 1993
------ ------
<S> <C> <C>
Current assets................................................... $342.3 $312.3
Property, plant, and equipment--net.............................. 349.4 371.1
Other assets..................................................... 42.4 46.3
------ ------
Total assets................................................... $734.1 $729.7
====== ======
Current liabilities.............................................. $122.4 $130.4
Long-term debt................................................... 307.6 290.0
Other liabilities................................................ 31.0 17.8
Stockholders' equity............................................. 273.1 291.5
------ ------
Total liabilities and stockholders' equity..................... $734.1 $729.7
====== ======
</TABLE>

The Company's equity in losses differs from the summary net income (loss) due
to various percentage ownerships in the entities and equity method accounting
adjustments.

At December 31, 1994, KACC's investment in its unconsolidated affiliates
exceeded its equity in their net assets by approximately $67.9. The Company is
amortizing this amount over a 12-year period, which results in an annual
amortization charge of approximately $11.6.

The Company and its affiliates have interrelated operations. KACC provides
some of its affiliates with services such as financing, management, and
engineering. Significant activities with affiliates include the acquisition and
processing of bauxite, alumina, and primary aluminum. Purchases from these
affiliates were $219.7, $206.6, and $219.4 in the years ended December 31,
1994, 1993, and 1992, respectively. No dividends were received from investees
in the three years ended December 31, 1994.

F-9
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)

4. PROPERTY, PLANT, AND EQUIPMENT

The major classes of property, plant, and equipment are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1993
-------- --------
<S> <C> <C>
Land and improvements........................................ $ 153.5 $ 135.1
Buildings.................................................... 196.8 194.8
Machinery and equipment...................................... 1,285.0 1,223.0
Construction in progress..................................... 45.0 64.9
-------- --------
1,680.3 1,617.8
Accumulated depreciation..................................... 547.1 454.1
-------- --------
Property, plant, and equipment--net........................ $1,133.2 $1,163.7
======== ========
</TABLE>

5. LONG-TERM DEBT

Long-term debt and its maturity schedule are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
2000 -------------
AND 1994 1993
1995 1996 1997 1998 1999 AFTER TOTAL TOTAL
----- ---- ---- ---- ---- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1994 Credit Agreement (10% at
December 31, 1994)............. $6.7 $ 6.7
1989 Credit Agreement (6.59% at
December 31, 1993)............. $188.0
9 7/8% Senior Notes, net........ $223.6 223.6
Pollution Control and Solid
Waste Disposal Facilities
Obligations (6.00%-7.75%)...... $ 1.2 $1.2 $1.3 $1.4 .2 32.8 38.1 39.2
Alpart CARIFA Loan (fixed and
variable rates)................ 60.0 60.0 60.0
Alpart Term Loan (8.95%)........ 6.2 6.3 6.2 18.7 25.0
12 3/4% Senior Subordinated
Notes.......................... 400.0 400.0 400.0
Other borrowings (fixed and
variable rates)................ 4.1 1.5 1.7 7.4 .4 .4 15.5 16.7
----- ---- ---- ---- ---- ------ ------ ------
Total........................... $11.5 $9.0 $9.2 $8.8 $7.3 $716.8 762.6 728.9
===== ==== ==== ==== ==== ======
Less current portion............ 11.5 8.7
------ ------
Long-term debt................ $751.1 $720.2
====== ======
</TABLE>

1994 Credit Agreement

On February 17, 1994, the Company and KACC entered into a credit agreement
with BankAmerica Business Credit, Inc. (as agent for itself and other lenders),
Bank of America National Trust and Savings Association, and certain other
lenders (as amended, the "1994 Credit Agreement"). The 1994 Credit Agreement
consists of a $275.0 five-year secured, revolving line of credit, scheduled to
mature in 1999, and replaced the credit agreement entered into in December 1989
by the Company and KACC with a syndicate of commercial banks and other
financial institutions (as amended, the "1989 Credit Agreement"). KACC is

F-10
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)
able to borrow under the facility by means of revolving credit advances and
letters of credit (up to $125.0) in an aggregate amount equal to the lesser of
$275.0 or a borrowing base relating to eligible accounts receivable plus
eligible inventory. The Company recorded a pre-tax extraordinary loss of $8.3
($5.4 after taxes) in the first quarter of 1994, consisting primarily of the
write-off of unamortized deferred financing costs related to the 1989 Credit
Agreement. As of December 31, 1994, $202.5 (of which $59.3 could have been used
for letters of credit) was available to KACC under the 1994 Credit Agreement.
The 1994 Credit Agreement is unconditionally guaranteed by the Company and by
certain significant subsidiaries of KACC. Loans under the 1994 Credit Agreement
bear interest at a rate per annum, at KACC's election, equal to a Reference
Rate (as defined) plus 1 1/2% or LIBO Rate (Reserve Adjusted) (as defined) plus
3 1/4%. After June 30, 1995, the interest rate margins applicable to borrowings
under the 1994 Credit Agreement may be reduced by up to 1 1/2% (non-
cumulatively), based on a financial test, determined quarterly.

The 1994 Credit Agreement requires KACC to maintain certain financial
covenants and places restrictions on the Company's and KACC's ability to, among
other things, incur debt and liens, make investments, pay dividends, undertake
transactions with affiliates, make capital expenditures, and enter into
unrelated lines of business. Neither the Company nor KACC currently is
permitted to pay dividends on its common stock. The 1994 Credit Agreement is
secured by, among other things, (i) mortgages on KACC's major domestic plants
(excluding the Gramercy plant); (ii) subject to certain exceptions, liens on
the accounts receivable, inventory, equipment, domestic patents and trademarks,
and substantially all other personal property of KACC and certain of its
subsidiaries; (iii) a pledge of all the stock of KACC owned by Kaiser; and (iv)
pledges of all of the stock of a number of KACC's wholly owned domestic
subsidiaries, pledges of a portion of the stock of certain foreign
subsidiaries, and pledges of a portion of the stock of certain partially owned
foreign affiliates.

Senior Notes

Concurrent with the offering by the Company of its 8.255% PRIDES, Convertible
Preferred Stock (the "PRIDES") (see Note 8), KACC issued $225.0 of its 9 7/8%
Senior Notes due 2002 (the "Senior Notes"). The net proceeds of the offering of
the Senior Notes were used to reduce outstanding borrowings under the revolving
credit facility of the 1989 Credit Agreement immediately prior to the
effectiveness of the 1994 Credit Agreement and for working capital and general
corporate purposes.

Senior Subordinated Notes

On February 1, 1993, KACC issued $400.0 of 12 3/4% Senior Subordinated Notes
due 2003 (the "12 3/4% Notes"). The net proceeds from the sale of the 12 3/4%
Notes were used to retire the 14 1/4% Senior Subordinated Notes due 1995 (the
"14 1/4% Notes"), to prepay $18.0 of the term loan, and to reduce outstanding
borrowings under the revolving credit facility of the 1989 Credit Agreement.
These transactions resulted in a pre-tax extraordinary loss of $33.0 in the
first quarter of 1993, consisting primarily of the write-off of unamortized
discount and deferred financing costs related to the 14 1/4% Notes and the
payment of premiums on the 14 1/4% Notes.

The obligations of KACC with respect to the Senior Notes and the 12 3/4%
Notes are guaranteed, jointly and severally, by certain subsidiaries of KACC.
The indentures governing the Senior Notes and the 12 3/4% Notes restrict, among
other things, KACC's ability, and the 1994 Credit Agreement restricts, among
other things, Kaiser's and KACC's ability, to incur debt, undertake
transactions with affiliates, and pay dividends.

F-11
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)

Gramercy Revenue Bonds

In December 1992, KACC entered into an installment sale agreement (the "Sale
Agreement") with the Parish of St. James, Louisiana (the "Louisiana Parish"),
pursuant to which the Louisiana Parish issued $20.0 aggregate principal amount
of its 7 3/4% Bonds due August 1, 2022 (the "Bonds") to finance the
construction of certain solid waste disposal facilities at KACC's Gramercy
plant. The proceeds from the sale of the Bonds were deposited into a
construction fund and may be withdrawn, from time to time, pursuant to the
terms of the Sale Agreement and the Bond indenture. At December 31, 1994, $6.4
remained in the construction fund. The Sale Agreement requires KACC to make
payments to the Louisiana Parish in installments due on the dates and in the
amounts required to permit the Louisiana Parish to satisfy all of its payment
obligations under the Bonds.

Alpart CARIFA Loan

In December 1991, Alpart entered into a loan agreement with the Caribbean
Basin Projects Financing Authority ("CARIFA") under which CARIFA loaned Alpart
the proceeds from the issuance of CARIFA's industrial revenue bonds. The terms
of the loan parallel the bonds' repayment terms. The $38.0 aggregate principal
amount of Series A bonds matures on June 1, 2008. The Series A bonds bear
interest at a floating rate of 87% of the applicable LIBID Rate (LIBOR less 1/8
of 1%) on $37.5 of the principal amount (5.2% at December 31, 1994) with the
remaining $.5 bearing interest at a fixed rate of 6.35%. The $22.0 aggregate
principal amount of Series B bonds matures on June 1, 2007, and bears interest
at a fixed rate of 8.25%.

Proceeds from the sale of the bonds were used by Alpart to refinance interim
loans from the partners in Alpart, to pay eligible project costs for the
expansion and modernization of its alumina refinery and related port and
bauxite mining facilities, and to pay certain costs of issuance. Under the
terms of the loan agreement, Alpart must remain a qualified recipient for
Caribbean Basin Initiative funds as defined in applicable laws. Alpart has
agreed to indemnify bondholders of CARIFA for certain tax payments that could
result from events, as defined, that adversely affect the tax treatment of the
interest income on the bonds. Alpart's obligations under the loan agreement are
secured by a $64.2 letter of credit guaranteed by the partners in Alpart (of
which $22.5 is guaranteed by the Company's minority partner in Alpart).

Capitalized Interest

Interest capitalized in 1994, 1993, and 1992 was $2.7, $3.4, and $4.4,
respectively.

Restricted Net Assets of Subsidiary

Certain debt instruments restrict the ability of KACC to transfer assets,
make loans and advances, and pay dividends to the Company. The assets of KACC,
which are substantially all of the Company's assets, are restricted.

6. INCOME TAXES

Income (loss) before income taxes, minority interests, extraordinary loss,
and cumulative effect of changes in accounting principles by geographic area is
as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
------------------------
1994 1993 1992
------- ------- ------
<S> <C> <C> <C>
Domestic.............................................. $(168.4) $(232.0) $(77.6)
Foreign............................................... 16.3 23.5 109.7
------- ------- ------
Total............................................... $(152.1) $(208.5) $ 32.1
======= ======= ======
</TABLE>

F-12
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)
Income taxes are classified as either domestic or foreign, based on whether
payment is made or due to the United States or a foreign country. Certain
income classified as foreign is also subject to domestic income taxes.

The credit (provision) for income taxes on income (loss) before income
taxes, minority interests, extraordinary loss, and cumulative effect of changes
in accounting principles consists of:

<TABLE>
<CAPTION>
FEDERAL FOREIGN STATE TOTAL
------- ------- ----- ------
<S> <C> <C> <C> <C>
1994
Current......................................... $(18.0) $(.1) $(18.1)
Deferred........................................ $71.2 .6 .1 71.9
----- ------ ---- ------
Total......................................... $71.2 $(17.4) $ 53.8
===== ====== ==== ======
1993
Current......................................... $12.6 $ (7.9) $(.1) $ 4.6
Deferred........................................ 68.5 12.0 1.8 82.3
----- ------ ---- ------
Total......................................... $81.1 $ 4.1 $1.7 $ 86.9
===== ====== ==== ======
1992
Current......................................... $(9.7) $(11.4) $(.1) $(21.2)
Deferred........................................ 13.1 3.3 (.5) 15.9
----- ------ ---- ------
Total......................................... $ 3.4 $ (8.1) $(.6) $ (5.3)
===== ====== ==== ======
</TABLE>

The 1994 federal deferred credit for income taxes of $71.2 includes $29.3 for
the benefit of operating loss carryforwards generated in 1994. The 1993 federal
deferred credit for income taxes of $68.5 includes $29.2 for the benefit of
operating loss carryforwards generated in 1993 and a $3.4 benefit for
increasing net deferred income tax assets (liabilities) as of the date of
enactment (August 10, 1993) of the Omnibus Budget Reconciliation Act of 1993,
which retroactively increased the federal statutory income tax rate from 34% to
35% for periods beginning on or after January 1, 1993.

A reconciliation between the credit (provision) for income taxes and the
amount computed by applying the federal statutory income tax rate to income
(loss) before income taxes, minority interests, extraordinary loss, and
cumulative effect of changes in accounting principles is as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1994 1993 1992
----- ----- ------
<S> <C> <C> <C>
Amount of federal income tax based on the statutory rate. $53.2 $73.0 $(10.9)
Percentage depletion..................................... 5.6 6.4 6.3
Increase in net deferred income tax assets due to tax
rate change............................................. 1.8 3.4
Revision of prior years' tax estimates and other changes
in valuation allowances................................. .2 3.9 2.9
Foreign taxes, net of federal tax benefit................ (5.3) (2.6) (.4)
Financial reporting/tax basis differences................ (3.0)
Other.................................................... (1.7) 2.8 (.2)
----- ----- ------
Credit (provision) for income taxes...................... $53.8 $86.9 $ (5.3)
===== ===== ======
</TABLE>

F-13
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)
As shown in the Statements of Consolidated Income (Loss) for the years ended
December 31, 1994 and 1993, the Company reported extraordinary losses related
to the early extinguishment of debt. The Company reported the 1994
extraordinary loss net of related deferred federal income taxes of $2.9 and
reported the 1993 extraordinary loss net of related current federal income
taxes of $11.2, which approximated the federal statutory rate in effect on the
dates the transactions occurred.

The Company adopted SFAS 109 as of January 1, 1993, as discussed in Note 1.
The components of the Company's net deferred income tax assets are as follows:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1993
------------ ------------
<S> <C> <C>
Deferred income tax assets:
Postretirement benefits other than pensions........ $ 293.7 $ 285.4
Loss and credit carryforwards...................... 187.6 142.6
Other liabilities.................................. 109.6 105.2
Pensions........................................... 51.0 60.6
Foreign and state deferred income tax liabilities.. 28.1 33.0
Property, plant, and equipment..................... 23.1 23.1
Other.............................................. 3.5 10.5
Valuation allowances............................... (133.9) (133.5)
------- -------
Total deferred income tax assets--net............ 562.7 526.9
------- -------
Deferred income tax liabilities:
Property, plant, and equipment..................... (203.2) (224.4)
Investments in and advances to unconsolidated
affiliates........................................ (63.8) (60.6)
Inventories........................................ (8.3) (14.8)
Other.............................................. (6.4) (20.3)
------- -------
Total deferred income tax liabilities............ (281.7) (320.1)
------- -------
Net deferred income tax assets....................... $ 281.0 $ 206.8
======= =======
</TABLE>

The valuation allowances listed above relate primarily to loss and credit
carryforwards and postretirement benefits other than pensions. As of December
31, 1994, approximately $125.1 of the net deferred income tax assets listed
above relate to the benefit of loss and credit carryforwards, net of valuation
allowances. The Company evaluated all appropriate factors to determine the
proper valuation allowances for these carryforwards, including any limitations
concerning their use and the year the carryforwards expire, as well as the
levels of taxable income necessary for utilization. For example, full valuation
allowances were provided for certain credit carryforwards that expire in the
near term. With regard to future levels of income, the Company believes, based
on the cyclical nature of its business, its history of prior operating
earnings, and its expectations for future years, that it will more likely than
not generate sufficient taxable income to realize the benefit attributable to
the loss and credit carryforwards for which valuation allowances were not
provided. The remaining portion of the Company's net deferred income tax assets
at December 31, 1994, is approximately $155.9. A principal component of this
amount is the tax benefit associated with the accrual for postretirement
benefits other than pensions. The future tax deductions with respect to the
turnaround of this accrual will occur over a 30- to 40-year period. If such
deductions create or increase a net operating loss in any one year, the Company
has the ability to carry forward such loss for 15 taxable years. For these
reasons, the Company believes a long-term view of profitability is appropriate
and has concluded that this net deferred income tax asset will more likely than
not be realized despite the operating losses incurred in recent years.

F-14
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)

Certain of the deferred income tax assets and liabilities listed above are
included on the Consolidated Balance Sheet in the captions entitled
Receivables, Prepaid expenses and other current assets, Other accrued
liabilities, and Long-term liabilities.

The Company and its subsidiaries were included in the consolidated federal
income tax returns of MAXXAM for the period from October 28, 1988, through June
30, 1993. As a consequence of the issuance of the Depositary Shares on June 30,
1993, as discussed in Note 8, the Company and its subsidiaries are no longer
included in the consolidated federal income tax returns of MAXXAM. The Company
and its subsidiaries have become members of a new consolidated return group of
which the Company is the common parent corporation (the "New Kaiser Tax
Group"). The New Kaiser Tax Group files consolidated federal income tax returns
for taxable periods beginning on or after July 1, 1993.

The tax allocation agreement between the Company and MAXXAM (the "Company Tax
Allocation Agreement") and the tax allocation agreement between KACC and MAXXAM
(the "KACC Tax Allocation Agreement") (collectively, the "Tax Allocation
Agreements"), terminated pursuant to their terms, effective for taxable periods
beginning after June 30, 1993. Any unused federal income tax attribute
carryforwards under the terms of the Tax Allocation Agreements were eliminated
and are not available to offset federal income tax liabilities for taxable
periods beginning on or after July 1, 1993. Upon the filing of MAXXAM's 1993
consolidated federal income tax return, the tax attribute carryforwards of the
MAXXAM consolidated return group as of December 31, 1993, were apportioned in
part to the New Kaiser Tax Group, based on the provisions of the relevant
consolidated return regulations. The benefit of such tax attribute
carryforwards apportioned to the New Kaiser Tax Group approximated the benefit
of tax attribute carryforwards eliminated under the Tax Allocation Agreements.
To the extent the New Kaiser Tax Group generates unused tax losses or tax
credits for periods beginning on or after July 1, 1993, such amounts will not
be available to obtain refunds of amounts paid by the Company or KACC to MAXXAM
for periods ending on or before June 30, 1993, pursuant to the Tax Allocation
Agreements.

KACC and MAXXAM entered into the KACC Tax Allocation Agreement, which became
effective as of October 28, 1988. Under the terms of the KACC Tax Allocation
Agreement, MAXXAM computed the federal income tax liability for KACC and its
subsidiaries (collectively, the "Subgroup") as if the Subgroup were a separate
affiliated group of corporations which was never connected with MAXXAM. During
1991, the Company and MAXXAM entered into the Company Tax Allocation Agreement,
which became effective as of January 1, 1991. Under the terms of the Company
Tax Allocation Agreement, MAXXAM computed a tentative federal income tax
liability for the Company as if it and its subsidiaries, including KACC and its
subsidiaries, were a separate affiliated group of corporations which was never
connected with MAXXAM. The federal income tax liability of the Company was the
difference between the tentative federal income tax liability and the liability
computed under the KACC Tax Allocation Agreement.

The provisions of the Tax Allocation Agreements will continue to govern for
periods ended prior to July 1, 1993. Therefore, payments or refunds may still
be required by or payable to the Company or KACC under the terms of their
respective tax allocation agreements for these periods due to the final
resolution of audits, amended returns, and related matters. However, the 1994
Credit Agreement prohibits the payment by KACC to MAXXAM of any amounts due
under the KACC Tax Allocation Agreement, except for certain payments that are
required as a result of audits and only to the extent of any amounts paid after
February 17, 1994, by MAXXAM to KACC under the KACC Tax Allocation Agreement.

F-15
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)

The following table presents the Company's tax attributes for federal income
tax purposes as of December 31, 1994. The utilization of certain of these tax
attributes is subject to limitations:

<TABLE>
<CAPTION>
EXPIRING
THROUGH
----------
<S> <C> <C>
Regular tax attribute carryforwards:
Current year net operating loss............................. $ 83.7 2009
Prior year net operating losses............................. 135.4 2008
General business tax credits................................ 37.4 2006
Foreign tax credits......................................... 42.2 1999
Alternative minimum tax credits............................. 15.3 Indefinite
Alternative minimum tax attribute carryforwards:
Current year net operating loss............................. $ 64.3 2009
Prior year net operating losses............................. 84.4 2008
Foreign tax credits......................................... 33.8 1999
</TABLE>

7. EMPLOYEE BENEFIT AND INCENTIVE PLANS

Retirement Plans

Retirement plans are non-contributory for salaried and hourly employees and
generally provide for benefits based on a formula which considers length of
service and earnings during years of service. The Company's funding policies
meet or exceed all regulatory requirements.

The funded status of the employee pension benefit plans and the corresponding
amounts that are included in the Company's Consolidated Balance Sheets are as
follows:

<TABLE>
<CAPTION>
PLANS WITH
ACCUMULATED
BENEFITS
EXCEEDING
ASSETS(1)
DECEMBER 31,
----------------
1994 1993
------- -------
<S> <C> <C>
Accumulated benefit obligation:
Vested employees........................................... $(663.9) $(705.0)
Nonvested employees........................................ (41.1) (40.1)
------- -------
Accumulated benefit obligation............................. (705.0) (745.1)
Additional amounts related to projected salary increases..... (30.0) (45.5)
------- -------
Projected benefit obligation................................. (735.0) (790.6)
Plan assets (principally common stocks and fixed income
obligations) at fair value.................................. 524.6 569.8
------- -------
Plan assets less than projected benefit obligation........... (210.4) (220.8)
Unrecognized net losses...................................... 42.5 75.7
Unrecognized net obligations................................. .8 1.6
Unrecognized prior-service cost.............................. 30.9 16.9
Adjustment required to recognize minimum liability........... (42.9) (47.7)
------- -------
Accrued pension obligation included in the Consolidated
Balance Sheets (principally in long-term liabilities)....... $(179.1) $(174.3)
======= =======
</TABLE>
- --------
(1) Includes plans with assets exceeding accumulated benefits by approximately
$.3 and $.1 in 1994 and 1993, respectively.

F-16
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)

As required by Statement of Financial Accounting Standards No. 87, Employers'
Accounting for Pensions, the Company recorded an after-tax credit (charge) to
equity of $12.5 and $(14.9) at December 31, 1994 and 1993, respectively, for
the reduction (excess) of the minimum liability over the unrecognized net
obligation and prior-service cost. These amounts were recorded net of the
related income tax (provision) credit of $(7.3) and $8.7 as of December 31,
1994 and 1993, respectively, which approximated the federal and state statutory
rates.

The components of net periodic pension cost are:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Service cost--benefits earned during the period......... $ 11.2 $ 10.8 $ 11.0
Interest cost on projected benefit obligation........... 57.3 59.2 58.8
Return on assets:
Actual gain........................................... (.8) (70.3) (26.3)
Deferred gain (loss).................................. (53.0) 15.9 (31.2)
Net amortization and deferral........................... 4.1 2.3 2.1
------ ------ ------
Net periodic pension cost............................... $ 18.8 $ 17.9 $ 14.4
====== ====== ======
</TABLE>

Assumptions used to value obligations at year-end, and to determine the net
periodic pension cost in the subsequent year are:

<TABLE>
<CAPTION>
1994 1993 1992
----- ------ ------
<S> <C> <C> <C>
Discount rate............................................... 8.50% 7.50% 8.25%
Expected long-term rate of return on assets................. 9.50% 10.00% 10.00%
Rate of increase in compensation levels..................... 5.00% 5.00% 5.00%
</TABLE>

Postretirement Benefits Other Than Pensions

Kaiser adopted SFAS 106 to account for postretirement benefits other than
pensions effective January 1, 1993 (see Note 1). The Company and its
subsidiaries provide postretirement health care and life insurance benefits to
eligible retired employees and their dependents. Substantially all employees
may become eligible for those benefits if they reach retirement age while still
working for the Company or its subsidiaries. These benefits are provided
through contracts with various insurance carriers. The Company has not funded
the liability for these benefits.

The Company's accrued postretirement benefit obligation is composed of the
following:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1994 1993
------- -------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.................................................... $(566.2) $(629.3)
Active employees eligible for postretirement benefits....... (30.2) (35.1)
Active employees not eligible for postretirement benefits... (98.7) (128.3)
------- -------
Accumulated postretirement benefit obligation............... (695.1) (792.7)
Unrecognized net (gains) losses............................... (55.0) 67.0
Unrecognized prior-service costs.............................. (31.8) (35.0)
------- -------
Accrued postretirement benefit obligation..................... $(781.9) $(760.7)
======= =======
</TABLE>

F-17
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)
The components of net periodic postretirement benefit cost are:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER
31,
------------
1994 1993
----- -----
<S> <C> <C>
Service cost...................................................... $ 8.2 $ 7.1
Interest cost..................................................... 56.9 58.5
Amortization of prior service cost................................ (3.2)
----- -----
Net periodic post-retirement benefit cost......................... $61.9 $65.6
===== =====
</TABLE>

The 1995 annual assumed rates of increase in the per capita cost of covered
benefits (i.e., health care cost trend rate) are 9.5% and 8.0% for retirees
under 65 and over 65, respectively, and are assumed to decrease gradually to
5.5% in 2007 and remain at that level thereafter. The health care cost trend
rate has a significant effect on the amounts reported. A one percentage point
increase in the assumed health care cost trend rate would increase the
accumulated postretirement benefit obligation as of December 31, 1994, by
approximately $79.8 and the aggregate of the service and interest cost
components of net periodic postretirement benefit cost for 1994 by
approximately $9.5. The weighted average discount rate used to determine the
accumulated postretirement benefit obligation at December 31, 1994 and 1993,
was 8.5% and 7.5%, respectively.

Postemployment Benefits

Kaiser adopted the new accounting standard on postemployment benefits
effective January 1, 1993 (see Note 1). The Company provides certain benefits
to former or inactive employees after employment but before retirement.

Incentive Plans

Effective January 1, 1989, the Company and KACC adopted an unfunded Long-Term
Incentive Plan (the "LTIP") for certain key employees of the Company, KACC, and
their consolidated subsidiaries. All compensation vested as of December 31,
1992, under the LTIP, as amended in 1991 and 1992, has been paid to the
participants in cash or common stock of the Company as of December 31, 1993.
Under the LTIP, as amended, 764,092 restricted shares were distributed to six
Company executives during 1993 for benefits generally earned but not vested as
of December 31, 1992. These shares generally will vest at the rate of 25% per
year. The Company will record the related expense of $6.5 over the four-year
period ending December 31, 1996. In 1993, the Company adopted the Kaiser 1993
Omnibus Stock Incentive Plan. A total of 2,500,000 shares of Kaiser common
stock were reserved for awards or for payment of rights granted under the Plan,
of which 504,044 shares were available to be awarded at December 31, 1994.
Under the Kaiser 1993 Omnibus Stock Incentive Plan, 102,564 restricted shares
were distributed to two Company executives during 1994, which will vest at the
rate of 25% per year. The Company will record the related expense of $1.0 over
the four-year period ending December 31, 1998.

F-18
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)

In 1993 and 1994, the Compensation Committee of the Board of Directors
approved the award of "nonqualified stock options" to members of management
other than those participating in the LTIP. These options generally will vest
at the rate of 20-25% per year. Information relating to nonqualified stock
options is shown below:

<TABLE>
<CAPTION>
1994 1993
--------- -------
<S> <C> <C>
Outstanding at beginning of year............................ 664,400
Granted..................................................... 494,800 664,400
Exercised (at $7.25 per share).............................. (6,920)
Expired or forfeited........................................ (29,900)
--------- -------
Outstanding at end of year (prices ranging from $7.25 to
$12.75 per share).......................................... 1,122,380 664,400
========= =======
Exercisable at end of year.................................. 119,980
========= =======
</TABLE>
Effective January 1, 1990, KACC adopted an unfunded Middle Management Long-
Term Incentive Plan. KACC also has a supplemental savings and retirement plan
for salaried employees, under which the participants contribute a percentage of
their base salaries.

The Company's expense for the above plans was $6.1, $5.3, and $6.6 for the
years ended December 31, 1994, 1993, and 1992, respectively.

F-19
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)

8. STOCKHOLDERS' EQUITY AND MINORITY INTERESTS

Changes in stockholders' equity and minority interests were:

<TABLE>
<CAPTION>
MINORITY
INTERESTS STOCKHOLDERS' EQUITY
---------------- ---------------------------------------------------
RETAINED ADDITIONAL
REDEEMABLE EARNINGS MINIMUM
PREFERENCE PREFERRED COMMON ADDITIONAL (ACCUMULATED PENSION
STOCK OTHER STOCK STOCK CAPITAL DEFICIT) LIABILITY
---------- ----- --------- ------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1,
1992................... $34.8 $74.1 $.6 $287.9 $ 267.3
Net income............ 26.9
Redeemable preference
stock:
Accretion........... 5.1
Stock redemption.... (7.1)
Dividends on common
stock................ (11.4)
Conversions (2,405
preference shares
into cash)........... (.2)
Common stock issued... .6
Minority interest in
majority-owned
subsidiaries......... (1.8)
Additional minimum
pension liability.... $(6.7)
----- ----- --- --- ------ ------- -----
BALANCE, DECEMBER 31,
1992................... 32.8 72.1 .6 288.5 282.8 (6.7)
Net loss.............. (652.2)
Redeemable preference
stock:
Accretion........... 4.8
Stock redemption.... (4.0)
Conversions (1,967
preference shares
into cash............ (.2)
Common stock issued... 3.3
Preferred stock
issued............... $.2 134.1
Dividends on preferred
stock................ (6.3)
Minority interest in
majority-owned
subsidiaries......... (.5)
Additional minimum
pension liability.... (14.9)
----- ----- --- --- ------ ------- -----
BALANCE, DECEMBER 31,
1993................... 33.6 71.4 .2 .6 425.9 (375.7) (21.6)
Net loss.............. (106.8)
Redeemable preference
stock:
Accretion........... 4.0
Stock redemption.... (8.5)
Common stock issued... 2.2
Preferred stock
issued............... .4 99.7
Dividends on preferred
stock................ (20.1)
Minority interest in
majority-owned
subsidiaries......... 15.7
Reduction of minimum
pension liability.... 12.5
----- ----- --- --- ------ ------- -----
BALANCE, DECEMBER 31,
1994................... $29.1 $87.1 $.6 $.6 $527.8 $(502.6) $(9.1)
===== ===== === === ====== ======= =====
</TABLE>

Redeemable Preference Stock

In March 1985, KACC entered into a three-year agreement with the United
Steelworkers of America (USWA) whereby shares of a new series of "Cumulative
(1985 Series A) Preference Stock" would be issued

F-20
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)
to an employee stock ownership plan in exchange for certain elements of wages
and benefits. Concurrently, a similar plan was established for certain
nonbargaining employees which provided for the issuance of "Cumulative (1985
Series B) Preference Stock." Series A Stock and Series B Stock ("Series A and B
Stock") each have a par value of $1 per share and a liquidation and redemption
value of $50 per share plus accrued dividends, if any.

For financial reporting purposes, Series A and B Stock were recorded at fair
market value when issued, based on independent appraisals, with a corresponding
charge to compensation cost. Carrying values have been increased each year to
recognize accretion of redemption values and, in certain years, there have been
other increases for reasons described below. Changes in Series A and B Stock
are shown below.

<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Shares:
Beginning of year............................ 1,081,548 1,163,221 1,305,550
Redeemed..................................... (169,381) (81,673) (142,329)
--------- --------- ---------
End of year.................................. 912,167 1,081,548 1,163,221
========= ========= =========
</TABLE>

No additional Series A or B Stock will be issued based on compensation earned
in 1992 or subsequent years. While held by the plan trustee, Series B Stock is
entitled to cumulative annual dividends, when and as declared by the Board of
Directors, payable in stock or in cash at the option of KACC on or after March
1, 1991, in respect to years commencing January 1, 1990, based on a formula
tied to KACC's income before tax from aluminum operations. When distributed to
plan participants (generally upon separation from KACC), the Series A and B
Stocks are entitled to an annual cash dividend of $5 per share, payable
quarterly, when and as declared by the Board of Directors.

Redemption fund agreements require KACC to make annual payments by March 31
each year based on a formula tied to consolidated net income until the
redemption funds are sufficient to redeem all Series A and B Stock. On an
annual basis, the minimum payment is $4.3 and the maximum payment is $7.3. In
March 1993 and 1994, KACC contributed $4.3 for each of the years 1992 and 1993,
and will contribute $4.3 in March 1995 for 1994.

Under the USWA labor contract effective November 1, 1990, KACC was obligated
to offer to purchase up to 80 shares of Series A Stock from each active
participant in 1991 at a price equal to its redemption value of $50 per share.
KACC also agreed to offer to purchase up to an additional 40 shares from each
participant in 1994. The employees could elect to receive their shares, accept
cash, or place the proceeds into KACC's 401(k) savings plan. Under separate
action, KACC also offered to purchase 80 shares of Series B Stock from active
participants in 1991 and 40 shares in 1994. Under the provisions of these
contracts, in February 1994, KACC purchased $4.6 and $.8 of the Series A and B
Stock, respectively.

Under the USWA labor contract effective November 1, 1994, KACC is obligated
to offer to purchase up to 40 shares of Series A Stock from each active
participant in 1995 at a price equal to its redemption value of $50 per share.
KACC also agreed to offer to purchase up to an additional 80 shares from each
participant in 1998. In addition, if a profitability test is satisfied for
either 1995 or 1996, KACC will offer to purchase from each active participant
an additional 20 shares of such preference stock held in the stock ownership
plan for the benefit of substantially the same employees in either 1996 or
1997. The employees could elect to receive their shares, accept cash, or place
the proceeds into KACC's 401(k) savings plan. KACC will provide comparable
purchases of Series B Stock from active participants.

F-21
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)

The Series A and B Stock is distributed in the event of death, retirement, or
in other specified circumstances. KACC also may redeem such stock at $50 per
share plus accrued dividends, if any. At the option of the plan participant,
the trustee shall redeem stock distributed from the plans at redemption value
to the extent funds are available in the redemption fund. Under the Tax Reform
Act of 1986, at the option of the plan participant, KACC must purchase
distributed shares earned after December 31, 1985, at redemption value on a
five-year installment basis, with interest at market rates. The obligation of
KACC to make such installment payments must be secured.

The Series A and B Stock is entitled to the same voting rights as KACC common
stock and to certain additional voting rights under certain circumstances,
including the right to elect, along with other KACC preference stockholders,
two directors whenever accrued dividends have not been paid on two annual
dividend payment dates or when accrued dividends in an amount equivalent to six
full quarterly dividends are in arrears. The Series A and B Stock restricts the
ability of KACC to redeem or pay dividends on common stock if KACC is in
default on any dividends payable on the Series A and B Stock.

Preference Stock

KACC Cumulative Convertible Preference Stock, $100 par value ("$100
Preference Stock"), restricts acquisition of junior stock and payment of
dividends. At December 31, 1994, such provisions were less restrictive as to
the payment of cash dividends than the 1994 Credit Agreement provisions. KACC
has the option to redeem the $100 Preference Stocks at par value plus accrued
dividends. KACC does not intend to issue any additional shares of the $100
Preference Stocks.

The 4 1/8% and 4 3/4% (1957 Series, 1959 Series, and 1966 Series) $100
Preference Stock can be exchanged for per share cash amounts of $69.30, $77.84,
$78.38, and $76.46, respectively. KACC records the $100 Preference Stock at
their exchange amounts for financial statement presentation and the Company
includes such amounts in minority interests. The outstanding shares of KACC
preference stock were:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1994 1993
------ ------
<S> <C> <C>
4 1/8%............................................................ 3,657 3,921
4 3/4% (1957 Series).............................................. 2,605 2,623
4 3/4% (1959 Series).............................................. 13,534 13,605
4 3/4% (1966 Series).............................................. 3,640 3,890
</TABLE>

Preferred Stock

Series A Convertible--On June 30, 1993, Kaiser issued 17,250,000 of its $.65
Depositary Shares (the "Depositary Shares"), each representing one-tenth of a
share of Series A Mandatory Conversion Premium Dividend Preferred Stock (the
"Series A Shares"). In connection with the issuance of the Depositary Shares,
MAXXAM Group Inc. ("MGI"), a wholly owned subsidiary of MAXXAM, exchanged a
$15.0 promissory note of KACC (the "MAXXAM Note") for an additional 2,132,950
Depositary Shares. On August 4, 1993, MGI transferred the 2,132,950 Depositary
Shares to MAXXAM in exchange for satisfaction of a $15.0 promissory note
evidencing a cash loan made to MGI by MAXXAM in January 1993. MAXXAM sold
1,239,400 of the Depositary Shares during 1994.

The net cash proceeds from the sale of Depositary Shares were approximately
$119.3. Kaiser used $37.8 of such net proceeds to make a non-interest-bearing
loan to KACC evidenced by an intercompany note, which

F-22
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)
matures on June 29, 1996, and is payable in quarterly installments. The
intercompany note is designed to provide sufficient funds to Kaiser to enable
it to make dividend payments on the Series A Shares until June 30, 1996, the
date on which the outstanding Series A Shares are mandatorily converted into
shares of the Company's common stock. Kaiser used $81.5 of such net proceeds
and the MAXXAM Note to make a capital contribution to KACC. KACC used $13.7 of
the funds it received from Kaiser to prepay the remaining balance of the term
loan under the 1989 Credit Agreement and $105.6 of such funds to reduce
outstanding borrowings under the revolving credit facility of the 1989 Credit
Agreement.

The owners of Depositary Shares are entitled to receive (when, as, and if the
Board of Directors declares dividends on the Series A Shares) cumulative
preferential cash dividends from the date of issue, accruing at the rate of
$.65 per annum for each of the Depositary Shares, payable quarterly in arrears
on the last day of each March, June, September, and December, commencing
September 30, 1993. Holders of Depositary Shares (based on the voting rights of
the Series A Shares) have one vote for each Depositary Share held of record,
except as required by law, and are entitled to vote with the holders of common
stock on all matters submitted to a vote of common stockholders.

On June 30, 1996, each of the outstanding Depositary Shares automatically
will convert (upon the automatic conversion of the Series A Shares) into one
share of common stock, plus the right to receive an amount in cash equal to the
accrued and unpaid dividends payable with respect to such Depositary Share.
Automatic conversion of the outstanding Depositary Shares (and the Series A
Shares) will occur upon certain mergers or consolidations of the Company (as
defined). At any time or from time to time prior to June 30, 1996, the Company
may call the outstanding Depositary Shares (by calling the Series A Shares) for
redemption, in whole or in part, at a call price per Depositary Share initially
equal to $12.46, declining by $.0018 on each day following the date of issue to
$10.624 on April 30, 1996, and equal to $10.51 thereafter, payable in shares of
common stock having an aggregate Current Market Price (as defined) equal to the
applicable call price, plus an amount in cash equal to all accrued and unpaid
dividends payable with respect to such Depositary Share.

PRIDES Convertible--In the first quarter of 1994, the Company consummated the
public offering of 8,855,550 shares of the PRIDES. The net proceeds from the
sale of the shares of PRIDES were approximately $100.1. The Company used such
net proceeds to make non-interest-bearing loans to KACC in the aggregate
principal amount of $33.2 (the aggregate dividends scheduled to accrue on the
shares of PRIDES from the issuance date until December 31, 1997, the date on
which the outstanding PRIDES will be mandatorily converted into shares of the
Company's common stock), evidenced by intercompany notes, and used the balance
of such net proceeds to make capital contributions to KACC in the aggregate
amount of $66.9.

Holders of shares of PRIDES are entitled to receive (when, as, and if the
Board of Directors declares dividends on the PRIDES) cumulative preferential
cash dividends at a rate per annum of 8.255% of the per share offering price
(equivalent to $.97 per annum for each share of PRIDES), from the date of
initial issuance, payable quarterly in arrears on the last day of March, June,
September, and December of each year. Holders of shares of PRIDES have a 4/5
vote for each share held of record and, except as required by law, are entitled
to vote together with the holders of common stock and together with the holders
of any other classes or series of stock (including the Series A Shares) who are
entitled to vote in such manner on all matters submitted to a vote of common
stockholders.

On December 31, 1997, unless either previously redeemed or converted at the
option of the holder, each of the outstanding shares of PRIDES will mandatorily
convert into one share of the Company's common

F-23
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)
stock, subject to adjustment in certain events, and the right to receive an
amount in cash equal to all accrued and unpaid dividends thereon (other than
previously declared dividends payable to a holder of record on a prior date).

Shares of PRIDES are not redeemable prior to December 31, 1996. At any time
and from time to time on or after December 31, 1996, the Company may redeem any
or all of the outstanding shares of PRIDES. Upon any such redemption, each
holder will receive, in exchange for each share of PRIDES, the number of shares
of common stock equal to (A) the sum of $11.9925, declining after December 31,
1996, to $11.75 until December 31, 1997, plus, in the event the Company does
not elect to pay cash dividends to the redemption date, all accrued and unpaid
dividends thereon divided by (B) the Current Market Price (as defined) on the
applicable date of determination, but in no event less than .8333 of a share of
common stock, subject to adjustment in certain events. At any time prior to
December 31, 1997, unless previously redeemed, each share of PRIDES is
convertible at the option of the holder thereof into .8333 of a share of common
stock (equivalent to a conversion price of $14.10 per share of common stock),
subject to adjustment in certain events. The number of shares of common stock a
holder will receive upon redemption, and the value of the shares received upon
conversion, will vary depending on the market price of the common stock from
time to time.

Dividends on Common Stock

The Company paid cash dividends on common stock of $2.9 in each quarter of
1992. As required under the 1989 Credit Agreement, on December 15, 1992, KACC
issued a Pay-in-Kind Note (the "PIK Note") to MGI in the principal amount of
$2.5, representing the entire amount of the dividend received by MGI in respect
of the shares of the Company's common stock which it owned. The PIK Note bears
interest, compounded semiannually, at a rate equal to 12% per annum, and is due
and payable, together with accrued interest thereon, on June 30, 1995.

The indentures governing the Senior Notes and the 12 3/4% Notes restrict,
among other things, KACC's ability, and the 1994 Credit Agreement restricts,
among other things, Kaiser's and KACC's ability, to incur debt, undertake
transactions with affiliates, and pay dividends. Under the most restrictive of
these covenants, neither the Company nor KACC currently is permitted to pay
dividends on its common stock.

At December 31, 1994, 28,000,000 shares of the Company's common stock owned
by MAXXAM were pledged as security for debt issued by MGI, consisting of $100.0
aggregate principal amount of 11 1/4% Senior Secured Notes due 2003 and $126.7
aggregate principal amount of 12 1/4% Senior Secured Discount Notes due 2003.

9. COMMITMENTS AND CONTINGENCIES

Commitments

KACC has financial commitments, including purchase agreements, tolling
arrangements, forward foreign exchange and forward sales contracts (see Note
10), letters of credit, and guarantees. Such purchase agreements and tolling
arrangements include long-term agreements for the purchase and tolling of
bauxite into alumina in Australia by QAL. These obligations expire in 2008.
Under the agreements, KACC is unconditionally obligated to pay its proportional
share of debt, operating costs, and certain other costs of QAL. The aggregate
minimum amount of required future principal payments at December 31, 1994, is
$78.7, due in 1997. The KACC share of payments, including operating costs and
certain other expenses under the agreement, was $85.6, $86.7, and $99.2 for the
years ended December 31, 1994, 1993, and 1992, respectively. KACC also has
agreements to supply alumina to and to purchase aluminum from Anglesey.

F-24
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)

Minimum rental commitments under operating leases at December 31, 1994, are
as follows: years ending December 31, 1995--$22.1; 1996--$21.5; 1997--$21.0;
1998--$24.1; 1999--$30.4; thereafter--$213.9. The future minimum rentals
receivable under noncancelable subleases was $73.2 at December 31, 1994.

Rental expenses were $26.8, $29.0, and $26.2 for the years ended December 31,
1994, 1993, and 1992, respectively.

Environmental Contingencies

The Company and KACC are subject to a wide variety of environmental laws and
regulations and to fines or penalties assessed for alleged breaches of the
environmental laws and to claims and litigation based upon such laws. KACC
currently is subject to a number of lawsuits under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended by
the Superfund Amendments Reauthorization Act of 1986 ("CERCLA"), and, along
with certain other entities, has been named as a potentially responsible party
for remedial costs at certain third-party sites listed on the National
Priorities List under CERCLA.

<TABLE>
<CAPTION>
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Balance at beginning of period............................. $40.9 $46.4 $51.5
Additional amounts......................................... 2.8 1.7 4.5
Less expenditures.......................................... (3.6) (7.2) (9.6)
----- ----- -----
Balance at end of period................................... $40.1 $40.9 $46.4
===== ===== =====
</TABLE>

These environmental accruals represent the Company's estimate of costs
reasonably expected to be incurred based on presently enacted laws and
regulations, currently available facts, existing technology, and the Company's
assessment of the likely remediation action to be taken. The Company expects
that these remediation actions will be taken over the next several years and
estimates that annual expenditures to be charged to these environmental
accruals will be approximately $3.0 to $11.0 for the years 1995 through 1999
and an aggregate of approximately $11.0 thereafter.

As additional facts are developed and definitive remediation plans and
necessary regulatory approvals for implementation of remediation are
established, or alternative technologies are developed, changes in these and
other factors may result in actual costs exceeding the current environmental
accruals. The Company believes that it is reasonably possible that costs
associated with these environmental matters may exceed current accruals by
amounts that could range, in the aggregate, up to approximately $20.0. While
uncertainties are inherent in the final outcome of these environmental matters,
and it is presently impossible to determine the actual costs that ultimately
may be incurred, management currently believes that the resolution of such
uncertainties should not have a material adverse effect on the Company's
consolidated financial position or results of operations.

Asbestos Contingencies

KACC is a defendant in a number of lawsuits in which the plaintiffs allege
that certain of their injuries were caused by, among other things, exposure to
asbestos during, and as a result of, their employment or

F-25
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)
association with KACC or exposure to products containing asbestos produced or
sold by KACC. The lawsuits generally relate to products KACC has not
manufactured for at least 15 years. At December 31, 1994, the number of such
lawsuits pending was approximately 25,200 with approximately 14,300 received
and 12,500 settled or dismissed in 1994.

Based on prior experience, KACC estimates that annual future cash payments in
connection with such litigation will be approximately $11.0 to $14.0 for the
years 1995 through 1999, and an aggregate of approximately $95.0 thereafter
through 2007. Based on past experience and reasonably anticipated future
activity, the Company has established an accrual for estimated asbestos-related
costs for claims filed and estimated to be filed and settled through 2007. The
Company does not presently believe there is a reasonable basis for estimating
such costs beyond 2007 and, accordingly, no accrual has been recorded for such
costs which may be incurred. This accrual was calculated based on the current
and anticipated number of asbestos-related claims, the prior timing and amounts
of asbestos-related payments, the current state of case law related to asbestos
claims, the advice of counsel, and the anticipated effects of inflation and
discounting at an estimated risk-free rate (8% at December 31, 1994).
Accordingly, an asbestos-related cost accrual of $102.0 is included primarily
in Long-term liabilities at December 31, 1994. The aggregate amount of the
undiscounted liability at December 31, 1994 is $158.1, before considerations
for insurance recoveries.

The Company believes that KACC has insurance coverage available to recover a
substantial portion of its asbestos-related costs. While claims for recovery
from some of KACC's insurance carriers are currently subject to pending
litigation and other carriers have raised certain defenses, the Company
believes, based on prior insurance-related recoveries in respect of asbestos-
related claims, existing insurance policies, and the advice of counsel, that
substantial recoveries from the insurance carriers are probable. Accordingly,
an estimated aggregate insurance recovery of $86.4, determined on the same
basis as the asbestos-related cost accrual, is recorded primarily in Other
assets at December 31, 1994.

Other Contingencies

The Company or KACC is involved in various other claims, lawsuits, and other
proceedings relating to a wide variety of matters. While uncertainties are
inherent in the final outcome of such matters, and it is presently impossible
to determine the actual costs that ultimately may be incurred, management
currently believes that the resolution of such uncertainties and the incurrence
of such costs should not have a material adverse effect on the Company's
consolidated financial position or results of operations.

10. DERIVATIVE FINANCIAL INSTRUMENTS AND RELATED HEDGING PROGRAMS

KACC enters into a number of financial instruments with off-balance-sheet
risk in the normal course of business that are designed to reduce its exposure
to fluctuations in foreign exchange rates, alumina, primary aluminum, and
fabricated aluminum products prices, and the cost of purchased commodities.

KACC has significant expenditures which are denominated in foreign currencies
related to long-term purchase commitments with its affiliates in Australia and
the United Kingdom, which expose KACC to

F-26
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)
certain exchange rate risks. In order to mitigate its exposure, KACC
periodically enters into forward foreign exchange and currency option contracts
in Australian dollars and Pounds Sterling to hedge these commitments. The
forward foreign currency exchange contracts are agreements to purchase or sell
a foreign currency, for a price specified at the contract date, with delivery
and settlement in the future. At December 31, 1994, KACC had net forward
foreign exchange contracts totaling approximately $74.4 for the purchase of
102.0 Australian dollars through December 31, 1996.

To mitigate its exposure to declines in the market prices of alumina, primary
aluminum, and fabricated aluminum products, while retaining the ability to
participate in favorable pricing environments that may materialize, KACC has
developed strategies which include forward sales of primary aluminum at fixed
prices and the purchase or sale of options for primary aluminum. Under the
principal components of KACC's price risk management strategy, which can be
modified at any time, (i) varying quantities of KACC's anticipated production
are sold forward at fixed prices; (ii) call options are purchased to allow KACC
to participate in certain higher market prices, should they materialize, for a
portion of KACC's primary aluminum and alumina sold forward; (iii) option
contracts are entered into to establish a price range KACC will receive for a
portion of its primary aluminum and alumina; and (iv) put options are purchased
to establish minimum prices KACC will receive for a portion of its primary
aluminum and alumina. In this regard, in respect of its 1995 anticipated
production, as of December 31, 1994, KACC had sold forward 170,950 metric tons
of primary aluminum at fixed prices, purchased call options in respect of
69,000 metric tons of primary aluminum, purchased put options to establish a
minimum price for 193,500 metric tons of primary aluminum, and entered into
option contracts that established a price range for 90,000 metric tons of
primary aluminum. KACC will not receive the benefit of market price increases
to the extent (i) the quantity of production sold forward is greater than the
tonnage covered by the purchased call options; (ii) market prices exceed the
prices at which primary aluminum is sold forward, but are less than the strike
price of the purchased call options, on the tonnage covered by the options; or
(iii) market prices exceed the maximum of the price range on the tonnage
covered by the option contracts entered to establish a price range.

In addition, KACC enters into forward fixed price arrangements with certain
customers which provide for the delivery of a specific quantity of fabricated
aluminum products over a specified future period of time. In order to establish
the cost of primary aluminum for a portion of such sales, KACC may enter into
forward and option contracts. In this regard, at December 31, 1994, KACC had
purchased 4,500 metric tons of primary aluminum under forward purchase
contracts at fixed prices that expire at various times through June 1995.

KACC has also entered into a natural gas pricing contract to fix future
prices of a portion (20,000 million BTUs per day) of a plant's natural gas
supply through March 1995.

At December 31, 1994, the net unrealized gain on KACC's position in forward
foreign exchange was $3.5 and the net unrealized loss on aluminum forward sales
and option contracts and the natural gas pricing contract was $80.4, based on a
price of $1,955 per metric ton of aluminum and $1.59 per million BTUs of
natural gas.

The Company has established margin accounts with its counterparties related
to aluminum forward sales and option contracts. The Company is entitled to
receive advances from counterparties related to unrealized gains and, in turn,
is required to make margin deposits with counterparties to cover unrealized
losses related to these contracts. At December 31, 1994, the Company had $50.5
on deposit with various counterparties in respect of such unrealized losses.
This amount is recorded in Prepaid expenses and other current assets.

F-27
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)

KACC is exposed to credit risk in the event of non-performance by other
parties to these currency and commodity contracts, but KACC does not anticipate
non-performance by any of these counterparties, given their credit worthiness.
When appropriate, KACC arranges master netting agreements.

11. SEGMENT AND GEOGRAPHICAL AREA INFORMATION

Sales and transfers among geographic areas are made on a basis intended to
reflect the market value of products.

The aggregate foreign currency gain included in determining net income was
$.8, $4.9, and $12.0 for the years ended December 31, 1994, 1993, and 1992,
respectively.

Sales of more than 10% of total revenue to a single customer were $58.2,
$40.7, and $135.3 of bauxite and alumina and $147.7, $145.7, and $144.9 of
aluminum processing for the years ended December 31, 1994, 1993, and 1992.

Export sales were less than 10% of total revenue during the years ended
December 31, 1994, 1993, and 1992, respectively.

Geographical area information relative to operations is summarized as
follows:

<TABLE>
<CAPTION>
YEAR ENDED OTHER
DECEMBER 31, DOMESTIC CARIBBEAN AFRICA FOREIGN ELIMINATIONS TOTAL
------------ -------- --------- ------ ------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales to
unaffiliated customers. 1994 $1,263.2 $169.9 $180.0 $168.4 $1,781.5
1993 1,177.8 155.4 207.5 178.4 1,719.1
1992 1,285.0 170.1 263.5 190.5 1,909.1
Sales and transfers
among geographic areas. 1994 $ 98.7 $139.4 $(238.1)
1993 88.2 79.6 (167.8)
1992 90.1 86.5 (176.6)
Equity in income
(losses) of
unconsolidated
affiliates............. 1994 $ .2 $ (2.1) $ (1.9)
1993 (3.3) (3.3)
1992 (1.9) (1.9)
Operating income (loss). 1994 $ (128.8) $ 9.9 $ 18.3 $ 44.4 $ (56.2)
1993 (145.9) (11.8) 21.9 12.4 (123.4)
1992 (36.9) 26.5 65.4 34.9 89.9
Investment in and
advances to
unconsolidated
affiliates............. 1994 $ 1.2 $ 28.8 $139.7 $ 169.7
1993 1.0 30.5 151.7 183.2
Identifiable assets..... 1994 $1,933.8 $364.8 $200.0 $199.5 $2,698.1
1993 1,758.0 360.4 223.0 186.5 2,527.9
</TABLE>

F-28
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)

Financial information by industry segment at December 31, 1994 and 1993, and
for the years ended December 31, 1994, 1993, and 1992, is as follows:

<TABLE>
<CAPTION>
YEAR ENDED BAUXITE & ALUMINUM
DECEMBER 31, ALUMINA PROCESSING CORPORATE TOTAL
------------ --------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Net sales to
unaffiliated customers. 1994 $432.5 $1,349.0 $1,781.5
1993 423.4 1,295.7 1,719.1
1992 466.5 1,442.6 1,909.1
Intersegment sales...... 1994 $146.8 $ 146.8
1993 129.4 129.4
1992 179.9 179.9
Equity in earnings
(losses) of
unconsolidated
affiliates............. 1994 $ (4.7) $ 2.6 $ .2 $ (1.9)
1993 (2.5) (.8) (3.3)
1992 1.8 (3.7) (1.9)
Operating income (loss). 1994 $ 19.8 $ (8.4) $(67.6) $ (56.2)
1993 (4.5) (46.3) (72.6) (123.4)
1992 62.6 104.9 (77.6) 89.9
Effect of changes in
accounting principles
on operating income
(loss)
SFAS 106.............. 1993 $ (2.0) $ (16.1) $ (1.1) $ (19.2)
SFAS 109.............. 1993 (7.7) (7.8) .3 (15.2)
Depreciation............ 1994 $ 33.5 $ 59.1 $ 2.8 $ 95.4
1993 35.3 59.9 1.9 97.1
1992 29.8 49.0 1.5 80.3
Capital expenditures.... 1994 $ 28.9 $ 39.9 $ 1.2 $ 70.0
1993 35.3 31.2 1.2 67.7
1992 50.8 39.4 24.2 114.4
Investment in and
advances to
unconsolidated
affiliates............. 1994 $136.6 $ 31.9 $ 1.2 $ 169.7
1993 151.5 30.7 1.0 183.2
Identifiable assets..... 1994 $749.6 $1,242.3 $706.2 $2,698.1
1993 734.0 1,214.9 579.0 2,527.9
</TABLE>

F-29
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

(IN MILLIONS OF DOLLARS)

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
ASSETS ------------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents............................ $ 11.2 $ 17.6
Receivables.......................................... 277.8 199.2
Inventories.......................................... 530.6 468.0
Prepaid expenses and other current assets............ 73.9 158.0
-------- --------
Total current assets............................... 893.5 842.8
Investments in and advances to unconsolidated
affiliates............................................ 187.2 169.7
Property, plant, and equipment--net.................... 1,099.3 1,133.2
Deferred income taxes.................................. 282.8 271.2
Other assets........................................... 324.7 281.2
-------- --------
Total.............................................. $2,787.5 $2,698.1
======== ========
<CAPTION>
LIABILITIES & STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable..................................... $ 147.0 $ 152.1
Accrued interest..................................... 14.4 32.6
Accrued salaries, wages, and related expenses........ 62.2 77.7
Accrued postretirement medical benefit obligation--
current portion..................................... 47.0 47.0
Other accrued liabilities............................ 141.6 176.9
Payable to affiliates................................ 91.0 85.3
Long-term debt - current portion..................... 12.1 11.5
-------- --------
Total current liabilities.......................... 515.3 583.1
Long-term liabilities.................................. 573.3 495.5
Accrued postretirement medical benefit obligation...... 739.1 734.9
Long-term debt......................................... 798.5 751.1
Minority interests..................................... 118.1 116.2
Stockholders' equity:
Preferred stock...................................... .4 .6
Common stock......................................... .7 .6
Additional capital................................... 530.0 527.8
Accumulated deficit.................................. (478.8) (502.6)
Additional minimum pension liability................. (9.1) (9.1)
-------- --------
Total stockholders' equity......................... 43.2 17.3
-------- --------
Total.............................................. $2,787.5 $2,698.1
======== ========
</TABLE>

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

F-30
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

STATEMENTS OF CONSOLIDATED INCOME (LOSS)

(UNAUDITED)
(IN MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1995 1994
-------- --------
<S> <C> <C>
Net sales.................................................. $1,646.7 $1,335.7
-------- --------
Costs and expenses:
Cost of products sold.................................... 1,329.8 1,222.8
Depreciation............................................. 71.1 72.8
Selling, administrative, research and development, and
general................................................. 96.4 86.8
-------- --------
Total costs and expenses............................... 1,497.3 1,382.4
-------- --------
Operating income (loss).................................... 149.4 (46.7)
Other income (expense):
Interest and other income (expense)--net................. (9.8) 2.5
Interest expense......................................... (71.3) (65.9)
-------- --------
Income (loss) before income taxes, minority interests, and
extraordinary loss........................................ 68.3 (110.1)
(Provision) credit for income taxes........................ (24.6) 38.6
Minority interests......................................... (4.4) (2.2)
-------- --------
Income (loss) before extraordinary loss.................... 39.3 (73.7)
Extraordinary loss on early extinguishment of debt, net of
tax benefit of $2.9....................................... (5.4)
-------- --------
Net income (loss).......................................... 39.3 (79.1)
Dividends on preferred stock............................... (15.5) (14.8)
-------- --------
Net income (loss) attributable to common shareholders...... $ 23.8 $ (93.9)
======== ========
Earnings (loss) per common and common equivalent share:
Primary:
Income (loss) before extraordinary loss................ $ .40 $ (1.53)
Extraordinary loss..................................... (.09)
-------- --------
Net income (loss)...................................... $ .40 $ (1.62)
======== ========
Fully diluted............................................ $ .46
========
Weighted average common and common equivalent shares
outstanding (000):
Primary.................................................. 59,015 58,118
Fully diluted............................................ 71,613
</TABLE>

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

F-31
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

STATEMENTS OF CONSOLIDATED CASH FLOWS

(UNAUDITED)
(IN MILLIONS OF DOLLARS)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1995 1994
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................ $ 39.3 $ (79.1)
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation........................................... 71.1 72.8
Non-cash postretirement medical benefit expenses....... 4.2 10.4
Amortization of excess investment over equity in net
assets of unconsolidated affiliates................... 8.7 8.7
Amortization of deferred financing costs and discount
on long-term debt..................................... 4.1 4.8
Equity in (income) losses of unconsolidated affiliates. (17.2) 3.2
Minority interests..................................... 4.4 2.2
Extraordinary loss on early extinguishment of debt--
net................................................... 5.4
(Increase) decrease in receivables..................... (86.6) 13.4
(Increase) decrease in inventories..................... (62.6) 13.7
Decrease (increase) in prepaid expenses and other
current assets........................................ 68.5 (13.2)
Incurrence of financing costs.......................... (.8) (19.1)
Decrease in accounts payable........................... (5.2) (.3)
Decrease in accrued interest........................... (18.0) (9.8)
Increase in payable to affiliates and accrued
liabilities........................................... 8.1 5.3
Decrease in accrued and deferred income taxes.......... (8.5) (46.2)
Other.................................................. 9.8 (3.2)
-------- --------
Net cash provided by (used for) operating activities. 19.3 (31.0)
-------- --------
Cash flows from investing activities:
Net proceeds from disposition of property and
investments............................................. 6.9 4.2
Capital expenditures..................................... (53.2) (37.5)
Redemption fund for minority interest preference stock... (.2) (1.2)
-------- --------
Net cash used for investing activities............... (46.5) (34.5)
-------- --------
Cash flows from financing activities:
Repayments of long-term debt, including revolving credit. (431.4) (326.2)
Borrowings of long-term debt, including revolving credit. 481.9 353.5
Repayment of note payable................................ (3.4)
Net short-term debt repayments........................... (.5)
Dividends paid........................................... (18.7) (14.8)
Capital stock issued..................................... 1.2 100.4
Redemption of minority interests' preference stock....... (8.8) (8.5)
-------- --------
Net cash provided by financing activities............ 20.8 103.9
-------- --------
Net (decrease) increase in cash and cash equivalents during
the period................................................ (6.4) 38.4
Cash and cash equivalents at beginning of period........... 17.6 14.7
-------- --------
Cash and cash equivalents at end of period................. $ 11.2 $ 53.1
======== ========
Supplemental disclosure of cash flow information:
Interest paid, net of capitalized interest............... $ 85.2 $ 70.9
Income taxes paid........................................ 26.6 9.7
Tax allocation payments from MAXXAM Inc.................. (3.6)
</TABLE>

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

F-32
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(IN MILLIONS OF DOLLARS, EXCEPT PRICES AND PER SHARE AMOUNTS)

1. GENERAL

Kaiser Aluminum Corporation (the "Company") is a subsidiary of MAXXAM Inc.
("MAXXAM"). MAXXAM owns approximately 62% of the Company's common stock,
assuming the conversion of each outstanding share of 8.255% PRIDES, Convertible
Preferred Stock (the "PRIDES"), into one share of the Company's common stock,
with the remaining approximately 38% publicly held. The Company operates
through its direct subsidiary, Kaiser Aluminum & Chemical Corporation ("KACC").

On September 19, 1995, the Company redeemed all 1,938,295 of its Mandatory
Conversion Premium Dividend Preferred Stock (the "Series A Shares"), which
resulted in the simultaneous redemption of all $.65 Depositary Shares in
exchange for (i) 13,126,521 shares of the Company's common stock and (ii) $2.8
in cash comprised of (a) an amount equal to all accrued and unpaid dividends up
to and including the day immediately prior to redemption date and (b) cash in
lieu of any fractional shares of common stock that would have otherwise been
issuable.

The foregoing unaudited interim consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X as promulgated by the Securities and Exchange
Commission. Accordingly, these financial statements do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments necessary for a fair statement of the results for the interim
periods presented have been included. Operating results for the first nine
months of 1995 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1995. These unaudited interim
consolidated financial statements should be read in conjunction with the
audited consolidated financial statements for the year ended December 31, 1994.
Certain reclassifications of prior-period information were made to conform to
the current presentation.

2. INVENTORIES

The classification of inventories is as follows:

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
<S> <C> <C>
Finished fabricated
aluminum products........ $ 70.1 $ 49.4
Primary aluminum and work
in process............... 207.3 203.1
Bauxite and alumina....... 134.1 102.3
Operating supplies and
repair and maintenance
parts.................... 119.1 113.2
------ ------
Total................... $530.6 $468.0
====== ======
</TABLE>

Substantially all product inventories are stated at last-in, first-out (LIFO)
cost, not in excess of market. Replacement cost is not in excess of LIFO cost.

3. EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE

Primary earnings (loss) per common share is computed by dividing net income
(loss) available to common shareholders by the weighted average number of
common and common equivalent shares outstanding during the period. Fully
diluted earnings per common and common equivalent share is computed

F-33
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN MILLIONS OF DOLLARS, EXCEPT PRICES AND PER SHARE AMOUNTS)
as if the Series A Shares had been converted to common shares at the beginning
of each period. Accordingly, for purposes of the fully diluted calculations,
the dividends attributable to the Series A Shares ($9.1 for the nine months
ended September 30, 1995) have not been deducted from net income and the
weighted average number of common and common equivalent shares outstanding
includes the shares issued upon conversion of the Series A Shares as if they
had been outstanding for the entire periods. As a result of the conversion of
the Series A Shares during the 1995 periods, fully diluted earnings per share
are presented even though the results are antidilutive. For the nine months
ended September 30, 1994, common equivalent shares attributable to the
preferred stock and non-qualified stock options were excluded from the
calculation of weighted average shares because they were antidilutive.

4. CONTINGENCIES

Environmental Contingencies--The Company and KACC are subject to a wide
variety of environmental laws and regulations and to fines or penalties
assessed for alleged breaches of the environmental laws and to claims and
litigation based on such laws. KACC currently is subject to a number of
lawsuits under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended by the Superfund Amendments Reauthorization
Act of 1986 ("CERCLA"), and, along with certain other entities, has been named
as a potentially responsible party for remedial costs at certain third-party
sites listed on the National Priorities List under CERCLA.

Based on the Company's evaluation of these and other environmental matters,
the Company has established environmental accruals primarily related to
potential solid waste disposal and soil and groundwater remediation matters. At
September 30, 1995, the balance of such accruals, which is primarily included
in Long-term liabilities, was $39.7. These environmental accruals represent the
Company's estimate of costs reasonably expected to be incurred based on
presently enacted laws and regulations, currently available facts, existing
technology, and the Company's assessment of the likely remediation action to be
taken. The Company expects that these remediation actions will be taken over
the next several years and estimates that annual expenditures to be charged to
these environmental accruals will be approximately $3.0 to $12.0 for the years
1995 through 1999 and an aggregate of approximately $11.0 thereafter.

As additional facts are developed and definitive remediation plans and
necessary regulatory approvals for implementation of remediation are
established or alternative technologies are developed, changes in these and
other factors may result in actual costs exceeding the current environmental
accruals. The Company believes that it is reasonably possible that costs
associated with these environmental matters may exceed current accruals by
amounts that could range, in the aggregate, up to approximately $22.0. While
uncertainties are inherent in the final outcome of these environmental matters,
and it is presently impossible to determine the actual costs that ultimately
may be incurred, management currently believes that the resolution of such
uncertainties should not have a material adverse effect on the Company's
consolidated financial position or results of operations.

Asbestos Contingencies--KACC is a defendant in a number of lawsuits in which
the plaintiffs allege that certain of their injuries were caused by, among
other things, exposure to asbestos during, and as a result of, their employment
or association with KACC or exposure to products containing asbestos produced
or sold by KACC. The lawsuits generally relate to products KACC has not
manufactured for at least 15 years. At October 31, 1995, the number of such
lawsuits pending was approximately 58,200, as compared to 31,700 at June 30,
1995. KACC has been advised by its regional counsel that, although there can be
no assurance, the recent increase in pending lawsuits may be attributable in
part to tort reform legislation in Texas which

F-34
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN MILLIONS OF DOLLARS, EXCEPT PRICES AND PER SHARE AMOUNTS)
was passed by the legislature in March 1995 and which became effective on
September 1, 1995. The legislation, among other things, is designed to
restrict, beginning September 1, 1995, the filing of cases in Texas that do not
have a sufficient nexus to that jurisdiction, and to impose, generally as of
September 1, 1996, limitations relating to joint and several liability in tort
cases. A substantial portion of the asbestos-related lawsuits that were filed
and served on KACC between June 30, 1995 and October 31, 1995, were filed in
Texas prior to September 1, 1995.

Based on past experience and reasonably anticipated future activity, the
Company has established an accrual for estimated asbestos-related costs for
claims filed and estimated to be filed and settled through 2008. The Company's
accrual was calculated based on the current and anticipated number of asbestos-
related claims, the prior timing and amounts of asbestos-related payments, the
current state of case law related to asbestos claims, and the advice of
counsel. Accordingly, an asbestos-related cost accrual of $155.3 ($134.6 at
June 30, 1995), before considerations for insurance recoveries, is included
primarily in Long-term liabilities at September 30, 1995. The Company estimates
that annual future cash payments in connection with such litigation will be
approximately $11.0 to $19.0 for each of the years 1995 through 1999, and an
aggregate of approximately $90.8 thereafter through 2008. The Company does not
presently believe there is a reasonable basis for estimating such costs beyond
2008 and, accordingly, no accrual has been recorded for such costs which may be
incurred beyond 2008.

The Company believes that KACC has insurance coverage available to recover a
substantial portion of its asbestos-related costs. While claims for recovery
from some of KACC's insurance carriers are currently subject to pending
litigation and other carriers have raised certain defenses, the Company
believes, based on prior insurance-related recoveries in respect of asbestos-
related claims, existing insurance policies, and the advice of counsel, that
substantial recoveries from the insurance carriers are probable. Accordingly,
an estimated aggregate insurance recovery of $134.7 ($120.6 at June 30, 1995),
determined on the same basis as the asbestos-related cost accrual, is recorded
primarily in Other assets at September 30, 1995.

Other Contingencies--The Company and KACC are involved in various other
claims, lawsuits, and other proceedings relating to a wide variety of matters.
While uncertainties are inherent in the final outcome of such matters, and it
is presently impossible to determine the actual costs that ultimately may be
incurred, management currently believes that the resolution of such
uncertainties and the incurrence of such costs should not have a material
adverse effect on the Company's consolidated financial position or results of
operations.

5. DERIVATIVE FINANCIAL INSTRUMENTS AND RELATED HEDGING PROGRAMS

KACC enters into primary metal hedging transactions with off-balance sheet
risk in the normal course of business. The prices realized by the Company under
certain sales contracts for alumina, primary aluminum, and fabricated aluminum
products as well as the costs incurred by the Company on certain items, such as
aluminum scrap, rolling ingot, power, and bauxite, fluctuate with the market
price of primary aluminum,

F-35
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN MILLIONS OF DOLLARS, EXCEPT PRICES AND PER SHARE AMOUNTS)
together resulting in a "net exposure" of earnings. The primary metal hedging
transactions are designed to mitigate the net exposure of earnings to declines
in the market price of primary aluminum, while retaining the ability to
participate in favorable environments that may materialize. KACC has developed
strategies which include forward sales of primary aluminum at fixed prices and
the purchase or sale of options for primary aluminum. In this regard, in
respect of its remaining 1995 anticipated net exposure, at September 30, 1995,
KACC had net forward sales contracts for 53,875 tons* of primary aluminum at
fixed prices, had purchased call options in respect of 17,250 tons of primary
aluminum, had purchased put options to establish a minimum price for 48,375
tons of primary aluminum, and had entered into option contracts that
established a price range for 22,500 tons of primary aluminum. In respect of
its 1996 anticipated net exposure, at September 30, 1995, KACC had sold forward
11,100 tons of primary aluminum at fixed prices.

At September 30, 1995, the net unrealized gain on KACC's position in aluminum
forward sales and option contracts (based on a market price of $1,773 per ton
of primary aluminum) and forward foreign exchange contracts was $9.1.

KACC has established margin accounts with its counterparties related to
aluminum forward sales and option contracts. KACC is entitled to receive
advances from counterparties related to unrealized gains and, in turn, is
required to make margin deposits with counterparties to cover unrealized losses
related to these contracts. At September 30, 1995, KACC had $2.5, compared with
$50.5 at December 31, 1994, on deposit with a counterparty in respect of such
contracts. These amounts are recorded in Prepaid expenses and other current
assets.

See Note 10 of the Notes to Consolidated Financial Statements for the year
ended December 31, 1994.

- --------
* All references to tons in this report refer to metric tons of 2,204.6 pounds.

F-36
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

UNAUDITED SUMMARY QUARTERLY FINANCIAL DATA

<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
(IN MILLIONS OF DOLLARS, EXCEPT SHARES
AMOUNTS)
<S> <C> <C> <C> <C>
1995 QUARTERLY INFORMATION:
Net sales.......................... $513.0 $583.4 $550.3
Operating income................... 32.6 63.6 53.2
Net income......................... 3.5 23.3 12.5
Earnings (loss) per common and com-
mon equivalent share:
Primary.......................... (.03) .28 .13
Fully diluted.................... .14
1994 QUARTERLY INFORMATION:
Net sales.......................... $415.1 $459.5 $461.1 $445.8
Operating loss..................... 25.6 14.2 6.9 9.5
Loss before extraordinary item..... 29.3 23.6 20.8 27.7(1)
Extraordinary loss--net............ 5.4
Net loss........................... 34.7 23.6 20.8 28.4
Per common and common equivalent
share:
Loss before extraordinary loss... .58 .50 .45 .57
Extraordinary loss--net.......... .09
Net loss......................... .67 .50 .45 .57
1993 QUARTERLY INFORMATION:
Net sales.......................... $442.6 $432.2 $428.4 $415.9
Operating loss..................... 9.7 14.2 17.5 82.0(2)
Loss before extraordinary loss and
cumulative effect of changes in
accounting principles............. 16.6 19.4 21.0 66.1(1)
Extraordinary loss--net............ 21.8
Cumulative effect of changes in ac-
counting principles--net.......... 507.3
Net loss........................... 545.7 19.4 21.0 66.1
Per common and common equivalent
share:
Loss before extraordinary loss
and cumulative effect of changes
in accounting principles........ .29 .34 .42 1.20
Extraordinary loss--net.......... .38
Cumulative effect of changes in
accounting principles--net...... 8.85
Net loss......................... 9.52 .34 .42 1.20
</TABLE>
- --------
(1) Includes pre-tax charges of approximately $10.3 and $10.8 principally
related to establishing additional litigation and environmental reserves in
the fourth quarters of 1994 and 1993, respectively.
(2) Includes pre-tax charges of approximately $35.8 related to restructuring of
operations and $19.4 because of a reduction in the carrying value of
inventories.

F-37
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The expenses of this offering will be paid solely by MAXXAM Inc. and,
exclusive of underwriting discounts and commissions, are as follows:

<TABLE>
<S> <C>
SEC registration fee............................................ $
*Printing and engraving..........................................
*Legal fees and expenses.........................................
*Accounting fees and expenses....................................
*Blue Sky fees and expenses (including counsel fees).............
*Miscellaneous...................................................
----------
Total.......................................................... $
==========
</TABLE>
- --------
*Estimated

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Reference is made to Section 102(b)(7) of the Delaware General Corporation
Law (the "DGCL"), which enables a corporation in its original certificate of
incorporation or an amendment thereto to eliminate or limit the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of the director's fiduciary duty, except (i) for any breach
of the director's duty of loyalty to the corporation or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) pursuant to Section 174 of the DGCL
(providing for liability of directors for unlawful payment of dividends or
unlawful stock purchases or redemptions), or (iv) for any transaction from
which the director derived an improper personal benefit. The Registrant's
Restated Certificate of Incorporation contains provisions permitted by Section
102(b)(7) of the DGCL.

Reference also is made to Section 145 of the DGCL which provides that a
corporation may indemnify any person, including directors and officers, who was
or is, or is threatened to be made, a party to any threatened, pending or
completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
such corporation), by reason of the fact that such person is or was a director,
officer, employee or agent of such corporation, or is or was serving at the
request of such corporation as a director, officer, employee or agent of
another corporation or enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, if such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the corporation's best interests
and, with respect to any criminal proceeding, had no reasonable cause to
believe that his conduct was unlawful. A Delaware corporation may indemnify its
directors, officers, employees and agents in an action by or in the right of
the corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the director, officer, employee or agent
is adjudged to be liable to the corporation. Where a director, officer,
employee or agent is successful on the merits or otherwise in the defense of
any action referred to above, the corporation must indemnify him against the
expenses which such director, officer, employee or agent actually and
reasonably incurred in connection therewith.

The Registrant's Restated Certificate of Incorporation and By-laws provide
for indemnification of directors, officers and employees of the Registrant to
the fullest extent authorized by law.

II-1
<PAGE>

The Registrant has entered into indemnification agreements with certain of
its directors and officers which provide that the Registrant will indemnify
such individuals if and whenever they were or are a party or are threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that they are or were a director, officer or employee of the
Registrant or any of its subsidiaries, or are or were serving at the request of
the Registrant or any of its subsidiaries as a director, officer, employee,
agent or other official of another corporation, partnership, joint venture,
trust, or other enterprise, against judgments, fines and amounts paid in
settlement and reasonable expenses (including attorneys' fees) actually
incurred by them in connection with such action, suit or proceeding except to
the extent that (a) any judgments, fines, amounts paid in settlement and
expenses are finally determined by a court of competent jurisdiction to have
resulted from their gross negligence or bad faith in the performance of their
duties (or, alternatively in the case of certain of the indemnification
agreements, result from conduct which is finally determined by a court of
competent jurisdiction to be knowingly fraudulent or deliberately dishonest, or
to constitute willful misconduct), (b) any amount is paid without the prior
approval of the Registrant in settlement of a proceeding brought in the name
and on behalf of the Registrant or another corporation, partnership, joint
venture, trust or other enterprise for which they are or were serving at the
request of the Registrant as a director, officer, employee, agent or other
official, (c) such indemnification is otherwise prohibited by law, whether by
statute, court decision or otherwise, or (d) reimbursement of such expenses has
actually been made pursuant to insurance policies maintained by the Registrant
for their benefit. For these purposes, service at the request of the Registrant
with respect to an "other enterprise" includes service with respect to any
employee benefit plan. The agreements further provide for the advancement of
expenses incurred in defending any such action, suit or proceeding upon receipt
of a repayment undertaking if it is ultimately determined that such individuals
are not entitled to be indemnified or to the extent they recover such expenses
from others pursuant to insurance or otherwise.

The Registrant may terminate the agreements on 90 days' prior written notice
to such individuals, but the indemnification provided by the agreements
continues to apply to all actions taken or failed to be taken by such
individuals prior to the expiration of the 90-day notice period notwithstanding
such termination.

The foregoing discussion is qualified in its entirety by reference to the
DGCL, the Registrant's Restated Certificate of Incorporation and By-laws, and
the referenced indemnification agreements.

Subject to certain limitations and exceptions, the Company has insurance
coverage for losses by any person who is or hereafter may be a director or
officer of the Company arising from claims against that person for any wrongful
act in his capacity as a director or officer of the Company or any of its
subsidiaries. The policy also provides for reimbursement to the Company for
indemnification given by the Company pursuant to common or statutory law or its
certificate or incorporation or by-laws to any such person arising from any
such claims.

The foregoing discussion is qualified in its entirety by reference to the
DGCL and the Registrant's Restated Certificate of Incorporation and By-laws,
and the referenced indemnification agreements.

II-2
<PAGE>

ITEM 16. EXHIBITS.

INDEX OF EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.1 Restated Certificate of Incorporation of Kaiser Aluminum Corporation
(the "Company"), dated February 21, 1991 (incorporated by reference to
Exhibit 3.1 to Amendment No. 2 to the Registration Statement on Form
S-1, dated June 11, 1991, filed by the Company, Registration No. 33-
37895).
4.2 By-laws of the Company, amended as of February 26, 1991 (incorporated
by reference to Exhibit 3.2 to Amendment No. 2 to the Registration
Statement on Form S-1, dated June 11, 1991, filed by the Company,
Registration No. 33-37895).
**5 Opinion of Anthony R. Pierno, Vice President and General Counsel of
the Company, with respect to the Common Stock being registered
hereunder.
*12 Computation of Consolidated Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends.
*23 Consent of Arthur Andersen LLP.
*25 Power of Attorney (on signature page).
</TABLE>
- --------
*Included in this filing.
**To be filed by amendment.

ITEM 17. UNDERTAKINGS

The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Act");

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;

Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Securities and Exchange Commission (the "Commission") by the registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of
1934 (the "Exchange Act") that are incorporated by reference in the
registration statement.

(2) That for the purpose of determining any liability under the Act, each
such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

II-3
<PAGE>

The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Act, each filing of the registrant's annual
report pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Company
pursuant to the provisions described in Item 15 above, or otherwise, the
Company has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.

The Company hereby undertakes that:

(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.

II-4
<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS
ALL OF THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THERETO
DULY AUTHORIZED, IN THE CITY OF HOUSTON, STATE OF TEXAS, ON JANUARY 5, 1996.

Kaiser Aluminum Corporation

/s/ George T. Haymaker, Jr.
By _____________________________________
George T. Haymaker, Jr.
Chairman of the Board and Chief
Executive Officer

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Anthony R. Pierno, Byron L. Wade, Bernard
L. Birkel, John W. Niemand, Karen Bryant and John Donnan and each of them, his
true and lawful attorneys-in-fact and agent, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments, including any post-effective
amendments, to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the above
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or either of them or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof. This Power of Attorney may be executed in
multiple counterparts, each of which shall be deemed an original, but which
taken together shall constitute one instrument.

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.

<TABLE>
<CAPTION>
SIGNATURES CAPACITIES DATE
---------- ---------- ----

<S> <C> <C>
/s/ George T. Haymaker, Jr. Chairman of the Board and January 5, 1996
____________________________________ Chief Executive Officer
George T. Haymaker, Jr. (Principal Executive
Officer)

/s/ John T. La Duc Vice President, Chief January 5, 1996
____________________________________ Financial Officer and
John T. La Duc Treasurer (Principal
Financial Officer)

/s/ Charlie Alongi Controller (Principal January 5, 1996
____________________________________ Accounting Officer)
Charlie Alongi

/s/ Robert J. Cruikshank Director January 5, 1996
____________________________________
Robert J. Cruikshank

/s/ Ezra G. Levin Director January 5, 1996
____________________________________
Ezra G. Levin

/s/ Robert J. Petris Director January 5, 1996
____________________________________
Robert J. Petris

/s/ Charles E. Hurwitz Director January 5, 1996
____________________________________
Charles E. Hurwitz

/s/ Robert Marcus Director January 5, 1996
____________________________________
Robert Marcus
</TABLE>

II-5

<PAGE>

EXHIBIT 12

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED STOCK DIVIDENDS

(IN MILLIONS OF DOLLARS, EXCEPT RATIOS)

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------- ----------------------------------------
1995 1994 1994 1993 1992 1991 1990
------ ------- ------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Consolidated income
(loss) from
continuing
operations............ $ 39.3 $ (73.7) $(101.4) $(123.1) $ 26.9 $108.4 $213.7
Add (deduct)
undistributed
(earnings) losses of
less-than-fifty
percent-owned
companies............. (17.2) 3.2 1.9 3.3 1.9 19.2 12.8
Add (deduct) minority
interest share of
income (losses) of
majority-owned
subsidiaries that
have fixed charges.... 1.0 (1.4) (1.6) (4.3) (6.5) (7.6) (5.5)
------ ------- ------- ------- ------ ------ ------
Consolidated
earnings (losses). 23.1 (71.9) (101.1) (124.1) 22.3 120.0 221.0
Add provision (credit)
for income taxes:
Consolidated
provision for income
taxes............... 24.6 (38.6) (53.8) (86.9) 5.3 32.4 75.6
Add (deduct) minority
interest share of
tax provision
(credit) of
majority-owned
subsidiaries that
have fixed charges.. 2.1 .8 .6 .2 .2 (.9) 3.4
------ ------- ------- ------- ------ ------ ------
Pre-tax income
(loss)............ 49.8 (109.7) (154.3) (210.8) 27.8 151.5 300.0
Fixed charges included
therein (see below)... 74.1 71.4 96.4 91.3 82.7 103.9 107.9
Deduct equity in
losses of less-than-
fifty percent owned
companies where the
Company has
guaranteed the debt
of such companies..... (2.3) (4.7) (2.5) (4.4) (5.0)
Previously capitalized
interest amortized
during the period..... .9 .8 1.2 1.0 .7 .7 .5
------ ------- ------- ------- ------ ------ ------
Total earnings..... $124.8 $ (39.8) $ (61.4) $(121.0) $111.2 $251.7 $403.4
====== ======= ======= ======= ====== ====== ======
Fixed Charges:
Interest expense
(includes
amortization of
deferred financing
cost)................. $ 71.3 $ 65.9 $ 88.6 $ 84.2 $ 78.7 $ 93.9 $ 96.6
Portion of rental
expense
representative of the
interest factor....... 2.0 1.9 2.6 2.3 2.4 2.0 2.4
Preferred stock
dividend requirements
of subsidiaries....... .8 .8 1.1 1.8 1.6 2.6 2.2
Interest expense
related to guaranteed
debt of less-than-
fifty-percent owned
companies incurring
losses................ 2.8 4.1 3.0 5.4 6.7
------ ------- ------- ------- ------ ------ ------
Consolidated fixed
charges added to
pre-tax income...... 74.1 71.4 96.4 91.3 82.7 103.9 107.9
Capitalized interest... 1.9 2.2 2.7 3.4 4.4 4.2 8.9
------ ------- ------- ------- ------ ------ ------
Total fixed charges.. $ 76.0 $ 73.6 $ 99.1 $ 94.7 $ 87.1 $108.1 $116.8
====== ======= ======= ======= ====== ====== ======
Consolidated Ratio of
Earnings to Combined
Fixed Charges and
Preferred Stock
Dividends.............. 1.6x 1.3x 2.3x 3.5x
====== ====== ====== ======
Fixed Charge and
Preferred Stock
Dividends Coverage
Deficiency............. $ 113.4 $ 160.5 $ 215.7
======= ======= =======
</TABLE>

<PAGE>

EXHIBIT 23

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in, incorporated by reference or
made a part of this registration statement.

ARTHUR ANDERSEN LLP
Houston, Texas
January 2, 1996