KAISER ALUMINUM CORP, S-3/A, 1996-04-24

KAISER ALUMINUM CORP
S-3/A, 1996-04-24
PRIMARY PRODUCTION OF ALUMINUM

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 23, 1996
REGISTRATION NO. 333-71

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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AMENDMENT NO. 2 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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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.
ASSISTANT GENERAL 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 PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE AMOUNT TO BE PER OFFERING REGISTRATION
REGISTERED(1) REGISTERED(1) SHARE PRICE FEE
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<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share......... 10,000,000 (2) (2) (2)
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</TABLE>
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(1) The shares of Common Stock offered hereby may be deliverable, among other
things, upon the conversion, exchange or redemption of debt securities of
MAXXAM Inc. (the "Exchangeable Securities") which are convertible,
exchangeable or redeemable for Common Stock. This Registration Statement
covers such indeterminate number of additional shares of Common Stock and
such other equity securities of Kaiser that may become deliverable in
exchange for, or upon redemption or conversion of, Exchangeable Securities
by reason of stock splits, combinations, stock dividends,
reclassifications, recapitalizations or other actions of Kaiser that
modify its capital structure or by reason of any exchange by MAXXAM of
lower voting shares for higher voting shares of Kaiser as may be permitted
by the terms applicable to any Exchangeable Securities, as well as any
such exchange of lower voting shares for higher voting shares.

(2) A registration fee in the amount of $44,182 was previously paid.
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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KAISER ALUMINUM CORPORATION

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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; Prospectus Supplement
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>
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* Not Applicable
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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 April 22, 1996, was $14.75 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," COMMENCING ON PAGE 3 OF THIS PROSPECTUS, FOR A DESCRIPTION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS IN
EVALUATING AN INVESTMENT IN THE COMMON STOCK.

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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.

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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 April 23, 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,
1995.

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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THE COMPANY

The Company is a direct subsidiary of MAXXAM. MAXXAM owns approximately 62%
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 7% of the Western
world's alumina capacity and approximately 8% of the Western world's alumina
production in 1995. 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 2.0 million tons in 1995 or 72% of production) and
primary aluminum (approximately 271,700 tons in 1995 or 66% of production) to
third parties.

FIRST QUARTER RESULTS OF OPERATIONS

The Company's revenues from net sales to third parties was $531.1 million in
the first quarter of 1996, compared to $513.0 million in the first quarter of
1995. Revenues increased in the first quarter of 1996 as compared to the first
quarter of 1995 due principally to improved operating performance, increased
shipments of alumina and primary aluminum, and higher realized prices for
alumina and fabricated aluminum products, partially offset by lower realized
prices for primary aluminum and lower shipments of fabricated aluminum
products.

Operating income for the first quarter of 1996 was $40.3 million compared to
$32.6 million for the first quarter of 1995. The Company reported net income of
$9.9 million, or $.11 per common and common equivalent share, for the first
quarter of 1996, compared to net income of $3.5 million, or a loss of $.03 per
common and common equivalent share, for the first quarter of 1995. The first
quarter 1995 results reflect pre-tax expenses of approximately $17.0 million
associated with an eight-day strike at five major U.S. locations, a six-day
strike at the Company's 65%-owned Alpart alumina refinery in Jamaica, and a
four-day disruption of alumina production at Alpart caused by a boiler failure.

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 and the accompanying Prospectus
Supplement, before making an investment in the Common Stock. Information
contained or incorporated by reference in this Prospectus or in the
accompanying Prospectus Supplement contains "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995, which can
be identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should" or "anticipates" or the negative thereof or
other variations thereon or comparable terminology, or by discussions of
strategy. See, e.g., "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business--Aluminum Operations--Strategy"
and "--Industry Overview," and "Legal Proceedings." No assurance can be given
that the future results covered by the forward-looking statements will be
achieved. The following matters constitute cautionary statements identifying
important factors with respect to such forward-looking statements, including
certain risks and uncertainties, that could cause actual results to vary
materially from the future results covered in such forward-looking statements.
Other factors could also cause actual results to vary materially from the
future results covered in such forward-looking statements.

SENSITIVITY TO PRICES

The operating results of Kaiser and of the aluminum industry generally are
sensitive to changes in the prices of alumina, primary aluminum and fabricated
aluminum products. Kaiser's results also depend to a

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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 31, 1995, Kaiser had sold approximately 75% 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 as a percentage of the price of
primary aluminum ("Variable Price Contracts"), and approximately 44% of such
alumina sold for 1996 has been sold at fixed prices ("Fixed Price Contracts").
The average realized prices of alumina sold under Variable Price Contracts will
depend on future prices of primary aluminum, and the average realized prices of
alumina sold under Fixed Price Contracts will substantially exceed the
Company's manufacturing cost of alumina.

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 December
31, 1995, KACC had purchased approximately 53,300 tons of primary aluminum at
fixed prices as a partial hedge against approximately 161,100 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. Since
December 31, 1995, KACC has modified its hedge positions in respect of its
anticipated 1996, 1997, and 1998 production. As of March 31, 1996, KACC had
sold forward 105,750 tons of primary aluminum at fixed prices, had purchased
53,025 tons of primary aluminum under forward purchase contracts at fixed
prices, and had purchased put options to establish a minimum price for 96,000
tons of primary aluminum.

See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Trends--Sensitivity to Prices and Hedging Programs" and Note 9
of the Notes to Consolidated Financial Statements.

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

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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 "Legal Proceedings--Environmental Litigation."

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 December 31, 1995,
the balance of such accruals, which is primarily included in Long-term
liabilities, was $38.9 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 $9.0 million for
the years 1996 through 2000 and an aggregate of approximately $10.0 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 $23.0 million and that the
factors upon which a substantial portion of this estimate is based are expected
to be resolved over the next twelve months.

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 March
31, 1996, the number of such claims pending was approximately 66,200, as
compared with 59,700 at December 31, 1995. In 1995, approximately 41,700 of
such claims were received and 7,200 settled or dismissed and, during the first
quarter of 1996, approximately 8,800 of such claims were received and 2,300
settled or dismissed. KACC has been advised by its regional counsel that,
although there can be no assurance, the increase in pending claims during 1995
may have been 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, was 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 November 30, 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, and the
advice of Wharton Levin Ehrmantraut Klein & Nash, P.A. with respect to the
current state of the law related to asbestos claims. Accordingly, an asbestos-
related cost accrual of $160.1 million, before consideration of insurance
recoveries, is included primarily in Long-term liabilities at December 31,
1995. The Company estimates that annual future cash payments in connection with
such litigation will be approximately $13.0 million to $20.0 million for each
of the years 1996 through 2000, and an aggregate of approximately $78.0 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.

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to pending litigation and other carriers have raised certain defenses, which
have resulted in delays in recovering costs from the insurance carriers. The
timing and amount of ultimate recoveries from these insurance carriers are
dependent upon the resolution of these disputes. The Company believes, based on
prior insurance-related recoveries in respect of asbestos-related claims,
existing insurance policies, and the advice of Thelen, Marrin, Johnson &
Bridges with respect to applicable insurance coverage law relating to the terms
and conditions of those policies, that substantial recoveries from the
insurance carriers are probable. Accordingly, an estimated aggregate insurance
recovery of $137.9 million, determined on the same basis as the asbestos-
related cost accrual, is recorded primarily in Other assets at December 31,
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, results of operations, or liquidity.

The Company and KACC are defendants in a variety of actions, as described or
referred to in "Legal Proceedings." Certain of these actions make claims for
substantial damages against the Company or KACC. Adverse determinations and/or
unfavorable settlements with respect thereto could materially adversely affect
the Company's consolidated financial position, results of operations, and/or
liquidity.

See "Business--Environmental Matters," "Legal Proceedings," and Note 8 of the
Notes to Consolidated Financial Statements.

LEVERAGE

Kaiser is highly leveraged, with total consolidated indebtedness of $758.1
million and stockholders' equity of $57.7 million at December 31, 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.

CONTROLLING STOCKHOLDER AND POSSIBLE EFFECTS

As of the date of this Prospectus, MAXXAM owns approximately 62% 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 60.7% of the aggregate voting
power of MAXXAM.

POSSIBLE EQUITY RECAPITALIZATION

The Company's Board of Directors has approved a proposed recapitalization
(the "Proposed Recapitalization"). The Proposed Recapitalization would, among
other things, (i) provide for two classes of

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common stock: Class A Common Shares, $.01 par value, with one vote per share
("Class A Common Shares") and a new, lesser-voting class designated as Common
Stock, $.01 par value, with 1/10 vote per share ("Recap Common Stock"); (ii)
redesignate as Class A Common Shares the 100 million currently authorized
shares of the Company's existing Common Stock and authorize an additional 250
million shares of Recap Common Stock; and (iii) reclassify each issued share of
the Company's existing Common Stock into (a) .33 of a Class A Common Share and
(b) .67 of a share of Recap Common Stock. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources--Capital Structure" and "Description of Capital Stock--
Possible Equity Recapitalization" for further information regarding the
Proposed Recapitalization, including its purposes.

A special stockholders' meeting to consider the Proposed Recapitalization was
scheduled for April 10, 1996. On March 19, 1996, a lawsuit was filed in the
Delaware Court of Chancery which, among other things, sought to enjoin the
Proposed Recapitalization. On April 8, 1996, the Delaware Court of Chancery
issued a ruling which preliminarily enjoined the Company from implementing the
Proposed Recapitalization. On April 10, 1996, the Company called the scheduled
special meeting of stockholders to order and the meeting was adjourned to May
1, 1996, without taking a vote on the Proposed Recapitalization. On April 19,
1996, the Delaware Supreme Court granted the Company's motion to consider, on
an expedited basis, the Company's appeal of the preliminary injunction. See
"Legal Proceedings--Other Proceedings--Matheson et al. v. Kaiser Aluminum
Corporation et al." for further information regarding this lawsuit.

The Court's ruling does not prohibit a vote on the Proposed Recapitalization.
The Proposed Recapitalization could be implemented if the preliminary
injunction is lifted or reversed. While the Board of Directors of the Company
has determined that implementation of the Proposed Recapitalization is in the
best interests of the Company, the Proposed Recapitalization may also be
considered to have the disadvantages described below.

Change of Control Provisions. One purpose of the Proposed Recapitalization is
to lessen the likelihood of the occurrence of any repurchase obligation under
the Indentures with respect to KACC's 9 7/8% Senior Notes due 2002 (the "Senior
Notes") and 12 3/4% Senior Subordinated Notes due 2003 (the "12 3/4 Notes" and
together with the Senior Notes, the "KACC Notes"), which would arise upon the
occurrence of a change of control of KACC. However, even if MAXXAM were to
cease to beneficially own the entire 10,000,000 shares of Common Stock covered
by this Prospectus, MAXXAM would indirectly hold sufficient Voting Stock (as
defined in the Indentures governing KACC's Senior Notes and the 12 3/4% Notes)
of KACC so that no change of control or repurchase obligation would be caused
thereby under either of the Indentures. A Change in Control, as defined in
KACC's 1994 Credit Agreement (as defined below) might occur if MAXXAM ceased to
own substantially all of the shares of Common Stock covered by this Prospectus,
which Change in Control would be an Event of Default under the 1994 Credit
Agreement in the absence of an amendment to, or waiver from the lenders under,
the 1994 Credit Agreement. MAXXAM has advised the Company that MAXXAM would not
consummate any transaction if such transaction would cause an Event of Default
by reason of the occurrence of a Change in Control under the 1994 Credit
Agreement; however, no assurance can be given that such a transaction will not
take place.

Effect on Market Value and Price. The Special Committee of the Company's
Board of Directors which was appointed to consider a possible recapitalization
retained legal counsel and an investment banking firm to advise it. Based on
the advice of such investment banking firm, the Company anticipates that the
combined market value of Class A Common Shares and the Recap Common Stock
immediately after the effective time of the Proposed Recapitalization would not
be materially less than the market value of existing Common Stock immediately
prior to the announcement of the Proposed Recapitalization, but there can be no
assurance as to the trading prices of either class. It is possible that either
the Class A Common Shares or the Recap Common Stock may trade from time to time
at a premium or discount to the other.

7
<PAGE>

Change of Control Impact. In the event that the Proposed Recapitalization is
implemented and after the PRIDES are converted or redeemed, MAXXAM could retain
a majority of the voting power of the Company even if it reduced its total
holdings of the Company's equity securities by more than two-thirds. By
permitting MAXXAM to sell Recap Common Stock while retaining Class A Common
Shares, implementation of the Proposed Recapitalization could limit the future
circumstances in which a sale or transfer of equity by MAXXAM could lead to a
merger proposal or tender offer or to a proxy contest for the removal of
incumbent directors. Consequently, the Proposed Recapitalization may deprive
stockholders of the Company of an opportunity to sell their shares at a premium
over prevailing market prices in a change of control transaction and may also
make it more difficult to replace the current members of the Board of Directors
and the management of the Company.

Effect on Relative Ownership and Voting Power. In the event that the Proposed
Recapitalization is implemented, each share of Common Stock would be
reclassified into .33 of a Class A Common Share and .67 of a share of Recap
Common Stock. Each Class A Common Share would have one vote per share, each
share of Recap Common Stock would have 1/10 vote per share and each share of
PRIDES would continue to be entitled to 4/5 of a vote. As a result, the
relative voting power of the holders of PRIDES would increase from 8.8% to
19.6% of the total votes and the aggregate voting power of the holders of the
Class A Common Shares and Recap Common Stock would be 80.4% of the total votes
(as compared to the 91.2% of the total votes held by the holders of existing
Common Stock as of the date of this Prospectus). Following conversion or
redemption of the PRIDES, the relative voting power held by former holders of
the PRIDES would be approximately the same as it would have been in the absence
of the Proposed Recapitalization. The PRIDES are redeemable on or after
December 31, 1996 and, if not previously redeemed, each outstanding share of
PRIDES will automatically convert into one share of Common Stock on December
31, 1997.

Effect on Trading Market. MAXXAM has advised the Company that if it decides
to sell any capital stock of Kaiser should the Proposed Recapitalization be
implemented, it is more likely over time to sell Recap Common Stock than Class
A Common Shares. Any issuance of additional shares of Recap Common Stock by the
Company or sales of Recap Common Stock by stockholders, including MAXXAM, may
serve to increase market activity in the Recap Common Stock relative to the
Class A Common Shares. Greater market activity may result in increased
volatility in pricing and could enlarge any price differential, either high or
lower, between the Recap Common Stock and the Class A Common Shares.

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. ("MGI"). 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.

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

8
<PAGE>

operations due to a variety of political and other risks. See "Business--
Production Operations" and "--Operations in China."

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 the KACC Notes.

POWER SUPPLY

Electric power represents an important production cost for KACC at its
aluminum smelters. In 1995, electric power purchase agreements for KACC's
facilities in the Pacific Northwest were successfully restructured. From 1981
until 1995, electric power for KACC's Mead and Tacoma smelters 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.
Contracts for the purchase of all power required by KACC's Mead and Tacoma
smelters and Trentwood rolling mill for 1996, and for approximately one-half of
such power for the period 1997-2000, have 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 five-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, have
intervened in the two lawsuits.

In 1995, KACC also entered into agreements with the BPA and with the WWP,
with terms ending in 2001, under 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.
Certain of the DSIs, including KACC, have intervened in the four lawsuits.

KACC manages, and owns 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 of power 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.

9
<PAGE>

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, although no assurance can be given
that such power will be available. KACC also owns 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."

USE OF PROCEEDS

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

COMMON STOCK PRICE RANGE AND DIVIDEND POLICY

Kaiser's existing Common Stock has been listed and traded on the NYSE under
the symbol "KLU" since July 1991. The following table sets forth, for the
periods indicated, the range of high and low sale prices for the Common Stock,
as reported on the NYSE.

<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1994:
First quarter................................................... 12 1/2 9
Second quarter.................................................. 10 1/2 8 1/4
Third quarter................................................... 11 5/8 9 1/2
Fourth quarter.................................................. 12 3/8 9 3/4
YEAR ENDED DECEMBER 31, 1995:
First quarter................................................... 11 7/8 10 1/8
Second quarter.................................................. 14 10 1/2
Third quarter................................................... 21 13 7/8
Fourth quarter.................................................. 15 3/4 10 3/4
YEAR ENDED DECEMBER 31, 1996:
First Quarter................................................... 16 1/8 12
</TABLE>

The Company paid a quarterly dividend of $.05 per share of Common Stock,
commencing with its initial public offering during the third quarter of 1991
and continuing through the fourth quarter of 1992. The Company did not declare
any dividends on the Common Stock in 1993, 1994 and 1995, and has not declared
any dividends in 1996. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources--
Financing Activities." The 1994 Credit Agreement does not permit either Kaiser
or KACC to pay dividends on their common stock. The declaration and payment of
dividends by KACC on its shares of common stock are also subject to certain
covenants in the indentures relating to the KACC Notes. See "Risk Factors--
Restrictions on and Factors Affecting Ability to Pay Dividends."

10
<PAGE>

CAPITALIZATION

The following table summarizes the consolidated capitalization of the Company
at December 31, 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>
DECEMBER 31, 1995
------------------------
(IN MILLIONS OF DOLLARS)
<S> <C>
Short-term debt (1):.................................. $ 8.9
------
Long-term debt (1):
1994 Credit Agreement (2)........................... 13.1
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 $6.3)..... 6.2
12 3/4% Senior Subordinated Notes................... 400.0
Other borrowings (less current portion of $1.4)..... 10.4
------
Total long-term debt.............................. 749.2
------
Minority interests.................................... 122.7
------
Stockholders' Equity:
Preferred stock..................................... .4
Common stock........................................ .7
Additional capital.................................. 530.3
Accumulated deficit................................. (459.9)
Additional minimum pension liability................ (13.8)
------
Total stockholders' equity........................ 57.7
------
Total capitalization............................ $938.5
======
</TABLE>
- --------
(1) Does not give effect to $88.9 of guaranteed unconsolidated joint venture
indebtedness of the Company and $22.2 of other guarantees and letters of
credit. For a description of the Company's long term debt, see Note 4 of
the Notes to Consolidated Financial Statements.
(2) As of December 31, 1995, $259.3 (of which $72.4 could have been used for
letters of credit) was available to the Company under the 1994 Credit
Agreement.

11
<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, 1995, 1994, 1993, 1992, and 1991, are
derived from the Company's Consolidated Financial Statements which have been
audited by independent public accountants.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
(IN MILLIONS OF DOLLARS, EXCEPT RATIOS AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Net sales.............. $ 2,237.8 $ 1,781.5 $ 1,719.1 $ 1,909.1 $ 2,000.8
Cost of products sold.. 1,798.4 1,625.5 1,587.7 1,619.3 1,594.2
Gross profit........... 439.4 156.0 131.4 289.8 406.6
Depreciation........... 94.3 95.4 97.1 80.3 73.2
Selling,
administrative,
research and
development and
general............... 134.5 116.8 121.9 119.6 117.4
Operating income
(loss)................ 210.6 (56.2) (123.4) 89.9 216.0
Interest expense....... 93.9 88.6 84.2 78.7 93.9
Income (loss) before
income taxes, minority
interests,
extraordinary loss and
cumulative effect of
changes in accounting
principles............ 102.6 (152.1) (208.5) 32.1 142.4
Income (loss) before
extraordinary loss and
cumulative effect of
changes in accounting
principles............ 60.3 (101.4) (123.1) 26.9 108.4
Net income (loss)...... 60.3 (106.8) (652.2)(1) 26.9 108.4
Dividends on preferred
stock................. 17.6 20.1 6.3
Net income (loss)
available to common
shareholders.......... 42.7 (126.9) (658.5) 26.9 108.4
Earnings (loss) per
common and common
equivalent share
before extraordinary
loss and cumulative
effect of changes in
accounting
principles(2)......... $ .69 $ (2.09) $ (2.25) $ .47 $ 2.03
Earnings (loss) per
common and common
equivalent share(2):
Primary................ $ .69 $ (2.18) $ (11.47) $ .47 $ 2.03
Fully diluted.......... $ .72
Other Data:
Summary cash flow
information(3):
Cash provided by (used
for) operating
activities............ 118.7 (22.1) 36.9 31.8 140.9
Cash (used for)
investing activities.. (79.8) (65.9) (54.6) (88.3) (109.3)
Cash provided by (used
for) financing
activities............ (34.6) 90.9 13.3 59.8 (39.7)
EBITDA(4).............. 304.9 39.2 (26.3) 170.2 289.2
Weighted average number
of common and common
equivalent shares
outstanding (in
thousands)(2):
Primary................ 62,264 58,139 57,423 57,250 53,297
Fully diluted.......... 71,809
Dividends declared:
Per common share....... $ .20 $ 1.10
Per Depositary Share... $ .47 $ .65 $ .33
Per share of PRIDES.... $ .97 $ .85
Ratio of earnings to
combined fixed charges
and preferred stock
dividends(5)........... 1.8x 1.3x 2.3x
Fixed charge and
preferred stock
dividend coverage
deficiency............. $ 160.5 $ 215.7
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital.............. $ 331.7 $ 259.7 $ 278.6 $ 310.3 $ 242.2
Total assets................. 2,813.2 2,698.1 2,527.9 2,172.6 2,134.1
Long-term liabilities........ 548.5 495.5 501.8 281.7 212.9
Accrued postretirement
medical benefit obligation,
less current portion........ 734.0 734.9 713.1
Long-term debt, less current
portion..................... 749.2 751.1 720.2 765.1 681.5
Minority interests........... 122.7 116.2 105.0 104.9 108.9
Total stockholders' equity... 57.7 17.3 29.4 565.2 555.8
</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. See Note 1 of the
Notes to Consolidated Financial Statements.
(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) Reference is made to the Statement of Cash Flows contained in the
Company's Consolidated Financial Statements contained elsewhere in this
Prospectus for a complete presentation of cash flows from operating,
investing, and financing activities prepared in accordance with generally
accepted accounting principles. Because the Company operates through
subsidiaries and the indentures and credit agreement governing the
Company's indebtedness contain covenants which, among other things, limit
the Company's ability to pay cash dividends and restrict transactions
between Kaiser and its affiliates, such cash flows would generally not be
available to service the Company's obligations. See "Risk Factors--
Restrictions on and Factors Affecting Ability to Pay Dividends" and
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources--Capital Structure" and "--
Financing Activities."
(4) EBITDA means operating income plus depreciation and depletion. EBITDA is
not intended to represent cash flow, an alternative to net income or any
other measure of performance in accordance with generally accepted
accounting principles; it is included here because management believes
that certain investors find it a useful tool in the determination of an
entity's ability to service debt.
(5) 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.

12
<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. See "Risk Factors--
Sensitivity to Prices." The following table provides selected operational and
financial information for the years ended December 31, 1995, 1994, and 1993. 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>
YEAR ENDED DECEMBER 31,
----------------------------
1995 1994 1993
-------- -------- --------
(IN MILLIONS OF DOLLARS,
EXCEPT SHIPMENTS AND
PRICES)
<S> <C> <C> <C>
Shipments: (000 tons)(1)
Alumina........................................ 2,040.1 2,086.7 1,997.5
Aluminum products:
Primary aluminum............................. 271.7 224.0 242.5
Fabricated aluminum products................. 368.2 399.0 373.2
-------- -------- --------
Total aluminum products.................... 639.9 623.0 615.7
======== ======== ========
Average realized sales price:
Alumina (per ton).............................. $ 208 $ 169 $ 169
Primary aluminum (per pound)................... .81 .59 .56
Net sales:
Bauxite and alumina:
Alumina...................................... $ 424.8 $ 352.8 $ 338.2
Other(2)(3).................................. 89.4 79.7 85.2
-------- -------- --------
Total bauxite and alumina.................. 514.2 432.5 423.4
-------- -------- --------
Aluminum processing:
Primary aluminum............................. 488.0 292.0 301.7
Fabricated aluminum products................. 1,218.6 1,043.0 981.4
Other(3)..................................... 17.0 14.0 12.6
-------- -------- --------
Total aluminum processing.................. 1,723.6 1,349.0 1,295.7
-------- -------- --------
Total net sales.......................... $2,237.8 $1,781.5 $1,719.1
======== ======== ========
Operating income (loss):
Bauxite and alumina............................ $ 54.0 $ 19.8 $ (4.5)
Aluminum processing............................ 238.9 (8.4) (46.3)
Corporate...................................... (82.3) (67.6) (72.6)
-------- -------- --------
Total operating income (loss)................ $ 210.6 $ (56.2) $ (123.4)
======== ======== ========
Income (loss) before extraordinary loss and
cumulative effect of changes in accounting
principles...................................... $ 60.3 $ (101.4) $ (123.1)
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)................................ $ 60.3 $ (106.8) $ (652.2)
======== ======== ========
Capital expenditures............................. $ 79.4 $ 70.0 $ 67.7
======== ======== ========
</TABLE>
- --------
(1) All references to tons refer to metric tons of 2,204.6 pounds.
(2) Includes net sales of bauxite.
(3) Includes the portion of net sales attributable to minority interests in
consolidated subsidiaries.

13
<PAGE>

NET SALES

Bauxite and Alumina--Revenue from net sales to third parties for the bauxite
and alumina segment was 19% higher in 1995 than in 1994 and 2% higher in 1994
than in 1993. Revenue from alumina increased 20% in 1995 from 1994, due to
higher average realized prices partially offset by lower shipments. The
remainder of the segment's sales revenues were from sales of bauxite and the
portion of sales of alumina attributable to the minority interest in the
Company's 65%-owned Alumina Partners of Jamaica ("Alpart") alumina refinery in
Jamaica.

Aluminum Processing--Revenue from net sales to third parties for the aluminum
processing segment was 28% higher in 1995 than in 1994 and 4% higher in 1994
than in 1993. The bulk of the segment's sales represents Kaiser's primary
aluminum and fabricated aluminum products, with the remainder representing the
portion of sales of primary aluminum attributable to the minority interest in
the Company's 90%-owned Valco aluminum smelter in Ghana. Revenue from primary
aluminum increased 67% in 1995 from 1994, due primarily to higher average
realized prices and higher shipments. In 1995, the Company's average realized
price from sales of primary aluminum was approximately $.81 per pound, compared
to the average Midwest United States transaction price of approximately $.86
per pound during the year. The higher shipments of primary aluminum were due to
increased production at the Company's smelters in the Pacific Northwest and
Valco, and reduced intracompany consumption of primary metal at the Company's
fabricated products units. The increase in revenue for 1995 was partially
offset by decreased shipments caused by the strike by the United Steelworkers
of America ("USWA") discussed below. Revenue from primary aluminum decreased 3%
in 1994 from 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 then-recent improvements in metal prices. Shipments in 1994
reflected production curtailments at the Company's smelters in the Pacific
Northwest and Valco. Shipments of primary aluminum to third parties were
approximately 42% of total aluminum products shipments in 1995, compared with
approximately 36% in 1994 and 39% in 1993. Revenue from fabricated aluminum
products increased 17% in 1995 from 1994, due to higher average realized prices
partially offset by lower shipments for most of these products. Revenue from
fabricated aluminum products increased 6% in 1994 from 1993, principally due to
increased shipments of most of these products.

OPERATING INCOME (LOSS)

Improved operating results in 1995 were partially offset by expenses related
to the Company's smelting joint venture in China, accelerated expenses 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 the signing of a new labor contract. The combined impact of these
expenditures on the results for 1995 was approximately $6.0 million in the
aggregate (on a pre-tax basis). Operating results in 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 Alpart, 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 1995 was approximately $17.0
million in the aggregate (on a pre-tax basis) principally from lower production
volume and other related costs. In 1993, the Company recorded a pre-tax charge
of $35.8 million related to restructuring charges and a pre-tax charge of $19.4
million 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 was $54.0 million in
1995, compared with $19.8 million in 1994 and a loss of $4.5 million in 1993.
The increase in operating income in 1995 compared with 1994 was principally due
to higher revenue, partially offset by the effect of the strike and boiler
failure. In 1994, compared with 1993, operating income was favorably affected
by increased shipments and lower manufacturing costs.

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Aluminum Processing--This segment's operating income was $238.9 million in
1995, compared with losses of $8.4 million in 1994 and $46.3 million in 1993.
Improvement in operating results in 1995 compared with 1994 was principally due
to higher revenue, partially offset by the effect of the strike by the USWA.
The decrease in operating loss in 1994 compared with 1993 was caused
principally by the $35.8 million restructuring charges, increased shipments of
fabricated aluminum products, and higher average realized prices of primary
aluminum, partially offset by lower shipments of primary aluminum.

Corporate--Corporate operating expenses of $82.3 million, $67.6 million, and
$72.6 million in 1995, 1994, and 1993, respectively, represented corporate
general and administrative expenses that were not allocated to segments.

NET INCOME (LOSS)

The Company reported net income of $60.3 million or $.69 per common and
common equivalent share ($.72 on a fully diluted basis) in 1995, compared with
a net loss of $106.8 million or $2.18 per common and common equivalent share in
1994 and a net loss of $652.2 million or $11.47 per common and common
equivalent share in 1993. The principal reason for the improvement in 1995
compared to 1994 was the improvement in operating results previously described,
partially offset by other charges, principally related to the establishment of
additional litigation reserves. The principal reasons for the 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 million related to adoption of Statement of Financial Accounting
Standards No. 106, 109, and 112 as of January 1, 1993. For a discussion of such
changes and an explanation of fully diluted earnings per share, see Note 1 of
the Notes to Consolidated Financial Statements.

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 million five-year
secured, revolving line of credit, scheduled to mature in 1999. KACC is able to
borrow under the facility by means of revolving credit advances and letters of
credit (up to $125.0 million) in an aggregate amount equal to the lesser of
$325.0 million or a borrowing base relating to eligible accounts receivable
plus eligible inventory. As of March 31, 1996, $166.8 million (of which $71.5
million 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. 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 Company's Gramercy
alumina 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 1993, Kaiser issued 19,382,950 of its $.65 Depositary Shares (the
"Depositary Shares"), each representing one-tenth of a share of Series A Stock.
On September 19, 1995, the Company redeemed all 1,938,295 Series A Stock, which
resulted in the simultaneous redemption of all Depositary Shares, in exchange
for (i) 13,126,521 shares of the Company's Common Stock and (ii) $2.8 million
in cash comprised of (a) an amount equal to all accrued and unpaid dividends,
and (b) cash in lieu of any fractional shares of Common Stock that would have
otherwise been issuable.

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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 million. On February 17, 1994, KACC issued
$225.0 million of Senior Notes.

The obligations of KACC with respect to the Senior Notes and the 12 3/4%
Notes (see Note 4 of the Notes to Consolidated Financial Statements) 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.

Management believes that the Company's existing cash resources, together with
cash flows from operations and borrowings under the 1994 Credit Agreement, will
be sufficient to satisfy its working capital and capital expenditure
requirements for the next year. With respect to long-term liquidity, management
believes that operating cash flows, together with the ability to obtain both
short and long-term financing, should provide sufficient funds to meet the
Company's working capital and capital expenditure requirements. See "Risk
Factors."

The Company's Board of Directors has approved the Proposed Recapitalization
which would, among other things, (i) provide for two classes of common stock:
the Class A Common Shares, $.01 par value, with one vote per share and the new,
lesser-voting Recap Common Stock, $.01 par value, with 1/10 vote per share;
(ii) redesignate as Class A Common Shares the 100 million currently authorized
shares of existing Common Stock and authorize an additional 250 million shares
of Recap Common Stock; and (iii) reclassify each issued share of the Company's
existing Common Stock, par value $.01 per share, into (a) .33 of a Class A
Common Share and (b) .67 of a share of Recap Common Stock. The Company would
pay cash in lieu of fractional shares. The Company anticipates that both the
Class A Common Shares and the Recap Common Stock will be approved for trading
on the New York Stock Exchange.

Upon the effective date of the Proposed Recapitalization, approximately 23.6
million Class A Common Shares and 48.0 million shares of Recap Common Stock
would be issued and outstanding. The proportionate voting power of the holders
of the PRIDES would increase immediately after the effectiveness of the
Proposed Recapitalization until such shares are redeemed or converted, which
will occur on or before December 31, 1997. As of March 31, 1996, holders of the
existing Common Stock and the PRIDES had 91.2% and 8.8%, respectively, of the
total voting power of all stockholders. Immediately after the effectiveness of
the Proposed Recapitalization, the voting power of such holders of the PRIDES
would increase to 19.6% in the aggregate, with a corresponding reduction in the
voting power of such holders of the existing Common Stock. At such time as the
PRIDES are redeemed or converted, the relative voting power of such holders of
the PRIDES would decrease and the relative voting power for both such holders
of the PRIDES and the existing Common Stock would be approximately the same as
it would have been had the recapitalization not occurred.

See also "Risk Factors--Possible Equity Recapitalization," "Legal
Proceedings--Other Proceedings--Matheson et al. v. Kaiser Aluminum Corporation
et al." and "Description of Capital Stock--Possible Equity Recapitalization."

See Note 4 of the Notes to Consolidated Financial Statements.

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OPERATING ACTIVITIES

Cash provided by operations was $118.7 million in 1995, compared with cash
used for operations of $22.1 million in 1994 and cash provided by operations
of $36.9 million in 1993. The improvement in cash flows from operations in
1995 compared with 1994 was primarily due to higher earnings and a refund of
margin deposits of $50.5 million under certain hedging contracts.

At December 31, 1995, the Company had working capital of $331.7 million,
compared with working capital of $259.7 million at December 31, 1994. The
increase in working capital was due primarily to an increase in Receivables
and Inventories and a decrease in Other accrued liabilities, partially offset
by a decrease in Prepaid expenses and other current assets (principally due to
a refund of margin deposits related to hedging activities) and an increase in
Accounts payable and Accrued salaries, wages, and related expense.

Postretirement benefits other than pensions are provided through contracts
with various insurance carriers. The Company has not funded the liability for
these benefits, which are expected to be paid out of cash generated by
operations.

INVESTING ACTIVITIES

The Company's capital expenditures of $217.1 million (of which $25.2 million
was funded by the Company's minority partners in certain foreign joint
ventures) during the three years ended December 31, 1995, were made primarily
to improve production efficiency, reduce operating costs, expand capacity at
existing facilities, and construct new facilities. Total consolidated capital
expenditures were $79.4 million in 1995, compared with $70.0 million in 1994
and $67.7 million in 1993 (of which $8.3, $7.5, and $9.4 million were funded
by the minority partners in certain foreign joint ventures in 1995, 1994, and
1993, respectively). Total consolidated capital expenditures (of which
approximately 10% is expected to be funded by the minority partners in certain
foreign joint ventures) are expected to be between $123.0 and $143.0 million
per year in the years 1996-1998, subject to necessary approvals, if required,
from the lenders under the 1994 Credit Agreement.

The Company has 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 first micromill is being constructed in Nevada as a demonstration
production facility and the Company expects operational startup of the
facility by the end of 1996. KACC currently intends to finance the cost of the
construction of the Nevada micromill, estimated to be $45.0 million, from
general corporate funds, including possible borrowings under the 1994 Credit
Agreement, although KACC is in discussions with third parties which might
provide some or all of such funding.

In 1995, Kaiser Yellow River Investment Limited ("KYRIL"), a subsidiary of
the Company, was formed to participate in the privatization, modernization,
expansion, and operation of aluminum smelting facilities in the People's
Republic of China (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 the laws of the PRC (the "Joint Venture"). 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 and the use thereof by 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.

FINANCING ACTIVITIES

The declaration and payment of dividends by the Company and KACC on shares
of their common stock are subject to certain covenants contained in the 1994
Credit Agreement and, in the case of KACC, the Senior

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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 certain intercompany notes or certain other permitted
distributions from KACC.

ENVIRONMENTAL CONTINGENCIES

The Company and KACC are subject to a number of environmental laws, 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 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 December 31, 1995, the balance of such accruals, which are primarily
included in Long-term liabilities, was $38.9 million. 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 $9.0 million for the years 1996 through 2000 and an
aggregate of approximately $10.0 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. 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 an estimated $23.0 million
and that the factors upon which a substantial portion of this estimate is
based are expected to be resolved over the next twelve months. 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, results of operations, or
liquidity. See Note 8 of the Notes to Consolidated Financial Statements for
further description of these contingencies.

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 March
31, 1996, the number of such claims pending was approximately 66,200, as
compared with 59,700 at December 31, 1995. In 1995, approximately 41,700 of
such claims were received and 7,200 settled or dismissed and, during the first
quarter of 1996, approximately 8,800 of such claims were received and 2,300
settled or dismissed. KACC has been advised by its regional counsel that,
although there can be no assurance, the increase in pending claims during 1995
may have been 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, was 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

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in tort cases. A substantial portion of the asbestos-related claims that were
filed and served on KACC between June 30, 1995, and November 30, 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, and the
advice of Wharton Levin Ehrmantraut Klein & Nash, P.A. with respect to the
current state of the law related to asbestos claims. Accordingly, an asbestos-
related cost accrual of $160.1 million, before consideration of insurance
recoveries, is included primarily in Long-term liabilities at December 31,
1995. The Company estimates that annual future cash payments in connection with
such litigation will be approximately $13.0 to $20.0 million for each of the
years 1996 through 2000, and an aggregate of approximately $78.0 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 timing and amount of
ultimate recoveries from these insurance carriers are dependent upon the
resolution of these disputes. The Company believes, based on prior insurance-
related recoveries in respect of asbestos-related claims, existing insurance
policies, and the advice of Thelen, Marrin, Johnson & Bridges with respect to
applicable insurance coverage law relating to the terms and conditions of those
policies, that substantial recoveries from the insurance carriers are probable.
Accordingly, an estimated aggregate insurance recovery of $137.9 million,
determined on the same basis as the asbestos-related cost accrual, is recorded
primarily in Other assets at December 31, 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 insurance recoveries that will be received,
management currently believes that, based on the factors discussed in the
preceding paragraphs, the resolution of 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, results of operations, or liquidity. See Note 8 of the Notes to
Consolidated Financial Statements for further description of this contingency,
and see "Risk Factors--Environmental Matters and Litigation."

TRENDS

SENSITIVITY TO PRICES AND HEDGING PROGRAMS

KACC enters into primary aluminum hedging transactions 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 December 31, 1995, KACC had purchased
approximately 53,300 tons of primary aluminum at fixed prices as a partial
hedge against approximately 161,100 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.

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In addition, as of December 31, 1995, KACC had sold approximately 75% 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 as a percentage of the price of
primary aluminum ("Variable Price Contracts"), and approximately 44% of such
alumina sold for 1996 has been sold at fixed prices ("Fixed Price Contracts").
The average realized prices of alumina sold under Variable Price Contracts will
depend on future prices of primary aluminum, and the average realized prices of
alumina sold under Fixed Price Contracts will substantially exceed the
Company's manufacturing cost of alumina.

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 December 31, 1995, KACC had net forward foreign exchange contracts
totaling approximately $102.8 million for the purchase of 142.4 million
Australian dollars through April 30, 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 December 31, 1995, KACC had nil, compared with
$50.5 million at December 31, 1994, on deposit with counterparties in respect
of such contracts. These amounts are recorded in Prepaid expenses and other
current assets.

As of March 31, 1996:

. KACC, in respect of its anticipated 1996, 1997, and 1998 production, had
sold forward 105,750 metric tons of primary aluminum at fixed prices, had
purchased 53,025 metric tons of primary aluminum under forward purchase
contracts at fixed prices, and had purchased put options to establish a
minimum price for 96,000 metric tons of primary aluminum.

. Forward foreign exchange contracts totaled approximately $93.7 million
for the purchase of 130.5 million Australian dollars from April 1996
through December 1997 in respect of its commitments for 1996 and 1997
expenditures denominated in Australian dollars.

. The net unrealized gain on KACC's position in aluminum forward sales and
option contracts, based on an average price of $1,717 per metric ton
($.78 per pound) of primary aluminum, and forward foreign exchange
contracts was $13.1 million.

See "Risk Factors--Sensitivity to Prices."

INCOME TAX MATTERS

The Company's net deferred income tax assets as of December 31, 1995, were
$291.8 million, net of valuation allowances of $128.5 million. Approximately
$97.7 million of these net deferred income tax assets relate to the benefit of
loss and credit carryforwards, net of valuation allowances. 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 5 of the Notes
to Consolidated Financial Statements for a discussion of these and other income
tax matters.

RECENT ACCOUNTING PRONOUNCEMENTS

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 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

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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 adopted SFAS
121 as of 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.

In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation ("SFAS 123"). SFAS 123
establishes financial accounting and reporting standards for stock-based
employee compensation plans, and provides for alternative methods for an
employer to recognize stock-based compensation costs. Under the first method,
an employer may continue to account for compensation costs for stock, stock
options, and other equity instruments issued to employees, as it has
historically, using the "intrinsic value based method" (as described in SFAS
123), and such compensation costs would be the excess, if any, of the quoted
market price of the stock subject to an option at the grant date or other
measurement date over the amount an employee must pay to acquire the stock. The
intrinsic value based method generally would not result in the recognition of
compensation costs upon the grant of stock options. Under the second method, an
employer may adopt the "fair value based method" (as described in SFAS 123).
Under the fair value based method, such compensation costs would be valued
using an option-pricing model, and such amount would be charged to expense over
the option's vesting period. Employers which elect to continue to account for
stock-based compensation under the intrinsic value based method will be
required by SFAS 123 to disclose in the notes to their financial statements the
amount of net income and the earnings per share which would have been reported
had the employer elected to use the fair value based method. The Company has
elected to continue to account for stock-based compensation under the intrinsic
value based method, and will comply with the disclosure requirement of SFAS 123
as of January 1, 1996.

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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 aluminum smelting capacity and is the
Western world's second largest producer/seller of alumina, accounting for
approximately 8% of the Western world's alumina production and for
approximately 7% of the Western world's alumina capacity in 1995. 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 2.0 million tons in 1995 or 72% of 1995 production) and
primary aluminum (approximately 271,700 tons in 1995 or 66% of 1995
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 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 is being constructed in Nevada as a demonstration production
facility, and Kaiser expects operational startup of the facility by the end of
1996. See "--Research and Development." KACC currently intends to finance the
cost of the construction of the Nevada micromill, estimated to be approximately
$45.0 million, from general corporate funds, including possible borrowings
under the 1994 Credit Agreement, although KACC is in discussions with third
parties which might provide some or all of such funding. At March 31, 1996,
$166.8 million was available to KACC under the 1994 Credit Agreement.

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 compared to 1995 electric power
costs. 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.

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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, 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 20% of aluminum
consumption in 1994, 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 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 through 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, in part, 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 28% of
aluminum consumption in the United States, Japan, and Western Europe in 1994,
automotive manufacturers use aluminum instead of steel, ductile iron, or copper
for an increasing number of components, including radiators, wheels, suspension
components, and engines, in order to meet more stringent environmental, safety,
and fuel efficiency requirements. 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. In addition, Kaiser believes
that consumption of aluminum in the construction industry will follow the
cyclical growth pattern of that industry, and will benefit from higher growth
in Asian and Latin American economies.

Supply

As of year-end 1995, Western world aluminum capacity from 107 smelting
facilities was approximately 16.6 million tons per year. Western world
production of primary aluminum for 1995 increased approximately 1.8% compared
to 1994. Net exports of aluminum from the former Sino Soviet bloc increased
approximately 250% from 1990 levels during the period from 1991 through 1994 to
approximately 2.2 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 at 2.7 million tons. By the end of 1995, LME
stocks of primary aluminum had declined 2.1 million tons from this peak level
and 1.1 million tons from the beginning of 1995. See "--Recent Industry
Trends."

Based upon information currently available, the Company believes that
moderate additions will be made during 1996-1998 to Western world alumina and
primary aluminum production capacity. The increases in alumina capacity during
1996-1998 are expected to come from one new refinery which began operations in
1995 and incremental expansions of existing refineries. In addition, Kaiser
believes that there is currently approximately .9 million tons of curtailed
smelting capacity that could be restarted by aluminum producers. The increases
in primary aluminum capacity during 1996-1998 are expected to come from one new
smelter, which began operations in 1995 and is expected to reach its rated
capacity of approximately 466,000 tons per year in 1996, and the remainder
principally from incremental expansions of existing smelters.

Recent Industry Trends

Market fundamentals for aluminum improved significantly in 1994 as aluminum
producers worldwide curtailed primary aluminum production, Western world
consumption of aluminum grew strongly, and

23
<PAGE>

customers replenished inventories, particularly in the United States. In 1995,
production of primary aluminum increased and consumption of aluminum continued
to grow, but at a much lower rate than in 1994. In general, the overall
aluminum market was strongest in the first half of 1995. By the second half of
1995, orders and shipments for certain products had softened and the rate of
decline in LME inventories had leveled off. By the end of 1995, some small
increases in LME inventories occurred, and prices of aluminum weakened from
first-half levels. 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.

Western world demand for alumina, and the price of alumina, declined in 1994
in response to the curtailment of Western world 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.
Increased Western world production of primary aluminum, as well as continued
imports of Western world alumina by the CIS and the PRC, during 1995 resulted
in higher demand for Western world alumina and significantly stronger alumina
pricing. United States shipments of domestic fabricated aluminum products in
1995 were approximately at 1994 levels, although in 1995 demand for can sheet
in the United States softened relative to 1994. Overall, Kaiser believes that
the market fundamentals for aluminum will be good through 1996, barring an
economic recession, and that demand is likely to continue growing at levels
sufficient to absorb the output from restarts of industry smelter capacity and
from the limited additions of new supply under construction.

See "Risk Factors" for a discussion of certain factors that could cause
actual results to differ from those that could otherwise result from the
industry trends discussed above.

GENERAL

The Company is a direct subsidiary of MAXXAM. The Company, through KACC,
operates in all principal aspects of the aluminum industry--the mining of
bauxite, the refining of bauxite into alumina, the production of primary
aluminum from alumina, and the manufacture of fabricated (including semi-
fabricated) aluminum products. 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 1995, KACC produced
approximately 2,838,000 tons of alumina, of which approximately 72% was sold to
third parties, and produced approximately 413,600 tons of primary aluminum, of
which approximately 66% was sold to third parties. KACC is also a major
domestic supplier of fabricated aluminum products. In 1995, KACC shipped
approximately 368,200 tons of fabricated aluminum products to third parties,
which accounted for approximately 6% of the total tonnage of United States
domestic shipments. A majority of KACC's fabricated products are sold to
distributors or used by customers as components in the manufacture and assembly
of finished end-use products. Note 10 of the Notes to Consolidated Financial
Statements is incorporated herein by reference.

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

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1994 1993
------- ------- -------
(IN THOUSANDS OF TONS)
<S> <C> <C> <C>
ALUMINA:
Shipments to Third Parties............................ 2,040.1 2,086.7 1,997.5
Intracompany Transfers................................ 800.6 820.9 807.5
PRIMARY ALUMINUM:
Shipments to Third Parties............................ 271.7 224.0 242.5
Intracompany Transfers................................ 217.4 225.1 233.6
FABRICATED ALUMINUM PRODUCTS:
Shipments to Third Parties............................ 368.2 399.0 373.2
</TABLE>

24
<PAGE>

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 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. 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 9 of the
Notes to Consolidated Financial Statements, and "Risk Factors--Sensitivity to
Prices."

PRODUCTION OPERATIONS

The Company'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 1995. During 1995, KACC's shipments of bauxite
to third parties represented approximately 21% of bauxite mined. In
addition, KACC third party shipments of alumina represented approximately
72% of alumina produced. KACC's share of total Western world alumina
capacity was approximately 7% in 1995.

. 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. During 1995, KACC's shipments of
primary aluminum to third parties represented approximately 66% of
primary aluminum production. KACC's share of total Western world primary
aluminum capacity was approximately 3% in 1995.

. Fabricated aluminum products are manufactured by three business units--
flat-rolled products, extruded products and engineered components. The
products include body, lid, and tab stock for beverage containers, sheet
and plate products, heat-treated products, screw machine stock, redraw
rod, forging stock, truck wheels and hubs, air bag canisters, engine
manifolds, and other castings, forgings and extruded products, which are
manufactured at plants located in principal marketing areas of the United
States and Canada. The aluminum utilized in KACC's fabricated products
operations is comprised of primary aluminum, obtained both internally and
from third parties, and scrap metal purchased from third parties.

25
<PAGE>

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 ("KJBC"), it has
the right to receive all of such entity's output.
(2) Alpart's bauxite is refined into alumina at the Alpart refinery.

Bauxite mined in Jamaica by 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 owns 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 owns 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 under long-term tolling
contracts. The stockholders, including KACC, purchase bauxite from another QAL
stockholder under long-term supply contracts. KACC has contracted with QAL 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 ($88.9 million at December 31, 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, trading intermediaries who resell raw materials to end-users, and
users of chemical-grade alumina. In 1995, KACC sold all of its bauxite to two
customers, the largest of which accounted for approximately 74% of such sales.
KACC also sold alumina to nine customers, the largest and

26
<PAGE>

top five of which accounted for approximately 23% and 90% of such sales,
respectively. See "--Competition." The Company believes that among alumina
producers 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 under multi-year sales contracts.

PRIMARY ALUMINUM PRODUCTS

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

<TABLE>
<CAPTION>
ANNUAL
RATED
CAPACITY TOTAL 1995
AVAILABLE ANNUAL AVERAGE
COMPANY TO THE RATED OPERATING
LOCATION FACILITY OWNERSHIP COMPANY CAPACITY RATE
- -------- -------- --------- --------- -------- ---------
(TONS) (TONS)
<S> <C> <C> <C> <C> <C>
Domestic
Washington.................... Mead 100% 200,000 200,000 82%
Washington.................... Tacoma 100% 73,000 73,000 82%
------- -------
Subtotal.................... 273,000 273,000
------- -------
International
Ghana......................... Valco 90% 180,000 200,000 68%
Wales, United Kingdom......... Anglesey 49% 55,000 112,000 119%
------- -------
Subtotal.................... 235,000 312,000
------- -------
Total..................... 508,000 585,000
======= =======
</TABLE>

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. Approximately 71% of Mead's 1995 production was
used at KACC's Trentwood fabricating facility and the balance was 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 KACC'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 compared to 1995 electric power costs. From
1981 until 1995, electric power for KACC's Mead and Tacoma smelters 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

27
<PAGE>

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. Contracts for the purchase of all power required
by KACC's Mead and Tacoma smelters and Trentwood rolling mill for 1996, and for
approximately one-half of such power for the period 1997-2000, have 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 five-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, have intervened in the two lawsuits.

In 1995 KACC also entered into agreements with the BPA and with the WWP, with
terms ending in 2001, under 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.
Certain of the DSIs, including KACC, have intervened in the four 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 Mead and one at Tacoma) 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, 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 Mead
smelter returned to full production in December 1995.

KACC manages, and owns 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 of power 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 owns 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 and control technology
in all of its smelters, as well as at third party locations. 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

28
<PAGE>

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 1995, 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 62% of such sales, respectively. See "--
Competition." 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. In 1995, four domestic beverage
container manufacturers were among the leading customers for KACC's fabricated
products and accounted for approximately 12% of KACC's sales revenue.

KACC's fabricated products compete with those of numerous domestic and
foreign producers and with products made of 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
focused its fabricated products operations on selected products in which KACC
has production expertise, high-quality capability, and geographic and other
competitive advantages.

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 approximately 64% of KACC's 1995 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. During 1995, KACC successfully completed a two year
restructuring of its flat-rolled products operation at its Trentwood plant to
reduce that facility's annual operating costs by at least $50.0 million.

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 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 1995, the flat-rolled products business unit had 31 domestic and foreign
can stock customers, including the five major domestic beverage can
manufacturers. The largest and top five of such customers accounted for
approximately 14% and 41%, respectively, of the business unit's revenue. See
"--Competition." In 1995, the business unit shipped products to approximately
150 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

29
<PAGE>

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,
and Jackson, Tennessee, which produce 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
1995, the extruded products business unit had approximately 825 customers for
its products, the largest and top five of which accounted for approximately 6%
and 20%, respectively, of its revenue. See "--Competition." Sales are made
directly from plants as well as marketing locations across the United States.

Engineered Components. The engineered components business unit operates
forging facilities at Erie, Pennsylvania; Oxnard, California; and Greenwood,
South Carolina; a machine shop at Greenwood, South Carolina; and a casting
facility in Canton, Ohio. The engineered components 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 and cast aluminum make it particularly well-suited for automotive
applications. The business unit's casting facility manufactures aluminum engine
manifolds for the automobile, truck and marine markets.

In 1995, the engineered components business unit had approximately 250
customers, the largest and top five of which accounted for approximately 34%
and 77%, respectively, of the business unit's revenue. See "--Competition." The
engineered components business unit's headquarters is located in Erie,
Pennsylvania, and there is a sales and engineering office located in Detroit,
Michigan, which works with car makers and other customers, the Center for
Technology (see "--Research and Development"), and plant personnel to create
new automotive component designs and improve existing products.

RESEARCH AND DEVELOPMENT

KACC conducts research and development activities principally at three
facilities--the Center for Technology ("CFT") in Pleasanton, California; the
Primary Aluminum Products Division Technology Center ("DTC") adjacent to the
Mead smelter in Washington; and the Alumina Development Laboratory ("ADL") at
the Gramercy, Louisiana, refinery, which supports Kaiser Alumina Technical
Services ("KATS") and the facilities of the alumina business unit. Net
expenditures for Company-sponsored research and development activities were
$18.5 million in 1995, $16.7 million in 1994, and $18.5 million in 1993. KACC's
research staff totaled 157 at December 31, 1995. KACC estimates that research
and development net expenditures will be approximately $22.5 million in 1996.

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.
Significant efforts are directed at product and process technology for the can
stock, aircraft and automotive markets, and aluminum reduction cell models
which are applied to improving cell designs and operating conditions. The
largest and most notable single project being developed at CFT is a strip-

30
<PAGE>

casting micromill process for producing can sheet. 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. A pilot
facility has been constructed and operated at CFT. The first micromill is being
constructed in Nevada as a demonstration production facility, and KACC expects
operational startup of the facility at the end of 1996. KACC currently intends
to finance the cost of the construction of the Nevada micromill, estimated to
be approximately $45.0 million, from general corporate funds, including
possible borrowings under the 1994 Credit Agreement, although KACC is in
discussions with third parties which might provide some or all of such funding.
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 provides improved alumina process technology to KACC's facilities and
technical support to new business ventures in cooperation with KACC's
international business development group.

KACC is actively engaged in efforts to license its technology and sell
technical and managerial assistance to other producers worldwide. 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, the United Arab Emirates, and the
United Kingdom. KACC's revenue from technology sales and technical assistance
to third parties were $5.7 million in 1995, $10.0 million in 1994, and $12.8
million in 1993.

KACC has entered into agreements with respect to the Krasnoyarsk smelter in
Russia under 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 in Russia and the Korba smelter of the Bharat
Aluminum Co. Ltd., in India, under 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.

COMPETITION

Aluminum competes 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 the Company's
financial condition or results of operations.

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<PAGE>

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, KYRIL was formed to participate in the privatization, modernization,
expansion, and operation of aluminum smelting facilities in the PRC. KYRIL has
entered into the Joint Venture Agreements with LAS relating to the formation
and operation of 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 has a capacity of
approximately 55,000 tons of primary aluminum per year. The smelter at Lianhai
has a capacity of approximately 30,000 tons of primary aluminum per year. In
1995 the two smelters produced an aggregate of approximately 71,000 tons of
primary aluminum, which amount was less than the aggregate capacity of the
plants principally because of a shortage of electric power available to the
plants in 1995 due to a drought which impacted the hydroelectric system. The
shortage of electric power available to the plants has continued during the
first part of 1996, and the planned production of the two plants for 1996 is
estimated to be approximately 78,000 tons.

LAS's capital contribution to the Joint Venture consisted primarily of the
Lanzhou and Lianhai smelters. KYRIL contributed $9.0 million as a contribution
to the capital of the Joint Venture in July 1995. The Joint Venture Agreements
include provisions for KYRIL to contribute up to a total of $59.7 million to
the Joint Venture in exchange for up to a 49% interest in the Joint Venture.
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 and the use thereof by the Joint
Venture. Uses of such additional contributions by the Joint Venture may include
(i) the acquisition and installation of new equipment to improve smelter
operations, (ii) the acquisition and installation of new equipment for the
production of value-added products, (iii) the acquisition, installation and
upgrading of pollution control equipment, and (iv) the provision of funds for
general purposes, including working capital. Expansion of the two smelters and
construction of a dry Soderberg paste plant are not presently contemplated.
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 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 1995, KACC employed an average of 9,546 persons, compared with an
average of 9,744 employees in 1994, and 10,220 employees in 1993. At December
31, 1995, KACC's work force was 9,624, including a domestic work force of
5,946, of whom 4,010 were paid at an hourly rate. Most hourly paid domestic
employees are covered by collective bargaining agreements with various labor
unions. Approximately 74% of such employees are covered by a master agreement
(the "Labor Contract") with the USWA expiring September 30, 1998. 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.

32
<PAGE>

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 again 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, a
profitability test was satisfied and, therefore, KACC will acquire during 1996
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.

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.

Management considers KACC's employee relations to be satisfactory.

ENVIRONMENTAL MATTERS

Kaiser and KACC are subject to the Environmental Laws. From time to time the
Environmental Laws are amended and 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
agreed to indemnify the purchasers 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, results of operations, or
liquidity.

Environmental capital spending was $9.2 million in 1995, $11.9 million in
1994, and $12.6 million in 1993. Annual operating costs for pollution control,
not including corporate overhead or depreciation, were approximately $26.0
million in 1995, $23.1 million in 1994, and $22.4 million in 1993. Legislative,
regulatory, and economic uncertainties make it difficult to project future
spending for these purposes. However, Kaiser currently anticipates that in the
1996-1997 period, environmental capital spending will be within the range of
$27.0-$33.0 million per year, and operating costs for pollution control will be
within the range of $28.0-$29.0

33
<PAGE>

million per year. In addition, $4.5 million in cash expenditures in 1995, $3.6
million in 1994, and $7.2 million in 1993 were charged to previously
established reserves relating to environmental costs. Approximately $8.4
million is expected to be charged to such reserves in 1996.

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--
Liquidity and Capital Resources--Environmental Contingencies," Note 8 of the
Notes to Consolidated Financial Statements under the heading "Environmental
Contingencies," and "Risk Factors--Environmental Matters and Litigation."

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 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

34
<PAGE>

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
(the "Aberdeen Site PRP Group" or the "Group") 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.

By letter dated March 6, 1996, KACC gave notice of withdrawal from the
Aberdeen Site PRP Group pursuant to the provisions of the PRP Participation
Agreement. KACC advised the Group and the EPA that even if it were liable for
cleanup at the Sites, which it expressly denies, it had already contributed far
more than its allocable potential share of response costs. KACC has advised the
Group and the EPA that it has fully complied with the Unilateral Orders and
that should additional evidence be presented which demonstrates KACC's
liability in excess of the amount contributed to date, KACC would be willing to
discuss the matter further at that time.

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.

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 was approved by a Consent Order
entered by the United States District Court for the Eastern District of
Washington in January 1996. As approved, the Consent Decree settles the
underlying disputes and requires KACC to (i) pay a $.5 million civil penalty
(which penalty has been paid), (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")

35
<PAGE>

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 $49.0
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 thirty-five percent (35%) 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. KACC
paid the City of Richmond $1.76 million in partial satisfaction of this
judgment. In January 1996, Catellus filed a notice of appeal with respect to
its indemnity judgment against KACC. KACC has since filed a notice of cross
appeal as to the Court's decision adjudicating that KACC is obligated to
indemnify Catellus. In February 1996, the Plaintiffs filed motions, which KACC
is contesting, seeking reimbursement of fees and costs from KACC in the
aggregate amount of $2.76 million. 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, results of
operations, or liquidity.

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'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. A PRP
participation agreement is under negotiation.

ASBESTOS-RELATED LITIGATION

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<PAGE>

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, was 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 November 30, 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." The portion of Note 8 of the Notes to
Consolidated Financial Statements under the heading "Asbestos Contingencies" is
incorporated herein by reference.

DOJ 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.

OTHER PROCEEDINGS

Hammons v. Alcan Aluminum Corp. et al.

On March 5, 1996, a class action complaint was filed against the Company,
Alcan Aluminum Corp., Aluminum Company of America, Alumax, Inc., Reynolds Metal
Company and the Aluminum Association in the Superior Court of California for
the County of Los Angeles, Case No. BC145612. The complaint claims that the
defendants conspired, in violation of the California Cartwright Act, (Bus. &
Prof. Code (S) 16720 & 16750) in conjunction with a Memorandum of Understanding
("MOU") entered into by representatives of Australia, Canada, the European
Union, Norway, the Russian Federation and the United States in 1994, to
restrict the production of primary aluminum causing consequent rises in prices
for primary aluminum and aluminum products. The complaint seeks certification
of a class consisting of persons who at any time between January 1, 1994, and
the date of the complaint purchased aluminum or aluminum products manufactured
by one or more of the defendants and estimates damages sustained by the class
to be $4.4 billion during the year 1994, before trebling. Plaintiff's counsel
has estimated damages to be $4.4 billion per year for each of the two years the
MOU was active, which then trebled equals $26.4 billion.

On April 2, 1996 the case was removed to and is currently pending in the U.S.
District Court for the Central District of California. The Court has granted
defendants until May 9, 1996 to file contemplated motions to dismiss.

37
<PAGE>

Matheson et al v. Kaiser Aluminum Corporation et al.

On March 19, 1996, a lawsuit was filed against MAXXAM, Kaiser and Kaiser's
directors challenging and seeking to enjoin the Proposed Recapitalization and
the April 10, 1996, special stockholders' meeting at which the Proposed
Recapitalization was to be considered. The suit, which is entitled Matheson et
al. v. Kaiser Aluminum Corporation et al. (No. 14900) and was filed in the
Delaware Court of Chancery, purports to be an individual and class action by
persons who as of March 18, 1996 (the record date for the April 10, 1996,
meeting) owned Kaiser's outstanding Common Stock and PRIDES. Plaintiffs allege,
among other things, breaches of fiduciary duties by certain defendants and that
the Proposed Recapitalization violates Delaware law and the certificate of
designations for the PRIDES. Plaintiffs seek injunctive relief, rescission,
rescissory damages and other relief. On April 8, 1996, the Delaware Court of
Chancery issued a ruling which preliminarily enjoined the Company from
implementing the Proposed Recapitalization. On April 10, 1996, the Company
called the scheduled special meeting of stockholders to order and the meeting
was adjourned to May 1, 1996, without taking a vote on the Proposed
Recapitalization. On April 19, 1996, the Delaware Supreme Court granted the
Company's motion to consider, on an expedited basis, the Company's appeal of
the preliminary injunction. See also "Risk Factors--Possible Equity
Recapitalization," "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources--Capital Structure,"
and "Description of Capital Stock--Possible Equity Recapitalization."

OTHER MATTERS

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, results of operations, or liquidity.

There can be no assurance that adverse determinations and/or unfavorable
settlements with respect to the Company's legal proceedings will not have a
material adverse effect on the Company's consolidated financial position,
results of operations, or liquidity. See "Risk Factors--Environmental Matters
and Litigation."

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<PAGE>

MANAGEMENT

The following table sets forth certain information, as of March 31, 1996,
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 and Chief Financial Officer
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 of KACC
Robert W. Irelan........... Vice President, Public Relations, of KACC
Alan G. Longmuir........... Vice President, Research and Development, 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
Arthur S. Donaldson........ Controller
Karen A. Twitchell......... Treasurer
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 58, 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 was a partner in a partnership
which acquired, redirected and operated small to medium sized companies in the
metals industry. Since July 1987, Mr. Haymaker has been a director, and from
February 1992 through March 1993 was President, 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 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 52, 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

39
<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. From
September 1982 to April 1987, Mr. Bonn served as General Manager of various
aluminum fabricating divisions.

John T. La Duc. Mr. La Duc, age 53, has been Vice President and Chief
Financial Officer of the Company since June 1989 and May 1990, respectively,
and was Treasurer of the Company from August 1995 until February 1996 and from
January 1993 until April 1993. He was also Treasurer of KACC from June 1995
until February 1996, and has been Chief Financial Officer of KACC since January
1990 and a Vice President of KACC since June 1989. 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 MGI, 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 and Pacific Lumber since May 1989 and Scotia Pacific since
November 1992 and as a director of MGI and Pacific Lumber since November 1993
and January 1994, respectively. 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 past Chairman of the
Board of Trustees of Marymount College.

Byron L. Wade. Mr. Wade, age 49, 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. In addition, Mr. Wade has served since May
1993 as a Vice President and Secretary of SHRP General Partner, Inc. ("SHRP"),
the current managing general partner of Sam Houston Race Park, Ltd., a Texas
limited partnership and subsidiary of MAXXAM which operates a horse racing
facility in Texas ("SHRP, Ltd."). 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 since
1983 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. Mr. Cole is
currently Chairman of the United States Auto Parts Advisory Committee
established by the United States Congress.

John E. Daniel. Mr. Daniel, age 60, 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.

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Richard B. Evans. Mr. Evans, age 48, has been a Vice President of KACC since
January 1, 1992, and was responsible for the worldwide commercial development
of KACC's proprietary micromill rolling process for canstock production from
April 1994 through February 1996. 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 59, 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 55, has been Vice President--Research and
Development of KACC since June 1995, and previously was Divisional Vice
President--Research and Development of KACC since October 1988. Mr. Longmuir
served as KACC's Director of Manufacturing Systems from January 1985 to October
1988. From September 1982 to January 1985 he acted as KACC's Manager--Automated
Systems and Electrical Engineering; and from January 1978 to September 1982 was
KACC's Manager--Metals Automation.

Raymond J. Milchovich. Mr. Milchovich, age 46, has been Vice President--
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--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. From January 1984 to January
1985, Mr. Owen served as the General Manager of KACC's Los Angeles extrusions
facility and from July 1976 to January 1984, Mr. Owen served as plant manager
of various aluminum fabricating facilities.

Geoffrey W. Smith. Mr. Smith, age 49, 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, Mr.
Vasan served the Company and KACC as Corporate 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 49, 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.

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Arthur S. Donaldson. Mr. Donaldson, age 53, became Controller of the Company
and KACC effective February 1, 1996. Mr. Donaldson previously served as
Assistant Controller of the Company and KACC since September 1992. From January
1985 to September 1992, Mr. Donaldson was Manager of Financial Reporting for
the Company.

Karen A. Twitchell. Ms. Twitchell, age 40, assumed the position of Treasurer
of the Company and KACC effective February 1, 1996. Prior to joining the
Company, Ms. Twitchell was Vice President and Treasurer of Southdown, Inc., a
Houston-based company specializing in portland and masonry cement, since April
1994 and Treasurer since 1989.

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. Mr. Hurwitz has been, since
January 1974, Chairman of the Board and Chief Executive Officer of Federated.
Mr. Hurwitz has also served SHRP as a director since May 1993, Chairman of the
Board since October 1995, and President from May 1993 until April 1996.

Ezra G. Levin. Mr. Levin, age 62, 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 71, 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 USWA in June 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. Mr. Petris
plans to retire from USWA this year.

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CERTAIN TRANSACTIONS

For certain periods through June 30, 1993, the Company and its subsidiaries
(including KACC) were included in the consolidated Federal income tax return
filed by MAXXAM. Payments to MAXXAM or refunds from MAXXAM may still be
required by or payable to the Company or KACC under tax allocation agreements
that governed those tax periods due to the final resolution of audits, amended
returns and related matters with respect to such periods. The 1994 Credit
Agreement prohibits any cash payments by KACC to MAXXAM pursuant to the
relevant tax allocation agreement after February 15, 1994; however, MAXXAM may
offset amounts owing to it against amounts owed by it under the relevant 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
tax allocation agreement. While the Company and KACC are severally liable for
the MAXXAM tax group's Federal income tax liability for all of 1993 and
applicable prior periods, pursuant to the relevant tax allocation agreements,
MAXXAM indemnifies the Company and KACC to the extent the tax liability exceeds
amounts payable by them under such agreements.

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. KACC paid a total of approximately $2.4 million
to MAXXAM pursuant to such arrangements and MAXXAM paid approximately $2.5
million to KACC pursuant to such arrangements in respect of 1995. 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.

On December 15, 1992, KACC issued a note (the "PIK Note") to a subsidiary of
MAXXAM in the principal amount of $2.5 million, representing the entire amount
of a dividend received by such subsidiary in respect of the shares of the
Company's Common Stock which it owned. The PIK Note which accrued interest,
compounded semiannually, at a rate equal to 12% per annum, was paid, together
with accrued interest thereon, on June 30, 1995.

In January 1995, Mr. Pierno repaid a $150,000 bank 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 from
MAXXAM, which aggregated $150,000, at 6% interest, were forgiven at the rate of
$15,000 per year. Such loans were, and continue to be, secured by real estate
owned by Mr. Pierno. As of February 28, 1995, MAXXAM entered into an amendment
of Mr. Pierno's promissory note evidencing such loans which provides that (i)
installments of $18,750 be paid 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; and (ii) 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 principal balance on such loans is currently
$56,250. Pursuant to the terms of Mr. Pierno's employment agreement, he
borrowed an additional $200,000 bearing interest at 6% per annum, with interest
being payable monthly and principal being due December 15, 1998 (with
prepayments due upon the exercise by Mr. Pierno of any stock appreciation
rights granted pursuant to the agreement or employee benefit plan). Such
promissory note is also secured by 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, and advanced him an additional
$50,000 which was repaid within 10 days, in connection with his purchase of an
interest in SHRP, Ltd. 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.

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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 were consummated on October 6, 1995. 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., a subsidiary of SHRP, Ltd. Also, Mr.
Hurwitz has served as director and Chairman of the Board of SHRP, Inc., and as
a director, Chairman of the Board and President of SHRP Capital Corp.

In October 1990, Amarlite filed a voluntary corporate petition under Chapter
11 of the United States Bankruptcy Code. 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.

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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 71,643,029 shares were issued and
outstanding as of March 31, 1996. 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. As of March 31, 1996, there were
8,673,850 shares of PRIDES outstanding which were held by 65 holders of record.

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"). 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 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

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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 (other than previously declared dividends payable to a holder
of record as of a date prior to the redemption date).

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.

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 are entitled to 4/5 vote per share. Except as
required by law or as to certain matters as to which separate class voting
rights have been granted to the holders of the PRIDES or may be granted in the
future to the holders of one or more other classes or series of stock, the
holders of the PRIDES, the holders of the Common Stock, and the holders of any
other classes or series of stock which may in the future be entitled to vote in
such manner, vote together with each other, and not as separate classes, on all
matters voted upon by the 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 if certain
conditions are not satisfied, or

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<PAGE>

(v) consummate a merger or consolidation of the Company with any other
corporation if certain conditions are not satisfied. In the event that
dividends payable on the PRIDES are in arrears in an aggregate amount
equivalent to six full quarterly dividends, 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 similar 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

On September 11, 1995, the Company announced that it had appointed an
independent committee of its Board of Directors (the "Independent Committee")
to consider a proposed recapitalization. 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 legal counsel and an
investment banking firm which advised it in connection with a possible
recapitalization transaction and the various alternative structures and methods
by which it might be implemented. The Independent Committee's advisor reviewed
the trading history and minority protection provisions of other corporations
with dual capital stock structures, and considered 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 Proposed Recapitalization would, among other things, (i) provide for two
classes of common stock: the Class A Common Shares, $.01 par value, with one
vote per share and the new, lesser-voting Recap Common Stock, $.01 par value,
with 1/10 vote per share; (ii) redesignate as, Class A Common Shares the 100
million currently authorized shares of the Company's existing Common Stock and
authorize an additional 250 million shares of Recap Common Stock; and (iii)
reclassify each issued share of the Company's existing Common Stock into (a)
.33 of a Class A Common Share and (b) .67 of a share of Recap Common Stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources--Capital Structure." The proposed
terms of the Class A Common Shares and Recap Common Stock are described in the
Company's definitive Proxy Statement for the Special Meeting of Stockholders
held April 10, 1996, filed with the Commission on March 19, 1996. A special
stockholders' meeting to consider the Proposed Recapitalization was scheduled
for April 10, 1996. On April 8, 1996, the Delaware Court of Chancery issued a
ruling which preliminarily enjoined the Company from implementing the Proposed
Recapitalization. On April 10, 1996, the Company called the scheduled special
meeting of stockholders to order and the meeting was adjourned to May 1, 1996,
without taking a vote on the Proposed Recapitalization. On April 19, 1996, the
Delaware Supreme Court granted the Company's motion to consider, on an
expedited basis, the Company's appeal of the preliminary injunction. See "Legal
Proceedings--Other Proceedings--Matheson et al. v. Kaiser Aluminum Corporation
et al." and "Risk Factors--Possible Equity Recapitalization."

SELLING STOCKHOLDER

The Company has been a subsidiary of MAXXAM since October 28, 1988. As of the
date of this Prospectus, MAXXAM owns approximately 62% 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.

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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.

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.

48
<PAGE>

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 and Kramer, Levin, Naftalis, Nessen, Kamin &
Frankel, New York, New York.

EXPERTS

The Consolidated Financial Statements for the years ended December 31, 1995,
1994 and 1993 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.

49
<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, 1995 and 1994............... F-3
Statements of Consolidated Income (Loss) for the Years Ended December
31, 1995, 1994 and 1993................................................ F-4
Statements of Consolidated Cash Flows for the Years Ended December 31,
1995, 1994
and 1993............................................................... F-5
Notes to Consolidated Financial Statements.............................. F-6
KAISER ALUMINUM CORPORATION--Parent Company Only
Condensed Balance Sheets at December 31, 1995 and 1994.................. F-31
Condensed Statements of Income for the Years Ended December 31, 1995,
1994 and 1993.......................................................... F-32
Condensed Statements of Cash Flows for the Years Ended December 31,
1995, 1994 and 1993.................................................... F-33
Notes to Financial Statements........................................... F-34

UNAUDITED QUARTERLY FINANCIAL INFORMATION

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
Unaudited Summary Quarterly Financial Data.............................. F-35
</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, 1995 and 1994, and the related statements of consolidated income and cash
flows for each of the three years in the period ended December 31, 1995. 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, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.

Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule I is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.

ARTHUR ANDERSEN LLP

Houston, Texas
February 16, 1996

F-2
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1994
ASSETS -------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................ $ 21.9 $ 17.6
Receivables:
Trade, less allowance for doubtful receivables of $5.0
in 1995 and $4.2 in 1994.............................. 222.9 150.7
Other.................................................. 85.7 48.5
Inventories.............................................. 525.7 468.0
Prepaid expenses and other current assets................ 76.6 158.0
-------- --------
Total current assets................................... 932.8 842.8
Investments in and advances to unconsolidated affiliates... 178.2 169.7
Property, plant, and equipment--net........................ 1,109.6 1,133.2
Deferred income taxes...................................... 269.1 271.2
Other assets............................................... 323.5 281.2
-------- --------
Total.................................................. $2,813.2 $2,698.1
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable......................................... $ 184.5 $ 152.1
Accrued interest......................................... 32.0 32.6
Accrued salaries, wages, and related expenses............ 105.3 77.7
Accrued postretirement medical benefit obligation--
current portion......................................... 46.8 47.0
Other accrued liabilities................................ 129.4 176.9
Payable to affiliates.................................... 94.2 85.3
Long-term debt--current portion.......................... 8.9 11.5
-------- --------
Total current liabilities.............................. 601.1 583.1
Long-term liabilities...................................... 548.5 495.5
Accrued postretirement medical benefit obligation.......... 734.0 734.9
Long-term debt............................................. 749.2 751.1
Minority interests......................................... 122.7 116.2
Stockholders' equity:
Preferred stock, par value $.05, authorized 20,000,000
shares;
Series A Convertible, stated value $.10, issued and
outstanding, nil and 1,938,295 in 1995 and 1994....... .2
PRIDES Convertible, par value $.05, issued and
outstanding, 8,673,850 and 8,855,550 in 1995 and 1994. .4 .4
Common stock, par value $.01, authorized 100,000,000
shares; issued and outstanding, 71,638,514 and
58,205,083 in 1995 and 1994............................. .7 .6
Additional capital....................................... 530.3 527.8
Accumulated deficit...................................... (459.9) (502.6)
Additional minimum pension liability..................... (13.8) (9.1)
-------- --------
Total stockholders' equity............................. 57.7 17.3
-------- --------
Total.................................................. $2,813.2 $2,698.1
======== ========
</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,
----------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Net sales........................................ $2,237.8 $1,781.5 $1,719.1
-------- -------- --------
Costs and expenses:
Cost of products sold.......................... 1,798.4 1,625.5 1,587.7
Depreciation................................... 94.3 95.4 97.1
Selling, administrative, research and
development, and general...................... 134.5 116.8 121.9
Restructuring of operations.................... 35.8
-------- -------- --------
Total costs and expenses..................... 2,027.2 1,837.7 1,842.5
-------- -------- --------
Operating income (loss).......................... 210.6 (56.2) (123.4)
Other expense:
Interest expense............................... (93.9) (88.6) (84.2)
Other--net..................................... (14.1) (7.3) (.9)
-------- -------- --------
Income (loss) before income taxes, minority
interests, extraordinary loss, and cumulative
effect of changes in accounting principles...... 102.6 (152.1) (208.5)
(Provision) credit for income taxes.............. (37.2) 53.8 86.9
Minority interests............................... (5.1) (3.1) (1.5)
-------- -------- --------
Income (loss) before extraordinary loss and
cumulative effect of changes in accounting
principles...................................... 60.3 (101.4) (123.1)
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)................................ 60.3 (106.8) (652.2)
Dividends on preferred stock..................... (17.6) (20.1) (6.3)
-------- -------- --------
Net income (loss) available to common
shareholders.................................... $ 42.7 $ (126.9) $ (658.5)
======== ======== ========
Earnings (loss) per common and common equivalent
share:
Primary:
Income (loss) before extraordinary loss and
cumulative effect of changes in accounting
principles.................................. $ .69 $ (2.09) $ (2.25)
Extraordinary loss........................... (.09) (.38)
Cumulative effect of changes in accounting
principles.................................. (8.84)
-------- -------- --------
Net income (loss)............................ $ .69 $ (2.18) $ (11.47)
======== ======== ========
Fully diluted.................................. $ .72
========
Weighted average common and common equivalent
shares outstanding (000):
Primary........................................ 62,264 58,139 57,423
======== ======== ========
Fully diluted.................................. 71,809
========
</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,
--------------------------
1995 1994 1993
------ ------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................. $ 60.3 $(106.8) $ (652.2)
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:
Depreciation.................................... 94.3 95.4 97.1
Amortization of excess investment over equity in
unconsolidated affiliates...................... 11.4 11.6 11.9
Amortization of deferred financing costs and
discount on long-term debt..................... 5.4 6.2 11.2
Equity in (income) losses of unconsolidated
affiliates..................................... (19.2) 1.9 3.3
Restructuring of operations..................... 35.8
Minority interests.............................. 5.1 3.1 1.5
Extraordinary loss on early extinguishment of
debt--net...................................... 5.4 21.8
Cumulative effect of changes in accounting
principles--net................................ 507.3
(Increase) decrease in receivables.............. (109.7) 36.4 (6.1)
(Increase) decrease in inventories.............. (57.7) (41.1) 13.0
Decrease (increase) in prepaid expenses and
other assets................................... 82.9 (60.6) (5.2)
Increase (decrease) in accounts payable......... 32.4 25.8 (10.3)
(Decrease) increase in accrued interest......... (.6) 9.3 19.2
Increase in payable to affiliates and accrued
liabilities.................................... 10.6 50.8 76.9
Decrease in accrued and deferred income taxes... (7.4) (68.8) (96.4)
Other........................................... 10.9 9.3 8.1
------ ------- ---------
Net cash provided by (used for) operating
activities.................................... 118.7 (22.1) 36.9
------ ------- ---------
Cash flows from investing activities:
Net proceeds from disposition of property and
investments...................................... 8.6 4.1 13.1
Capital expenditures.............................. (79.4) (70.0) (67.7)
Investments in joint ventures..................... (9.0)
------ ------- ---------
Net cash used for investing activities......... (79.8) (65.9) (54.6)
------ ------- ---------
Cash flows from financing activities:
Repayments of long-term debt, including revolving
credit........................................... (537.7) (345.1) (1,134.5)
Borrowings of long-term debt, including revolving
credit........................................... 532.3 378.9 1,068.1
Borrowings from MAXXAM Group Inc. (see
supplemental disclosure below)................... 15.0
Tender premiums and other costs of early
extinguishment of debt........................... (27.1)
Net short-term debt repayments.................... (.5) (4.3)
Incurrence of financing costs..................... (.8) (19.2) (12.7)
Dividends paid.................................... (20.8) (14.8) (6.3)
Capital stock issued.............................. 1.2 100.1 119.3
Redemption of minority interests' preference
stock............................................ (8.8) (8.5) (4.2)
------ ------- ---------
Net cash (used for) provided by financing
activities.................................... (34.6) 90.9 13.3
------ ------- ---------
Net increase (decrease) in cash and cash
equivalents during the year....................... 4.3 2.9 (4.4)
Cash and cash equivalents at beginning of year..... 17.6 14.7 19.1
------ ------- ---------
Cash and cash equivalents at end of year........... $ 21.9 $ 17.6 $ 14.7
====== ======= =========
Supplemental disclosure of cash flow information:
Interest paid, net of capitalized interest........ $ 88.8 $ 73.1 $ 53.7
Income taxes paid................................. 35.7 16.0 13.5
Tax allocation payments from MAXXAM Inc........... (3.9)
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. The Company is a direct subsidiary of MAXXAM Inc. ("MAXXAM") and
conducts its operations through its wholly owned subsidiary, Kaiser Aluminum &
Chemical Corporation ("KACC"). 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's production levels of alumina and primary aluminum
exceed its internal processing needs, which allows it to be a major seller of
alumina and primary aluminum to domestic and international third parties (see
Note 10).

The preparation of financial statements in accordance with generally accepted
accounting principles requires the use of estimates and assumptions that affect
the reported amounts of assets and liabilities, disclosure of contingent assets
and liabilities known to exist as of the date the financial statements are
published, and the reported amount of revenues and expenses during the
reporting period. Uncertainties, with respect to such estimates and
assumptions, are inherent in the preparation of the Company's consolidated
financial statements; accordingly, it is possible that the actual results could
differ from these estimates and assumptions, which could have a material effect
on the reported amounts of the Company's consolidated financial position and
results of operation.

Investments in 50%-or-less-owned entities are accounted for primarily by the
equity method. Intercompany balances and transactions are eliminated. 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 changed 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. The asset and
liability approach

F-6
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)
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 these 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.

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,
-------------
1995 1994
------ ------
<S> <C> <C>
Finished fabricated products..................................... $ 91.5 $ 49.4
Primary aluminum and work in process............................. 195.9 203.1
Bauxite and alumina.............................................. 119.6 102.3
Operating supplies and repair and maintenance parts.............. 118.7 113.2
------ ------
$525.7 $468.0
====== ======
</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>

Stock-Based Compensation

The Company applies Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations in accounting for a
stock-based compensation plan. Accordingly, no compensation cost has been
recognized for this plan (see Note 6).

Other Expense

Other expense in 1995, 1994, and 1993 includes $17.8, $16.5, and $17.9 of
pre-tax charges related principally to establishing additional: (i) litigation
reserves for asbestos claims, and (ii) environmental reserves for potential
soil and ground water remediation matters, each pertaining to operations which
were discontinued prior to the acquisition of the Company by MAXXAM in 1988.

F-7
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)

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 $5.3, $6.0, and $11.2 for the years ended December 31, 1995, 1994, and
1993, 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, 1995, 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 9).

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, 1995 DECEMBER 31, 1994
------------------- -------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Debt.................................... $758.1 $806.3 $762.6 $747.6
Foreign currency contracts.............. 1.9 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 4). 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 9).

Earnings (Loss) per Common and Common Equivalent Share

Primary earnings (loss) per common and common equivalent share are 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 are
computed as if the Series A Shares and 181,700 shares of PRIDES (the "Converted
PRIDES") had been converted to common shares at the beginning of the period.
Accordingly, for purposes of the fully diluted calculations, the dividends
attributable to the Series A Shares and the Converted PRIDES ($9.2 for the year
ended December 31, 1995) have not been deducted from net income, and the
weighted average number of

F-8
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)
common and common equivalent shares outstanding includes the shares issued upon
conversion of the Series A Shares and the Converted PRIDES as if they had been
outstanding for the entire period. As a result of the redemption of the Series
A Shares and conversion of the Converted PRIDES during the 1995 period, fully
diluted earnings per share are presented for such period, even though the
result is antidilutive. For the years ended December 31, 1994 and 1993, 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.

2. 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, 1995 and 1994, KACC's net receivables from these affiliates
were not material.

Summary of Combined Financial Position

<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1995 1994
------ ------
<S> <C> <C>
Current assets................................................... $429.0 $342.3
Property, plant, and equipment--net.............................. 330.8 349.4
Other assets..................................................... 39.3 42.4
------ ------
Total assets................................................... $799.1 $734.1
====== ======
Current liabilities.............................................. $125.4 $122.4
Long-term debt................................................... 331.8 307.6
Other liabilities................................................ 35.6 31.0
Stockholders' equity............................................. 306.3 273.1
------ ------
Total liabilities and stockholders' equity..................... $799.1 $734.1
====== ======
</TABLE>

Summary of Combined Operations

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Net sales........................................... $ 685.9 $ 489.8 $ 510.3
Costs and expenses.................................. (618.7) (494.8) (527.2)
(Provision) credit for income taxes................. (18.7) (6.3) 1.9
------- ------- -------
Net income (loss)................................... $ 48.5 $ (11.3) $ (15.0)
======= ======= =======
Company's equity in income (loss)................... $ 19.2 $ (1.9) $ (3.3)
======= ======= =======
</TABLE>

The Company's equity in income (loss) differs from the summary net income
(loss) due to various percentage ownerships in the entities and equity method
accounting adjustments. At December 31, 1995, KACC's investment in its
unconsolidated affiliates exceeded its equity in their net assets by
approximately $54.9. The Company is amortizing this amount over a 12-year
period, which results in an annual amortization charge of approximately $11.4.

F-9
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)

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 $284.4, $219.7, and $206.6 in the years ended December 31,
1995, 1994, and 1993, respectively. Dividends of $8.1, nil, and nil were
received from investees in the years ended December 31, 1995, 1994, and 1993,
respectively.

In 1995, a subsidiary of the Company invested $9.0 in a foreign joint
venture. This amount is included in Investments in and advances to
unconsolidated affiliates.

3. PROPERTY, PLANT, AND EQUIPMENT

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

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1994
-------- --------
<S> <C> <C>
Land and improvements........................................ $ 151.8 $ 153.5
Buildings.................................................... 198.5 196.8
Machinery and equipment...................................... 1,337.6 1,285.0
Construction in progress..................................... 59.6 45.0
-------- --------
1,747.5 1,680.3
Accumulated depreciation..................................... 637.9 547.1
-------- --------
Property, plant, and equipment--net........................ $1,109.6 $1,133.2
======== ========
</TABLE>

4. LONG-TERM DEBT

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

<TABLE>
<CAPTION>
DECEMBER 31,
-------------
2001
AND 1995 1994
1996 1997 1998 1999 2000 AFTER TOTAL TOTAL
---- ---- ---- ----- ---- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1994 Credit Agreement (9.00% at
December 31, 1995)............ $13.1 $ 13.1 $ 6.7
9 7/8% Senior Notes, net....... $223.8 223.8 223.6
Pollution Control and Solid
Waste Disposal Facilities
Obligations (6.00%-7.75%)..... $1.2 $1.3 $1.4 .2 $.2 32.6 36.9 38.1
Alpart CARIFA Loan (fixed and
variable rates)............... 60.0 60.0 60.0
Alpart Term Loan (8.95%)....... 6.3 6.2 12.5 18.7
12 3/4% Senior Subordinated
Notes......................... 400.0 400.0 400.0
Other borrowings (fixed and
variable rates)............... 1.4 1.4 7.7 .3 .2 .8 11.8 15.5
---- ---- ---- ----- --- ------ ------ ------
Total.......................... $8.9 $8.9 $9.1 $13.6 $.4 $717.2 758.1 762.6
==== ==== ==== ===== === ======
Less current portion........... 8.9 11.5
------ ------
Long-term debt............... $749.2 $751.1
====== ======
</TABLE>

F-10
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)

1994 Credit Agreement

On February 17, 1994, the Company and KACC entered into a credit agreement
with BankAmerica Business Credit, Inc. and certain other lenders (as amended,
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. 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. 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 previous
credit agreement. As of December 31, 1995, $259.3 (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 (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.
As of December 31, 1995, the financial test permitted a reduction of 1 1/2% per
annum in margins effective January 1, 1996.

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 7), 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.

Gramercy Solid Waste Disposal 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, 1995, $3.8
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.

F-11
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)

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. Substantially all of the
Series A bonds bear interest at a floating rate of 87% of the applicable LIBID
Rate (LIBOR less 1/8 of 1%). 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).

Senior Subordinated Notes

On February 1, 1993, KACC issued $400.0 of its 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.

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 (the
"Indentures") 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. Further, the
Indentures provide that KACC must offer to purchase the Senior Notes and the 12
3/4% Notes, respectively, upon the occurrence of a Change of Control (as
defined therein), and the 1994 Credit Agreement provides that the occurrence of
a Change in Control (as defined therein) shall constitute an Event of Default
thereunder.

Capitalized Interest

Interest capitalized in 1995, 1994, and 1993 was $2.8, $2.7, and $3.4,
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 restricted net
assets of KACC totaled $24.0 at December 31, 1995.

F-12
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)

5. 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,
---------------------------
1995 1994 1993
------- -------- --------
<S> <C> <C> <C>
Domestic........................................... $ (55.9) $ (168.4) $ (232.0)
Foreign............................................ 158.5 16.3 23.5
------- -------- --------
Total............................................ $ 102.6 $ (152.1) $ (208.5)
======= ======== ========
</TABLE>

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 (provision) credit 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>
1995
Current........................................ $(4.3) $(40.2) $ (.1) $(44.6)
Deferred....................................... 15.2 (4.9) (2.9) 7.4
----- ------ ----- ------
Total........................................ $10.9 $(45.1) $(3.0) $(37.2)
===== ====== ===== ======
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
===== ====== ===== ======
</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.

F-13
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)

A reconciliation between the (provision) credit 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,
--------------------------
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Amount of federal income tax (provision) credit
based on the statutory rate....................... $ (35.9) $ 53.2 $ 73.0
Percentage depletion............................... 4.2 5.6 6.4
Revision of prior years' tax estimates and other
changes in valuation allowances................... 1.5 .2 3.9
Foreign taxes, net of federal tax benefit.......... (5.4) (5.3) (2.6)
Increase in net deferred income tax assets due to
tax rate change................................... 1.8 3.4
Other.............................................. (1.6) (1.7) 2.8
-------- ------- -------
(Provision) credit for income taxes................ $ (37.2) $ 53.8 $ 86.9
======== ======= =======
</TABLE>

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,
--------------
1995 1994
------ ------
<S> <C> <C>
Deferred income tax assets:
Postretirement benefits other than pensions................... $289.9 $293.7
Loss and credit carryforwards................................. 156.1 187.6
Other liabilities............................................. 107.8 109.6
Pensions...................................................... 56.0 51.0
Foreign and state deferred income tax liabilities............. 30.8 28.1
Property, plant, and equipment................................ 22.9 23.1
Inventories................................................... 1.8
Other......................................................... 10.7 3.5
Valuation allowances.......................................... (128.5) (133.9)
------ ------
Total deferred income tax assets--net....................... 547.5 562.7
------ ------
Deferred income tax liabilities:
Property, plant, and equipment................................ (179.8) (203.2)
Investments in and advances to unconsolidated affiliates...... (66.4) (63.8)
Inventories................................................... (8.3)
Other......................................................... (9.5) (6.4)
------ ------
Total deferred income tax liabilities....................... (255.7) (281.7)
------ ------
Net deferred income tax assets.................................. $291.8 $281.0
====== ======
</TABLE>

F-14
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)

The valuation allowances listed above relate primarily to loss and credit
carryforwards and postretirement benefits other than pensions. As of December
31, 1995, approximately $97.7 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, 1995, is approximately $194.1. 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.

As of December 31, 1995 and 1994, $53.5 and $37.9, respectively, of the net
deferred income tax assets listed above are included on the Consolidated
Balance Sheets in the caption entitled Prepaid expenses and other current
assets. Certain other portions of the deferred income tax assets and
liabilities listed above are included on the Consolidated Balance Sheets in the
captions entitled 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 7, 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.

F-15
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)
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-16
<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, 1995. The utilization of certain of these tax
attributes is subject to limitations:

<TABLE>
<CAPTION>
EXPIRING
THROUGH
----------
<S> <C> <C>
Regular tax attribute carryforwards:
Net operating losses......................................... $32.9 2007
General business tax credits................................. 28.4 2008
Foreign tax credits.......................................... 89.7 2000
Alternative minimum tax credits.............................. 19.4 Indefinite
Alternative minimum tax attribute carryforwards:
Net operating losses......................................... $17.1 2002
Foreign tax credits.......................................... 83.5 2000
</TABLE>

6. 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,
----------------------
1995 1994
---------- ----------
<S> <C> <C>
Accumulated benefit obligation:
Vested employees..................................... $ 753.0 $ 663.9
Nonvested employees.................................. 28.7 41.1
---------- ----------
Accumulated benefit obligation....................... 781.7 705.0
Additional amounts related to projected salary
increases............................................. 34.2 30.0
---------- ----------
Projected benefit obligation........................... 815.9 735.0
Plan assets (principally common stocks and fixed income
obligations) at fair value............................ (592.3) (524.6)
---------- ----------
Plan assets less than projected benefit obligation..... 223.6 210.4
Unrecognized net losses................................ (54.7) (42.5)
Unrecognized net obligations........................... (.5) (.8)
Unrecognized prior-service cost........................ (28.2) (30.9)
Adjustment required to recognize minimum liability..... 49.8 42.9
---------- ----------
Accrued pension obligation included in the Consolidated
Balance Sheets (principally in Long-term liabilities). $ 190.0 $ 179.1
========== ==========
</TABLE>
- --------
(1) Includes plans with assets exceeding accumulated benefits by approximately
$.1 and $.3 in 1995 and 1994, respectively.

F-17
<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 $(4.7) and $12.5 at December 31, 1995 and 1994, 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 $2.8 and $(7.3) as of December 31,
1995 and 1994, respectively, which approximated the federal and state statutory
rates.

The components of net periodic pension cost are:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Service cost--benefits earned during the period..... $ 10.0 $ 11.2 $ 10.8
Interest cost on projected benefit obligation....... 59.8 57.3 59.2
Return on assets:
Actual gain....................................... (112.2) (.8) (70.3)
Deferred gain (loss).............................. 64.6 (53.0) 15.9
Net amortization and deferral....................... 4.2 4.1 2.3
-------- ------- -------
Net periodic pension cost........................... $ 26.4 $ 18.8 $ 17.9
======== ======= =======

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

<CAPTION>
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Discount rate....................................... 7.5% 8.5% 7.5%
Expected long-term rate of return on assets......... 9.5% 9.5% 10.0%
Rate of increase in compensation levels............. 5.0% 5.0% 5.0%
</TABLE>

Postretirement Benefits Other Than Pensions

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, which are expected
to be paid out of cash generated by operations. The Company adopted SFAS 106 to
account for postretirement benefits other than pensions as of January 1, 1993,
as discussed in Note 1.

In 1995, the Company adopted the Kaiser Aluminum Medicare Program ("KAMP").
KAMP is mandatory for all salaried retirees over 65 and for USWA retirees who
retire after December 31, 1995, when they become 65, and voluntary for other
hourly retirees of the Company's operations in the states of California,
Louisiana, and Washington. The USWA contract, ratified on February 28, 1995,
also contained changes to the retiree health benefits. These changes included
increased retirees' copayments, deductibles, and coinsurance, and restricted
Medicare Part B premium reimbursement to the 1995 level for employees retiring
after November 1, 1994. These changes will lower the Company's expenses for
retiree medical care.

F-18
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)

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

<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1995 1994
------ -------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees....................................................... $557.6 $ 566.2
Active employees eligible for postretirement benefits.......... 30.7 30.2
Active employees not eligible for postretirement benefits...... 61.1 98.7
------ -------
Accumulated postretirement benefit obligation.................. 649.4 695.1
Unrecognized net gains........................................... 20.5 55.0
Unrecognized gains related to prior-service costs................ 110.9 31.8
------ -------
Accrued postretirement benefit obligation........................ $780.8 $ 781.9
====== =======
</TABLE>

The components of net periodic postretirement benefit cost are:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Service cost......................................... $ 4.5 $ 8.2 $ 7.1
Interest cost........................................ 52.3 56.9 58.5
Amortization of prior service cost................... (8.9) (3.2)
------- ------- -------
Net periodic postretirement benefit cost............. $ 47.9 $ 61.9 $ 65.6
======= ======= =======
</TABLE>

The 1996 annual assumed rates of increase in the per capita cost of covered
benefits (i.e., health care cost trend rate) are 8.0% and 7.5% for retirees
under 65 and over 65, respectively, and are assumed to decrease gradually to
5.0% 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, 1995, by
approximately $68.7 and the aggregate of the service and interest cost
components of net periodic postretirement benefit cost for 1995 by
approximately $7.8. The weighted average discount rate used to determine the
accumulated postretirement benefit obligation at December 31, 1995 and 1994,
was 7.5% and 8.5%, respectively.

Postemployment Benefits

The Company provides certain benefits to former or inactive employees after
employment but before retirement. The Company adopted SFAS 112 to account for
postemployment benefits as of January 1, 1993, as discussed in Note 1.

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%

F-19
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)
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 544,839 shares were available to be awarded at December 31, 1995.
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.

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>
1995 1994 1993
--------- --------- -------
<S> <C> <C> <C>
Outstanding at beginning of year................. 1,119,680 664,400
Granted.......................................... 494,800 664,400
Exercised (at $7.25 and $9.75 per share)......... (155,500) (6,920)
Expired or forfeited............................. (38,095) (32,600)
--------- --------- -------
Outstanding at end of year (prices ranging from
$7.25 to $12.75 per share)...................... 926,085 1,119,680 664,400
========= ========= =======
Exercisable at end of year....................... 211,755 120,180
========= =========
</TABLE>

In 1995, the Company adopted the Kaiser Aluminum Total Compensation System,
an unfunded incentive compensation program. The program provides incentive pay
based on performance against plan over a three-year period. 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 $11.9, $6.1, and $5.3 for the
years ended December 31, 1995, 1994, and 1993, respectively.

F-20
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)

7. 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, 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)
Net income............ 60.3
Redeemable preference
stock:
Accretion............ 3.9
Stock redemption..... (8.7)
Stock repurchase..... 5.4
Conversions (1,222
preference shares
into cash)........... (.1)
Common stock issued
upon redemption and
conversion of
preferred stock...... (.2) .1 1.1
Dividends on preferred
stock................ (17.6)
Minority interest in
majority-owned
subsidiaries......... 6.0
Incentive plans
accretion............ 1.4
Addition minimum
pension liability.... (4.7)
--------- --------- --- --- ------ ------- ------
BALANCE, DECEMBER 31,
1995................... $ 29.7 $ 93.0 $.4 $.7 $530.3 $(459.9) $(13.8)
========= ========= === === ====== ======= ======
</TABLE>

F-21
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)

Redeemable Preference Stock

In March 1985, KACC entered into a three-year agreement with the USWA whereby
shares of a new series of "Cumulative (1985 Series A) Preference Stock" would
be issued 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>
1995 1994 1993
-------- --------- ---------
<S> <C> <C> <C>
Shares:
Beginning of year............................. 912,167 1,081,548 1,163,221
Redeemed...................................... (174,804) (169,381) (81,673)
-------- --------- ---------
End of year................................... 737,363 912,167 1,081,548
======== ========= =========
</TABLE>

No additional Series A or B Stock will be issued. 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 1994 and 1995, KACC contributed $4.3 for each of the years 1993 and 1994,
and will contribute $4.3 in March 1996 for 1995.

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, a profitability test was satisfied for 1995;
therefore, 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 1996. 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.

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.

F-22
<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 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, 1995, 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,
-------------
1995 1994
------ ------
<S> <C> <C>
4 1/8%............................................................ 3,237 3,657
4 3/4% (1957 Series).............................................. 2,342 2,605
4 3/4% (1959 Series).............................................. 13,162 13,534
4 3/4% (1966 Series).............................................. 3,473 3,640
</TABLE>

Preferred Stock

Series A Convertible--In 1993, Kaiser issued 19,382,950 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"). On September 19, 1995, the Company redeemed all 1,938,295
Series A Shares, which resulted in the simultaneous redemption of all
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.

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.

F-23
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)
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 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 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, at the election of the Company, 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 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, 1995, 28,000,000 shares of the Company's common stock owned
by MAXXAM were pledged as security for debt of a wholly owned subsidiary of
MAXXAM, consisting of $100.0 aggregate principal amount of 11 1/4% Senior
Secured Notes due 2003 and $125.7 aggregate principal amount of 12 1/4% Senior
Secured Discount Notes due 2003.

Proposed Recapitalization

On February 5, 1996, the Company announced that it filed with the SEC a
preliminary proxy statement relating to a proposed recapitalization and a
special meeting of stockholders to consider and vote upon the proposal. The
proposed recapitalization would: (i) provide for two classes of common stock:
Class A Common Shares, $.01 par value, with one vote per share and a new
lesser-voting class designated as Common Stock, $.01 par value, with 1/10 vote
per share; (ii) redesignate as Class A Common Shares the 100 million currently
authorized shares of existing common stock and authorize an additional 250
million shares to be designated as Common Stock; and (iii) change each issued
share of the Company's existing common stock, par value $.01 per share, into
(a) .33 of a Class A Common Share and (b) .67 of a share of Common Stock. The
Company would pay cash in lieu of fractional shares. The Company anticipates
that both the Class A

F-24
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)
Common Shares and the Common Stock will be approved for trading on the New York
Stock Exchange. Upon the effective date of the recapitalization, approximately
23,640,000 Class A Common Shares and 47,998,000 shares of Common Stock would be
issued and outstanding. The proportionate voting power of the holders of the
PRIDES will increase immediately after the effectiveness of the
recapitalization until such shares are redeemed or converted, which will occur
on or before December 31, 1997. As of January 31, 1996, holders of the existing
common stock and the PRIDES had 91.2% and 8.8%, respectively, of the total
voting power of all stockholders. Immediately after the recapitalization, the
voting power of such holders of the PRIDES will increase to 19.6% in the
aggregate, with a corresponding reduction in the voting power of such holders
of the existing common stock. At such time as the PRIDES are redeemed or
converted, the relative voting power of such holders of the PRIDES will
decrease and the relative voting power for both such holders of the PRIDES and
the existing common stock will be approximately the same as it would have been
had the recapitalization not occurred.

8. COMMITMENTS AND CONTINGENCIES

Commitments

KACC has financial commitments, including purchase agreements, tolling
arrangements, forward foreign exchange and forward sales contracts (see Note
9), 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, 1995, is
$88.9, of which $26.7 is due in 1997 and the rest is due in 2002. The KACC
share of payments, including operating costs and certain other expenses under
the agreement, was $77.5, $85.6, and $86.7 for the years ended December 31,
1995, 1994, and 1993, respectively. KACC also has agreements to supply alumina
to and to purchase aluminum from Anglesey.

Minimum rental commitments under operating leases at December 31, 1995, are
as follows: years ending December 31, 1996-$22.7; 1997-$21.6; 1998-$24.6; 1999-
$29.7; 2000-$27.3; thereafter-$187.0. The future minimum rentals receivable
under noncancelable subleases was $67.0 at December 31, 1995.

Rental expenses were $29.0, $26.8, and $29.0 for the years ended December 31,
1995, 1994, and 1993, respectively.

Environmental Contingencies

The Company and KACC are subject to a number of environmental laws, 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.

F-25
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Balance at beginning of period............................. $40.1 $40.9 $46.4
Additional amounts......................................... 3.3 2.8 1.7
Less expenditures.......................................... (4.5) (3.6) (7.2)
----- ----- -----
Balance at end of period................................... $38.9 $40.1 $40.9
===== ===== =====
</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 $9.0 for the years 1996 through 2000 and
an aggregate of approximately $10.0 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 an estimated $23.0 and that
the factors upon which a substantial portion of this estimate is based are
expected to be resolved over the next twelve months. 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, results of operations, or liquidity.

Asbestos Contingencies

The following table presents the changes in number of such claims pending for
the years ended December 31, 1995, 1994, and 1993.

<TABLE>
<CAPTION>
1995 1994 1993
------ ------- ------
<S> <C> <C> <C>
Number of claims at beginning of period................ 25,200 23,400 13,500
Claims received........................................ 41,700 14,300 11,400
Claims settled or dismissed............................ (7,200) (12,500) (1,500)
------ ------- ------
Number of claims at end of period...................... 59,700 25,200 23,400
====== ======= ======
</TABLE>

F-26
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)

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 November
30, 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, and the
advice of Wharton, Levin, Ehrmantraut, Klein & Nash, P.A. with respect to the
current state of the law related to asbestos claims. Accordingly, an asbestos-
related cost accrual of $160.1, before consideration of insurance recoveries,
is included primarily in Long-term liabilities at December 31, 1995. The
Company estimates that annual future cash payments in connection with such
litigation will be approximately $13.0 to $20.0 for each of the years 1996
through 2000, and an aggregate of approximately $78.0 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 timing and amount of
ultimate recoveries from these insurance carriers are dependent upon the
resolution of these disputes. The Company believes, based on prior insurance-
related recoveries in respect of asbestos-related claims, existing insurance
policies, and the advice of Thelen, Marrin, Johnson & Bridges with respect to
applicable insurance coverage law relating to the terms and conditions of those
policies, that substantial recoveries from the insurance carriers are probable.
Accordingly, an estimated aggregate insurance recovery of $137.9, determined on
the same basis as the asbestos-related cost accrual, is recorded primarily in
Other assets at December 31, 1995.

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, results of operations, or liquidity.

F-27
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)

9. DERIVATIVE FINANCIAL INSTRUMENTS AND RELATED HEDGING PROGRAMS

KACC enters into a number of financial instruments 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 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, 1995, KACC had net forward foreign exchange contracts totaling
approximately $102.8 for the purchase of 142.4 Australian dollars through April
30, 1997.

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 1996 anticipated
production, as of December 31, 1995, KACC had sold forward 15,750 metric tons
of primary aluminum at fixed prices.

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, 1995 KACC had
purchased 53,300 metric tons of primary aluminum under forward purchase
contracts at fixed prices that expire at various times through December 1996.

At December 31, 1995, the net unrealized gain on KACC's position in aluminum
forward sales and option contracts, based on an average price of $1,721 per
metric ton ($.78 per pound) of aluminum, and forward foreign exchange contracts
was $4.1.

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 creditworthiness.
When appropriate, KACC arranges master netting agreements.

10. SEGMENT AND GEOGRAPHICAL AREA INFORMATION

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

F-28
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)
The aggregate foreign currency gain included in determining net income was
$5.3, $.8, and $4.9 for the years ended December 31, 1995, 1994, and 1993,
respectively.

Sales of more than 10% of total revenue to a single customer were nil in 1995
and were $58.2 and $40.7 of bauxite and alumina and $147.7 and $145.7 of
aluminum processing for the years ended December 31, 1994, and 1993,
respectively.

Export sales were less than 10% of total revenue during the years ended
December 31, 1995, 1994, and 1993, 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. 1995 $1,589.5 $191.7 $239.4 $217.2 $2,237.8
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
Sales and transfers
among geographic areas. 1995 $ 79.6 $191.5 $(271.1)
1994 98.7 139.4 (238.1)
1993 88.2 79.6 (167.8)
Equity in income
(losses) of
unconsolidated
affiliates............. 1995 $ (.2) $ 19.4 $ 19.2
1994 .2 (2.1) (1.9)
1993 (3.3) (3.3)
Operating income (loss). 1995 $ 32.0 $ 9.8 $ 83.5 $ 85.3 $ 210.6
1994 (128.8) 9.9 18.3 44.4 (56.2)
1993 (145.9) (11.8) 21.9 12.4 (123.4)
Investment in and
advances to
unconsolidated
affiliates............. 1995 $ 1.2 $ 27.1 $149.9 $ 178.2
1994 1.2 28.8 139.7 169.7
Identifiable assets..... 1995 $2,017.9 $381.9 $196.5 $216.9 $2,813.2
1994 1,933.8 364.8 200.0 199.5 2,698.1
</TABLE>

F-29
<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, 1995 and 1994, and
for the years ended December 31, 1995, 1994, and 1993, 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. 1995 $514.2 $1,723.6 $2,237.8
1994 432.5 1,349.0 1,781.5
1993 423.4 1,295.7 1,719.1
Intersegment sales...... 1995 $159.7 $ 159.7
1994 146.8 146.8
1993 129.4 129.4
Equity in income
(losses) of
unconsolidated
affiliates............. 1995 $ 3.6 $ 15.8 $ (.2) $ 19.2
1994 (4.7) 2.6 .2 (1.9)
1993 (2.5) (.8) (3.3)
Operating income (loss). 1995 $ 54.0 $ 238.9 $(82.3) $ 210.6
1994 19.8 (8.4) (67.6) (56.2)
1993 (4.5) (46.3) (72.6) (123.4)
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............ 1995 $ 31.1 $ 60.4 $ 2.8 $ 94.3
1994 33.5 59.1 2.8 95.4
1993 35.3 59.9 1.9 97.1
Capital expenditures.... 1995 $ 27.3 $ 44.0 $ 8.1 $ 79.4
1994 28.9 39.9 1.2 70.0
1993 35.3 31.2 1.2 67.7
Investment in and
advances to
unconsolidated
affiliates............. 1995 $129.9 $ 47.1 $ 1.2 $ 178.2
1994 136.6 31.9 1.2 169.7
Identifiable assets..... 1995 $746.0 $1,341.2 $726.0 $2,813.2
1994 749.6 1,242.3 706.2 2,698.1
</TABLE>

F-30
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

SCHEDULE I

CONDENSED BALANCE SHEETS--PARENT COMPANY
(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
ASSETS 1995 1994
------ -------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................ $ .2 $ 5.7
Note receivable from KACC................................ 10.7 21.2
-------- --------
Total current assets................................... 10.9 26.9
Note receivable from KACC.................................. 8.6 23.5
Investments--KACC.......................................... 1,521.3 1,361.0
-------- --------
Total.................................................. $1,540.8 $1,411.4
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities........................................ $ 3.3 $ 6.4
-------- --------
Intercompany note payable to KACC, including accrued
interest.................................................. 1,479.8 1,387.7
-------- --------
Stockholders' equity:
Preferred stock, par value $.05, authorized 20,000,000
shares; Series A Convertible, stated value $.10, issued
and outstanding, nil and 1,938,295 in 1995 and 1994..... .2
PRIDES Convertible, par value $.05, issued and
outstanding, 8,673,850 and 8,855,550 in 1995 and 1994... .4 .4
Common stock, par value $.01, authorized 100,000,000
shares; issued and outstanding 71,638,514 and 58,205,083
in 1995 and 1994........................................ .7 .6
Additional capital....................................... 530.3 527.8
Accumulated deficit...................................... (459.9) (502.6)
Additional minimum pension liability..................... (13.8) (9.1)
-------- --------
Total stockholders' equity............................. 57.7 17.3
-------- --------
Total.................................................. $1,540.8 $1,411.4
======== ========
</TABLE>

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

F-31
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

SCHEDULE I

CONDENSED STATEMENTS OF INCOME--PARENT COMPANY
(IN MILLIONS OF DOLLARS)

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1994 1993
------ ------- -------
<S> <C> <C> <C>
Equity in income (loss) of KACC...................... $152.8 $ (20.4) $(537.2)
Administrative and general expenses.................. (.4) (.3) (.4)
Other income (expense):
Interest expense................................... (92.1) (86.1) (115.8)
Other income....................................... 1.2
------ ------- -------
Net income (loss).................................... $60.3 $(106.8) $(652.2)
====== ======= =======
</TABLE>

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

F-32
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

SCHEDULE I

CONDENSED STATEMENTS OF CASH FLOWS--PARENT COMPANY
(IN MILLIONS OF DOLLARS)

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1994 1993
------ ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................... $ 60.3 $(106.8) $(652.2)
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:
Equity in (income) loss of KACC................... (152.8) 20.4 537.2
Accrued interest on intercompany note payable to
KACC............................................. 92.1 86.1 115.8
Increase (decrease) in other liabilities.......... .2 .3 (1.0)
------ ------- -------
Net cash used for operating activities.......... (.2) (.2)
------ ------- -------
Cash flows from investing activities:
Investment in KACC.................................. (1.2) (66.9) (81.5)
------ ------- -------
Net cash used for investing activities.......... (1.2) (66.9) (81.5)
------ ------- -------
Cash flows from financing activities:
Dividends paid...................................... (20.8) (14.8) (6.3)
Capital stock issued................................ 1.2 100.1 119.3
Intercompany note issued by KACC--net............... 15.5 (13.2) (31.5)
------ ------- -------
Net cash (used for) provided by financing
activities..................................... (4.1) 72.1 81.5
------ ------- -------
Net (decrease) increase in cash and cash equivalents
during the year..................................... (5.5) 5.2 (.2)
Cash and cash equivalents at beginning of year....... 5.7 .5 .7
------ ------- -------
Cash and cash equivalents at end of year............. $ .2 $ 5.7 $ .5
====== ======= =======
Supplemental disclosure of non-cash investing
activities:
Non-cash investment in KACC......................... $ 9.9 $ 15.0
</TABLE>

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

F-33
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

SCHEDULE I

NOTES TO CONDENSED FINANCIAL STATEMENTS--PARENT COMPANY

1. BASIS OF PRESENTATION

The accompanying parent company financial statements of Kaiser Aluminum
Corporation ("Kaiser") should be read in conjunction with the 1995 consolidated
financial statements of Kaiser and Subsidiary Companies.

Kaiser is a holding company and conducts its operations through its wholly
owned subsidiary, Kaiser Aluminum & Chemical Corporation ("KACC"), which is
reported herein using the equity method of accounting.

2. INTERCOMPANY NOTE PAYABLE

The Intercompany Note to KACC was amended in July 1993 to decrease the fixed
interest rate from 13% to 6 5/8%. No interest or principal payments are due
until December 31, 2000, after which interest and principal will be payable
over a 15-year term pursuant to a predetermined schedule.

3. RESTRICTED NET ASSETS

The investment in KACC is substantially unavailable to Kaiser pursuant to the
terms of certain debt instruments. The obligations of KACC in respect of the
credit facilities under the 1994 Credit Agreement are guaranteed by Kaiser and
by all significant subsidiaries of KACC. See Note 4 of the Notes to
Consolidated Financial Statements.

F-34
<PAGE>

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES

QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
(IN MILLIONS OF DOLLARS, EXCEPT SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
1995
Net sales..................... $513.0 $583.4 $550.3 $591.1
Operating income.............. 32.6 63.6 53.2 61.2
Net income.................... 3.5 23.3 12.5 21.0
Earnings (loss) per common and
common equivalent share:
Primary..................... (.03)(1) .31 .13 .26
Fully diluted............... .14
Common stock market price:
High........................ 11 7/8 14 21 15 3/4
Low......................... 10 1/8 10 1/2 13 7/8 10 3/4
1994
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(2)
Extraordinary loss--net....... 5.4
Net loss...................... 34.7 23.6 20.8 27.7(2)
Per common and common equiva-
lent share:
Loss before extraordinary
loss....................... .58 .50 .45 .57
Extraordinary loss--net..... .09
Net loss.................... .67 .50 .45 .57
Common stock market price:
High........................ 12 1/2 10 1/2 11 5/8 12 3/8
Low......................... 9 8 1/4 9 1/2 9 3/4
</TABLE>
- --------
(1) After deduction of $5.3 dividends on preferred stock from net income.
(2) Includes pre-tax charges of approximately $10.3, principally related to
establishing additional litigation and environmental reserves in the fourth
quarter of 1994.

F-35
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The expenses of the Company attributable to this offering will be reimbursed
by MAXXAM Inc. and, exclusive of underwriting discounts and commissions, are as
follows:

<TABLE>
<S> <C>
SEC registration fee.............................................. $ 44,182
*Printing and engraving............................................ 150,000
*Legal fees and expenses........................................... 50,000
*Accounting fees and expenses...................................... --
*Blue Sky fees and expenses (including counsel fees)............... 15,000
*Miscellaneous..................................................... 40,818
--------
Total............................................................ $300,000
========
</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).
5.1 Opinion of Anthony R. Pierno, Vice President and General Counsel of
the Company, with respect to the Common Stock being registered
hereunder.
5.2 Opinion of Kramer, Levin, Naftalis, Nessen, Kamin & Frankel with
respect to the Exchangeable Securities (as such term is defined on the
cover page to this Registration Statement).
*11 Computation of Earnings (Loss) per Common and Common Equivalent Share.
*12 Computation of Consolidated Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Wharton Levin Ehrmantraut Klein & Nash, P.A.
23.3 Consent of Thelen, Marrin, Johnson & Bridges.
23.4 Consent of Anthony R. Pierno, Vice President and General Counsel of
the Company (contained in Exhibit 5.1).
23.5 Consent of Kramer, Levin, Naftalis, Nessen, Kamin & Frankel (contained
in Exhibit 5.2).
*25 Power of Attorney (on signature page).
</TABLE>
- --------
*Previously filed.

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
AMENDMENT TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THERETO DULY AUTHORIZED, IN THE CITY OF HOUSTON, STATE OF TEXAS,
ON APRIL 23, 1996.

Kaiser Aluminum Corporation

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

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT TO THE 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>
George T. Haymaker, Jr. Chairman of the Board and April 23, 1996
____________________________________ Chief Executive Officer
George T. Haymaker, Jr. (Principal Executive
Officer)

John T. La Duc Vice President and Chief April 23, 1996
____________________________________ Financial Officer (Principal
John T. La Duc Financial Officer)

Arthur S. Donaldson Controller (Principal April 23, 1996
____________________________________ Accounting Officer)
Arthur S. Donaldson

Robert J. Cruikshank Director April 23, 1996
____________________________________
Robert J. Cruikshank

Ezra G. Levin Director April 23, 1996
____________________________________
Ezra G. Levin

Robert J. Petris Director April 23, 1996
____________________________________
Robert J. Petris

Charles E. Hurwitz Director April 23, 1996
____________________________________
Charles E. Hurwitz

Robert Marcus Director April 23, 1996
____________________________________
Robert Marcus
</TABLE>

II-5
<PAGE>

INDEX OF EXHIBITS

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGES
------- ----------- ------------
<C> <S> <C>
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).
5.1 Opinion of Anthony R. Pierno, Vice President and
General Counsel of the Company, with respect to the
Common Stock being registered hereunder.
5.2 Opinion of Kramer, Levin, Naftalis, Nessen, Kamin &
Frankel with respect to the Exchangeable Securities (as
such term is defined on the cover page to this
Registration Statement).
*11 Computation of Earnings (Loss) per Common and Common
Equivalent Share.
*12 Computation of Consolidated Ratio of Earnings to
Combined Fixed Charges and Preferred Stock Dividends.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Wharton Levin Ehrmantraut Klein & Nash, P.A.
23.3 Consent of Thelen, Marrin, Johnson & Bridges
23.4 Consent of Anthony R. Pierno, Vice President and
General Counsel of the Company (contained in Exhibit
5.1).
23.5 Consent of Kramer, Levin, Naftalis, Nessen, Kamin &
Frankel (contained in Exhibit 5.2).
*25 Power of Attorney (on signature page).
</TABLE>
- --------
*Previously filed.

<PAGE>

EXHIBIT 5.1

April 23, 1996

Kaiser Aluminum Corporation

5847 San Felipe, Suite 2600

Houston, Texas 77057

Ladies and Gentlemen:

I and members of my staff have acted as counsel for Kaiser Aluminum
Corporation, a Delaware corporation (the "Company"), in connection with the
Registration Statement on Form S-3 (Reg. No. 333-71) of the Company, as amended
by Amendment Nos. 1 and 2 thereto (the "Registration Statement"), filed with
the U.S. Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Act"), relating to the registration
of, among other things, 10,000,000 shares of the Company's Common Stock, par
value $.01 per share (the "Shares") to be sold from time to time, by MAXXAM
Inc. (the "Selling Stockholder") directly to purchasers or which may be
converted, exchanged or redeemed for debt securities of the Selling
Stockholder.

In connection with the foregoing, I or members of my staff have examined,
among other things (i) copies of the Registration Statement and exhibits
thereto, and (ii) the originals, photocopies or conformed copies of all such
records of the Company and all such agreements and certificates of public
officials, certificates of officers and representatives of the Company, and
such other documents as I or members of my staff have deemed relevant and
necessary as a basis for the opinion hereinafter expressed. In such
examination, I have assumed the genuineness of all signatures on original
documents, the authenticity of all documents submitted to me as originals, the
conformity to the originals of all copies submitted to me as conformed or
photocopies, and the authenticity of the originals of such latter documents. As
to various questions of fact material to this opinion, I have relied, without
independent investigation or verification, upon representations, statements or
certificates of public officials and officers and representatives of the
Company.

Based upon and subject to the foregoing, and to the qualifications
hereinafter specified, I am of the opinion that the Shares to be sold by the
Selling Stockholder have been duly authorized and are validly issued, fully
paid and nonassessable.

I call your attention to the fact that I am admitted to practice only in the
states of California and Texas and the District of Columbia, and, in rendering
the foregoing opinion, I do not express any opinion as to any laws other than
the General Corporation Law of the state of Delaware, the laws of the states of
California and Texas and the Federal laws of the United States of America. The
opinion expressed herein is based upon such laws as are in effect on the date
hereof, and I assume no obligation to revise or supplement this opinion should
any such law be changed by legislative action, judicial decision or otherwise.

I hereby consent to the fling of this opinion as an exhibit to the
Registration Statement and to the use of my name under the heading "Legal
Matters" in the prospectus that forms a part thereof. In giving this consent, I
do not thereby admit that I am within the category of persons whose consent is
required under Section 7 of the Act or the rules and regulations of the
Commission thereunder.

I am delivering this opinion to the Company, and no person other than the
Company may rely upon it.

Very truly yours,

Anthony R. Pierno

Vice President and General Counsel

<PAGE>

[LETTERHEAD APPEARS HERE]

Exhibit 5.2

April 23, 1996

Kaiser Aluminum Corporation
5847 San Felipe
Suite 2600
Houston, Texas 77057

Ladies and Gentlemen:

We have acted as counsel to Kaiser Aluminum Corporation, a Delaware
corporation (the "Company"), in connection with a registration statement on Form
S-3 (Reg. No. 333-71, the "Registration Statement") that has been filed by the
Company with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Securities Act"), relating to shares of
common stock, par value $.01 per share, of the Company (the "Common Stock").

The shares of Common Stock registered under the Registration Statement may be
deliverable, among other things, upon the conversion, exchange or redemption of
debt securities (the "Exchangeable Securities") of MAXXAM Inc. ("MAXXAM") which
are convertible, exchangeable or redeemable for Common Stock. The Registration
Statement also covers such other equity securities of the Company (the
"Securities") that may become deliverable in exchange for, or upon redemption or
conversion of, Exchangeable Securities by reason of stock splits, combinations,
stock dividends, reclassifications, recapitalizations or other actions of the
Company that modify its capital structure or by reason of any exchange by MAXXAM
of lower voting shares for higher voting shares of the Company as may be
permitted by the

<PAGE>

KRAMER, LEVIN, NAFTALIS, NESSEN, KAMIN & FRANKEL

Kaiser Aluminum Corporation
April 23, 1996
Page 2

terms applicable to any Exchangeable Securities, as well as any such exchange of
lower voting shares for higher voting shares.

In connection with this opinion, we have examined and relied upon originals,
photocopies or conformed copies of all such records of the Company and its
subsidiaries, all such agreements and certificates of public officials, and such
other documents as we have deemed relevant and necessary as a basis for the
opinion hereinafter expressed. In such examination, we have assumed the
genuineness of all signatures on original documents and the conformity to the
originals of all copies submitted to us as conformed or photocopies, and the
authenticity of the originals of such latter documents. As to various questions
of fact material to our opinion, we have relied, without independent
investigation or verification, upon statements, representations and certificates
of officers and other representatives of the Company its subsidiaries and
certificates of public officials.

Based upon the foregoing, and assuming that the Securities, when and as issued
and delivered, (x) do not violate any law applicable to the Company or result in
a default under or breach of any agreement or instrument binding upon the
Company, and (y) comply with all requirements and restrictions, if any,
applicable to the Company, whether imposed by any court or governmental or
regulatory body having jurisdiction over the Company, we are of the opinion
that, upon (a) the Board of Directors of the Company and the stockholders of the
Company taking all necessary corporate and other actions required under each of
the Delaware General Corporation Law (the "GCL"), the Company's Certificate of
Incorporation and the Company's Bylaws, in connection with the matters referred
to in the second sentence of the second paragraph of this opinion (the
"Matters"), (b) the filing of all required documents and instruments relating to
the Matters with all appropriate governmental and other authorities, and (c) the
issuance of the Securities as contemplated in the second sentence of the second
paragraph of this opinion, the Securities will be validly issued under the GCL,
fully paid and nonassessable.

The opinion set forth herein is subject to the following qualifications and
limitations:

(a) the effect of bankruptcy, insolvency, reorganization, arrangement,
moratorium, fraudulent conveyance or transfer or other laws or court decisions,
now or hereafter in

<PAGE>

KRAMER, LEVIN, NAFTALIS, NESSEN, KAMIN & FRANKEL

Kaiser Aluminum Corporation
April 23, 1996
Page 3

effect, relating to or affecting the rights and remedies of creditors generally.

(b) The effect of general principles of equity including, without limitation,
concepts of materiality, reasonableness, good faith and fair dealing (regardless
of whether considered in a proceeding in equity or at law).

(c) The remedy of specific performance and injunctive and other forms of
equitable relief are subject to equitable defenses and to the discretion of the
court before which any proceeding therefor may be brought.

We call your attention to the fact that we are admitted to practice law only
in the State of New York and, in rendering the foregoing opinion, we do not
express an opinion concerning any laws other than the laws of the State of New
York, the GCL and the Federal laws of the United States of America.

Ezra G. Levin, a director of the Company, is a partner of our firm.

We hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to our firm under the heading "Legal Matters" in
the prospectus that forms a part thereof. In giving this consent, we do not
thereby admit that we are within the category of persons whose consent is
required under Section 7 of the Securities Act or the rules and regulations of
the Commission thererunder.

Very truly yours,

KRAMER, LEVIN, NAFTALIS, NESSEN,
KAMIN & FRANKEL

<PAGE>

EXHIBIT 23.1

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

April 22, 1996

<PAGE>

EXHIBIT 23.2

We hereby consent to (i) any references to our firm, or (ii) any references
to advice rendered by our firm and contained in Amendment No. 2 to the Form S-3
Registration Statement of Kaiser Aluminum Corporation (Registration No. 333-
71).

WHARTON LEVIN EHRMANTRAUT
April 22, 1996 KLEIN & NASH, P.A.

<PAGE>

EXHIBIT 23.3

With respect to the Registration Statement on Form S-3 (No. 333-71), as
amended, filed by Kaiser Aluminum Corporation, a Delaware corporation (the
"Registration Statement"), we hereby consent to the use of our name in the
prospectus included in the Registration Statement under the headings (i) Risk
Factors-- Environmental Matters and Litigation; (ii) Management's Discussion
and Analysis of Financial Condition and Results of Operation--Liquidity and
Capital Resources--Asbestos Contingencies; and (iii) Note 8 of the Notes to
Consolidated Financial Statements.

THELEN, MARRIN, JOHNSON & BRIDGES
April 22, 1996