KAISER ALUMINUM & CHEMICAL 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 & Chemical Corporation (the "Company") and its
majority owned subsidiaries.  The Company is a wholly owned subsidiary of
Kaiser Aluminum Corporation ("Kaiser") which is a
subsidiary of MAXXAM Inc. ("MAXXAM").  The Company 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.  The Company'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 12).

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 amounts 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.

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,
                                                                                     
                                                       ------------------------------
                                                                 1997            1996
-------------------------------------------------------------------------------------
<S>                                                    <C>             <C>
Finished fabricated products                           $        103.9  $        113.5
Primary aluminum and work in process                            226.6           200.3
Bauxite and alumina                                             108.4           110.2
Operating supplies and repair and maintenance parts             129.4           138.2
                                                                                     
                                                       --------------  --------------
                                                       $        568.3  $        562.2
                                                                                     
                                                       ==============  ==============

</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 of land improvements, buildings, and
machinery and equipment are 8 to 25 years, 15 to 45 years, and 10 to 22
years, respectively.

STOCK-BASED COMPENSATION
The Company applies the intrinsic value method to account for a Kaiser
stock-based compensation plan whereby compensation cost is recognized only
to the extent that the quoted market price of the Kaiser stock at the
measurement date exceeds the amount Company employees must pay to acquire
the stock.  No compensation cost has been recognized for this plan as the
Kaiser stock options granted in 1997 were at the market price.  No Kaiser
stock options were granted in 1996 or 1995.  (See Note 7).

OTHER INCOME (EXPENSE)
Other expense in 1997, 1996, and 1995 includes $8.8, $3.1, and $17.8 of
pre-tax charges related principally to establishing additional: (i)
litigation reserves for asbestos claims, net of estimated aggregate
insurance recoveries, 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.

DEFERRED FINANCING COSTS
Costs incurred to obtain debt financing are deferred and amortized over the
estimated term of the related borrowing.  Such amortization is included in
interest expense.

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

DERIVATIVE FINANCIAL INSTRUMENTS
Hedging transactions using derivative financial instruments are primarily
designed to mitigate the Company's exposure to changes in prices for
certain of the products which the Company sells and consumes and, to a
lesser extent, to mitigate the Company's exposure to changes in foreign
currency exchange rates.  The Company does not utilize derivative financial
instruments for trading or other speculative purposes.  The Company's
derivative activities are initiated within guidelines established by
management and approved by the Company's and Kaiser's boards of directors. 
Hedging transactions are executed centrally on behalf of all of the
Company's business segments to minimize transaction costs, monitor
consolidated net exposures and allow for increased responsiveness to
changes in market factors.

Most of the Company's hedging activities involve the use of option
contracts (which establish a maximum and/or minimum amount to be paid or
received) and forward sales contracts (which effectively fix or lock-in the
amount the Company will pay or receive).  Option contracts typically
require the payment of an up-front premium in return for the right to
receive the amount (if any) by which the price at the settlement date
exceeds the strike price.  Any interim fluctuations in prices prior to the
settlement date are deferred until the settlement date of the underlying
hedged transaction, at which point they are reflected in net sales or cost
of sales (as applicable) together with the related premium cost.  Forward
sales contracts do not require an up-front payment and are settled by the
receipt or payment of the amount by which the price at the settlement date
varies from the contract price.  No accounting recognition is accorded to
interim fluctuations in prices of forward sales contracts.

The Company has established margin accounts and credit limits with certain
counterparties related to open forward sales and option contracts.  When
unrealized gains or losses are in excess of such credit limits, the Company
is entitled to receive advances from the counterparties on open positions
or is required to make margin deposits to counterparties, as the case may
be.  At December 31, 1997, the Company had neither received nor made any
margin deposits.  At December 31, 1996, the Company had received $13.0 of
margin advances from counterparties.  Management considers credit risk
related to possible failure of the counterparties to perform their
obligations pursuant to the derivative contracts to be minimal.

Deferred gains or losses as of December 31, 1997, are included in Prepaid
expenses and other current assets and Other accrued liabilities.  (See Note
11).

FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company estimates the fair value of its outstanding indebtedness to be
$1,020.0 and $1,007.0 at December 31, 1997, and 1996, respectively, based
on quoted market prices for the Company's 9-7/8% Senior Notes due 2002 (the
"9-7/8% Notes"), 12-3/4% Senior Subordinated Notes due 2003 (the "12-3/4%
Notes"), and 10-7/8% Senior Notes due 2006 (the "10-7/8% Notes"), and the
discounted future cash flows for all other indebtedness, using the current
rate for debt of similar maturities and terms.  The Company believes that
the carrying amount of other financial instruments is a reasonable estimate
of their fair value, unless otherwise noted.

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, 1997, and 1996, the Company's net receivables from
these affiliates were not material.

The summary combined financial information for the year ended December 31,
1997, also contains the balances and results of AKW L.P. (50% owned), an
aluminum wheels joint venture formed with a third party during May 1997. 
(See Note 4).

SUMMARY OF COMBINED FINANCIAL POSITION

<TABLE>
<CAPTION>
                                                                     December 31,
                                                                                          
                                                            ------------------------------
                                                                      1997            1996
------------------------------------------------------------------------------------------
<S>                                                         <C>             <C>
Current assets                                              $        393.0  $        450.3
Long-term assets (primarily property, plant, and equipment,
     net)                                                            395.0           364.7
                                                            --------------  --------------
     Total assets                                           $        788.0  $        815.0
                                                            ==============  ==============


Current liabilities                                         $        117.1  $        116.9
Long-term liabilities (primarily long-term debt)                     400.8           386.7
Stockholders' equity                                                 270.1           311.4
                                                            --------------  --------------
     Total liabilities and stockholders' equity             $        788.0  $        815.0
                                                            ==============  ==============


</TABLE>

SUMMARY OF COMBINED OPERATIONS

<TABLE>
<CAPTION>
                                                              Year Ended December 31,
                                                                                                
                                                  ----------------------------------------------
                                                            1997            1996            1995
------------------------------------------------------------------------------------------------
<S>                                               <C>             <C>             <C>
Net sales                                         $       644.1   $       660.5   $       685.9 
Costs and expenses                                       (637.8)         (631.5)         (618.7)
Provision for income taxes                                 (8.2)           (8.7)          (18.7)
                                                                                                
                                                  --------------  --------------  --------------

Net income (loss)                                 $        (1.9)  $        20.3   $        48.5 
                                                                                                
                                                  ==============  ==============  ==============
Company's equity in income (loss)                 $         2.9   $         8.8   $        19.2 
                                                                                                
                                                  ==============  ==============  ==============
Dividends received                                $        10.7   $        11.8   $        -
                                                  ==============  ==============  ==============

</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, 1997, the Company's
investment in its unconsolidated affiliates exceeded its equity in their
net assets by approximately $28.8 which amount will be fully amortized over
the next three years.

The Company and its affiliates have interrelated operations.  The Company
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 $245.2, $281.6, and $284.4 in the
years ended December 31, 1997, 1996, and 1995, respectively.

3.   PROPERTY, PLANT, AND EQUIPMENT

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

<TABLE>
<CAPTION>
                                                                December 31,
                                                                                     
                                                       ------------------------------
                                                                 1997            1996
-------------------------------------------------------------------------------------
<S>                                                    <C>             <C>
Land and improvements                                  $       163.9   $       157.5 
Buildings                                                      228.3           216.0 
Machinery and equipment                                      1,529.1         1,441.1 

Construction in progress                                        51.2            84.7 
                                                       --------------  --------------
                                                             1,972.5         1,899.3 
Accumulated depreciation                                      (800.7)         (730.6)
                                                       --------------  --------------
     Property, plant, and equipment, net               $     1,171.8   $     1,168.7 
                                                       ==============  ==============

</TABLE>

During June 1997, Kaiser Bellwood Corporation, a newly formed, wholly owned
subsidiary of the Company, completed the acquisition of Reynolds Metals
Company's Richmond, Virginia, extrusion plant and its existing inventories
for a total purchase price of $41.6, consisting of cash payments of $38.4
and the assumption of approximately $3.2 of employee related and other
liabilities.  Upon completion of the transaction, Kaiser Bellwood
Corporation became a subsidiary guarantor under the indentures in respect
of the 9-7/8% Notes, 10-7/8% Notes, and the 12-3/4% Notes.  (See Note 5).

4.   RESTRUCTURING OF OPERATIONS

The Company has previously disclosed that it set a goal of achieving
significant cost reductions and other profit improvements, measured against
1996 results, with the full effect planned to be realized in 1998 and
beyond.  The initiative is based on the Company's conclusion that the level
of performance of its existing facilities and businesses would not achieve
the level of profits the Company considers satisfactory based upon historic
long-term average prices for primary aluminum and alumina.  During the
second quarter of 1997, the Company recorded a $19.7 restructuring charge
to reflect actions taken and plans initiated to achieve the reduced
production costs, decreased corporate selling, general and administrative
expenses, and enhanced product mix intended to achieve this goal.  The
significant components of the restructuring charge are enumerated below.

ERIE PLANT DISPOSITION
During the second quarter of 1997, the Company formed a joint venture with
a third party related to the assets and liabilities associated with the
wheel manufacturing operations at its Erie, Pennsylvania, fabrication
plant.  Management subsequently decided to close the remainder of the Erie
plant in order to consolidate its aluminum forgings operations at two other
facilities for increased efficiency.  As a result of the joint venture
formation and plant closure, the Company recognized a net pre-tax loss of
approximately $1.4.

OTHER ASSET DISPOSITIONS
As a part of the Company's profit enhancement and cost reduction
initiative, management made decisions regarding product rationalization and
geographical optimization, which led management to decide to dispose of
certain assets which had nominal operating contribution.  These strategic
decisions resulted in the Company recognizing a pre-tax charge of
approximately $15.6 associated with such asset dispositions.

EMPLOYEE AND OTHER COSTS
As a part of the Company's profit enhancement and cost reduction
initiative, management concluded that certain corporate and other staff
functions could be consolidated or eliminated resulting in a second quarter
pre-tax charge of approximately $2.7 for the benefit and other costs.

5.   LONG-TERM DEBT

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

<TABLE>
<CAPTION>
                                                                                                       December 31,
                                                                                              2003  -----------------
                                                                                               and      1997      1996
                                            1998      1999      2000      2001      2002     After     Total     Total
----------------------------------------------------------------------------------------------------------------------
<S>                                     <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
Credit Agreement                                                                                          -         -
9-7/8% Senior Notes due 2002, net                                               $  224.2  $     -   $  224.2  $  224.0
10-7/8% Senior Notes due 2006, net                                                           225.8     225.8     225.9
12-3/4% Senior Subordinated Notes due
     2003                                                                                    400.0     400.0     400.0
Alpart CARIFA Loans - (fixed and
     variable rates)due 2007, 2008                                                            60.0      60.0      60.0
Other borrowings (fixed and variable
     rates)                             $    8.8  $     .4  $     .3  $     .3        .3      51.6      61.7      52.0
                                        --------  --------  --------  --------  --------  --------  --------  --------
Total                                   $    8.8  $     .4  $     .3  $     .3  $  224.5  $  737.4     971.7     961.9
                                        ========  ========  ========  ========  ========  ========
Less current portion                                                                                     8.8       8.9
                                                                                                    --------  --------
     Long-term debt                                                                                 $  962.9  $  953.0
                                                                                                    ========  ========

</TABLE>

CREDIT AGREEMENT
In February 1994, the Company and Kaiser entered into a credit agreement
(as amended, the "Credit Agreement") which provides a $325.0 five-year
secured, revolving line of credit.  The Company 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 and eligible inventory.  As
of December 31, 1997, $273.4 (of which $73.4 could have been used for
letters of credit) was available to the Company under the Credit Agreement. 
The Credit Agreement is unconditionally guaranteed by Kaiser and by certain
significant subsidiaries of the Company.  Interest on any outstanding
balances will bear a premium (which varies based on the results of a
financial test) over either a base rate or LIBOR, at the Company's option.

In January 1998, the term of the Credit Agreement was extended from
February 1999 to August 2001.

LOAN COVENANTS AND RESTRICTIONS
The Credit Agreement requires the Company to comply with certain financial
covenants and places restrictions on the Company's and Kaiser'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 Credit Agreement is secured
by, among other things, (i) mortgages on the Company's major domestic
plants (excluding the Company's Gramercy alumina plant and Nevada
Micromill(TM) facility); (ii) subject to certain exceptions, liens on the
accounts receivable, inventory, equipment, domestic patents and trademarks,
and substantially all other personal property of the Company and certain of
its subsidiaries; (iii) a pledge of all the stock of the Company owned by
Kaiser; and (iv) pledges of all of the stock of a number of the Company'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.

The obligations of the Company with respect to its 9-7/8% Notes, its
10-7/8% Notes and its 12-3/4% Notes are guaranteed, jointly and severally,
by certain subsidiaries of the Company.  The indentures governing the
9-7/8% Notes, the 10-7/8% Notes and the 12-3/4% Notes (collectively, the
"Indentures") restrict, among other things, the Company's ability to incur
debt, undertake transactions with affiliates, and pay dividends.  Further,
the Indentures provide that the Company must offer to purchase the 9-7/8%
Notes, the 10-7/8% Notes and the 12-3/4% Notes, respectively, upon the
occurrence of a Change of Control (as defined therein), and the Credit
Agreement provides that the occurrence of a Change in Control (as defined
therein) shall constitute an Event of Default thereunder.

Under the most restrictive of the covenants in the Credit Agreement,
neither the Company nor Kaiser currently is permitted to pay dividends on
its common stock.

In December 1991, Alpart entered into a loan agreement with the Caribbean
Basin Projects Financing Authority ("CARIFA").  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).  Alpart has also 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.

RESTRICTED NET ASSETS OF SUBSIDIARIES
Certain debt instruments restrict the ability of the Company to transfer
assets, make loans and advances, and pay dividends to Kaiser.  The
restricted net assets of the Company totaled $121.9 and $56.1 at December
31, 1997 and 1996, respectively.

CAPITALIZED INTEREST
Interest capitalized in 1997, 1996, and 1995 was $6.6, $4.9, and $2.8,
respectively.

6.   INCOME TAXES

Income (loss) before income taxes and minority interests by geographic area
is as follows:
<TABLE>
<CAPTION>
                                                         Year Ended December 31,
                                                                                           
                                             ----------------------------------------------
                                                       1997            1996            1995
-------------------------------------------------------------------------------------------
<S>                                          <C>             <C>             <C>
Domestic                                     $      (110.9)  $       (43.4)  $       (55.4)
Foreign                                              172.9            47.5           158.5 
                                             --------------  --------------  --------------
     Total                                   $        62.0   $         4.1   $       103.1 
                                             ==============  ==============  ==============

</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 and minority interests consists of:

<TABLE>
<CAPTION>

                                          Federal         Foreign           State           Total
-------------------------------------------------------------------------------------------------
<S>                                <C>             <C>             <C>             <C>
1997 Current                       $        (2.0)  $       (28.7)  $         (.2)  $       (30.9)
     Deferred                               30.0            (7.0)           (1.5)           21.5 
                                   --------------  --------------  --------------  --------------
          Total                    $        28.0   $       (35.7)  $        (1.7)  $        (9.4)
                                   ==============  ==============  ==============  ==============

1996 Current                       $        (1.6)  $       (21.8)  $         (.1)  $       (23.5)
     Deferred                                7.7             7.6            16.6            31.9 
                                   --------------  --------------  --------------  --------------
          Total                    $         6.1   $       (14.2)  $        16.5   $         8.4 
                                   ==============  ==============  ==============  ==============


1995 Current                       $        (4.3)  $       (40.2)  $         (.1)  $       (44.6)
     Deferred                               15.0            (4.9)           (2.9)            7.2 
                                   --------------  --------------  --------------  --------------
          Total                    $        10.7   $       (45.1)  $        (3.0)  $       (37.4)
                                   ==============  ==============  ==============  ==============

</TABLE>

A reconciliation between the (provision) credit for income taxes and the
amount computed by applying the federal statutory income tax rate to income
before income taxes and minority interests is as follows:

<TABLE>
<CAPTION>
                                                              Year Ended December 31,
                                                                                                
                                                  ----------------------------------------------
                                                            1997            1996            1995
------------------------------------------------------------------------------------------------
<S>                                               <C>             <C>             <C>
Amount of federal income tax provision based on
     the statutory rate                           $       (21.7)  $        (1.4)  $       (36.1)
Revision of prior years' tax estimates and other
     changes in valuation allowances                       12.5            10.0             1.5 

Percentage depletion                                        4.2             3.9             4.2 
Foreign taxes, net of federal tax benefit                  (3.1)           (5.5)           (5.4)
Other                                                      (1.3)            1.4            (1.6)
                                                  --------------  --------------  --------------
(Provision) credit for income taxes               $        (9.4)  $         8.4   $       (37.4)
                                                  ==============  ==============  ==============

</TABLE>

Included in revision of prior years' tax estimates and other changes in
valuation allowances for 1997 and 1996 shown above are $12.5 and $9.8
related to the resolution of certain income tax matters in the second
quarter of 1997 and fourth quarter of 1996, respectively.

The components of the Company's net deferred income tax assets are as
follows:

<TABLE>
<CAPTION>
                                                                December 31,
                                                                                     
                                                       ------------------------------
                                                                 1997            1996
-------------------------------------------------------------------------------------
<S>                                                    <C>             <C>
Deferred income tax assets:
     Postretirement benefits other than pensions       $       288.9   $       290.5 
     Loss and credit carryforwards                              98.8           134.3
     Other liabilities                                         169.3           157.6 
     Other                                                     100.9            86.3 
     Valuation allowances                                     (113.3)         (127.2)
                                                       --------------  --------------
          Total deferred income tax assets-net                 544.6           541.5 
                                                       --------------  --------------
Deferred income tax liabilities:
     Property, plant, and equipment                           (139.7)         (160.9)
     Other                                                     (54.8)          (72.6)
                                                       --------------  --------------
          Total deferred income tax liabilities               (194.5)         (233.5)
                                                       --------------  --------------
Net deferred income tax assets                         $       350.1   $       308.0 
                                                       ==============  ==============

</TABLE>

The principal component of the Company's net deferred income tax assets is
the tax benefit, net of certain valuation allowances, associated with the
accrued liability 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 year subsequent to 1997, the Company has the
ability to carry forward such loss for 20 taxable years.  For these
reasons, the Company believes that 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.

A substantial portion of the valuation allowances provided by the Company
relates to loss and credit carryforwards.  To determine the proper amount
of valuation allowances with respect to these carryforwards, the Company
evaluated all appropriate factors, including any limitations concerning
their use and the year the carryforwards expire, as well as the levels of
taxable income necessary for utilization.  With regard to future levels of
income, the Company believes, based on the cyclical nature of its business,
its history of 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.

As of December 31, 1997 and 1996, $53.7 and $69.7, 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 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 domestic subsidiaries (collectively, the "KACC
Subgroup") are members of the consolidated return group of which Kaiser is
the common parent corporation and are included in Kaiser's consolidated
federal income tax returns.  During the period from October 28, 1988
through June 30, 1993, the KACC Subgroup was included in the consolidated
federal income tax returns of MAXXAM.  During 1997, MAXXAM reached a
settlement with the Internal Revenue Service regarding all remaining years
where the KACC Subgroup was included in the MAXXAM consolidated federal
income tax returns.  As a result of this settlement, the Company paid $11.8
to MAXXAM in respect of its liabilities pursuant to its tax allocation
agreement with MAXXAM.  Payments or refunds for periods prior to July 1,
1993, related to other jurisdictions could still be required pursuant to
the Company's tax allocation agreement with MAXXAM.  In accordance with the
Credit Agreement, any such payments to MAXXAM by the Company would require
lender approval, except in certain specific circumstances.  The tax
allocation agreement of the Company with MAXXAM terminated pursuant to its
terms, effective for taxable periods beginning after June 30, 1993.

At December 31, 1997, the Company had certain tax attributes available to
offset regular federal income tax requirements, subject to certain
limitations, including net operating loss and general business credit
carryforwards of $33.2 and $10.4, respectively, which expire periodically
through 2011, foreign tax credit ("FTC") carryforwards of $49.2, which
expire periodically through 2002, and alternative minimum tax ("AMT")
credit carryforwards of $21.9, which have an indefinite life.  The Company
also has AMT net operating loss and FTC carryforwards of $17.6 and $74.7,
respectively, available, subject to certain limitations, to offset future
alternative minimum taxable income, which expire periodically through 2011
and 2002, respectively.

7.   EMPLOYEE BENEFIT AND INCENTIVE PLANS<PAGE>
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,
                                                            -----------------------------
                                                                      1997             1996
----------------------------------------------------------- ------------- - --------------
<S>                                                         <C>             <C>
Accumulated benefit obligation:
     Vested employees                                       $       785.4   $        737.7 
     Nonvested employees                                             41.2             38.5 
                                                            -------------   --------------
     Accumulated benefit obligation                                 826.6            776.2 
Additional amounts related to projected salary increases             46.4             40.0 
                                                            -------------   --------------

Projected benefit obligation                                        873.0            816.2 
Plan assets (principally common stocks and fixed income
     obligations) at fair value                                    (756.9)          (662.0)
                                                            -------------   --------------
Plan assets less than projected benefit obligation                  116.1            154.2 
Unrecognized net gains (losses)                                        .3            (13.6)
Unrecognized net obligations                                          (.3)             (.4)
Unrecognized prior-service cost                                     (22.2)           (26.9)
Adjustment required to recognize minimum liability                    5.4             13.7 
                                                            -------------   --------------
Accrued pension obligation included in the Consolidated
     Balance Sheets(principally in Long-term liabilities)   $        99.3   $        127.0 
                                                            =============   ==============

</TABLE>

(1)  Includes accrued pension obligations of approximately $6.3 and $.3 in
1997 and 1996, respectively, related to plans with assets exceeding
accumulated benefits.

As required by Statement of Financial Accounting Standards No. 87,
Employers' Accounting for Pensions, the Company recorded after-tax credits
to equity of $2.8 and $11.0 at December 31, 1997 and 1996, respectively, to
reduce the deficit of the minimum liability over the unrecognized net
obligation and prior-service cost.  These amounts were recorded net of the
related income tax provision of $1.3 and $6.5 as of December 31, 1997 and
1996, respectively, which approximated the federal and state statutory
rates.

The components of net periodic pension cost are:

<TABLE>
<CAPTION>
                                                               Year Ended December 31,
                                                                                                 
                                                   ----------------------------------------------
                                                             1997            1996            1995
-------------------------------------------------------------------------------------------------
<S>                                                <C>             <C>             <C>
Service cost - benefits earned during the period   $        13.4   $        12.9   $        10.0 
Interest cost on projected benefit obligation               61.6            60.0            59.8 
Return on assets:
     Actual gain                                          (129.9)          (89.8)         (112.2)
     Deferred gain                                          68.1            34.8            64.6 
Net amortization and deferral                                6.0             5.5             4.2 
                                                   --------------  --------------  --------------
Net periodic pension cost                          $        19.2   $        23.4   $        26.4 
                                                   ==============  ==============  ==============

</TABLE>

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

<TABLE>
<CAPTION>
                                                            1997            1996            1995
------------------------------------------------------------------------------------------------
<S>                                               <C>             <C>             <C>
Discount rate                                              7.25%           7.75%            7.5%
Expected long-term rate of return on assets                 9.5%            9.5%            9.5%
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.  The Company has not funded the liability for these benefits,
which are expected to be paid out of cash generated by operations.  The
Company reserves the right, subject to applicable collective bargaining
agreements, to amend or terminate these benefits.

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

<TABLE>
<CAPTION>
                                                                   December 31,
                                                          ------------------------------
                                                                    1997            1996
----------------------------------------------------------------------------------------
<S>                                                       <C>             <C>
Accumulated postretirement benefit obligation:
     Retirees                                             $        446.7  $        498.7
     Active employees eligible for postretirement benefits          35.1            36.7
     Active employees not eligible for postretirement
          benefits                                                  62.7            67.4
                                                          --------------  --------------

     Accumulated postretirement benefit obligation                 544.5           602.8
Unrecognized net gains                                             135.0            71.3
Unrecognized gains related to prior-service costs                   86.1            98.5
                                                          --------------  --------------
Accrued postretirement benefit obligation                 $        765.6  $        772.6
                                                          ==============  ==============

</TABLE>

The components of net periodic postretirement benefit cost are:

<TABLE>
<CAPTION>
                                                                   Year Ended December 31,
                                                       ----------------------------------------------
                                                                 1997            1996            1995
-----------------------------------------------------------------------------------------------------
<S>                                                    <C>             <C>             <C>
Service cost                                           $         6.1   $         3.8   $         4.5 
Interest cost                                                   43.9            46.9            52.3 
Amortization of prior service cost                             (12.4)          (12.4)           (8.9)
                                                       --------------  --------------  --------------
Net periodic postretirement benefit cost               $        37.6   $        38.3   $        47.9 
                                                       ==============  ==============  ==============

</TABLE>

In 1997 annual assumed rates of increase in the per capita cost of covered
benefits (i.e., health care cost trend rate) for non-HMO are 7.5% and 5.5%
for retirees under 65 and over 65, respectively, and 4.0% for HMO at all
ages.  Non-HMO rates are assumed to decrease gradually to 5.35% 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, 1997, by
approximately $53.0 and the aggregate of the service and interest cost
components of net periodic postretirement benefit cost for 1997 by
approximately $6.0.  The weighted average discount rate used to determine
the accumulated postretirement benefit obligation at December 31, 1997 and
1996, was 7.25% and 7.75%, respectively.

POSTEMPLOYMENT BENEFITS
The Company provides certain benefits to former or inactive employees after
employment but before retirement.

INCENTIVE PLANS
The Company has an unfunded incentive compensation program, which provides
incentive compensation based on performance against annual plans and over
rolling three-year periods.  In addition, Kaiser has a "nonqualified" stock
option plan and the Company has a defined contribution plan for salaried
employees.  The Company's expense for all of these plans was $8.3, $(2.1)
and $11.9 for the years ended December 31, 1997, 1996 and 1995,
respectively.

The Company has a total of 5,500,000 shares of Kaiser Common Stock reserved
for grant under its incentive compensation programs.  At December 31, 1997,
3,536,653 shares of Kaiser Common Stock remained available for grant after
consideration of the 3,000,000 share increase in available shares, approved
by shareholders in May 1997, and current year share grants and stock option
activity.  Stock options granted pursuant to the Company's nonqualified
stock option program are granted at the prevailing market price, generally
vest at a rate of 20 - 33% per year, and have a ten year term.  Information
concerning nonqualified stock option plan activity is shown below.  The
weighted average price per share for each year is shown parenthetically.

<TABLE>
<CAPTION>
                                                            1997            1996            1995
------------------------------------------------------------------------------------------------
<S>                                               <C>             <C>             <C>
Outstanding at beginning of year ($10.33, $10.32
     and $9.85)                                         890,395         926,085       1,119,680 
Granted ($10.06)                                         15,092           -               -
Exercised ($8.33, $8.99, and $7.32)                     (48,410)         (8,275)       (155,500)
Expired or forfeited ($10.12, $10.45, and $8.88)        (37,325)        (27,415)        (38,095)
                                                  --------------  --------------  --------------
Outstanding at end of year ($10.45, $10.33, and
     $10.32)                                            819,752         890,395         926,085 
                                                  ==============  ==============  ==============
Exercisable at end of year ($10.53, $10.47, and
     $10.73)                                            601,115         436,195         211,755 
                                                  ==============  ==============  ==============

</TABLE>

In accordance with Statement of Financial Accounting Standards No. 123,
Accounting for Stock Based Compensation ("SFAS No. 123"), the Company is
required to calculate pro forma compensation cost for all stock options
granted subsequent to December 31, 1994.  No stock options were granted
during 1995 and 1996.  However, as shown in the table above, 15,092 options
were granted in 1997 which would be subject to the pro forma calculation
requirements.  For SFAS No. 123 purposes, the fair value of the 1997 stock
option grant was estimated using the Black-Scholes option pricing model. 
The estimated fair value of the 1997 stock options grants of $.1 would
result in increased pro forma compensation expense and therefore reduced
net income.

8.   REDEEMABLE PREFERENCE STOCK

In 1985, the Company issued its Cumulative (1985 Series A) Preference Stock
and its Cumulative (1985 Series B) Preference Stock (together, the
"Redeemable Preference Stock") each of which has a par value of $1 per
share and a liquidation and redemption value of $50 per share plus accrued
dividends, if any.  No additional Redeemable Preference Stock is expected
to be issued.  Holders of the Redeemable Preference Stock are entitled to
an annual cash dividend of $5 per share, or an amount based on a formula
tied to the Company's pre-tax income from aluminum operations, when and as
declared by the Board of Directors.

The carrying values of the Redeemable Preference Stock are increased each
year to recognize accretion between the fair value (at which the Redeemable
Preference Stock was originally issued) and the redemption value.  Changes
in Redeemable Preference Stock are shown below.

<TABLE>
<CAPTION>
                                                        1997            1996            1995
--------------------------------------------------------------------------------------------
<S>                                           <C>             <C>             <C>
Shares:
     Beginning of year                              634,684         737,363         912,167 
     Redeemed                                       (39,631)       (102,679)       (174,804)
                                              --------------  --------------  --------------

     End of year                                    595,053         634,684         737,363 
                                              ==============  ==============  ==============


</TABLE>

Redemption fund agreements require the Company to make annual payments by
March 31 of the subsequent year based on a formula tied to consolidated net
income until the redemption funds are sufficient to redeem all of the
Redeemable Preference Stock.  On an annual basis, the minimum payment is
$4.3 and the maximum payment is $7.3.  The Company also has certain
additional repurchase requirements which are, among other things, based
upon profitability tests.

The Redeemable Preference Stock is entitled to the same voting rights as
the Company common stock and to certain additional voting rights under
certain circumstances, including the right to elect, along with other
Company 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 Redeemable Preference Stock restricts the ability of the
Company to redeem or pay dividends on common stock if the Company is in
default on any dividends payable on Redeemable Preference Stock.

9.   STOCKHOLDERS' EQUITY

Changes in stockholders' equity were:

<TABLE>
<CAPTION>
                                                                                           Additional          Note
                                                                                              Minimum    Receivable
                                   Preference      Common      Additional   Accumulated       Pension          From
                                        Stock       Stock         Capital       Deficit     Liability        Parent
---------------------------------------------------------------------------------------  --------------------------
<S>                                <C>         <C>         <C>             <C>           <C>           <C>
BALANCE, DECEMBER 31, 1994         $     1.8   $    15.4   $     1,626.3   $    (271.5)  $      (9.1)  $  (1,387.7)
     Net income                                                                   65.3 
     Interest on note receivable
          from parent                                               92.1                                     (92.1)
     Contribution for LTIP shares                                    1.4 
     Capital contribution                                           10.9 
     Conversions (1,222 preference
          shares into cash)              (.1)
     Dividends                                                                     (.8)
     Redeemable preference stock
          accretion                                                               (3.9)
     Additional minimum pension
          liability                                                                             (4.7)              
                                   ----------  ----------  --------------  ------------  ------------  ------------

BALANCE, DECEMBER 31, 1995               1.7        15.4         1,730.7        (210.9)        (13.8)     (1,479.8)
     Net income                                                                   13.2 
     Interest on note receivable
          from parent                                               98.3                                     (98.3)
     Contribution for LTIP shares                                     .7 
     Capital contribution                                             .1 
     Dividends                                                                     (.5)
     Redeemable preference stock
          accretion                                                               (3.1)
     Reduction of minimum pension
          liability                                                                             11.0               
                                   ----------  ----------  --------------  ------------  ------------  -----------

BALANCE, DECEMBER 31, 1996               1.7        15.4         1,829.8        (201.3)         (2.8)     (1,578.1)
     Net income                                                                   52.1 
     Interest on note receivable
          from parent                                              104.5                                    (104.5)
     Contribution for LTIP shares                                     .6 
     Capital contributions                                           4.9 
     Conversions                         (.1)
     Dividends                                                                     (.7)
     Redeemable preference stock
          accretion                                                               (2.4)
     Reduction of minimum pension
          liability                                                                              2.8               
                                   ----------  ----------  --------------  ------------  ------------  ------------

BALANCE, DECEMBER 31, 1997         $     1.6   $    15.4   $     1,939.8   $    (152.3)  $       -     $  (1,682.6)
                                   ==========  ==========  ==============  ============  ============  ============

</TABLE>

PREFERENCE STOCK
The Company has four series of $100 par value Cumulative Convertible
Preference Stock ("$100 Preference Stock") with annual dividend
requirements of between 4-1/8% and 4-3/4%.  The Company has the option to
redeem the $100 Preference Stock at par value plus accrued dividends.  The
Company does not intend to issue any additional shares of the $100
Preference Stock.

The $100 Preference Stock can be exchanged for per share cash amounts
between $69 - $80.  The Company records the $100 Preference Stock at their
exchange amounts for financial statement presentation and the Company
includes such amounts in minority interests.  At December 31, 1997, and
1996, outstanding shares of $100  Preference Stock were 20,543 and 21,630,
respectively.

KAISER PREFERRED STOCK
PRIDES Convertible--During 1994, Kaiser issued 8,855,550 shares of Kaiser's
8.255% PRIDES Convertible Preferred Stock ("PRIDES") and received net
proceeds of approximately $100.1.  Kaiser used such net proceeds to make
non-interest bearing loans to the Company 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 were to be mandatorily converted into shares of
Kaiser's Common Stock), evidenced by intercompany notes, and used the
balance of such net proceeds to make capital contributions to the Company
in the aggregate amount of $66.9.

During August 1997, the remaining 8,673,850 outstanding shares of PRIDES
were converted into 7,227,848 shares of Kaiser Common Stock pursuant to the
terms of the PRIDES Certificate of Designations.  The remaining balance of
the intercompany note of $4.4 associated with dividend payments that Kaiser
did not have to make due to the early conversion has been reflected as a
capital contribution.

NOTE RECEIVABLE FROM PARENT
The Note receivable from parent bears interest at a fixed rate of 6-5/8%
per annum.  No interest or principal payments are due until December 21,
2000, after which interest and principal will be payable on a 15-year term
pursuant to a predetermined schedule.  Accrued interest is accounted for as
additional contribution capital.

10.  COMMITMENTS AND CONTINGENCIES

COMMITMENTS
The Company has a variety of financial commitments, including purchase
agreements, tolling arrangements, forward foreign exchange and forward
sales contracts (see Note 11), 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, the Company 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, 1997, is $97.6, of which
approximately $12.0 is due in each of 2000 and 2001 with the balance being
due thereafter.  The Company's share of payments, including operating costs
and certain other expenses under the agreements, has ranged between $100.0
- $120.0 over the past three years.  The Company also has agreements to
supply alumina to and to purchase aluminum from Anglesey.

Minimum rental commitments under operating leases at December 31, 1997, are
as follows: years ending December 31, 1998 - $26.5; 1999 - $32.0; 2000 -
$28.8; 2001 - $28.1; 2002 - $26.4; thereafter - $134.3.  The future minimum
rentals receivable under noncancelable subleases was $62.5 at December 31,
1997.<PAGE>
Rental expenses were $30.4, $29.6, and $29.0, for the years ended December
31, 1997, 1996, and 1995, respectively.

ENVIRONMENTAL CONTINGENCIES
The Company is 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.  The Company currently is
subject to a number of lawsuits under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended by the
Superfund Amendments Reauthorization Act of 1986 ("CERCLA"), and, along
with certain other entities, has been named as a potentially responsible
party for remedial costs at certain third-party sites listed on the
National Priorities List under CERCLA.

Based on the Company's evaluation of these and other environmental matters,
the Company has established environmental accruals, primarily related to
potential solid waste disposal and soil and groundwater remediation
matters.  The following table presents the changes in such accruals, which
are primarily included in Long-term liabilities, for the years ended
December 31, 1997, 1996, and 1995:

<TABLE>
<CAPTION>
                                                              1997            1996            1995
--------------------------------------------------------------------------------------------------
<S>                                                 <C>             <C>             <C>
Balance at beginning of period                              $33.3   $        38.9   $        40.1 
Additional amounts                                            2.0             3.2             3.3 
Less expenditures                                            (5.6)           (8.8)           (4.5)
                                                    --------------  --------------  --------------

Balance at end of period                            $        29.7   $        33.3   $        38.9 
                                                    ==============  ==============  ==============

</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 $8.0 for the years
1998 through 2002 and an aggregate of approximately $8.0 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 $18.0.  As the resolution of these matters is subject to further
regulatory review and approval, no specific assurance can be given as to
when the factors upon which a substantial portion of this estimate is based
can be expected to be resolved.  However, the Company is currently working
to resolve certain of these matters.

The Company believes that it has insurance coverage available to recover
certain incurred and future environmental costs and is actively pursuing
claims in this regard.  However, no accruals have been made for any such
insurance recoveries and no assurances can be given that the Company will
be successful in its attempt to recover incurred or future costs.

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 Company 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 the
Company or exposure to products containing asbestos produced or sold by the
Company.  The lawsuits generally relate to products the Company has not
manufactured for at least 20 years.

The following table presents the changes in number of such claims pending
for the years ended December 31, 1997, 1996, and 1995.

<TABLE>
<CAPTION>
                                                           1997            1996            1995
-----------------------------------------------------------------------------------------------
<S>                                              <C>             <C>             <C>
Number of claims at beginning of period                 71,100          59,700          25,200 
Claims received                                         15,600          21,100          41,700 
Claims settled or dismissed                             (9,300)         (9,700)         (7,200)
                                                 --------------  --------------  --------------

Number of claims at end of period                       77,400          71,100          59,700 
                                                 ==============  ==============  ==============

</TABLE>


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 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 estimated asbestos-related cost accrual of $158.8, before consideration
of insurance recoveries, is included primarily in Long-term liabilities at
December 31, 1997. 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 estimates that annual
future cash payments in connection with such litigation will be
approximately $13.0 to $20.0 for each of the years 1998 through 2002, and
an aggregate of approximately $80.0 thereafter.

The Company believes that it has insurance coverage available to recover a
substantial portion of its asbestos-related costs. Claims for recovery from
some of its 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 LLP 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 $134.0, determined on the same basis as the
asbestos-related cost accrual, is recorded primarily in Other assets at
December 31, 1997.

Subsequent to December 31, 1997, KACC reached agreements settling
approximately 25,000 of the pending asbestos-related claims.  Also,
subsequent to year-end 1997, the Company reached agreements on asbestos
related coverage matters with two insurance carriers under which the
Company will collect a total of approximately $17.5 during the first
quarter of 1998.  The insurance recoveries will reduce the approximately
$134.0 of asbestos related receivable accrued at December 31, 1997.  As the
amounts related to the claim settlements and insurance recoveries were
consistent with the Company's year-end 1997 accrual assumptions, these
events are not expected to have a material impact on the Company's
financial position, results of operations or liquidity.

Management continues to monitor claims activity, the status of lawsuits
(including settlement initiatives), legislative progress, and costs
incurred in order to ascertain whether an adjustment to the existing
accruals should be made to the extent that historical experience may differ
significantly from the Company's underlying assumptions.  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.

OTHER CONTINGENCIES
The Company 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.

11.  DERIVATIVE FINANCIAL INSTRUMENTS AND RELATED HEDGING PROGRAMS

At December 31, 1997, the net unrealized loss on the Company's position in
aluminum forward sales and option contracts, (based on an average price of
$1,643 per ton ($.75 per pound) of primary aluminum), natural gas and fuel
oil forward purchase and option contracts, and forward foreign exchange
contracts, was approximately $21.0.  Any gains or losses on the derivative
contracts utilized in the Company's hedging activities are offset by losses
or gains, respectively, on the transactions being hedged.

ALUMINA AND ALUMINUM
The Company's earnings 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.  Primary
aluminum prices have historically been subject to significant cyclical
price fluctuations.  Alumina prices as well as fabricated aluminum product
prices (which vary considerably among products) are significantly
influenced by changes in the price of primary aluminum but generally lag
behind primary aluminum price changes by up to three months.  Since 1993,
the Average Midwest United States transaction price for primary aluminum
has ranged from approximately $.50 to $1.00 per pound.

From time to time in the ordinary course of business, the Company enters
into hedging transactions to provide price risk management in respect of
the net exposure of earnings resulting from (i) anticipated sales of
alumina, primary aluminum and fabricated aluminum products, less (ii)
expected purchases of certain items, such as aluminum scrap, rolling ingot,
and bauxite, whose prices fluctuate with the price of primary aluminum. 
Forward sales contracts are used by the Company to effectively fix the
price that the Company will receive for its shipments.  The Company also
uses option contracts (i) to establish a minimum price for its product
shipments, (ii) to establish a "collar" or range of price for its
anticipated sales, and/or (iii) to permit the Company to realize possible
upside price movements.  As of December 31, 1997, the Company had sold
forward, at fixed prices, approximately 109,850 and 24,000 tons of primary
aluminum with respect to 1998 and 1999, respectively.  The Company had also
purchased put options to establish a minimum price for approximately 52,000
tons with respect to 1998 and as of December 31, 1997, had entered into
option contracts that established a price range for an additional 243,600
and 124,500 tons with respect to 1998 and 1999, respectively. 
Additionally, at December 31, 1997, the Company also held fixed price
purchase contracts for 134,850 tons of primary aluminum with respect to
1998.

As of December 31, 1997, the Company had sold forward virtually all of the
alumina available to it in excess of its projected internal smelting
requirements for 1998 and 1999 at prices indexed to future prices of
primary aluminum.

ENERGY
The Company is exposed to energy price risk from fluctuating prices for
fuel oil and natural gas consumed in the production process. Accordingly,
the Company from time to time in the ordinary course of business enters
into hedging transactions with major suppliers of energy and energy related
financial instruments.  As of December 31, 1997, the Company had a
combination of fixed price purchase and option contracts for the purchase
of approximately 41,000 MMBtu of natural gas per day during 1998.  At
December 31, 1997, the Company also held a combination of fixed price
purchase and option contracts for an average of 232,000 and 25,000 barrels
of fuel oil per month for 1998 and 1999, respectively.

FOREIGN CURRENCY
The Company enters into forward exchange contracts to hedge material cash
commitments to foreign subsidiaries or affiliates.  At December 31, 1997,
the Company had net forward foreign exchange contracts totaling
approximately $136.6 for the purchase of 180.0 Australian dollars from
January 1998 through February 1999, in respect of its commitments for 1998
and 1999 expenditures denominated in Australian dollars.

12.  SEGMENT AND GEOGRAPHICAL AREA INFORMATION

The Company's operations are located in many foreign countries, including
Australia, Canada, Ghana, Jamaica, and the United Kingdom.  Foreign
operations in general may be more vulnerable than domestic operations due
to a variety of political and other risks.  Sales and transfers among
geographic areas are made on a basis intended to reflect the market value
of products.

The aggregate foreign currency gain included in determining net income was
immaterial for the years ended December 31, 1997, 1996, and 1995.

No single customer accounted for sales in excess of 10% of total revenue in
1997, 1996 or 1995.

Export sales were less than 10% of total revenue during the years ended
December 31, 1997, 1996 and 1995.

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>
Net sales to unaffiliated customers 1997  $     1,720.3      $ 204.6   $       234.2   $       214.1               $      2,373.2
                                    1996        1,610.0        201.8           198.3           180.4                      2,190.5
                                    1995        1,589.5        191.7           239.4           217.2                      2,237.8

Sales and transfers among           1997                     $ 121.7                   $       197.3   $  (319.0)
     geographic areas               1996                       116.9                           206.0      (322.9)
                                    1995                        79.6                           191.5      (271.1)

Equity in income (losses) of        1997  $         4.8                                $        (1.9)              $          2.9
     unconsolidated affiliates      1996             .3                                          8.5                          8.8
                                    1995            (.2)                                        19.4                         19.2

Operating income                    1997  $        20.8      $  11.6   $        72.2   $        65.3               $        169.9
                                    1996            6.7          1.6            27.8            64.0                        100.1
                                    1995           32.5          9.8            83.5            85.3                        211.1

Investment in and advances to       1997  $        15.8      $  23.9                   $       108.9               $        148.6
     unconsolidated affiliates      1996             .5         25.3                           142.6                        168.4

Identifiable assets                 1997  $     2,278.3      $ 391.2   $       179.6   $       168.2               $      3,017.3
                                    1996        2,138.6        391.2           194.7           211.4                      2,935.9

</TABLE>

Financial information by industry segment at December 31, 1997 and 1996,
and for the years ended December 31, 1997, 1996, and 1995, is as follows:

<TABLE>
<CAPTION>
                              Year Ended     Bauxite &      Aluminum
                            December 31,       Alumina    Processing    Corporate           Total
-------------------------------------------------------------------------------- ----------------
<S>                                     <C>           <C>           <C>                       <C>
Net sales to unaffiliated customers 1997    $   483.3     $ 1,889.9                $      2,373.2
                                    1996        508.0       1,682.5                       2,190.5
                                    1995        514.2       1,723.6                       2,237.8

Intersegment sales                  1997    $   193.2                              $        193.2
                                    1996        181.6                                       181.6
                                    1995        159.7                                       159.7

Equity in income (losses) of        1997    $    (7.0)    $     9.9    $      -    $          2.9
     unconsolidated affiliates      1996          1.7           6.7           .4              8.8
                                    1995          3.6          15.8          (.2)            19.2

Operating income (loss)             1997    $    20.0     $   222.6    $   (72.7)  $        169.9
                                    1996          1.1         156.5        (57.5)           100.1
                                    1995         54.0         238.9        (81.8)           211.1

Depreciation                        1997    $    29.3     $    58.7    $     3.1   $         91.1
                                    1996         31.2          61.7          3.1             96.0
                                    1995         31.1          60.4          2.8             94.3

Capital expenditures                1997    $    27.8     $    99.0    $     1.7   $        128.5
                                    1996         29.9         126.9          4.7            161.5
                                    1995         27.3          53.0          8.1             88.4

Investment in and advances to       1997    $    88.6     $    59.5    $      .5   $        148.6
     unconsolidated affiliates      1996        121.3          46.6           .5            168.4

Identifiable assets                 1997    $   735.9     $ 1,510.9    $   770.5   $      3,017.3
                                    1996        784.6       1,408.5        742.8          2,935.9

</TABLE>

13.  SUBSIDIARY GUARANTORS

Kaiser Alumina Australia Corporation ("KAAC"), Kaiser Finance Corporation
("KFC"), Kaiser Jamaica Corporation ("KJC"), Alpart Jamaica Inc. ("AJI")
and Kaiser Micromill Holding, LLC, Kaiser Sierra Micromills, LLC, Kaiser
Texas Micromill Holdings, LLC, and Kaiser Texas Sierra Micromills, LLC
(collectively referred to as the "Micromill Subsidiaries") are domestic
wholly owned (direct or indirect) subsidiaries of the Company that have
provided subordinated guarantees of the 9-7/8% Notes, the 10-7/8% Notes and
the 12-3/4% Notes (the "Notes") (see Note 5).  KAAC and KJC and AJI are
direct subsidiaries, which serve as holding companies for the Company's
investments in QAL and Alpart, respectively.  KFC is a wholly owned
subsidiary of KAAC, whose principal business is making loans to the Company
and its subsidiaries.  The Micromill Subsidiaries are domestic wholly owned
(direct or indirect) subsidiaries of the Company which were formed to hold
(directly or indirectly) certain of the Company's interests in the Reno,
Nevada and certain possible future Micromill(TM) facilities and related
projects, if any.

Additionally, in June 1997, Kaiser Bellwood Corporation ("KBC"), a wholly
owned subsidiary formed to acquire an extrusion plant located in Richmond,
Virginia from Reynolds Metals Company, also became a subsidiary guarantor
of the Notes pursuant to the indentures to the Notes.  KAAC, KFC, KJC, AJI,
the Micromill Subsidiaries and KBC are hereinafter collectively referred to
as the "Subsidiary Guarantors."

Summary combined financial information for the Subsidiary Guarantors as of
December 31, 1997 and 1996 is shown below.  Such summary combined financial
information only includes the balances and results of KBC from July 1,
1997, the date of acquisition.

Summary of Combined Financial Position

<TABLE>
<CAPTION>
                                                                     December 31,
                                                            ------------------------------
                                                                      1997            1996
------------------------------------------------------------------------------------------
<S>                                                                    <C>             <C>
ASSETS
Current assets                                              $       131.1   $       116.9 
Due from the Company                                                793.4           740.0 
Investments in and advances to unconsolidated affiliates             64.7            95.9 
Property, plant, and equipment - net                                355.7           321.6 
Other assets                                                         29.2            30.1 
                                                            --------------  --------------
     Total                                                  $     1,374.1   $     1,304.5 
                                                            ==============  ==============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities                                         $       146.8   $       286.3 
Due to the Company                                                  423.6           308.2 
Other long-term liabilities                                          86.2            38.8 
Long-term debt - net of current maturity                             60.0            60.0 
Minority interests                                                   79.6            76.8 
Stockholders' equity                                                577.9           534.4 
                                                            --------------  --------------
     Total                                                  $     1,374.1   $     1,304.5 
                                                            ==============  ==============

</TABLE>


Summary of Combined Operations

<TABLE>
<CAPTION>
                                                              Year Ended December 31,
                                                  ----------------------------------------------
                                                            1997            1996            1995
------------------------------------------------------------------------------------------------
<S>                                               <C>             <C>             <C>
Net sales                                         $       495.1   $       430.5   $       401.4 
Costs and expenses                                        452.2           413.8           366.7 
                                                  --------------  --------------  --------------
Operating income                                           42.9            16.7            34.7 
Other income (expense):
     Interest and other income (expense)                   49.4           (28.0)           37.2 
     Interest expense                                     (18.5)          (23.2)          (29.9)
                                                  --------------  --------------  --------------
Income (loss) before income taxes, and minority
     interests                                             73.8           (34.5)           42.0 
(Provision) credit for income taxes                       (43.8)            6.5           (14.8)
Minority interests                                          5.8             5.8             5.5 
                                                  --------------  --------------  --------------

Net income (loss)                                 $        35.8   $       (22.2)  $        32.7 
                                                  ==============  ==============  ==============

</TABLE>

Notes to Summary of Combined Financial Information for the Subsidiary
Guarantors

Income Taxes - The Subsidiary Guarantors, excluding the Micromill
Subsidiaries, are all members of the KACC Subgroup (see Note 6).  The
(provision) credit for income taxes reflected in the Summary of Combined
Operations for these entities was computed as if each of these entities
filed tax returns on a separate company basis.  No (provision) credit for
income taxes has been reflected for the Micromill Subsidiaries for the 1997
or 1996 pre-tax net losses of approximately $24.5 and $20.5, as the
entities are not subject to income tax.  However, taxable income or loss of
the Micromill Subsidiaries is included in the taxable income of the
Company.  Included in Other assets and Other long-term liabilities at
December 31, 1997, are $26.8 and $61.8 of deferred income tax assets and
liabilities, respectively.

Receivables and Payables -- At December 31, 1997, receivables from and
payables to the Company reflected in the Summary of Combined Financial
Position include $747.9 and $229.8 of interest bearing loans, respectively.
The similar amounts at December 31, 1996 were $718.2 and $280.4.

Inventory Valuation -- Inventories are stated at first-in, first-out (FIFO)
cost, not in excess of market.

Investments -- At December 31, 1997, KAAC held a 28.3% interest in QAL.
This investment is accounted for by the equity method. The equity in QAL's
loss before income taxes of $7.0 and $1.7 in 1997 and 1996, respectively,
is reflected in the Summary of Combined Operations in other income
(expense).

Foreign Currency -- The functional currency of the Subsidiary Guarantors is
the United States Dollar, and accordingly, translation gains (losses)
included in net income (loss) in the Summary of Combined Operations were
$44.1, $(24.6), and $14.1 for the years ended December 31, 1997, 1996, and
1995, respectively.