```

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

                                    FORM 10-K
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 For the fiscal year ended December 31, 2000 Commission file number 1-3605

                   KAISER ALUMINUM & CHEMICAL CORPORATION
             (Exact name of registrant as specified in its charter)

         DELAWARE                                    94-0928288
(State of Incorporation)                 (I.R.S. Employer Identification No.)

             5847 SAN FELIPE, SUITE 2600, HOUSTON, TEXAS 77057-3010
               (Address of principal executive offices) (Zip Code)

       Registrant's telephone number, including area code: (713) 267-3777

          Securities registered pursuant to Section 12(b) of the Act:

                                                   Name of each exchange
        Title of each class                         on which registered
        -------------------                         --------------------
Cumulative Convertible Preference Stock
(par value $100)
4 1/8% Series                                              None
4 3/4% (1957 Series)                                       None
4 3/4% (1959 Series)                                       None
4 3/4% (1966 Series)                                       None

          Securities registered pursuant to Section 12(g) of the Act:

                               Title of each class
                               -------------------
                   Cumulative (1985 Series A) Preference Stock
                   Cumulative (1985 Series B) Preference Stock

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes /X/ No / /

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ___

As of February 28, 2001, there were 46,171,365 shares of the common stock of the
registrant outstanding, all of which were owned by Kaiser Aluminum Corporation,
the parent corporation of the registrant. As of February 28, 2001,
non-affiliates of the registrant held 313,619 shares of Cumulative (1985 Series
A) Preference Stock and 36,532 shares of Cumulative (1985 Series B) Preference
Stock of the registrant (together the "Redeemable Preference Stock"). The
aggregate value of the Redeemable Preference Stock, based upon the redemption
price for such stock, is $17.5 million. During March 2001, the registrant
redeemed all of the Redeemable Preference Stock. See Note 11 of Notes to
Consolidated Financial Statements for additional information concerning such
redemption.

Certain portions of the registrant's definitive proxy statement to be filed not
later than 120 days after the close of the registrant's fiscal year are
incorporated by reference into Part III of this Report on Form 10-K.

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

                                      NOTE

Kaiser Aluminum & Chemical Corporation's Report on Form 10-K filed with the
Securities and Exchange Commission includes all exhibits required to be filed
with the Report. Copies of this Report on Form 10-K, including only Exhibit 21
of the exhibits listed on pages 67 - 73 of this Report, are available without
charge upon written request. The registrant will furnish copies of the other
exhibits to this Report on Form 10-K upon payment of a fee of 25 cents per page.
Please contact the office set forth below to request copies of this Report on
Form 10-K and for information as to the number of pages contained in each of the
exhibits and to request copies of such exhibits:

                               Corporate Secretary
                               Kaiser Aluminum & Chemical Corporation
                               5847 San Felipe, Suite 2600
                               Houston, Texas  77057-3010
                               (713) 267-3777

                                TABLE OF CONTENTS

PART I

     ITEM 1.      BUSINESS

     ITEM 2.      PROPERTIES

     ITEM 3.      LEGAL PROCEEDINGS

     ITEM 4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

PART II

     ITEM 5.      MARKET FOR REGISTRANT'S COMMON EQUITY AND
                    RELATED STOCKHOLDER MATTERS

     ITEM 6.      SELECTED FINANCIAL DATA

     ITEM 7.      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                    CONDITION AND RESULTS OF OPERATIONS

     ITEM 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     ITEM 8.      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     ITEM 9.      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                    ACCOUNTING AND FINANCIAL DISCLOSURE

PART III

     ITEM 10.     DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     ITEM 11.     EXECUTIVE COMPENSATION

     ITEM 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
                    AND MANAGEMENT

     ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

PART IV

     ITEM 14.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
                    REPORTS ON FORM 8-K

SIGNATURES

INDEX OF EXHIBITS

EXHIBIT 21        SUBSIDIARIES

PART I

ITEM 1.       BUSINESS

This Annual Report on Form 10-K (the "Report") contains statements which
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements appear in a number of
places in this Report (see, for example, Item 1. "Business - Business
Operations," " - Competition," " - Environmental Matters," and " - Factors
Affecting Future Performance," Item 3. "Legal Proceedings," and Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations"). Such statements can be identified by the use of forward-looking
terminology such as "believes," "expects," "may," "estimates," "will," "should,"
"plans" or "anticipates" or the negative thereof or other variations thereon or
comparable terminology, or by discussions of strategy. Readers are cautioned
that any such forward-looking statements are not guarantees of future
performance and involve significant risks and uncertainties, and that actual
results may vary materially from those in the forward-looking statements as a
result of various factors. These factors include the effectiveness of
management's strategies and decisions, general economic and business conditions,
developments in technology, new or modified statutory or regulatory
requirements, and changing prices and market conditions. Certain sections of
this Report identify other factors that could cause differences between such
forward-looking statements and actual results. No assurance can be given that
these are all of the factors that could cause actual results to vary materially
from the forward-looking statements.

GENERAL

Kaiser Aluminum & Chemical Corporation (the "Company"), a Delaware
corporation organized in 1940, is a direct subsidiary of Kaiser Aluminum
Corporation ("Kaiser") and an indirect subsidiary of MAXXAM Inc. ("MAXXAM").
Kaiser owns all of the Company's Common Stock, and MAXXAM and one of its
wholly-owned subsidiaries together own approximately 63% of Kaiser's Common
Stock, with the remaining approximately 37% publicly held. The Company 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. See Note 15 of Notes to Consolidated Financial Statements for segment
and geographical financial information. In addition to the production utilized
by the Company in its operations, the Company sells significant amounts of
alumina and primary aluminum in domestic and international markets. The
Company's operations are conducted through its business units. The following
table sets forth production and third party purchases of bauxite, alumina and
primary aluminum and third party shipments and intersegment transfers of
bauxite, alumina, primary aluminum and fabricated products for the years ended
December 31, 2000, 1999 and 1998:

                                       Sources(2)                             Uses(2)
                            ---------------------------------     --------------------------------
                                                 Third Party        Third Party      Intersegment
                              Production          Purchases          Shipments         Transfers
                            ----------------    -------------     ---------------  ---------------
                                                   (in thousands of tons*)
Bauxite -
       2000                          4,305.0             -                2,007.0          2,342.0
       1999                          5,261.0             -                1,497.0          3,515.0
       1998                          6,656.0             -                1,659.0          4,639.0
Alumina -
       2000                          2,042.9         322.0                1,927.1            751.9
       1999                          2,524.0         395.0                2,093.9            757.3
       1998                          2,964.0             -                2,250.0            750.7
Primary Aluminum -
       2000                            411.4         206.5                  672.4(1)         -
       1999                            426.4         260.1                  684.6(1)         -
       1998                            387.0         251.3                  668.2(1)         -

(1)  Includes both primary aluminum shipments and pounds of aluminum contained
     in fabricated aluminum product shipments. See "Management's Discussion and
     Analysis of Financial Condition and Results of Operations--Selected
     Operational and Financial Information" for an allocation of shipments
     between primary aluminum and pounds of aluminum in fabricated aluminum
     products.
(2)  Sources and uses will not equal due to the impact of inventory changes and
     alumina and metal swaps.
---------------------------
* All references to tons in this Report refer to metric tons of 2,204.6 pounds.

SIGNIFICANT CURRENT ITEMS

This section briefly summarizes the major issues the Company dealt with during
2000 and/or is dealing with currently and provides a cross-reference to the
applicable section for a more complete discussion of the issue.

Liquidity and Capital Resources - The Company's $300.0 million credit agreement,
as amended (the "Credit Agreement") expires in August 2001. It is the Company's
intention to extend or replace the Credit Agreement prior to its expiration.
However, in order for the Credit Agreement to be extended, on a short-term
basis, beyond August 2001, the Company will have to have a plan to mitigate the
$225.0 million of 97/8% Senior Notes, due February 2002 (the "97/8% Senior
Notes"). For the Credit Agreement to be extended past February 2003, both the
97/8% Senior Notes and the $400.0 million of 12 3/4% Senior Subordinated Notes,
due February 2003 (the "Senior Subordinated Notes"), will have to be retired
and/or refinanced. As of February 28, 2001, the Company had received approval
from the Credit Agreement lenders to purchase up to $50.0 million of the 97/8%
Senior Notes. As of February 28, 2001, the Company has purchased approximately
$1.0 million of 97/8% Senior Notes. As of February 28, 2001, there were $94.0
million of borrowings outstanding under the Credit Agreement and remaining
availability of approximately $120.0 million. However, proceeds of approximately
$130.0 million related to 2001 power sales are expected to be received at or
near March 30, 2001, and an additional $130.0 million of power proceeds will be
received periodically through October 2001 with respect to other power sales
made during the first quarter of 2001.

Consistent with its previously disclosed strategy, the Company is considering
the possible sale of part or all of its interests in certain operating assets.
The contemplated transactions are in various stages of development. The Company
expects that at least one operating asset will be sold. The Company has multiple
transactions under way. It is unlikely, however, that the Company would
consummate all of the transactions under consideration. Further, there can be no
assurance as to the likelihood, timing, or terms of such sales. The Company
would expect to use the proceeds from any such sales for debt reduction, capital
spending or some combination thereof. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Overview, Strategic
Initiatives" for additional discussion.

Incident at Gramercy Facility - In July 1999, the Company's Gramercy, Louisiana
alumina refinery was extensively damaged by an explosion. A number of employees
were injured in the incident, several of them severely. As a result of the
incident, alumina production at the facility was completely curtailed until the
middle of December 2000 when partial production commenced. The plant is expected
to increase production progressively to approximately 75% of its newly rated
estimated annual capacity of 1,250,000 tons by the end of March 2001. At
February 28, 2001, the plant was operating at 70% of capacity. Based on current
estimates, construction at the facility is expected to be completed during the
third quarter of 2001. Through February 28, 2001, the Company had recorded
$289.3 million of estimated insurance recoveries related to the Gramercy
incident and had collected $262.6 million of such amounts. An additional $7.0
million is expected in March 2001. The remaining balance of approximately $20.0
million and any additional amounts possibly due to the Company will likely not
be recovered until the Company and the insurers resolve certain outstanding
issues. The insurers have asserted that no additional business interruption
amounts are due after November 30, 2000. The Company and the insurers are
currently negotiating an arbitration agreement as a means of resolving their
differences. The Company anticipates that the remaining issues will not be
resolved until late 2001 or early 2002. The Company continues to believe that a
minimum of at least $290.0 million of insurance recoveries are probable, that
additional amounts are owed to the Company by the insurers, and that the
likelihood of any refund by the Company of amounts previously received from the
insurers is remote. See Note 2 of Notes to Consolidated Financial Statements for
more detailed information regarding the impact of the Gramercy incident.

Labor Matters - Prior to September 2000, when the labor dispute was settled, the
Company was operating five of its U.S. facilities with salaried employees and
other employees as a result of the September 1998 strike by the United
Steelworkers of America ("USWA") and the subsequent "lock-out" by the Company in
January 1999. Under the terms of the settlement, USWA members generally returned
to the affected plants during October 2000. The new labor contract, which
expires in September 2005, provides for a 2.6% average annual increase in the
overall wage and benefit package and results in the reduction of at least 540
hourly jobs at the five facilities (from approximately 2,800 in September 1998).
See Note 5 of Notes to Consolidated Financial Statements for a discussion of the
labor dispute and settlement. Although the USWA dispute has been settled and the
workers have returned to the facilities, two allegations of unfair labor
practices ("ULPs") remain in connection with the USWA strike and subsequent
lock-out by the Company. The Company believes that the remaining charges made
against it by the USWA are without merit. See Note 13 of Notes to Consolidated
Financial Statements, "- Labor Matters" for a discussion of the ULP charges.

Asbestos-Related Liability and Expected Recoveries - The Company is a defendant
in a number of lawsuits that generally relate to products it has not sold for
more than 20 years. The Company believes that it has insurance coverage
available to recover a substantial portion of its asbestos-related costs. For
the year ended December 31, 2000, a total of approximately $99.5 million of
asbestos-related settlements and defense costs were paid and partial insurance
reimbursements for asbestos-related matters totaling approximately $62.8 million
were received. See Note 13 of Notes to Consolidated Financial Statements for
additional information.

Pacific Northwest Power Sales and Operating Level - In response to the
unprecedented high market prices for power in the Pacific Northwest, the Company
temporarily curtailed primary aluminum production at the Tacoma and Mead,
Washington, smelters during the second half of 2000 and sold a portion of the
power that it had under contract through September 30, 2001. As a result of the
curtailments, the Company avoided the need to purchase power on a variable
market price basis and will receive cash proceeds sufficient to more than offset
the cash impact of the potline curtailments over the period for which the power
was sold. The Company has made additional power sales in 2001. Also, during
October 2000, the Company signed a new power contract with the Bonneville Power
Administration ("BPA") under which the BPA will provide the Company's operations
in the State of Washington with sufficient power to operate the Company's
Trentwood facility as well as approximately 40% of the combined capacity of the
Company's Mead and Tacoma aluminum smelting operations during the period from
October 2001 through September 2006. Power costs under the new contract are
expected to exceed the cost of power under the Company's current BPA contract by
between 20% to 60% and, perhaps, by as much as 100% in certain periods, and
other contract terms are less favorable than the Company's current BPA contract.
The Company does not have any remarketing rights under the new BPA contract. See
Note 7 of Notes to Consolidated Financial Statements for additional information
on these matters.

BUSINESS OPERATIONS

The Company conducts its business through its five main business units (Bauxite
and alumina, Primary aluminum, Commodities marketing, Flat-rolled products and
Engineered products), each of which is discussed below.

-  Bauxite and Alumina Business Unit
The following table lists the Company's bauxite mining and alumina refining
facilities as of December 31, 2000:

                                                                                                   Annual
                                                                              Production            Total
                                                                                Capacity           Annual
                                                               Company      Available to       Production
Activity                        Facility        Location      Ownership      the Company         Capacity
----------------            --------------   -------------   -----------   -------------      -----------
                                                                                  (tons)           (tons)

Bauxite Mining              KJBC             Jamaica              49.0%        4,500,000        4,500,000
                            Alpart(1)        Jamaica              65.0%        2,275,000        3,500,000
                                                                           -------------      -----------
                                                                               6,775,000        8,000,000
                                                                           =============      ===========
Alumina Refining            Gramercy(2)      Louisiana           100.0%        1,250,000        1,250,000
                            Alpart           Jamaica              65.0%          942,500        1,450,000
                            QAL              Australia            28.3%        1,032,950        3,650,000
                                                                           -------------      -----------
                                                                               3,225,450        6,350,000
                                                                           =============      ===========
------------
(1) Alumina Partners of Jamaica ("Alpart") bauxite is refined into alumina at
    the Alpart refinery.
(2) Production was completely curtailed from July 1999 until the middle of
    December 2000. See discussion below.

The Company is a major producer of alumina and sells significant amounts of its
alumina production in domestic and international markets. The Company's strategy
is to sell a substantial portion of the alumina available to it in excess of its
internal smelting requirements under multi-year sales contracts with prices
linked to the price of primary aluminum. See "- Competition" and "- Commodity
Marketing" in this Report. During 2000, the Company sold alumina to
approximately 14 customers, the largest and top five of which accounted for
approximately 27% and 80%, respectively, of the business unit's third-party net
sales. All of the Company's third-party sales of bauxite in 2000 were made to
two customers, which sales represent approximately 9% of the business unit's
third-party net sales. The Company's principal customers for bauxite and alumina
consist of other aluminum producers, trading intermediaries who resell raw
materials to end-users, and users of chemical grade alumina.

KJBC. The Government of Jamaica has granted the Company a mining lease for the
mining of bauxite which will, at a minimum, satisfy the bauxite requirements of
the Company's Gramercy, Louisiana, alumina refinery so that it will be able to
produce at its current rated capacity until 2020. Kaiser Jamaica Bauxite Company
("KJBC") mines bauxite from the land which is subject to the mining lease as an
agent for the Company. Although the Company owns 49% of KJBC, it is entitled to,
and generally takes, all of its bauxite output. A substantial majority of the
bauxite mined by KJBC is refined into alumina at the Gramercy facility and the
remainder is sold to two third-party customers. KJBC's operations have been
impacted by the Gramercy incident. The Government of Jamaica has agreed to grant
the Company an additional bauxite mining lease. The new mining lease will be
effective upon the expiration of the current lease in 2020 and will enable the
Gramercy facility to produce at its rated capacity for an additional ten year
period. See Note 2 of Notes to Consolidated Financial Statements for a detailed
discussion of the Gramercy incident.

Gramercy. Alumina produced by the Gramercy refinery is primarily sold to third
parties. The Gramercy refinery produces two products: smelter grade alumina and
chemical grade alumina (e.g. hydrate). Smelter grade alumina is sold under
long-term contracts typically linked to London Metal Exchange prices ("LME
prices"). Chemical grade alumina is sold at a premium price over smelter grade
alumina. Production at the Gramercy refinery was completely curtailed in July
1999 when it was extensively damaged by an explosion in the digestion area of
the plant. Production at the plant remained curtailed until the middle of
December 2000 at which time partial production commenced. The plant is expected
to increase production progressively to approximately 75% of its newly rated
estimated annual capacity of 1,250,000 tons by the end of March 2001. At
February 28, 2001, the plant was operating at 70% of capacity. Based on current
estimates, construction at the facility is expected to be completed during the
third quarter of 2001. While production was curtailed, the Company purchased
alumina from third parties, in excess of the amounts of alumina available from
other Company-owned facilities, to supply major customers' needs as well as to
meet intersegment requirements. See Note 2 of Notes to Consolidated Financial
Statements for additional information regarding the impact of the Gramercy
incident.

Alpart. Alpart holds bauxite reserves and owns a 1,450,000 ton per year alumina
plant located in Jamaica. The Company owns a 65% interest in Alpart, and Hydro
Aluminium a.s ("Hydro") owns the remaining 35% interest. The Company has
management responsibility for the facility on a fee basis. The Company 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 up to a capacity of 2,000,000 tons per year, through the year
2024. Beginning in the first half of 2000, Alpart and JAMALCO, a joint venture
between affiliates of Alcoa Inc. and the Government of Jamaica, began operating
a bauxite mining operation joint venture that consolidates their bauxite mining
operations in Jamaica, the objective of which is to optimize mining operating
and capital costs. The joint venture agreement also grants Alpart certain rights
to acquire bauxite mined from JAMALCO's reserves.

QAL. The Company owns a 28.3% interest in Queensland Alumina Limited ("QAL"),
which owns one of the largest and most competitive alumina refineries in the
world, located in Queensland, Australia. QAL refines bauxite into alumina,
essentially on a cost basis, for the account of its shareholders under long-term
tolling contracts. The shareholders, including the Company, purchase bauxite
from another QAL shareholder under long-term supply contracts. The Company has
contracted with QAL to take approximately 868,000 tons per year of alumina or
pay standby charges. The Company is unconditionally obligated to pay amounts
calculated to service its share ($101.5 million at December 31, 2000) of certain
debt of QAL, as well as other QAL costs and expenses, including bauxite shipping
costs.

-   Primary Aluminum Business Unit
The following table lists the Company's primary aluminum smelting facilities as
of December 31, 2000:

                                                                            Annual Rated            Total            2000
                                                                                Capacity           Annual         Average
                                                           Company         Available to             Rated       Operating
Location                                 Facility        Ownership           the Company         Capacity            Rate
-----------------                     -------------     ----------         --------------       ---------       ---------
                                                                                  (tons)           (tons)
United States
   Washington                          Mead                   100%               200,000          200,000             85%(1)
   Washington                          Tacoma                 100%                73,000           73,000             41%(1)
                                                                           --------------       ---------
       Subtotal                                                                  273,000          273,000
                                                                           --------------       ---------
International
   Ghana                               Valco                   90%               180,000          200,000             78%
   Wales, United Kingdom               Anglesey                49%                66,150          135,000           106%
                                                                           --------------       ---------
       Subtotal                                                                  246,150          335,000
                                                                           --------------       ---------
              Total                                                              519,150          608,000
                                                                           ==============       =========

--------
(1)  2000 operating rates were affected by the high market prices for electric
     power in the Pacific Northwest. Both smelters were curtailed as of December
     31, 2000. For a discussion of these matters see "Availability of Affordable
     Electric Power" below.

The Company uses proprietary retrofit and control technology in all of its
smelters. This technology - which includes the redesign of the cathodes, anodes
and bus that conduct electricity through reduction cells, improved feed systems
that add alumina to the cells, computerized process control and energy
management systems, and furnace technology for baking of anode carbon - has
significantly contributed to increased and more efficient production of primary
aluminum and enhanced the Company's ability to compete more effectively with the
industry's newer smelters.

The Company's principal primary aluminum customers consist of large trading
intermediaries and metal brokers. In 2000, the Company sold its primary aluminum
production not utilized for internal purposes to approximately 46 customers, the
largest and top five of which accounted for approximately 52% and 73%,
respectively, of the business unit's third-party net sales. See "-Competition"
in this Report. Marketing and sales efforts are conducted by personnel located
in Houston, Texas; and Tacoma and Spokane, Washington.

Operations in the United States. The Mead facility uses pre-bake technology.
Approximately 68% of Mead's 2000 production was used at the Company's Trentwood,
Washington, rolling mill and other Company-owned facilities, with the balance
being sold to third parties. The Tacoma facility 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.
The business unit maintains specialized laboratories and a miniature carbon
plant in the state of Washington which concentrate on the development of
cost-effective technical innovations such as equipment and process improvements.
As of December 31, 2000, both the Mead and Tacoma smelters were completely
curtailed and are expected to remain curtailed at least through September 30,
2001. However, the Company has continued to operate the Tacoma rod-mill. See
additional discussion below regarding electric power.

International Operations. The Company manages, and owns a 90% interest in, the
Volta Aluminium Company Limited ("Valco") aluminum smelter in Ghana. The Valco
smelter uses pre-bake technology and processes alumina supplied by the Company
and the other participant into primary aluminum under tolling contracts which
provide for proportionate payments by the participants. The Company's share of
the primary aluminum is sold to third parties. Valco's operating level has been
subject to fluctuations resulting from the amount of power it is allocated by
the Volta River Authority ("VRA"). The operating level over the last five years
has ranged from one to four out of a total of five potlines. During 2000 and
1999, Valco operated an average of four and three potlines, respectively.

The Company owns a 49% interest in the Anglesey Aluminium Limited ("Anglesey")
aluminum smelter at Holyhead, Wales. The Anglesey smelter uses pre-bake
technology. The Company supplies 49% of Anglesey's alumina requirements and
purchases 49% of Anglesey's aluminum output. The Company sells its share of
Anglesey's output to third parties.

Availability of Affordable Electric Power - Electric power represents an
important production input for the Company at its aluminum smelters and its cost
can significantly affect the Company's profitability.

United States. The Company purchases electric power for the Mead and Tacoma,
Washington, smelters from the BPA, which has supplied approximately half of the
electric power for the two plants over recent years, and from other suppliers.
The power contract with the BPA expires in September 2001, and the power
contracts with other suppliers have either expired or the underlying power has
been sold. As a result of unprecedented high market prices for electric power in
the Pacific Northwest, the Company temporarily curtailed all of the primary
aluminum production at the Tacoma and Mead, Washington, smelters and commenced
selling power that it had under contract through September 30, 2001. As a result
of the curtailment, the Company will avoid the need to purchase power on a
variable market basis and will receive cash proceeds sufficient to more than
offset the cash impact of the potline curtailments over the period for which the
power was sold. Both the Mead and Tacoma smelters are expected to remain
curtailed through at least September 30, 2001. Under a new contract with the
BPA, which will run from October 2001 through September 2006, the BPA will
provide the Company with sufficient power to operate its Trentwood facility as
well as approximately 40% of the combined capacity of its Mead and Tacoma
aluminum smelting operations. Power costs under the new contract are expected to
exceed the cost of power under the Company's current BPA contract by between 20%
to 60% and, perhaps, as much as 100% in certain periods, and other contract
terms are less favorable than the Company's current BPA contract. The Company
does not have any remarketing rights under the new BPA contract.

International. Valco and the VRA have reached an agreement, which is subject to
Parliamentary approval in 2001, that provides for sufficient power to operate at
least four of Valco's five potlines in 2001 and at least three and one-half
potlines thereafter. During early 2000, Anglesey entered into a new power
agreement that provides sufficient power to sustain its operations at full
capacity through September 2009.

-   Commodities Marketing Business Unit
The Company'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. Primary
aluminum prices have historically been subject to significant cyclical
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 and generally lag behind primary
aluminum prices by up to three months. From time to time in the ordinary course
of business, the Company enters into hedging transactions to provide risk
management in respect of its net exposure of earnings and cash flow related to
primary aluminum price changes. Given the significance of its primary aluminum
hedging activities, the Company has begun (starting with the year ended December
31, 2000) reporting its primary aluminum-related hedging activities as a
separate segment. Primary aluminum-related hedging activities are managed
centrally on behalf of all of the Company's business segments to minimize
transaction costs, to monitor consolidated net exposures and to allow for
increased responsiveness to changes in market factors. See Note 1 of Notes to
Consolidated Financial Statements, " - Derivative Financial Instruments," Note
14 of Notes to Consolidated Financial Statements and "Quantitative and
Qualitative Disclosures About Market Risk" for additional information regarding
primary aluminum-related hedging activities.

Hedging activities conducted in respect of the Company's cost exposure to energy
prices and foreign exchange rates are not considered a part of the Commodity
marketing segment. Rather, such activities are included in the results of the
business unit to which they relate.

-   Flat-Rolled Products Business Unit
The Flat-rolled products business unit operates the Trentwood, Washington,
rolling mill. The business unit sells to the aerospace, transportation and
industrial ("ATI") markets (producing heat-treat sheet and plate products and
automotive brazing sheet) and the beverage container market (producing lid and
tab stock), both directly and through distributors.

During 2000, the Company shifted the product mix of its Trentwood rolling mill
toward higher value-added product lines, such as heat-treat sheet and plate,
automotive brazing sheet and beverage can lid and tab stock, and away from
beverage can body stock, wheel and common alloy tread products in an effort to
enhance its profitability. See "Management's Discussion and Analysis of
Financial Condition and Results of Operation--2000 as Compared to
1999--Flat-Rolled Products" for a discussion of the financial impact of this
product mix shift. In 2000, the business unit sold to approximately 124
customers in the ATI markets, most of which represented heat-treat product
shipments to distributors who sell to a variety of industrial end-users. The
largest and top five customers in the ATI markets for flat-rolled products
accounted for approximately 8% and 23%, respectively, of the business unit's
third-party net sales.

The Company's flat-rolled products are also sold to beverage container
manufacturing locations primarily in the western United States and Asian Pacific
Rim countries. The largest and top five of such customers accounted for
approximately 12% and 26%, respectively, of the business unit's third-party net
sales. See "- Competition" in this Report. Sales are made directly to end-use
customers and distributors by the Company sales representatives located across
the United States and England, and by independent sales agents in Asia. However,
in addition to exiting can body stock production, beverage can lid and tab
manufacturing is also being de-emphasized to further increase the business
unit's focus on higher value-added heat-treat product lines described above.

-   Engineered Products Business Unit
The Engineered products business unit operates soft-alloy and hard-alloy
extrusion facilities and engineered component (forgings) facilities in the
United States and Canada. Major markets for extruded products are in the ground
transportation industry, to which the business unit sells extruded shapes for
automobiles, light-duty vehicles, heavy duty trucks and trailers, and shipping
containers, and in the distribution, durable goods, defense, building and
construction, ordnance and electrical markets.

Soft-alloy extrusion facilities are located in Los Angeles, California; Sherman,
Texas; Tulsa, Oklahoma; Richmond, Virginia; and London, Ontario, Canada.
Products manufactured at these facilities include rod, bar, tube, shapes and
billet. During 2000 and 2001, the Tulsa facility is being reconfigured as a
focused production facility for standard soft- alloy extrusion products, having
transferred its cathodic protection business to the Sherman facility. Hard-alloy
extrusion facilities are located in Newark, Ohio; and Jackson, Tennessee, and
produce rod, bar, screw machine stock, redraw rod, forging stock and billet. The
business unit also extrudes seamless tubing in both hard- and soft-alloys at a
facility in Richland, Washington and produces drawn tube in both hard- and
soft-alloys at a facility in Chandler, Arizona, that it purchased in May 2000.

The business unit sells forged parts to customers in the automotive, heavy-duty
truck, general aviation, rail, machinery and equipment, and ordnance markets.
The high strength-to-weight properties of forged aluminum make it particularly
well-suited for automotive applications. Forging facilities are located in
Oxnard, California, and Greenwood, South Carolina. Through its sales and
engineering office in Southfield, Michigan, the business unit staff works with
automobile makers and other customers and plant personnel to create new
automotive component designs and to improve existing products.

In 2000, the Engineered products business unit had approximately 400 customers,
the largest and top five of which accounted for approximately 8% and 23%,
respectively, of the business unit's third-party net sales. See "- Competition"
below. Sales are made directly to end-use customers and distributors by the
Company sales representatives located across the United States.

COMPETITION

The Company competes globally with producers of bauxite, alumina, primary
aluminum, and fabricated aluminum products. Many of the Company's competitors
have greater financial resources than the Company. 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. Aluminum competes in many markets with steel, copper,
glass, plastic, and other materials. The Company competes with numerous domestic
and international fabricators in the sale of fabricated aluminum products. The
Company manufactures and markets fabricated aluminum products for the
transportation, packaging, 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. Competition in the sale of
fabricated products is based upon quality, availability, price and service,
including delivery performance. The Company concentrates its fabricating
operations on selected products in which it believes it has production
expertise, high-quality capability, and geographic and other competitive
advantages. The Company 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 its customers, including intermediaries,
would not have a material adverse effect on the Company's financial condition or
results of operations.

RESEARCH AND DEVELOPMENT

Net expenditures for research and development activities were $5.6 million in
2000, $11.0 million in 1999, and $13.7 million in 1998. The Company estimates
that research and development net expenditures will be in the range of $3.0
million to $5.0 million in 2001.

EMPLOYEES

During 2000, the Company employed an average of approximately 7,800 persons,
compared with an average of approximately 8,600 persons in 1999 and
approximately 9,200 persons in 1998. At December 31, 2000, the Company employed
approximately 7,300 persons. The foregoing employee counts for 2000, 1999 and
1998 include the USWA workers who were subject to the lockout imposed by the
Company as a result of the labor dispute that was settled in September 2000.
During the labor dispute, the Company operated the five affected facilities with
temporary workers who were not included in the employee counts for 2000, 1999
and 1998.

The labor agreements with employees at the Valco smelter in Ghana, the Alpart
refinery in Jamaica and the Engineered products business unit's plants at Los
Angeles, California, and Richmond, Virginia, are scheduled to expire in 2001.

ENVIRONMENTAL MATTERS

The Company is subject to a wide variety of international, federal, state and
local environmental laws and regulations. For a discussion of this subject, see
"Factors Affecting Future Performance - the Company's current or past operations
subject it to environmental compliance, clean-up and damage claims that may be
costly" below.

FACTORS AFFECTING FUTURE PERFORMANCE

This section discusses certain factors that could cause actual results to vary,
perhaps materially, from the results described in forward-looking statements
made in this Report. Forward-looking statements in this Report are not
guarantees of future performance and involve significant risks and
uncertainties. In addition to the factors identified below, actual results may
vary materially from those in such forward-looking statements as a result of a
variety of other factors including the effectiveness of management's strategies
and decisions, general economic and business conditions, developments in
technology, new or modified statutory or regulatory requirements, and changing
prices and market conditions. This Report also identifies other factors that
could cause such differences. No assurance can be given that these factors are
all of the factors that could cause actual results to vary materially from the
forward-looking statements.

-  Our earnings are sensitive to a number of variables
Our operating earnings are sensitive to a number of variables over which we have
no direct control. Two key variables in this regard are prices for primary
aluminum and general economic conditions.

The price of primary aluminum significantly affects our financial results.
Primary aluminum prices historically have been subject to significant cyclical
price fluctuations. The Company believes the timing of changes in the market
price of aluminum are largely unpredictable. Since 1993, the Average Midwest
United States transaction price (the "AMT price") has ranged from approximately
$.50 to $1.00 per pound.

Changes in global, regional, or country-specific economic conditions can have a
significant impact on overall demand for aluminum-intensive fabricated products
in the transportation, distribution, and packaging markets. Such changes in
demand can directly affect our earnings by impacting the overall volume and mix
of such products sold. To the extent that these end-use markets weaken, demand
can also diminish for alumina and primary aluminum.

-  Our near-term significant debt maturities could adversely affect us
We have significant near-term debt maturities. The Company's Credit Agreement
expires in August 2001. It is the Company's intention to extend or replace the
Credit Agreement prior to its expiration. However, in order for the Credit
Agreement to be extended, on a short-term basis, beyond August 2001, the Company
will have to have a plan to mitigate the $225.0 million of 97/8% Senior Notes.
For the Credit Agreement to be extended past February 2003, both the 97/8%
Senior Notes and the $400.0 million of Senior Subordinated Notes will have to be
retired and/or refinanced. As of February 28, 2001, the Company had received
approval from the Credit Agreement lenders to purchase up to $50.0 million of
the 97/8% Senior Notes. As of February 28, 2001, the Company had purchased
approximately $1.0 million of 97/8% Senior Notes. As of February 28, 2001, there
were $94.0 million of borrowings outstanding under the Credit Agreement and
remaining availability of approximately $120.0 million. However, proceeds of
approximately $130.0 million related to 2001 power sales are expected to be
received at or near March 30, 2001, and an additional $130.0 million of power
proceeds will be received periodically through October 2001 with respect to
other power sales made during the first quarter of 2001. The Company is also
considering the possible sale of part or all of its interests in certain assets.
The contemplated transactions are in various stages of development. The Company
expects that at least one operating asset will be sold. The Company has multiple
transactions under way. It is unlikely, however, that it would consummate all of
the transactions under consideration. Further, there can be no assurance as to
the likelihood, timing or terms of such sales. The Company expects to use the
proceeds from any such sales for debt reduction, capital spending or some
combination thereof. The Company's ability to refinance its debt depends
primarily on its ability to generate cash in the future. This, to a certain
extent, is subject to general economic, financial, competitive, legislative and
other factors beyond our control.

-  Our high leverage and debt service requirements could adversely affect us
We are highly leveraged and have significant debt service requirements. As of
December 31, 2000, the Company's total debt was approximately $989.4 million.
The Company's high level of debt affects our operations in several important
ways:

-    a large portion of the cash we generate is used to pay interest.
     Accordingly, our financial results are more vulnerable in the event of a
     downturn in our business, the aluminum industry or general economic
     conditions;

-    the agreements governing such debt limit our flexibility in planning for
     and reacting to changes in our business conditions. For example, some or
     all of the agreements governing such debt limit our ability to make capital
     expenditures, to borrow additional money and to consolidate or merge with
     other companies;

-    we may experience a competitive disadvantage because we are more highly
     leveraged than some of our competitors; and

-    the agreements governing such debt permit our creditors to accelerate
     payments if we default or experience a change in the control of our
     ownership as set forth in such agreements.

The Company's ability to make payments on its debt depends on its ability to
generate cash in the future. This, to a certain extent, is subject to general
economic, financial, competitive, legislative, regulatory and other factors
beyond our control.

-  The asbestos-related lawsuits against the Company could continue to increase
   and could adversely impact our financial position
The Company is a defendant in numerous lawsuits in which the plaintiffs allege
that they have injuries caused by exposure to asbestos during, and as a result
of, their employment or association with us, or exposure to products containing
asbestos produced or sold by us. The lawsuits generally relate to products the
Company sold more than 20 years ago.

Our December 31, 2000, balance sheet includes a liability for estimated
asbestos-related costs of $492.4 million. We cannot assure you that this
liability will not increase in the future. In determining the amount of the
liability, we have only included estimates for the cost of claims for a ten year
period through 2010 because we do not have a reasonable basis for estimating
costs beyond that period. However, we expect that these costs may continue
beyond 2010 and that they could be substantial.

We believe the Company has insurance coverage for a substantial portion of such
asbestos-related costs. Accordingly, our December 31, 2000, balance sheet
includes a long-term receivable for estimated insurance recoveries of $406.3
million. We believe that the Company will recover a substantial portion of these
payments from insurance, but cannot assure you that the Company will receive
substantial insurance payments or that the timing of such payments will occur in
the year the Company is required to make the payments. Delays in receiving
future insurance repayments would have an adverse impact on our liquidity.

Prior to insurance recoveries, we estimate that the Company's annual cash
payments for asbestos-related costs will be approximately $110.0 - $135.0
million in the years 2001 and 2002, approximately $45.0 - $50.0 million in the
years 2003 and 2004, approximately $25.0 million in the year 2005 and a total of
$125.0 million beyond 2005.

See Note 13 of Notes to Consolidated Financial Statements for additional
discussion of this matter.

-   Power availability for smelting operations
Electric power represents an important production input for the Company at its
aluminum smelters and its cost can significantly affect the Company's
profitability. Power contracts for the Company's smelters have varying
contractual terms. See "Business - Primary Aluminum Business Unit - Availability
of Affordable Electric Power" in this Report. We cannot provide assurance that
electric power will be available in the future, at affordable prices, for the
Company's smelters. Under the new contract with the BPA, the Company's Pacific
Northwest operations will not receive sufficient power to run its smelting
operations at full capacity and may have to pay as much as 100% more than the
power rate under the current contract. Depending on the ultimate price for such
power or the availability of an alternate power supply at an acceptable price,
the Company may be unable to operate the smelters in the near or long-term.
Under the Company's contract with the USWA, the Company is liable for certain
severance and supplemental unemployment benefits for laid- off workers. Such
costs related to the period from January 1, 2001 to September 30, 2001 have been
accrued to the extent that the costs are fixed and determinable. However, the
Company may become liable for additional costs. In particular, the Company would
become liable for certain early retirement benefits for USWA workers at the Mead
and Tacoma, Washington, facilities if such facilities are not restarted prior to
late 2002 or early 2003. Such costs could be significant and would adversely
impact our operating results and liquidity.

-  The Gramercy incident could result in adverse consequences to us
In July 1999, the Company's Gramercy, Louisiana, alumina refinery was
extensively damaged by an explosion in the digestion area of the plant. A number
of employees were injured in the incident, several of them severely. The Company
may be liable for claims relating to the injured employees. The incident has
also resulted in more than ninety lawsuits being filed against the Company
alleging, among other things, property damage, business interruption loss by
other businesses and personal injury. The aggregate amount of damages sought in
the lawsuits and other claims cannot be determined at this time. We currently
believe the Company's insurance will cover the majority of the costs of these
lawsuits and claims relating to the injured employees.

Through February 28, 2001, the Company had recorded $289.3 million of estimated
insurance recoveries related to the Gramercy incident and had collected $262.6
million of such amounts. An additional $7.0 million is expected in March 2001.
The remaining balance of approximately $20.0 million and any additional amounts
possibly due to the Company will likely not be recovered until the Company and
the insurers resolve certain outstanding issues. The insurers have asserted that
no additional business interruption amounts are due after November 30, 2000. The
Company and the insurers are currently negotiating an arbitration agreement as a
means of resolving their differences. We anticipate that the remaining issues
will not be resolved until late 2001 or early 2002. We continue to believe that
a minimum of approximately $290.0 million of insurance recoveries are probable,
that additional amounts are owed to the Company by the insurers, and that the
likelihood of any refund by the Company of amounts previously received from the
insurers is remote. However, because this matter is subject to significant
uncertainties, no assurances can be given as to the ultimate outcome of this
matter or its impact on our near-term liquidity and results of operations.

- Our profits and cash flows may be adversely impacted by the results of the
  Company's hedging programs
The Company enters into hedging transactions to limit its exposure resulting
from (1) its anticipated sales of alumina, primary aluminum, and fabricated
aluminum products, net of expected purchase costs for items that fluctuate with
primary aluminum prices, (2) energy price risk from fluctuating prices for
natural gas, fuel oil and diesel oil used in its production process, and (3)
foreign currency requirements with respect to its cash commitments with foreign
subsidiaries and affiliates. To the extent that the prices for primary aluminum
exceed the fixed or ceiling prices established by the Company's hedging
transactions or that energy costs or foreign exchange rates are below the fixed
or floor prices, our profits and cash flow would be lower than they otherwise
would have been.

Hedging activities can also have a temporary impact on our liquidity. The
Company has established credit limits with certain counterparties related to
open forward sales and option contracts. When unrealized gains or losses on open
positions are in excess of such credit lines, the Company is entitled to receive
margin advances from the counterparties or is required to make margin advances
to counterparties, as the case may be. At December 31, 2000, the impact of
margin arrangements on our liquidity was insignificant. However, future
increases in primary aluminum prices or decreases in foreign exchange rates
could result in the Company having to make margin advances or post additional
letters of credit and such amounts could be significant and could adversely
impact our liquidity.

Information regarding the Company's sensitivity to certain price amounts from
both an earnings and liquidity perspective is provided in "Quantitative and
Qualitative Disclosures About Market Risk."

- Our current or past operations subject us to environmental compliance,
  clean-up and damage claims that may be costly
The operations of the Company's facilities are regulated by a wide variety of
international, federal, state and local environmental laws. These environmental
laws regulate, among other things, air and water emissions and discharges; the
generation, storage, treatment, transportation and disposal of solid and
hazardous waste; and the release of hazardous or toxic substances, pollutants
and contaminants into the environment. Compliance with these environmental laws
is costly. While legislative, regulatory and economic uncertainties make it
difficult for us to project future spending for these purposes, we currently
anticipate that in the 2001 - 2002 period, the Company's environmental capital
spending will be approximately $6.0 million per year and that the Company's
operating costs will include pollution control costs totaling approximately
$27.0 million per year. However, subsequent changes in environmental laws may
change the way the Company must operate and may force it to spend more then we
currently project.

Additionally, the Company's current and former operations can subject it to
fines or penalties for alleged breaches of environmental laws and to other
actions seeking clean-up or other remedies under these environmental laws. The
Company also may be subject to damages related to alleged injuries to health or
to the environment, including claims with respect to certain waste disposal
sites and the clean-up of sites currently or formerly used by the Company.

Currently, the Company is subject to certain lawsuits under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended by
the Superfund Amendments and Reauthorization Act of 1986 ("CERCLA"). The
Company, along with certain other companies, has been named as a Potentially
Responsible Party for clean-up costs at certain third-party sites listed on the
National Priorities List under CERCLA. As a result, the Company may be exposed
not only to its assessed share of clean-up but also to the costs of others if
they are unable to pay. Additionally, the Company's Mead, Washington, facility
has been listed on the National Priorities List under CERCLA. The Company and
the regulatory authorities agreed to a plan of remediation in January 2000.

In response to environmental concerns, we have established environmental
accruals representing our estimate of the costs we reasonably expect the Company
to incur in connection with these matters. At December 31, 2000, the balance of
our accruals, which are primarily included in our long-term liabilities, was
$46.1 million. We estimate that the annual costs charged to these environmental
accruals will be approximately $3.0 million to $12.0 million per year for the
years 2001 through 2005 and an aggregate of approximately $21.0 million
thereafter. However, we cannot assure you that the Company's actual costs will
not exceed our current estimates. We believe 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 $35.0 million.
See Note 13 of Notes to Consolidated Financial Statements for additional
information.

- The remaining allegations of Unfair Labor Practices ("ULPs") filed by the USWA
  could adversely affect us
In connection with the USWA strike and subsequent lock-out by the Company, the
USWA filed twenty-four allegations of ULPs. Twenty-two of the allegations were
dismissed. A trial before an administrative law judge for the two remaining
allegations commenced in November 2000 and is continuing. If the outcome of
either of these two allegations eventually results in a final ruling against the
Company, it could be obligated to provide back pay to the USWA members and such
amount could be significant. However, any outcome from the trial before the
administrative law judge would be subject to additional appeals by the general
counsel of the National Labor Relations Board (the "NLRB"), the USWA or the
Company. This process could take months or years.

-   Ability to operate profitably in the future
We reported net income of $17.5 million for the year ended December 31, 2000
which included material non-recurring gains and losses. If such non-recurring
gains and losses were excluded from the 2000 results (see "Management's
Discussion and Analysis of Financial Condition and Results of Operation -
Summary" for a summary of non-recurring gains and losses), net income for the
year ended December 31, 2000 would have been only slightly above break-even.
While we expect that 2001 will be profitable as a result of net gains from power
sales, there can be no assurance that we will generate a profit from recurring
operations or that we will operate profitably in future periods.

-   We operate in a highly competitive industry
The production of alumina, primary and fabricated aluminum products is highly
competitive. There are numerous companies who operate in the aluminum industry.
Certain of our competitors are substantially larger, have greater financial
resources than we do and may have other strategic advantages.

-  We are subject to political and regulatory risks in a number of countries
The Company operates facilities in the United States and in a number of other
countries, including Australia, Canada, Ghana, Jamaica, and the United Kingdom.
While we believe the Company's relationships in the countries in which it
operates are generally satisfactory, we cannot assure you that future country
developments or governmental actions will not adversely affect the Company's
operations particularly or the aluminum industry generally. Among the risks
inherent in the Company's operations are unexpected changes in regulatory
requirements, unfavorable legal rulings, new or increased taxes and levies, and
new or increased import or export restrictions. The Company's operations outside
of the United States are subject to a number of additional risks, including but
not limited to currency exchange rate fluctuations, currency restrictions, and
nationalization of assets.

ITEM 2.       PROPERTIES

The locations and general character of the principal plants, mines, and other
materially important physical properties relating to the Company's operations
are described in Item 1 "- Business Operations" and those descriptions are
incorporated herein by reference. The Company 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 the
Company's domestic aluminum smelters were initially designed early in the
Company'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. The Company believes that its plants are
cost competitive on an international basis. However, the long-term viability of
the Company's Pacific Northwest smelters may be adversely impacted if an
adequate supply of power at reasonable prices is not ultimately available.

The Company's obligations under the Credit Agreement are secured by, among other
things, mortgages on the Company's major domestic plants (other than the
Gramercy alumina refinery). See Note 8 of Notes to Consolidated Financial
Statements for further discussion.

ITEM 3.       LEGAL PROCEEDINGS

This section contains statements which constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. See
Item 1 of this Report for cautionary information with respect to such
forward-looking statements.

GRAMERCY LITIGATION

On July 5, 1999, the Company's Gramercy, Louisiana, alumina refinery was
extensively damaged by an explosion in the digestion area of the plant. A number
of employees were injured in the incident, several of them severely. The Company
may be liable for claims relating to the injured employees. The incident has
resulted in more than ninety lawsuits, many of which were styled as class action
suits, being filed against the Company and others since July 1999 on behalf of
more than 16,000 claimants. Such lawsuits allege, among other things, property
damage, business interruption loss by other businesses and personal injury. All
such lawsuits previously pending in state court are now consolidated into one
action pending in the Twenty-Third Judicial District Court for the Parish of St.
James, State of Louisiana. One lawsuit remains pending in the United States
District Court, Eastern District of Louisiana. Discovery has begun in the cases.
The aggregate amount of damages sought in the lawsuits cannot be determined at
this time. See Note 2 of Notes to Consolidated Financial Statements.

In connection with the settlement of the U.S. Mine Safety and Health
Administration's ("MSHA") investigation of the incident, the Company is paying a
fine of $.5 million but denied the alleged violations.

ASBESTOS-RELATED LITIGATION

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 more than 20
years. The portion of Note 13 of Notes to Consolidated Financial Statements
under the heading "Asbestos Contingencies" is incorporated herein by reference.

LABOR MATTERS

In connection with the USWA strike and subsequent lock-out by the Company,
certain allegations of ULPs were filed by the USWA with the NLRB. Twenty-two of
the twenty-four allegations of ULPs brought against the Company by the USWA have
been dismissed. A trial on the remaining two allegations before an
administrative law judge commenced in November 2000 and is continuing. The
Company is unable to estimate when the trial will be completed. If the outcome
of either of these two allegations eventually results in a final ruling against
the Company, it could be obligated to provide back pay to the USWA members and
such amount could be significant. Any outcome from the trial would be subject to
additional appeals by the general counsel of the NLRB, the USWA or the Company.
This process could take months or years. The portion of Note 13 of Notes to
Consolidated Financial Statements under the heading "Labor Matters" is
incorporated herein by reference.

OTHER MATTERS

Various other lawsuits and claims are pending against the Company. 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.
See Note 13 of Notes to Consolidated Financial Statements.

ITEM 4.       SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of security holders of the Company during the
fourth quarter of 2000.

PART II

ITEM 5.       MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
              MATTERS

There is no established public trading market for the Company's Common Stock,
which is held solely by Kaiser. The Company has not paid any dividends on its
Common Stock during the two most recent fiscal years. The Indentures and the
Credit Agreement (Exhibits 4.1 through 4.36 to the Report) contain restrictions
on the ability of the Company to pay dividends on or make distributions on
account of the Company's common stock and restrictions on the ability of the
Company's subsidiaries to transfer funds to the Company in the form of cash
dividends, loans or advances. Exhibits 4.1 through 4.36 to this Report and Note
8 of Notes to Consolidated Financial Statements under the heading "Debt
Covenants and Restrictions" in this Report are incorporated herein by reference.

ITEM 6.       SELECTED FINANCIAL DATA

Selected financial data for the Company is incorporated herein by reference to
the table at page 1 of this Report, to the table at pages 14 - 15 of
Management's Discussion and Analysis of Financial Condition and Results of
Operations, to Note 1 of Notes to Consolidated Financial Statements, and to the
Five-Year Financial Data on pages 63 - 64 in this Report.

ITEM 7.       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
              RESULTS OF OPERATIONS
The Company operates in all principal aspects of the aluminum industry through
the following business segments: Bauxite and alumina, Primary aluminum,
Flat-rolled products, Engineered products and Commodities marketing. The Company
uses a portion of its bauxite, alumina, and primary aluminum production for
additional processing at certain of its downstream facilities. Intersegment
transfers are valued at estimated market prices. The table below provides
selected operational and financial information on a consolidated basis with
respect to the Company for the years ended December 31, 2000, 1999 and 1998. The
following data should be read in conjunction with the Company's consolidated
financial statements and the notes thereto, contained elsewhere herein. See Note
15 of Notes to Consolidated Financial Statements for further information
regarding segments. (All references to tons refer to metric tons of 2,204.6
pounds.)

                                                                     Year Ended December 31,
                                                              -------------------------------------
(In millions of dollars, except shipments and prices)            2000          1999          1998
---------------------------------------------------------------------------------------------------
Shipments: (000 tons)
   Alumina(1)
      Third Party                                              1,927.1       2,093.9       2,250.0
      Intersegment                                               751.9         757.3         750.7
                                                              ---------    ----------    ----------
        Total Alumina                                          2,679.0       2,851.2       3,000.7
                                                              ---------    ----------    ----------
   Primary Aluminum(2)
      Third Party                                                345.5         295.6         263.2
      Intersegment                                               148.9         171.2         162.8
                                                              ---------    ----------    ----------
        Total Primary Aluminum                                   494.4         466.8         426.0
                                                              ---------    ----------    ----------
   Flat-Rolled Products                                          162.3         217.9         235.6
                                                              ---------    ----------    ----------
   Engineered Products                                           164.6         171.1         169.4
                                                              ---------    ----------    ----------
Average Realized Third Party Sales Price: (3)(4)
   Alumina (per ton)                                          $    209     $     176     $     184
   Primary Aluminum (per pound)                               $    .74     $     .66     $     .67
Net Sales:(3)
   Bauxite and Alumina(1)(4)
      Third Party (includes net sales of bauxite)             $  442.2     $   395.8     $   445.2
      Intersegment                                               148.3         129.0         135.8
                                                              ---------    ----------    ----------
        Total Bauxite & Alumina                              590.5         524.8         581.0
                                                              ---------    ----------    ----------
   Primary Aluminum(2)(4)
      Third Party                                                563.7         432.9         390.7
      Intersegment                                               242.3         240.6         233.5
                                                              ---------    ----------    ----------
        Total Primary Aluminum                                   806.0         673.5         624.2
                                                              ---------    ----------    ----------
   Flat-Rolled Products                                          521.0         591.3         732.7
   Engineered Products                                           564.9         556.8         595.3
   Commodities Marketing(4)                                      (25.4)         18.3          60.5
   Minority Interests                                            103.4          88.5          78.0
   Eliminations                                                 (390.6)       (369.6)       (369.3)
                                                              ---------    ----------    ----------
        Total Net Sales                                       $2,169.8     $ 2,083.6     $ 2,302.4
                                                              =========    ==========    ==========
Operating Income (Loss):(7)(8)
   Bauxite & Alumina(4)(5)                                $   57.2     $   (10.5)    $     5.5
   Primary Aluminum(4)(6)                                        100.1          (4.8)         28.3
   Flat-Rolled Products                                           16.6          17.1          86.8
   Engineered Products                                            34.1          38.6          51.5
   Commodities Marketing(4)                                      (48.7)         21.3          98.1
   Micromill                                                       (.6)        (11.6)        (18.4)
   Eliminations                                                     .1           6.9           8.9
   Corporate and Other                                           (61.1)        (61.5)        (64.7)
   Labor Settlement Charge                                       (38.5)         -             -
   Other Non-Recurring Operating Items, Net                       80.4         (24.1)       (105.0)
                                                              ---------    ----------    ----------
        Total Operating Income (Loss)                         $  139.6     $   (28.6)    $    91.0
                                                              ========     ==========    ==========
Net Income (Loss)                                             $   17.5     $   (52.4)    $     2.7
                                                              ========     ==========    ==========
Capital Expenditures                                          $  296.5     $    68.4     $    77.6
                                                              ========     ==========    ==========

(1)   Net sales for 2000 and 1999 included approximately 267,000 tons and
      264,000 tons, respectively, of alumina purchased from third parties and
      resold to certain unaffiliated customers and 55,000 tons and 131,000 tons,
      respectively, of alumina purchased from third parties and transferred to
      the Company's primary aluminum business unit.
(2)   Net sales for 2000, 1999 and 1998 included approximately 206,500 tons,
      260,100 tons and 251,300 tons, respectively, of primary aluminum purchased
      from third parties to meet third-party and internal commitments.
(3)   Net sales for 1999 and 1998 for all segments have been restated to conform
      to a new accounting requirement which states that freight charges should
      be included in cost of products sold rather than netted against net sales
      as was the Company's prior policy. Average realized prices for the
      Company's Flat-rolled products and Engineered products segments are not
      presented as such prices are subject to fluctuations due to changes in
      product mix.
(4)   Average realized third-party sales prices, net sales and operating income
      (loss) for Bauxite and alumina and Primary aluminum segments for 1999 and
      1998 have been restated to reflect a change in the Company's segment
      reporting. The results of the Company's metal hedging activities are now
      set out separately in the Commodities marketing segment rather than being
      allocated between the two commodity business units.
(5)   Operating income (loss) for 2000 and 1999 included estimated business
      interruption insurance recoveries totaling $110.0 and $41.0, respectively
      Additionally, depreciation was suspended for the Gramercy facility for the
      period from July 1999 to December 2000 as a result of the July 1999
      incident. Depreciation expense for the Gramercy facility for the six
      months ended June 30, 1999, was approximately $6.0. See Note 2 of Notes to
      Consolidated Financial Statements for additional information.
(6)   Operating income (loss) for the year ended December 31, 1999, included
      potline preparation and restart costs of $12.8.
(7)   The allocation of the labor settlement charges to the Company's business
      units for the year ended December 31, 2000 is as follows: Bauxite and
      Alumina - $2.1, Primary aluminum - $15.9, Flat-rolled products - $18.2 and
      Engineered products - $2.3.
(8)   See Note 6 of Notes to Consolidated Financial Statements for a detailed
      summary of the components of non-recurring operating items, net (other
      than the labor settlement charges) and the business segment to which the
      items relate.

This section contains statements which constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
These statements appear in a number of places in this section (see "Overview,"
"Results of Operations," "Liquidity and Capital Resources" and "Other Matters").
Such statements can be identified by the use of forward-looking terminology such
as "believes," "expects," "may," "estimates," "will," "should," "plans" or
"anticipates" or the negative thereof or other variations thereon or comparable
terminology, or by discussions of strategy. Readers are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
significant risks and uncertainties, and that actual results may vary materially
from those in the forward-looking statements as a result of various factors.
These factors include the effectiveness of management's strategies and
decisions, general economic and business conditions, developments in technology,
new or modified statutory or regulatory requirements and changing prices and
market conditions. No assurance can be given that these are all of the factors
that could cause actual results to vary materially from the forward-looking
statements.

OVERVIEW

Market-related Factors. The Company'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 on the volume and mix of all products
sold and on the Company's hedging strategies. Primary aluminum prices have
historically been subject to significant cyclical price fluctuations. See Notes
1 and 14 of Notes to Consolidated Financial Statements for a discussion of the
Company's hedging activities.

Changes in global, regional, or country-specific economic conditions can have a
significant impact on overall demand for aluminum-intensive fabricated products
in the transportation, distribution, and packaging markets. Such changes in
demand can directly affect the Company's earnings by impacting the overall
volume and mix of such products sold. To the extent that these end-use markets
weaken, demand can also diminish for what the Company sometimes refers to as the
"upstream" products: alumina and primary aluminum.

During 2000, the Average Midwest United States transaction price ("AMT price")
per pound of primary aluminum was $.75 per pound. During 1999, the AMT price
declined to a low of approximately $.57 per pound in February 1999 and then
began a steady increase ending 1999 at $.79 per pound. During 1998, the AMT
price experienced a steady decline during the year, beginning the year in the
$.70 to $.75 range and ending the year in the low $.60 range. At January 31,
2001, the AMT price was approximately $.81 per pound.

Liquidity/Cash Resources. The Company has significant near-term debt maturities.
The Company's ability to make payments on and refinance its debt depends on its
ability to generate cash in the future. In addition to being impacted by power
sales and normal operating items, the Company's near-term liquidity and cash
flows will also be affected by the Gramercy incident, net payments for
asbestos-related liabilities and possible proceeds from asset dispositions. See
"Liquidity and Capital Resources - Financing Activities and Liquidity" for a
discussion of these matters.

Incident at Gramercy Facility. In July 1999, the Company's Gramercy, Louisiana
alumina refinery was extensively damaged by an explosion in the digestion area
of the plant. Construction on the damaged part of the facility began during the
first quarter of 2000. Initial production at the plant commenced during the
middle of December 2000. The plant is expected to increase production
progressively to approximately 75% of its newly rated estimated annual capacity
of 1,250,000 tons by the end of March 2001. At February 28, 2001, the plant was
operating at 70% of capacity. Based on current estimates, construction at the
facility is expected to be completed during the third quarter of 2001.

Through February 28, 2001, the Company had recorded $289.3 million of estimated
insurance recoveries related to the Gramercy incident and had collected $262.6
million of such amounts. An additional $7.0 million is expected in March 2001.
The remaining balance of approximately $20.0 million and any additional amounts
possibly due to the Company will likely not be recovered until the Company and
the insurers resolve certain outstanding issues. The Company and the insurers
are currently negotiating an arbitration agreement as a means of resolving their
differences. The Company anticipates that the remaining issues will not be
resolved until late 2001 or early 2002. The Company continues to believe that a
minimum of approximately $290.0 million of insurance recoveries are probable,
that additional amounts are owed to the Company by the insurers, and that the
likelihood of any refund by the Company of amounts previously received from the
insurers is remote.

See Note 2 of Notes to Consolidated Financial Statements for a full discussion
regarding the incident at the Gramercy facility.

Labor Matters. As previously reported, prior to the settlement of the labor
dispute, the Company was operating five of its U.S. facilities with salaried
employees and other employees as a result of the September 1998 strike by the
United Steelworkers of America ("USWA") and the subsequent "lockout" by the
Company in January 1999. The labor dispute was settled in September 2000. In
September 2000, the Company recorded a one-time pre-tax labor settlement charge
of $38.5 million to reflect the incremental, non-recurring impacts of the labor
settlement, including severance and other contractual obligations for
non-returning workers. See Note 5 of Notes to Consolidated Financial Statements
for additional discussions on the labor settlement.

Although the USWA dispute has been settled and the workers have returned to the
facilities, two allegations of unfair labor practices ("ULPs") in connection
with the USWA strike and subsequent lock-out by the Company remain to be
settled. The Company believes that the remaining charges made against the
Company by the USWA are without merit. See Note 13 of Notes to Consolidated
Financial Statements for additional discussion on the ULP charges.

Strategic Initiatives. The Company's strategy is to improve its financial
results by: increasing the competitiveness of its existing plants; continuing
its cost reduction initiatives; adding assets to businesses it expects to grow;
pursuing divestitures of its non-core businesses; and strengthening its
financial position by divesting of part or all of its interests in certain
operating assets.

In addition to working to improve the performance of the Company's existing
assets, the Company has devoted significant efforts analyzing its existing asset
portfolio. The Company intends to focus its efforts and capital in sectors of
the industry that are considered most attractive, and in which the Company
believes it is well positioned to capture value. During 2000, the Company sold
certain non-operating properties, its Micromill assets and technology and its
Pleasanton, California, office complex and purchased the assets of a drawn tube
aluminum fabricating operation. The dispositions were part of the Company's
initiative to monetize non-strategic or underperforming assets. The acquisition
was part of the Company's continued focus on growing its Engineered products
operations.

The Company is considering the possible sale of part or all of its interests in
certain operating assets. The contemplated transactions are in various stages of
development. The Company expects that at least one operating asset will be sold.
The Company has multiple transactions under way. It is unlikely, however, that
it would consummate all of the transactions under consideration. Further, there
can be no assurance as to the likelihood, timing, or terms of such sales. The
consummation of any such sales would be dependent upon a number of factors, such
as negotiation of definitive documentation, due-diligence investigations,
certain lender approvals and/or anti-trust clearances. The Company would expect
to use the proceeds from any such sales for debt reduction, capital spending or
some combination thereof.

Another area of emphasis has been a continuing focus on managing the Company's
legacy liabilities. The Company believes that it has insurance coverage
available to recover a substantial portion of its asbestos-related costs and is
actively pursuing recoveries in this regard. For the period from inception
through December 31, 2000, the Company has paid approximately $220.5 million for
asbestos-related settlements and associated defense costs and has received
partial insurance reimbursements during this same period totaling $131.3
million. The timing and amount of future recoveries of asbestos-related claims
from insurance carriers remain a major priority of the Company, but will depend
on the pace of claims review and processing by such carriers and the resolution
of any disputes regarding coverage under the insurance policies.

Additional portfolio analysis and initiatives are continuing.

Pacific Northwest Power Sales and Operating Level. In response to the
unprecedented high market prices for power in the Pacific Northwest, the Company
temporarily curtailed the primary aluminum production at the Tacoma and Mead,
Washington, smelters during the second half of 2000 and sold a portion of the
power that it had under contract through September 30, 2001. As a result of the
curtailments, the Company avoided the need to purchase power on a variable
market price basis and will receive cash proceeds sufficient to more than offset
the cash impact of the potline curtailments over the period for which the power
was sold. The Company has made additional power sales in 2001.

During October 2000, the Company signed a new power contract with the Bonneville
Power Administration ("BPA") under which the BPA will provide the Company's
operations in the State of Washington with power during the period October 2001
through September 2006. The contract will provide sufficient power to operate
the Company's Trentwood facility as well as approximately 40% of the combined
capacity of the Company's Mead and Tacoma aluminum smelting operations. Power
costs under the new contract are expected to exceed the cost of power under the
Company's current BPA contract by between 20% to 60% and, perhaps, by as much as
100% in certain periods. There are other terms of the new BPA contract which are
also less favorable than the current BPA contract. The Company does not have any
remarketing rights under the new BPA contract.

See Note 7 of Notes to Consolidated Financial Statements for additional
information on the power sales and the new BPA contract.

RESULTS OF OPERATIONS

Summary. The Company reported net income of $17.5 million for 2000 compared to a
net loss of $52.4 million for 1999 and net income of $2.7 million for 1998.
However, results for 2000, 1999 and 1998 included material non-recurring gains
and losses as summarized below:

                                                                                           Year Ended December 31,
                                                                                  -----------------------------------------
                                                                                     2000            1999            1998
                                                                                  ---------       ---------       ---------
As reported, income (loss) per common share                                       $    .21        $   (.68)       $    .01
Less material non-recurring (gains) losses:
   Labor settlement charge in 2000; strike-related costs in 1998                       .30            -                .50
   Asbestos-related charges                                                            .33             .44             .11
   Impairment loss - U.S. smelters in 2000; Micromill in 1999 and 1998                 .25             .16             .38
   Net gains from power sales                                                        (1.22)           -               -
   Operating profit foregone as a result of power sales                                .20            -               -
   Gains - real estate transactions in 2000; AKW L.P. interests in 1999               (.30)           (.42)           -
   Other non-recurring operating charges                                               .21            -               -
   Gramercy-related items:
      Gain on involuntary conversion                                                  -               (.71)           -
      Incremental maintenance spending                                                 .09            -               -
      Charge for insurance deductibles                                                -                .04            -
      LIFO inventory charge                                                            .05            -               -
   Mark-to-market (gains) losses                                                      (.08)            .27            -
                                                                                  ---------       ---------       ---------
                                                                                  $    .04        $   (.90)       $   1.00
                                                                                  =========       =========       =========

Net sales in 2000 totaled $2,169.8 million compared to $2,083.6 million in 1999
and $2,302.4 million in 1998.

2000 AS COMPARED TO 1999

Bauxite and Alumina. Third party net sales of alumina were up 12% in 2000 as
compared to 1999 as a 19% increase in third party average realized price was
partially offset by an 8% decrease in third party shipments. The increase in
average realized price was because the sales prices for alumina under the
Company's third-party alumina sales contracts are linked to primary aluminum
prices and primary aluminum prices increased year over year. The decrease in
year-over- year shipments resulted primarily from differences in the timing of
shipments and, to a lesser extent, the net effect of the Gramercy incident,
after considering the 267,000 tons of alumina purchased by the Company in 2000
from third parties to fulfill third party sales contracts.

Intersegment net sales for 2000 increased 15% as compared to 1999. The increase
was primarily due to a 16% increase in the intersegment average realized price
resulting from increases in primary aluminum prices from period to period as
intersegment transfers are made on the basis of primary aluminum market prices
on a lagged basis of one month. Intersegment shipments were essentially flat.
The favorable impact on intersegment alumina shipments of operating more
potlines at the Company's smelters during the first half of 2000 as compared to
the same period in 1999 was offset by the unfavorable impact of the potline
curtailments at the Company's Washington smelters in the last half of 2000.
Intersegment shipments for 2000 included approximately 55,000 tons of alumina
purchased by the Company from third- parties and transferred to the Primary
aluminum business unit.

Segment operating income (before non-recurring items) for 2000 was up
significantly as compared to 1999 primarily as a result of the factors discussed
above. Segment operating income for 2000 excludes non-recurring labor settlement
charges of $2.1 million and three Gramercy-related items; a $7.0 million
non-cash LIFO inventory charge, incremental maintenance spending of $11.5
million and an $.8 million non-cash restructuring charge. Segment operating
income for 1999 excludes the segment's allocated share of the expense of
insurance deductibles related to the Gramercy incident of $4.0 million.

See Note 2 of Notes to Consolidated Financial Statements for additional
discussion of the effect of the Gramercy incident on the Bauxite and Alumina
business unit's operations.

Primary Aluminum. Third party net sales of primary aluminum were up 30% for 2000
as compared to 1999 as a result of a 17% increase in third party shipments and a
12% increase in third party averaged realized prices. The increase in shipments
was primarily due to the favorable impact of the increased operating rate at the
Company's 90%-owned Volta Aluminium Company Limited ("Valco") throughout 2000
and the Washington smelters (during the first six months of 2000). These
shipment increases were offset, in part, by curtailments of the potlines at the
Washington smelters during the second half of 2000, net of approximately 206,500
tons of primary aluminum purchased from third-parties to meet third-party and
internal commitments. The increase in the average realized prices reflects the
14% increase in primary aluminum market prices. Intersegment net sales for 2000
were up modestly when compared to 1999. A 16% increase in intersegment average
realized prices was offset by a 13% decrease in intersegment shipments. The
increase in the intersegment average realized price was due to higher market
prices for primary aluminum as intersegment transfers are made on the basis of
market prices. The decrease in shipments was primarily due to the potline
curtailments at the Washington smelters, the reduced requirements of the
Flat-rolled products segment due to the can body stock exit and the reduced
requirements of the Engineered products segment due to the softening of the
ground transportation and distribution markets.

Segment operating income (before non-recurring items) for 2000 was up
significantly from 1999. The primary reason for the increase was the
improvements in average realized prices and net shipments discussed above.
However, segment operating income for 2000 was adversely affected by increased
alumina prices, higher electric power costs and reduced profitability resulting
from metal purchased and resold to the Flat-rolled products and Engineered
products business units. The increase in alumina costs is the result of higher
primary aluminum prices in 2000 because transfers of alumina from the Company's
alumina business unit are made on a metal-linked basis. Power costs have
generally increased, even after excluding the higher than normal power costs
experienced by the Company in the Pacific Northwest. As previously reported, new
agreements entered into in both Ghana and Wales provide for increased power
stability but at increased costs. The reduced profitability on sales to the
Flat-rolled products and Engineered products segments is due to the lack of a
profit margin on metal that was purchased and resold at cost to the segments
versus the profit margin that would have existed had the metal been produced.

Segment operating income for 2000, discussed above, excludes non-recurring net
power sales gains of $159.5 million. Segment operating income for 2000 also
excludes a non-cash smelter impairment charge of $33.0 million, the segment's
share of the non-recurring labor settlement charge of $15.9 million and costs
related to staff reduction initiatives of $3.1 million. Operating income in 1999
included costs of approximately $12.8 million associated with preparing and
restarting potlines at Valco and the Washington smelters.

Flat-Rolled Products. Net sales of flat-rolled products decreased by 12% in 2000
as compared to 1999 as a 26% decrease in shipments was only partially offset by
a 14% increase in average realized prices. The decrease in shipments was
primarily due to reduced shipments of can body stock as a part of the Company's
planned exit from this product line. Offsetting the reduced can body stock
shipments was a modest year over year improvement in shipments of heat-treat
products. The increase in average realized prices primarily reflects the change
in product mix (resulting from the can body stock exit) as well as the pass
through to customers of increased market prices for primary aluminum.

Segment operating income (before non-recurring items) for 2000 was essentially
flat when compared to 1999 as the increase in price and volume for heat-treat
products offset the impacts of the can body stock exit. Segment operating income
for 2000, discussed above, excludes the segment's share of the non-recurring
labor settlement charge of $18.2 million. Segment operating income also excludes
a $7.5 million non-cash LIFO inventory charge and $5.1 million of non-cash
impairment charges associated with the Company's exit from the can body stock
product line.

Results for 2000 for the Flat-rolled products segment were also adversely
affected late in the year by the Washington smelter curtailments as the business
unit no longer had a supply of hot metal. While the impact of this change was
modest in 2000, the business unit will be adversely affected by this situation
in 2001. The amount of the impact will depend on the cost of acquiring the
necessary metal units and the energy costs incurred to melt the purchased metal.

Engineered Products. Net sales of engineered products for 2000 were essentially
flat as compared to 1999 as a 5% increase in average realized prices was offset
by a 4% decrease in product shipments. The increase in average realized prices
reflects increased prices for soft alloy extrusions, offset, in part, by a shift
in product mix. The decrease in product shipments in 2000 over 1999 reflects a
substantial weakening in ground transportation and distribution markets in the
last half of 2000.

The changes in segment operating income (before non-recurring items) for 2000 as
compared to 1999 were primarily attributable to increased energy costs. Segment
operating income for 2000 excludes a non-recurring non-cash impairment charge
associated with product line exit of $5.6 million and labor settlement charges
of $2.3 million. Segment operating income for 1999 included equity in earnings
of $2.5 million from the Company's 50% interest in AKW L.P., which was sold in
April 1999.

Commodities Marketing. Commodities marketing includes the results of the
Company's aluminum hedging activities. Its hedging activities include: (1) metal
hedging on behalf of the Bauxite and alumina and Primary aluminum business
segments with third-party brokers (other than mark-to-market charges on certain
non-qualifying hedges which are reflected in Other income (expense) - see Notes
1 and 14 of Notes to Consolidated Financial Statements) and (2) internal hedging
with Flat-rolled products and Engineered products business segments so as to
eliminate the commodity price risk on the underlying aluminum whenever these
segments enter into a fixed price contract with a third-party customer.

Net sales for this segment represent net settlements with third-party brokers
for derivative positions. Operating income represents the combined effect of
such net settlements, any net premium costs associated with the purchase or sale
of options, as well as net results of internal hedging activities with the
Company's fabricated products segments. The decrease in net sales as well as a
decrease in operating income in 2000 as compared to 1999 results from the 2000
hedging positions having lower ceilings than the positions in 1999. This is
primarily the result of the timing of when the hedging position activities were
completed.

Eliminations. Eliminations of intersegment profit vary from period to period
depending on fluctuations in market prices as well as the amount and timing of
the affected segments' production and sales.

Corporate and Other. Corporate operating expenses (excluding non-recurring
items) represent corporate general and administrative expenses which are not
allocated to the Company's business segments. Corporate operating results for
2000 exclude costs related to staff reduction and efficiency initiatives of $5.5
million. Corporate operating results for 1999 exclude the expense of insurance
deductibles related to the Gramercy incident allocated to the Corporate segment
of $1.0 million.

1999 AS COMPARED TO 1998

Bauxite and Alumina. Third party net sales were down 11% in 1999 as compared to
1998 as a result of a 4% decline in third party average realized prices and a 7%
decrease in third party alumina shipments. The decline in the average realized
prices in 1999 as compared to 1998 was primarily attributable to lower
realizations under the Company's primary aluminum linked alumina sales contracts
caused by lower primary aluminum market prices. The decrease in year-over-year
shipments was primarily the net effect of the Gramercy incident after
considering the 264,000 tons of alumina purchased by the Company from third
parties to fulfill third party sales contract.

Intersegment net sales for 1999 declined 5% as compared to 1998. The decline was
primarily due to a 6% decline in the intersegment average realized price, offset
in part by a 1% increase in intersegment shipments, resulting from potline
restarts at Valco and at the Company's Washington smelters. Intersegment net
sales include approximately 131,000 tons of alumina purchased from third-parties
and transferred to the primary aluminum business unit.

Segment operating income (before non-recurring items) for 1999 was down as
compared to 1998 primarily as a result of the price and volume factors discussed
above. Segment operating income for 1999 was favorably impacted by the fact that
depreciation on the Gramercy facility was suspended in July 1999.

Segment operating income for 1999, discussed above, excludes the segment's
allocated share of the expense of insurance deductibles related to the Gramercy
incident of $4.0 million. Segment operating income for 1998 excludes the adverse
impact of approximately $11.0 million of incremental strike-related costs.

Primary Aluminum. Third party net sales of primary aluminum were up 11% as
compared to 1998 as a result of a 12% increase in third party shipments offset
by a 1% decrease in the average realized third party sales prices. The increase
in shipments was primarily due to the favorable impact of Valco operating three
potlines in 1999 as compared to one potline in 1998.

Intersegment net sales for 1999 were up 3% as compared to 1998. Intersegment
shipments increased 5% due to the timing of shipments to the Company's
fabricated business units while intersegment average realized prices were down
2%.

Segment operating income (before non-recurring items) for 1999 was down compared
to 1998. The most significant component of this decline was the reduction in the
average realized prices discussed above. Results for 1999 were also adversely
impacted by costs of approximately $12.8 million associated with preparing and
restarting potlines at Valco and the Washington smelters. The favorable impact
of Valco operating at a higher rate in 1999 (as compared to 1998) was
substantially offset by the fact that Valco earned mitigating compensation of
approximately $29.0 million in 1998 for two of its curtailed potlines.

Segment operating income for 1998, discussed above, excludes the adverse impact
of approximately $29.0 of incremental strike-related costs.

Flat-Rolled Products. Net sales of flat-rolled products for 1999 declined by 19%
compared to 1998 as a result of a 13% decline in average realized prices and an
8% decline in product shipments. The decline in average realized prices resulted
primarily from a shift in product mix (from aerospace products, which have a
higher price and operating margin, to other products) and a reduction in prices
resulting from reduced demand for heat treat products. The reduction in
shipments was primarily due to reduced demand in 1999 for aerospace heat-treat
products offset, in small part, by increased shipments of general engineered
products.

The decline in 1999 prices and shipments as compared to 1998 was responsible for
the decline in segment operating income for 1999. Segment operating income for
1998 excluded the adverse impact of approximately $16.0 million of incremental
strike-related costs.

Engineered Products. Net sales of engineered products for 1999 decreased 7%
compared to 1998 primarily due to an 8% decline in average realized prices.
Product shipments were essentially flat. The decline in the average sales
realized prices in 1999 was attributable to a change in product mix (higher
ground transportation products offset by lower aerospace shipments). While there
was a strong increase in 1999 in the demand for ground transportation products
it was offset by a reduced demand for aerospace products.

Segment operating income for 1999 decreased compared to 1998 as a result of the
factors discussed above as well as the reduced equity in earnings from AKW
(which partnership interests were sold in April 1999). Segment operating income
for 1998 excluded the adverse impact of approximately $4.0 million of
incremental strike-related costs.

Commodities Marketing. Net sales for this segment represent net settlements with
third-party brokers for derivative positions. Operating income represents the
combined effect of such net settlements, any net premium costs associated with
the purchase or sale of options, as well as net results of internal hedging
activities with the Company's fabricated products segments. The decrease in net
sales as well as a decrease in operating income in 1999 as compared to 1998
results primarily from the 1999 hedging positions having lower floors than the
positions in 1998. This is primarily the result of the timing of when the
hedging position activities were completed.

Eliminations. Eliminations of intersegment profits vary from period to period
depending on fluctuations in market prices as well as the amount and timing of
the affected segments' production and sales.

Corporate and Other. Corporate operating expenses (before non-recurring items)
represent corporate general and administrative expenses which are not allocated
to the Company's business segments. Corporate operating expenses for 1999 were
lower than 1998 primarily due to reduced incentive compensation expense
resulting from the decline in operating results. Corporate operating results for
1999 exclude the expense of insurance deductibles related to the Gramercy
incident allocated to the Corporate segment of $1.0 million.

LIQUIDITY AND CAPITAL RESOURCES

See Note 8 of Notes to Consolidated Financial Statements for a listing of the
Company's indebtedness and information concerning certain restrictive debt
covenants. See Note 13 of Notes to Consolidated Financial Statements for a
discussion of the material commitments and contingencies affecting the Company's
liquidity and capital resources.

Operating Activities. In 2000, operating activities provided $85.1 million of
cash. This amount compares with 1999 when operating activities used cash of
$88.8 million and 1998 when operating activities provided cash of $171.2
million. The increase in cash flows from operating activities between 2000 and
1999 resulted primarily from the impact of the improved 2000 operating results,
driven primarily by the net proceeds received from power sales of approximately
$119.8 million, and a decline in inventories of approximately $125.8 million,
offset in part by an increase in receivables of approximately $168.8 million.
The decrease in inventories was primarily due to improved inventory management
and the exit from the can body product line at the Flat-rolled products business
unit. The increase in receivables was primarily due to power sale proceeds that
were received in the first quarter of 2001 and Gramercy-related items. The
decrease in cash flows from operating activities between 1999 and 1998 was due
primarily to the impact of 1999 results, excluding non-cash charges, and an
increased investment in working capital (excluding cash).

Investing Activities. Total consolidated capital expenditures were $296.5, $68.4
and $77.6 million in 2000, 1999 and 1998, respectively (of which $5.4, $4.8 and
$7.2 million were funded by the minority partners in certain foreign joint
ventures). The $296.5 million capital expenditures in 2000 included $239.1
million spent with respect to rebuilding the Gramercy facility and $13.3 million
spent with respect to the purchase of the non-working capital assets of the
Chandler, Arizona drawn tube aluminum fabricating operation. The remaining
capital expenditures in 2000 and the capital expenditures in 1999 and 1998 were
made primarily to improve production efficiency, reduce operating costs and
expand capacity at existing facilities. Total consolidated capital expenditures,
excluding the expenditures in 2001 to finish rebuilding the Gramercy, Louisiana
facility, are currently expected to be between $60.0 and $80.0 million per year
in each of 2001 and 2002 (of which approximately 15% is expected to be funded by
the Company's minority partners in certain foreign joint ventures). See " -
Financing Activities and Liquidity" below for a discussion of Gramercy related
capital spending. Management continues to evaluate numerous projects, all of
which would require substantial capital, both in the United States and overseas.
The level of capital expenditures may be adjusted from time to time depending on
the Company's price outlook for primary aluminum and other products, its ability
to assure future cash flows through hedging or other means, its financial
position and other factors.

Financing Activities and Liquidity: Short-Term. The Company uses its credit
agreement, as amended (the "Credit Agreement") to provide short-term liquidity
requirements and for letters of credit to support operations. During 2000,
month-end borrowing amounts outstanding under the Credit Agreement have been as
high as approximately $53.4 million, which occurred in August 2000, primarily as
a result of costs incurred and capital spending related to the Gramercy rebuild,
net of insurance reimbursements. The average amount of borrowings outstanding
under the Credit Agreement during 2000 was approximately $25.6 million. The
average interest rate on loans outstanding under the Credit Agreement during
2000, was approximately 10.3% per annum. Outstanding letters of credit monthly
balances have primarily been in the range of $55.0 to $65.0 million. As of
February 28, 2001, there were $94.0 million of borrowings outstanding under the
Credit Agreement and remaining availability of approximately $120.0 million.
However, proceeds of approximately $130.0 million related to 2001 power sales
are expected to be received at or near March 30, 2001, and an additional $130.0
million of power proceeds will be received periodically through October 2001
with respect to other power sales made during the first quarter of 2001.

The Credit Agreement expires in August 2001. It is the Company's intention to
extend or replace the Credit Agreement prior to its expiration. However, in
order for the Credit Agreement to be extended, on a short-term basis, beyond
August 2001, the Company will have to have a plan to mitigate the $225.0 million
of 97/8% Senior Notes, due February 2002 (the "97/8% Senior Notes"). For the
Credit Agreement to be extended past February 2003, both the 97/8% Senior Notes
and the $400.0 million of 12 3/4% Senior Subordinated Notes, due February 2003,
will have to be retired and/or refinanced. As of February 28, 2001, the Company
had received approval from the Credit Agreement lenders to purchase up to $50.0
million of the 97/8% Senior Notes. As of February 28, 2001, the Company had
purchased approximately $1.0 million of 97/8% Senior Notes.

In addition to being impacted by power sales and normal operating variables, the
Company's near-term liquidity will also, as more fully discussed below, be
affected by, among other things, three significant items: the Gramercy incident,
the amount of net payments for asbestos liabilities and possible proceeds from
asset dispositions.

The Company will continue to incur business interruption costs and capital
spending until all construction activity at the Gramercy facility is completed
and full production is restored. As more fully discussed in Note 2 of Notes to
Consolidated Financial Statements, unless the Company is successful in its
arbitration process against its insurers, it will have to fund all of the
remaining Gramercy-related capital expenditures as well as any incremental costs
or losses incurred at Gramercy. It is believed that such amounts will total
between $100.0 and $150.0 million depending on, among other things, the ultimate
cost of the rebuild, the elapsed time of the rebuild and the amount of start-up
costs/inefficiencies. The Company now believes that the total cost of the
rebuild will be between $300.0 and $325.0 million. As previously announced,
however, the plant will include several additional enhancements from its
original design including the installation of additional safety features in the
digestion unit and enhancements to increase the annual production capacity of
the plant from 1,125,000 tons to 1,250,000 tons on an extremely favorable
cost-per-ton basis.

During 2000, the Company paid $99.5 million of asbestos-related settlement and
defense costs and received insurance reimbursement of $62.8 million for
asbestos-related matters. The Company's 2001 and 2002 cash payments, prior to
insurance recoveries, for asbestos-related costs are estimated to be between
$110.0 million and $135.0 million per year. The Company believes that it will
recover a substantial portion of asbestos payments from insurance. However,
insurance reimbursements have historically lagged the Company's payments. Delays
in receiving future insurance repayments would have an adverse impact on the
Company's liquidity. During 2000, the Company filed suit against a group of its
insurers, after negotiations with certain of the insurers regarding an agreement
covering both reimbursement amounts and the timing of reimbursement payments
were unsuccessful. The litigation is intended, among other things, to: (1)
ensure that the insurers provide the Company with timely and appropriate
reimbursement payments for asbestos- related settlements and related legal costs
incurred; and (2) to resolve certain issues between the parties with respect to
how specific provisions of the applicable insurance policies are to be applied.
Given the significance of expected asbestos-related payments in 2001 and 2002
based on settlement agreements in place at December 31, 2000, the receipt of
timely and appropriate reimbursements from such insurers is critical to the
Company's liquidity. The court is not expected to try the case until late 2001
or 2002. The Company is continuing to receive cash payments from the insurers.

The Company is considering the possible sale of part or all of its interests in
certain operating assets. The contemplated transactions are in various stages of
development. The Company expects that at least one operating asset will be sold.
The Company has multiple transactions under way. It is unlikely, however, that
it will consummate all of the transactions under consideration. Further, there
can be no assurance as to the likelihood, timing or terms of such sales. The
Company would expect to use the proceeds from any such sales for debt reduction,
capital spending or a combination thereof.

Management believes that the Company's existing cash resources, together with
cash flows from operations, power sales and anticipated asset dispositions, as
well as borrowings under the Credit Agreement, will be sufficient to satisfy its
working capital and capital expenditure requirements for the next year. However,
no assurance can be given that existing cash sources will be sufficient to meet
the Company's short-term liquidity requirements or that additional sources of
cash will not be required.

Long-Term. As of December 31, 2000, the Company's total consolidated
indebtedness was $989.4 million, including $30.4 million outstanding under the
Credit Agreement, which amount is included in current liabilities. The Company's
ability to make payments on and to refinance its debt on a long-term basis
depends on its ability to generate cash in the future. This, to a certain
extent, is subject to general economic, financial, competitive, legislative,
regulatory and other factors beyond the Company's control. With respect to
long-term liquidity, management believes that operating cash flow, together with
the ability to obtain both short and long-term financing, should provide
sufficient funds to meet the Company's working capital, financing and capital
expenditure requirements. However, no assurance can be given that the Company
will be able to refinance its debt on acceptable terms.

Commitments and 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. Based on
the Company's evaluation of these and other environmental matters, the Company
has established environmental accruals of $46.1 million at December 31, 2000.
However, the Company believes that it is reasonably possible that changes in
various factors could cause costs associated with these environmental matters to
exceed current accruals by amounts that could range, in the aggregate, up to an
estimated $35.0 million.

The Company is also a defendant in a number of asbestos-related lawsuits that
generally relate to products it has not sold for more than 20 years. Based on
past experience and reasonably anticipated future activity, the Company has
established a $492.4 million accrual at December 31, 2000, for estimated
asbestos-related costs for claims filed and estimated to be filed through 2010,
before consideration of insurance recoveries. However, the Company believes that
substantial recoveries from insurance carriers are probable. The Company reached
this conclusion based on prior insurance-related recoveries in respect of
asbestos-related claims, existing insurance policies and the advice of outside
counsel with respect to applicable insurance coverage law relating to the terms
and conditions of these policies. Accordingly, the Company has recorded an
estimated aggregate insurance recovery of $406.3 million (determined on the same
basis as the asbestos-related cost accrual) at December 31, 2000. Although the
Company has settled asbestos- related coverage matters with certain of its
insurance carriers, other carriers have not yet agreed to settlements and
disputes with certain carriers exist. The timing and amount of future recoveries
from these carriers will depend on the pace of claims review and processing by
such carriers and on the resolution of any disputes regarding coverage under
such policies that may arise.

In connection with the USWA strike and subsequent lock-out by the Company which
was settled in September 2000, certain allegations of unfair labor practices
("ULPs") have been filed with the National Labor Relations Board ("NLRB")by the
USWA. The Company believes that all such allegations are without merit.
Twenty-two of twenty-four allegations of ULPs previously brought against it by
the USWA have been dismissed. A trial before an administrative law judge for the
two remaining allegations commenced in November 2000 and is continuing. The
Company is unable to estimate when the trial will be completed. Any outcome from
the trial would be subject to additional appeals by the general counsel of the
NLRB, the USWA or the Company. This process could take months or years. If these
proceedings eventually resulted in a final ruling against the Company with
respect to either allegation, it could be obligated to provide back pay to USWA
members at the five plants and such amount could be significant.

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 and insurance recoveries that ultimately may be received, management
currently believes that the resolution of these uncertainties and the incurrence
of related costs, net of any related insurance recoveries, should not have a
material adverse effect on the Company's consolidated financial position or
liquidity. However, amounts paid, if any, in satisfaction of these matters could
be significant to the results of the period in which they are recorded. See Note
13 of Notes to Consolidated Financial Statements for a more detailed discussion
of these contingencies and the factors affecting management's beliefs.

OTHER MATTERS

Income Tax Matters. The Company's net deferred income tax assets as of December
31, 2000, were $462.3 million, net of valuation allowances of $122.3 million.
The Company believes a long-term view of profitability is appropriate and has
concluded that these net deferred income tax assets will more likely than not be
realized. See Note 9 of Notes to Consolidated Financial Statements for a
discussion of these and other income tax matters.

ITEM 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

This section contains forward-looking statements that involve risk and
uncertainties. Actual results could differ materially from those projected in
these forward-looking statements. The following disclosures are before
consideration of any impacts resulting from the application of Statement of
Financial Accounting Standards ("SFAS") No. 133 beginning January 1, 2001. See
Note 1 of Notes to Consolidated Financial Statements for a discussion of the
impacts of SFAS No. 133.

The Company'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. As discussed
more fully in Notes 1 and 14 of Notes to Consolidated Financial Statements, the
Company utilizes hedging transactions to lock-in a specified price or range of
prices for certain products which it sells or consumes in its production process
and to mitigate the Company's exposure to changes in foreign currency exchange
rates. The following sets forth the impact on future earnings of adverse market
changes related to the Company's hedging positions with respect to commodity,
foreign exchange and energy contracts described more fully in Note 14 of Notes
to Consolidated Financial Statements.

Alumina and Primary Aluminum. Alumina and primary aluminum production in excess
of internal requirements is sold in domestic and international markets, exposing
the Company to commodity price opportunities and risks. The Company's hedging
transactions are intended 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. On average, before consideration
of hedging activities, any fixed price contracts with fabricated aluminum
products customers, variations in production and shipment levels, and timing
issues related to price changes, the Company estimates that each $.01 increase
(decrease) in the market price per price-equivalent pound of primary aluminum
increases (decreases) the Company's annual pre-tax earnings by approximately
$10.0 - $15.0 million, based on recent fluctuations in operating levels.

Based on the average December 2000 London Metal Exchange ("LME") cash price for
primary aluminum of approximately $.71 per pound, the Company estimates that
there would be no material net aggregate pre-tax impact on operating income from
its hedging positions and fixed price customer contracts during the period 2001
through 2003. The Company estimates that a hypothetical $.10 increase from the
above stated December 2000 price would result in a net aggregate pre-tax
decrease in operating income of approximately $75.0 million being realized
during the period 2001 through 2003 from the Company's hedging positions and
fixed price customer contracts. Conversely, the Company estimates that a
hypothetical $.10 decrease from the above stated December 2000 price level would
result in an aggregate pre-tax increase in operating income of approximately
$130.0 million being realized during the period 2001 through 2003 from the
Company's hedging positions and fixed price customer contracts. Both of the
foregoing hypothetical amounts are versus what the Company's results would have
been without the derivative commodity contracts and fixed price customer
contracts discussed above. It should be noted, however, that, since the hedging
positions and fixed price customer contracts lock-in a specified price or range
of prices, increases or decreases in earnings attributable to the Company's
hedging positions or fixed price customer contracts are significantly offset by
a decrease or increase in the proceeds to be realized on the underlying physical
transactions.

As stated in Note 14 of Notes to the Consolidated Financial Statements, the
Company has certain hedging positions which do not qualify for treatment as a
"hedge" under current accounting guidelines and thus must be marked-to-market
each period. Fluctuations in forward market prices for primary aluminum would
likely result in additional earnings volatility as a result of these positions.
The Company estimates that a hypothetical $.10 change in spot market prices from
the December 31, 2000, LME cash price of $.71 per pound would, depending on the
shape of the forward curve, result in additional aggregate mark-to-market
impacts of between $10.0-$30.0 million during any period through 2003.

In addition to having an impact on the Company's earnings, a hypothetical
$.10-per-pound change in primary aluminum prices would also impact the Company's
cash flows and liquidity through changes in possible margin advance
requirements. At December 31, 2000, the Company had made margin advances of $5.1
million and had posted letters of credit totaling $5.0 million in lieu of paying
margin advances. Increases in primary aluminum prices subsequent to December 31,
2000, could result in the Company having to make additional margin advances or
post additional letters of credit and such amounts could be significant. If
primary aluminum prices increased by $.10 per pound (from the year- end 2000
price) by March 31, 2001 and the forward curve were as described above, it is
estimated that the Company could be required to make additional margin advances
in the range of $50.0 to $100.0 million.

Foreign Currency. The Company enters into forward exchange contracts to hedge
material cash commitments for foreign currencies. The Company's primary foreign
exchange exposure is related to the Company's Australian Dollar (A$) commitments
in respect of activities associated with its 28.3%-owned affiliate, Queensland
Alumina Limited. The Company estimates that, before consideration of any hedging
activities, a US $0.01 increase (decrease) in the value of the A$ results in an
approximate $2 million (decrease) increase in the Company's annual pre-tax
operating income.

The Company's foreign currency hedges would have no net aggregate pre-tax impact
on the Company's operating results for the period 2001 through 2005 at the
December 31, 2000 US$ to A$ exchange rate of $.55. The Company estimates that a
hypothetical 10% reduction in the A$ exchange rate would result in the Company
recognizing a net aggregate pre- tax cost of approximately $10.0 million for the
period 2001 through 2005 from the Company's foreign currency hedging positions.
Conversely, the Company estimates that a hypothetical 10% increase in the A$
exchange rate (from $.55) would result in the Company realizing a net pre-tax
aggregate benefit of approximately $20.0 million. These hypothetical impacts are
versus what the Company's results would have been without the Company's
derivative foreign currency contracts. It should be noted, however, that, since
the hedging positions lock-in specified rates, increases or decreases in
earnings attributable to currency hedging instruments would be offset by a
corresponding decrease or increase in the value of the hedged commitments.

Energy. The Company is exposed to energy price risk from fluctuating prices for
fuel oil, diesel oil and natural gas consumed in the production process. The
Company estimates that each $1.00 change in natural gas prices (per mcf) impacts
the Company's pre-tax operating results by approximately $20.0 million. Further,
the Company estimates that each $1.00 change in fuel oil prices (per barrel)
impacts the Company's pre-tax operating results by approximately $3.0 million.

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, 2000, the Company held option and swap contracts
hedging a substantial majority of its first quarter 2001 natural gas
requirements. The Company expects to realize a pre-tax benefit of approximately
$10.0 million in the first quarter of 2001 associated with these hedging
positions. However, it should be noted that these benefits will be offset by the
higher than normal gas prices on the physical gas deliveries received during the
first quarter of 2001.

ITEM 8.      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

   Report of Independent Public Accountants

   Consolidated Balance Sheets

   Statements of Consolidated Income (Loss)

   Statements of Consolidated Stockholders' Equity and Comprehensive Income (Loss)

   Statements of Consolidated Cash Flows

   Notes to Consolidated Financial Statements

   Quarterly Financial Data (Unaudited)

   Five-Year Financial Data

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
--------------------------------------------------------------------------------

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

We have audited the accompanying consolidated balance sheets of Kaiser Aluminum
& Chemical Corporation (a Delaware corporation) and subsidiaries as of
December 31, 2000 and 1999, and the related statements of consolidated income
(loss), stockholders' equity and comprehensive income (loss) and cash flows for
each of the three years in the period ended December 31, 2000. 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 auditing standards generally accepted
in the United States. 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 & Chemical
Corporation and subsidiaries as of December 31, 2000 and 1999, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States.

ARTHUR ANDERSEN LLP

Houston, Texas
March 27, 2001

CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------

                                                                                     December 31,
                                                                               -------------------------
(In millions of dollars, except share amounts)                                     2000          1999
--------------------------------------------------------------------------------------------------------

ASSETS
Current assets:
   Cash and cash equivalents                                                   $     23.4    $     21.2
   Receivables:
     Trade, less allowance for doubtful receivables of $5.8 and $5.9                188.7         154.1
     Other                                                                          247.3         112.8
   Inventories                                                                      396.2         546.1
   Prepaid expenses and other current assets                                        162.7         145.6
                                                                               -----------   -----------

     Total current assets                                                         1,018.3         979.8

Investments in and advances to unconsolidated affiliates                             77.8          96.9
Property, plant, and equipment - net                                              1,176.1       1,053.7
Deferred income taxes                                                               452.3         438.2
Other assets                                                                        622.9         634.3
                                                                               -----------   -----------
     Total                                                                     $  3,347.4    $  3,202.9
                                                                               ===========   ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                                            $    236.8    $    231.7
   Accrued interest                                                                  37.5          37.7
   Accrued salaries, wages, and related expenses                                    110.3          62.1
   Accrued postretirement medical benefit obligation - current portion               58.0          51.5
   Other accrued liabilities                                                        287.2         170.0
   Payable to affiliates                                                             80.0          84.6
   Long-term debt - current portion                                                  31.6            .3
                                                                               -----------   -----------
     Total current liabilities                                                      841.4         637.9

Long-term liabilities                                                               703.9         727.3
Accrued postretirement medical benefit obligation                                   656.9         678.3
Long-term debt                                                                      957.8         972.5
Minority interests                                                                  100.4          96.7
Redeemable preference stock - aggregate liquidation value of $ 19.5                 -              19.5
Commitments and contingencies
Stockholders' equity:
   Preference stock - cumulative and convertible, par value $100, authorized
     1,000,000 shares, issued and outstanding, 9,250 and 19,538                        .7           1.5
   Common stock, par value 331/3 cents, authorized 100,000,000 shares;
     issued and outstanding, 46,171,365 shares                                       15.4          15.4
   Additional capital                                                             2,300.8       2,173.0
   Accumulated deficit                                                             (188.1)       (205.1)
   Accumulated other comprehensive income                                            (1.8)         (1.2)
   Note receivable from parent                                                   (2,040.0)     (1,912.9)
                                                                               -----------   -----------
     Total stockholders' equity                                                      87.0          70.7
                                                                               -----------   -----------
     Total                                                                     $  3,347.4    $  3,202.9
                                                                               ==========    ===========

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

STATEMENTS OF CONSOLIDATED INCOME (LOSS)
--------------------------------------------------------------------------------

                                                                                            Year Ended December 31,
                                                                                    ---------------------------------------
(In millions of dollars)                                                                2000          1999          1998
---------------------------------------------------------------------------------------------------------------------------
Net sales                                                                           $  2,169.8    $  2,083.6    $  2,302.4
                                                                                    -----------   -----------   -----------
Costs and expenses:
   Cost of products sold                                                               1,891.4       1,893.5       1,892.2
   Depreciation and amortization                                                          76.9          89.5          99.1
   Selling, administrative, research and development, and general                        103.8         105.1         115.1
   Labor settlement charge                                                                38.5            -             -
   Other non-recurring operating items, net                                              (80.4)         24.1         105.0
                                                                                    -----------   -----------   -----------
     Total costs and expenses                                                          2,030.2       2,112.2       2,211.4
                                                                                    -----------   -----------   -----------

Operating income (loss)                                                                  139.6         (28.6)         91.0

Other income (expense):
   Interest expense                                                                     (109.6)       (110.1)       (110.0)
   Gain on involuntary conversion at Gramercy facility                                      -           85.0           -
   Other - net                                                                            (4.3)        (35.8)          3.5
                                                                                    -----------   -----------   -----------

Income (loss) before income taxes and minority interests                                  25.7         (89.5)        (15.5)

(Provision) benefit for income taxes                                                     (11.7)         32.6          16.4

Minority interests                                                                         3.5           4.5           1.8
                                                                                    -----------   -----------   -----------
Net income (loss)                                                                   $     17.5    $    (52.4)   $      2.7
                                                                                    ===========   ===========   ===========

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

STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
--------------------------------------------------------------------------------

(In millions of dollars)
--------------------------------------------------------------------------------

                                                                                                 Accumulated        Note
                                                                                       Accu-           Other  Receivable
                                             Preference      Common    Additional    mulated   Comprehensive        From
                                                  Stock       Stock       Capital    Deficit   Income (Loss)      Parent     Total
----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997                  $      1.6  $     15.4   $   1,939.8  $  (152.3) $         -     $ (1,682.6)    121.9
   Net income/Comprehensive income                  -           -                       2.7            -             -        2.7
   Interest on note receivable from parent          -           -          111.5          -            -         (111.5)        -
   Contributions for LTIP shares                    -           -            1.5          -            -             -        1.5
   Conversions                                     (.1)         -             -           -            -             -        (.1)
   Dividends                                        -           -             -         (.6)           -             -        (.6)
   Redeemable preference stock accretion            -           -             -        (1.0)           -             -       (1.0)
                                            ----------- -----------  ------------ ---------- --------------- ----------- ---------

BALANCE, DECEMBER 31, 1998                         1.5        15.4       2,052.8     (151.2)           -       (1,794.1)    124.4
   Net income (loss)                                -           -             -       (52.4)           -             -      (52.4)
   Minimum pension liability adjustment,
     net of tax                                     -           -             -           -            (1.2)         -       (1.2)
                                                                                                                         ---------

     Comprehensive income (loss)                    -           -             -           -            -             -      (53.6)
   Interest on note receivable from parent          -           -          118.8          -            -         (118.8)        -
   Contribution for LTIP shares                     -           -            1.3          -            -             -        1.3
   Capital contributions                            -           -             .1          -            -             -         .1
   Dividends                                        -           -             -         (.5)           -             -        (.5)
   Redeemable preference stock accretion            -           -             -        (1.0)           -             -       (1.0)
                                            ----------- -----------  ------------ ---------- --------------- ----------- ---------
BALANCE, DECEMBER 31, 1999                         1.5        15.4       2,173.0     (205.1)           (1.2)   (1,912.9)     70.7
   Net income                                       -           -             -        17.5            -             -       17.5
   Minimum pension liability adjustment,
     net of tax                                     -           -             -           -             (.6)         -        (.6)
                                                                                                                         ---------
     Comprehensive income                           -           -             -           -            -             -       16.9
   Interest on note receivable from parent          -           -          127.1          -            -         (127.1)        -
   Contribution for LTIP shares                     -           -             .7          -            -             -         .7
   Stock redemption                                (.8)         -             -           -            -             -        (.8)
   Dividends                                        -           -             -         (.5)           -             -        (.5)
                                            ----------- -----------  ------------ ---------- --------------- ----------- ---------
BALANCE, DECEMBER 31, 2000                  $       .7  $     15.4   $   2,300.8  $  (188.1) $         (1.8) $ (2,040.0) $   87.0
                                            =========== ===========  ============ ========== =============== =========== =========

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

STATEMENTS OF CONSOLIDATED CASH FLOWS
--------------------------------------------------------------------------------

                                                                                              Year Ended December 31,

(In millions of dollars)                                                                    2000        1999         1998
---------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
   Net income (loss)                                                                    $    17.5    $  (52.4)   $     2.7
   Adjustments to reconcile net income to net cash (used) provided by
       operating activities:
       Depreciation and amortization (including deferred financing costs of
         $4.4, $4.3 and $3.9)                                                                81.3        93.8        103.0
       Non-cash impairment charges (Notes 1 and 6)                                           63.3        19.1         45.0
       Gain on involuntary conversion at Gramercy facility                                      -       (85.0)          -
       Gains-real estate related (2000); sale of interests in AKW L.P. (1999)               (39.0)      (50.5)          -
       Non-cash benefit for income taxes                                                        -          -          (8.3)
       Equity in loss (income) of unconsolidated affiliates, net of distributions            13.1        (4.9)          .1
       Minority interests                                                                    (3.5)       (4.5)        (1.8)
       (Increase) decrease in trade and other receivables                                  (169.0)       21.3         61.0
       Decrease (increase) in inventories                                                   125.8        (2.6)        24.8
       Decrease (increase) in prepaid expenses and other current assets                      20.8       (66.9)        30.1
       (Decrease) increase in accounts payable (associated with operating activities)
         and accrued interest                                                               (29.7)       58.8         (3.2)
       Increase (decrease) in payable to affiliates and other accrued liabilities            68.9        19.6        (45.2)
       Decrease in accrued and deferred income taxes                                        (10.2)      (55.1)       (26.2)
       Net (used) provided by long-term assets and liabilities                              (69.4)       15.7        (23.9)
       Other                                                                                 15.2         4.8         13.1
                                                                                        ----------   ---------   ----------
         Net cash provided (used) by operating activities                                    85.1       (88.8)       171.2
                                                                                        ----------   ---------   ----------
Cash flows from investing activities:
   Capital expenditures, net of accounts payable of $34.6 in 2000                          (261.9)      (68.4)       (77.6)
   Gramercy-related property damage insurance recoveries                                    100.0           -            -
   Net proceeds from disposition of property and investments                                 66.9        74.8          6.7
   Other                                                                                       .2        (3.3)        (3.5)
                                                                                        ----------   ---------   ----------
         Net cash (used) provided by investing activities                                   (94.8)        3.1        (74.4)
                                                                                        ----------   ---------   ----------
Cash flows from financing activities:
   Borrowings under credit facility, net                                                     20.0        10.4           -
   Repayments of long-term debt                                                              (4.4)        (.6)        (8.9)
   Redemption of preference stock                                                            (2.8)       (1.6)        (8.7)
   Incurrence of financing costs                                                              (.4)         -           (.6)
   Preference stock dividends paid                                                            (.5)        (.5)         (.6)
   Capital contributions                                                                                   .1           .1
   Decrease in restricted cash, net                                                             -          .8          4.4
                                                                                        ----------   ---------   ----------
         Net cash provided (used) by financing activities                                    11.9          8.6       (14.3)
                                                                                        ----------   ---------   ----------
Net increase (decrease) in Cash and cash equivalents during the year                          2.2       (77.1)        82.5
Cash and cash equivalents at beginning of year                                               21.2        98.3         15.8
                                                                                        ----------   ---------   ----------
Cash and cash equivalents at end of year                                                $    23.4    $   21.2    $    98.3
                                                                                        ==========   =========   ==========

Supplemental disclosure of cash flow information:
   Interest paid, net of capitalized interest of $6.5, $3.4 and $3.0                    $   105.3    $  105.4    $   106.3
   Income taxes paid                                                                         19.6        24.1         13.5
   Tax allocation payments to Kaiser Aluminum Corporation                                       -          -           3.3

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

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, before consideration of the Gramercy incident (see
Note 2), 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 15).

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.

Net sales and cost of products sold for 1999 and 1998 have been restated to
conform to a new accounting principle that requires freight charges ($39.3 in
1999 and $46.0 in 1998) to be included in cost of products sold.

Liquidity/Cash Resources. The Company has significant near-term debt maturities.
The Company's ability to make payments on and refinance its debt depends on its
ability to generate cash in the future. In addition to being impacted by power
sales and normal operating items, the Company's near-term liquidity and cash
flows will also be affected by the Gramercy incident, net payments for
asbestos-related liabilities and possible proceeds from asset dispositions. For
discussions of these matters, see Notes 2, 7, 8 and 13.

Recognition of Sales. Sales are recognized when title, ownership and risk of
loss pass to the buyer. No changes were required to the Company's revenue
recognition policy as a result of Staff Accounting Bulletin 101, "Revenue
Recognition in Financial Statements", which become effective during 2000.

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. Inventories at December 31, 2000, have been reduced by
LIFO inventory charges totaling $24.1 ($.6 in cost of products sold and $23.5 in
non-recurring operating items, net). The non-recurring LIFO charges result
primarily from the Washington smelters' curtailment ($4.5), the exit from the
can body stock product line ($11.1) and the delayed restart of the Gramercy
facility ($7.0). 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:

                                                                        December 31,
                                                                 --------------------------
                                                                      2000           1999
-------------------------------------------------------------------------------------------
Finished fabricated products                                     $      54.6     $    118.5
Primary aluminum and work in process                                   126.9          189.4
Bauxite and alumina                                                     88.6          124.1
Operating supplies and repair and maintenance parts                    126.1          114.1
                                                                 -----------     ----------
                                                                 $     396.2     $    546.1
                                                                 ===========     ==========

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 stock-based compensation plan whereby compensation cost is
recognized only to the extent that the quoted market price of the stock at the
measurement date exceeds the amount an employee must pay to acquire the stock.
No compensation cost has been recognized for this plan as the exercise price of
the stock options granted in 2000, 1999 and 1998 were at or above the market
price. The pro forma after-tax effect of the estimated fair value of the grants
would be to reduce net income in 2000 by $2.2, increase the net loss in 1999 by
$1.8 and reduce net income in 1998 by $1.5. The fair value of the 2000, 1999 and
1998 stock option grants were estimated using a Black-Scholes option pricing
model.

Other Income (Expense). Amounts included in other income (expense) in 2000, 1999
and 1998, other than interest expense and gain on involuntary conversion at the
Gramercy facility, included the following pre-tax gains (losses):

                                                                    Year Ended December 31,
                                                          -------------------------------------------
                                                                2000          1999            1998
-----------------------------------------------------------------------------------------------------
Asbestos-related charges (Note 12)                        $      (43.0)  $     (53.2)  $       (12.7)
Gain on sale of Pleasanton complex (Note 4)                       22.0           -              -
Lease obligation adjustment (Note 12)                             17.0           -              -
Mark-to-market gains (losses) (Note 13)                           11.0         (32.8)           -
Gain on sale of interests in AKW L.P. (Note 3)                    -             50.5            -
Environmental cost insurance recoveries (Note 12)                 -              -              12.0
All other, net                                                   (11.3)          (.4)            4.2
                                                          -------------  ------------  --------------
                                                          $       (4.3)  $     (35.9)  $         3.5
                                                          =============  ============  ==============

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 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 lock-in a minimum or maximum price.
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. Consistent with accounting guidelines in place
through December 31, 2000, any interim fluctuations in option prices prior to
the settlement date were deferred until the settlement date of the underlying
hedged transaction, at which time they were reflected in net sales or cost of
products sold (as applicable) together with the related premium cost. No
accounting recognition was accorded to interim fluctuations in prices of forward
sales contracts. Hedge (deferral) accounting would have been terminated
(resulting in the applicable derivative positions being marked- to-market) if
the level of underlying physical transactions ever fell below the net exposure
hedged. This did not occur in 1998, 1999 or 2000. Deferred gains or losses as of
December 31, 2000, were included in Prepaid expenses and other current assets
and Other accrued liabilities (see Note 13).

Beginning with the quarterly period ending March 31, 2001, the Company will
begin reporting derivative activities consistent with Statement of Financial
Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and
Hedging Activities. SFAS No. 133, which has been adopted as of January 1, 2001,
requires companies to recognize all derivative instruments as assets or
liabilities in the balance sheet and to measure those instruments at fair value.
Under SFAS No. 133, the Company will be required to "mark-to-market" all of its
hedging positions at each period-end. This contrasts with guidance under
pre-2001 accounting principles which generally only required certain
"non-qualifying" hedging positions to be marked-to-market. Changes in the market
value of the Company's open hedging positions resulting from the mark-to-market
process will represent unrealized gains or losses. Such unrealized gains or
losses will change, based on prevailing market prices at each subsequent balance
sheet date, until the transaction date occurs. Under SFAS No. 133, these changes
will be reflected as an increase or reduction in stockholders' equity through
either other comprehensive income or net income, depending on the nature of the
hedging instrument used. To the extent that changes in market value of the
Company's hedging positions are initially recorded in other comprehensive
income, such changes will reverse out of other comprehensive income (net of any
fluctuations in other "open" positions) and will be reflected in net income when
the subsequent physical transactions occur. As of December 31, 2000, the amount
of the Company's other comprehensive income adjustments were not significant so
there was not a significant difference between net income and comprehensive
income. However, differences between comprehensive income and net income may
become significant in future periods as a result of SFAS No. 133. In general,
SFAS No. 133 will result in material fluctuations in comprehensive income, net
income and stockholders' equity in periods of price volatility, despite the fact
that the Company's cash flow and earnings will be "fixed" to the extent hedged.
This result is contrary to the intent of the Company's hedging program, which is
to "lock-in" a price (or range of prices) for products sold/used so that
earnings and cash flows are subject to reduced risk of volatility.

SFAS No. 133 requires that as of the date of the initial adoption, the
difference between the market value of derivative instruments recorded on the
Company's consolidated balance sheet and the previous carrying amount of those
derivatives be reported in net income or other comprehensive income, as
appropriate, as the cumulative effect of a change in accounting principle. As
previously discussed, this impact will be reflected in the Company's first
quarter 2001 financial statements. The adoption of SFAS No. 133 will result in a
pre-tax benefit of $21.2 to other comprehensive income and an essentially
offsetting pre-tax charge of $18.9 to earnings, such that the net effect of the
adoption of SFAS No. 133 on stockholders' equity will be small. See Note 13 for
additional discussions regarding the Company's derivatives.

Fair Value of Financial Instruments. The Company estimates the fair value of its
outstanding indebtedness to be $798.3 and $970.5 as of December 31, 2000 and
1999, respectively, based on quoted market prices for the Company's 97/8% Senior
Notes due 2002 (the "97/8% Notes"), 12 3/4% Senior Subordinated Notes due 2003
(the "12 3/4% Notes"), and 107/8% Senior Notes due 2006 (the "107/8% 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.   INCIDENT AT GRAMERCY FACILITY

In July 1999, the Company's Gramercy, Louisiana alumina refinery was extensively
damaged by an explosion in the digestion area of the plant. A number of
employees were injured in the incident, several of them severely. In connection
with the settlement of the U.S. Mine Safety and Health Administration's ("MSHA")
investigation of the incident, the Company is paying a fine of $.5 but denied
the alleged violations. As a result of the incident, alumina production at the
facility was completely curtailed. Construction on the damaged part of the
facility began during the first quarter of 2000. Initial production at the plant
commenced during the middle of December 2000. The plant is expected to increase
production progressively to approximately 75% of its newly rated estimated
annual capacity of 1,250,000 tons by the end of March 2001. At February 28,
2001, the plant was operating at 70% of capacity. Based on current estimates,
construction at the facility is expected to be completed during the third
quarter of 2001.

The Company has significant amounts of insurance coverage related to the
Gramercy incident. Deductibles and self-retention provisions under the insurance
coverage for the incident total $5.0, which amounts were charged to Other
non-recurring operating items, net in 1999 (Note 6). The Company's insurance
coverage has five separate components: property damage, clean-up and site
preparation, business interruption, liability and workers' compensation. The
insurance coverage components are discussed below.

Property Damage. The Company's insurance policies provide that it will be
reimbursed for the costs of repairing or rebuilding the damaged portion of the
facility using new materials of like kind and quality with no deduction for
depreciation. In 1999, based on discussions with the insurance carriers and
their representatives and third party engineering reports, the Company recorded
a pretax gain of $85.0, representing the difference between the minimum expected
property damage reimbursement amount of $100.0 and the net carrying value of the
damaged property of $15.0. The reimbursement amount was classified as a
receivable in Other assets at December 31, 1999. The full amount of the
receivable was collected in 2000. Additional recoveries are possible. See
"Timing and Amount of Additional Insurance Recoveries" below.

Clean-up and Site Preparation. The Gramercy facility incurred incremental costs
for clean-up and other activities during 1999 and 2000. These clean-up and site
preparation activities have been offset by accruals of approximately $24.0, of
which $10.0 were accrued in 2000, for estimated insurance recoveries.

Business Interruption. The Company's insurance policies provide for the
reimbursement of specified continuing expenses incurred during the interruption
period plus lost profits (or less expected losses) plus other expenses incurred
as a result of the incident. Operations at the Gramercy facility and a sister
facility in Jamaica, which supplies bauxite to Gramercy, will continue to incur
operating expenses until full production at the Gramercy facility is restored.
Through December 2000, the Company purchased alumina from third parties, in
excess of the amounts of alumina available from other Company-owned facilities,
to supply these customers' needs as well as to meet intersegment requirements.
The excess cost of such open market purchases was substantially offset by
insurance recoveries. However, the insurers have alleged that certain sublimits
within the Company's insurance coverage have been reached, and, accordingly, any
additional excess purchase costs incurred in 2001 will be substantially
unreimbursed. However, as the facility is approaching 75% of its newly rated
production capacity, any such unreimbursed costs will be limited. The insurers
have also asserted that no additional business interruption amounts are due
after November 30, 2000. After considering all of the foregoing items, the
Company recorded expected business interruption insurance recoveries totaling
$151.0, of which $110.0 was recorded in the year ended December 31, 2000, as a
reduction of Cost of products sold, which amounts substantially offset actual
expenses incurred during these periods. Such business interruption insurance
amounts represent estimates of the Company's business interruption coverage
based on discussions with the insurance carriers and their representatives and
are therefore subject to change. See "Timing and Amount of Additional Insurance
Recoveries" below.

Depreciation expense for the first six months of 1999 was approximately $6.0.
The Company suspended depreciation at the facility starting in July 1999 since
production had been completely curtailed. However, in accordance with an
agreement with the Company's insurers, during the second half of 2000, the
Company recorded a depreciation charge of $14.3, of which $1.5 was recorded in
the fourth quarter, representing the previously unrecorded depreciation related
to the undamaged portion of the facility for the period from July 1999 through
November 2000. However, this charge did not have any impact on the Company's
operating results as the Company has reflected (as a reduction of depreciation
expense) an equal and offsetting insurance receivable (incremental to the
amounts discussed in the preceding paragraph) since the insurers have agreed to
reimburse the Company this amount. Since production at the facility was
partially restored during December 2000, normal depreciation has commenced. Such
depreciation will exceed prior historical rates primarily due to the capital
costs on the newly constructed assets.

Liability. The incident has also resulted in more than ninety individual and
class action lawsuits being filed against the Company and others alleging, among
other things, property damage, business interruption losses by other businesses
and personal injury. The aggregate amount of damages sought in the lawsuits and
other claims cannot be determined at this time; however, the Company does not
currently believe the damages will exceed the amount of coverage under its
liability policies.

Workers' Compensation. While it is presently impossible to determine the
aggregate amount of claims that may be incurred, the Company currently believes
that any amount in excess of the coverage limitations will not have a material
effect on the Company's consolidated financial position or liquidity. However,
it is possible that as additional facts become available, additional charges may
be required and such charges could be material to the period in which they are
recorded.

Timing and Amount of Additional Insurance Recoveries. Through December 31, 2000,
the Company had recorded $289.3 of estimated insurance recoveries related to the
property damage, clean-up and site preparation and business interruption aspects
of the Gramercy incident and had collected $252.6 of such amounts. Through
February 2001, an additional $10.0 had been received with respect to the
estimated recoveries at year-end 2000 and an additional $7.0 is expected in
March 2001. The remaining balance of approximately $20.0 and any additional
amounts possibly due to the Company are not expected to be recovered until the
Company and the insurers resolve their differences. The Company and the insurers
are currently negotiating an arbitration agreement as a means of resolving their
differences. The Company anticipates that the remaining issues will not be
resolved until late 2001 or early 2002. The Company continues to believe that a
minimum of approximately $290.0 of insurance recoveries are probable, that
additional amounts are owed to the Company by the insurers, and that the
likelihood of any refund by the Company of amounts previously received from the
insurers is remote. However, no assurances can be given as to the ultimate
outcome of this matter or its impact on the Company's near-term liquidity and
results of operations.

The Company does not intend to record any additional insurance-related
recoveries in 2001 unless and until agreed to by the insurers or until the
arbitration process is completed. As such, the Company's future operating
results will be adversely affected until all of the additional costs/lost
profits related to the Gramercy plant's start-up and return to full production
are eliminated or until any amounts related to 2001 ultimately determined to be
due to the Company through negotiation with the insurers or as a part of the
arbitration process are received.

Other. During the third quarter of 2000, the Company incurred approximately
$11.5 of normal recurring maintenance expenditures for the Gramercy facility
(which amounts were reflected in Other non-recurring operating items, net - see
Note 6) that otherwise would have been incurred in the ordinary course of
business over the next one to three years. The Company chose to incur these
expenditures now to avoid normal operational outages that otherwise would have
occurred once the facility resumes production.

3.   INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES

Summary of 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 income (loss) before income taxes of such
operations is treated as a reduction (increase) in Cost of products sold. At
December 31, 2000 and 1999, the Company's net receivables from these affiliates
were not material.

The Company was a founding partner (during 2000) in MetalSpectrum, LLC, an
independent neutral online site to serve manufacturers, distributors and
customers in the specialty metals business. Since the Company's interest in
MetalSpectrum is less than 10%, it is being accounted for on the cost basis.

On April 1, 1999, the Company sold its 50% interest in AKW L.P. ("AKW") to its
partner for $70.4, which resulted in the Company recognizing a net pre-tax gain
of $50.5 (included in Other income (expense) - Note 1). The Company's equity in
income of AKW was $2.5 and $7.8 for the years ended December 31, 1999 and 1998,
respectively.

Summary of Combined Financial Position

                                                                                 December 31,
                                                                          --------------------------
                                                                               2000            1999
----------------------------------------------------------------------------------------------------
Current assets                                                            $    350.1      $    370.4
Long-term assets (primarily property, plant, and equipment, net)               327.3           344.1
                                                                          ----------      ----------
     Total assets                                                         $    677.4      $    714.5
                                                                          ==========      ==========
Current liabilities                                                       $    144.1      $    120.4
Long-term liabilities (primarily long-term debt)                               331.4           368.3
Stockholders' equity                                                           201.9           225.8
                                                                          ----------      ----------
     Total liabilities and stockholders' equity                           $    677.4      $    714.5
                                                                          ==========      ==========

Summary of Combined Operations

                                                              Year Ended December 31,
                                                        -----------------------------------
                                                           2000          1999         1998
-------------------------------------------------------------------------------------------
Net sales                                               $ 602.9       $ 594.9      $ 659.2
Costs and expenses                                       (617.1)       (582.9)      (651.7)
Benefit (provision) for income taxes                       (4.5)           .8         (2.7)
                                                        --------      --------     --------
Net income (loss)                                       $ (18.7)      $  12.8      $   4.8
                                                        ========      ========     ========
Company's equity in income (loss)                       $  (4.8)      $   4.9      $   5.4
                                                        ========      ========     ========
Dividends received                                      $   8.3       $    -       $   5.5
                                                        ========      ========     ========

The Company's equity in income differs from the summary net income (loss) due to
varying percentage ownerships in the entities and equity method accounting
adjustments. Prior to December 31, 2000, the Company's investment in its
unconsolidated affiliates exceeded its equity in their net assets and such
excess was being amortized to Depreciation and amortization. At December 31,
2000, the excess investment had been fully amortized. Such amortization was
approximately $10.0 for each of the years ended December 31, 2000, 1999 and
1998.

The Company and its affiliates have interrelated operations. The Company
provides some of its affiliates with services such as management and
engineering. Significant activities with affiliates include the acquisition and
processing of bauxite, alumina, and primary aluminum. Purchases from these
affiliates were $235.7, $223.7 and $235.1, in the years ended December 31, 2000,
1999 and 1998, respectively.

4.   PROPERTY, PLANT, AND EQUIPMENT

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

                                                            December 31,
                                                     --------------------------
                                                         2000            1999
-------------------------------------------------------------------------------
Land and improvements                                $   130.7       $   166.1
Buildings                                                197.2           230.0
Machinery and equipment                                1,702.8         1,519.7
Construction in progress                                 130.3            67.7
                                                     ----------      ----------
                                                       2,161.0         1,983.5
Accumulated depreciation                                (984.9)         (929.8)
                                                     ----------      ----------
     Property, plant, and equipment, net             $ 1,176.1       $ 1,053.7
                                                     ==========      ==========

The Company evaluated the recoverability of the approximate $200.0 carrying
value of its Washington smelters, as a result of the change in the economic
environment of the Pacific Northwest associated with the reduced power
availability and higher power costs for the Company's Washington smelters under
the terms of the new contract with the Bonneville Power Administration ("BPA")
starting in October 2001 (see Note 7). The Company determined that the expected
future undiscounted cash flows of the Washington smelters were below their
carrying value. Accordingly, during the fourth quarter of 2000, the Company
adjusted the carrying value of its Washington smelting assets to their estimated
fair value, which resulted in a non-cash impairment charge of approximately
$33.0 (which amount was reflected in Other non-recurring operating items, net -
see Note 6). The estimated fair value was based on anticipated future cash flows
discounted at a rate commensurate with the risk involved.

During September 2000, the Company sold its Pleasanton, California, office
complex because the complex had become surplus to the Company's needs. Net
proceeds from the sale were approximately $51.6 and resulted in a net pre-tax
gain of $22.0 (included in Other income (expense) - see Note 1).

In May 2000, the Company acquired the assets of a drawn tube aluminum
fabricating operation in Chandler, Arizona. Total consideration for the
acquisition was $16.1, consisting of cash payments of $15.1 and assumed current
liabilities of $1.0. The purchase price was allocated to the assets acquired
based on their estimated fair values, of which approximately $1.1 was allocated
to property, plant and equipment and $2.8 was allocated to receivables,
inventory and prepaid expenses. The excess of the purchase price over the fair
value of the assets acquired (goodwill) was approximately $12.2 and is being
amortized on a straight- line basis over 20 years. Total revenues for the
Chandler facility were approximately $13.8 for the year ended December 31, 1999
(unaudited).

During the quarter ended March 31, 2000, the Company, in the ordinary course of
business, sold certain non-operating properties for total proceeds of
approximately $12.0. The sale did not have a material impact on the Company's
operating results for the year ended December 31, 2000.

In February 2000, the Company completed the sale of the Micromill assets and
technology for a nominal payment at closing and possible future payments based
on subsequent performance and profitability of the Micromill technology. The
sale did not have a material impact on the Company's 2000 operating results. As
a result of the changes in strategic course in the further development and
deployment of the Company's Micromill technology , the carrying value of the
Micromill assets was reduced by recording impairment charges of $19.1 and $45.0
in 1999 and 1998, respectively (see Note 6).

5.   LABOR DISPUTE, SETTLEMENT AND RELATED COSTS

As previously reported, prior to the settlement of the labor dispute discussed
below, the Company was operating five of its U.S. facilities with salaried
employees and other employees as a result of the September 30, 1998, strike by
the United Steelworkers of America ("USWA") and the subsequent "lock-out" by the
Company in January 1999. The labor dispute was settled in September 2000. A
significant portion of the issues were settled through direct negotiations
between the Company and the USWA and the remaining issues were settled pursuant
to an agreed-upon arbitration process. Under the terms of the settlement, USWA
members generally returned to the affected plants during October 2000. The new
labor contract, which expires in September 2005, provides for a 2.6% average
annual increase in the overall wage and benefit packages, results in the
reduction of at least 540 hourly jobs at the five facilities (from approximately
2,800 on September 30, 1998), allows the Company greater flexibility in using
outside contractors and provides for productivity gains by allowing the Company
to utilize the knowledge obtained during the labor dispute without many of the
work-rule restrictions that were a part of the previous labor contract. The
Company has recorded a one-time pre-tax charge of $38.5 in its results of
operations for the year ended December 31, 2000, to reflect the incremental,
non-recurring impacts of the labor settlement, including severance and other
contractual obligations for non-returning workers. At December 31, 2000, the
total remaining liability associated with the labor settlement charge was $16.3.
It is anticipated that substantially all remaining costs will be incurred during
2001 or early 2002. See Note 15 for the allocation of the labor settlement
charge by business unit.

During the period of the strike and subsequent lock-out, the Company continued
to accrue certain benefits (such as pension and other postretirement benefit
costs/liabilities) for the USWA members, which accruals were based on the terms
of the previous USWA contract. The difference between the amounts accrued for
the returning workers and the amounts agreed to in the settlement with the USWA
resulted in an approximate $33.6 increase in the Company's accumulated pension
obligation and an approximate $33.4 decrease in the Company's accumulated other
postretirement benefit obligations. In accordance with generally accepted
accounting principles, these amounts will be amortized to expense over the
employees' expected remaining years of service.

On March l, 2001, in connection with the USWA settlement agreement, the Company
redeemed all of its Cumulative (1985 Series A) and Cumulative (1985 Series B)
Preference Stock. See Note 11.

6.   NON-RECURRING OPERATING ITEMS, NET (OTHER THAN LABOR SETTLEMENT)

The income (loss) impact associated with non-recurring operating items, net,
other than the labor settlement charge, for 2000, 1999 and 1998 was as follows:

                                                                                           Year Ended December 31,
                                                                                  ----------------------------------------
                                                         Business Segment                2000          1999         1998
--------------------------------------------------------------------------------------------------------------------------
Net gains from power sales (Note 7)                   Primary Aluminum            $       159.5   $     -        $    -
Impairment charge - Washington
     smelters  (Note 4)                               Primary Aluminum                    (33.0)        -             -
Gramercy related items:
     Incremental maintenance (Note 2)                 Bauxite & Alumina               (11.5)        -             -
     Insurance deductibles, etc. (Note 2)             Bauxite & Alumina              -               (4.0)        -
                                                      Corporate                          -               (1.0)        -
     LIFO inventory charge (Note 1)                   Bauxite & Alumina                (7.0)        -             -
Impairment charges associated with
     product line exits                               Flat-Rolled Products                (12.6)        -             -
                                                      Engineered Products                  (5.6)        -             -
Restructuring charges                                 Bauxite & Alumina                 (.8)        -             -
                                                      Primary Aluminum                     (3.1)        -             -
                                                      Corporate                            (5.5)        -             -
Micromill impairment (Note 4)                         Micromill                          -              (19.1)       (45.0)
Incremental strike-related costs                      Bauxite & Alumina              -              -            (11.0)
                                                      Primary Aluminum                   -              -            (29.0)
                                                      Flat-Rolled Products               -              -            (16.0)
                                                      Engineered Products                -              -             (4.0)
                                                                                  --------------  ------------   ----------
                                                                                  $        80.4   $     (24.1)   $  (105.0)
                                                                                  ==============  ============   ==========

The $12.6 impairment charge reflected by the Company's Flat-Rolled products
segment in 2000 includes a $11.1 LIFO inventory charge (see Note 1), of which
$3.6 was recorded in the fourth quarter of 2000, and a $1.5 charge to reduce the
carrying value of certain assets to their estimated net realizable value as a
result of the segment's decision to exit the can body stock product line. The
$5.6 impairment charge recorded by the Company's Engineered products segment in
2000 includes a $.9 LIFO inventory charge (all in the fourth quarter of 2000)
and a $4.7 charge to reduce the carrying value of certain machining facilities
and assets, which are no longer required as a result of the segment's decision
to exit a marginal product line, to their estimated net realizable value.

The restructuring charges recorded by the Company's Primary aluminum segment in
2000 represent employee benefit and other costs for approximately 50 job
eliminations reflecting a reduced emphasis on technology sales and reduced
salaried employee requirements at the Company's Tacoma facility, given its
current curtailment. The Corporate portion of the restructuring charges in 2000
represent employee benefit and other costs associated with the consolidation or
elimination of certain corporate staff functions. The Corporate restructuring
initiatives in 2000 involve a group of approximately 50 employees. As of
December 31, 2000, the total remaining liability associated with both
restructuring efforts was $2.8. It is anticipated that all remaining costs will
be incurred during 2001.

The incremental strike-related costs in 1998 reflect the adverse impact on the
Company's profitability due to the USWA strike in September 1998.

7.   PACIFIC NORTHWEST POWER SALES AND OPERATING LEVEL

Power Sales. In response to the unprecedented high market prices for power in
the Pacific Northwest, the Company temporarily curtailed the primary aluminum
production at the Tacoma and Mead, Washington smelters during the second half of
2000 and sold a portion of the power that it had under contract through
September 30, 2001. As a result of the curtailments, the Company avoided the
need to purchase power on a variable market price basis and will receive cash
proceeds sufficient to more than offset the cash impact of the potline
curtailments over the period for which the power was sold. To implement the
curtailment, the Company temporarily curtailed the two and one-half operating
potlines at its Tacoma smelter and two and one-half out of a total of eight
potlines at its Mead smelter in June 2000 and temporarily curtailed the
remaining Mead potlines during the fourth quarter of 2000. One-half of a potline
at the Tacoma smelter was already curtailed. The Company recorded net pre-tax
gains of approximately $159.5 in 2000, of which $103.2 was recorded in the
fourth quarter, as a result of these power sales. The net gain amounts were
composed of gross proceeds of $207.8, of which $88.0 (included in Receivables -
other at December 31, 2000) was received through February 28, 2001. The gross
proceeds were offset by employee-related expenses, incremental excess power
costs, a non-cash LIFO inventory charge and other fixed commitments, which
amounts are expected to be paid through September 2001. The resulting net gains
have been reflected in Other non-recurring operating items, net (see Note 6).

As previously announced, in a series of transactions completed during the first
quarter of 2001, the Company agreed to sell a substantial majority of the
remaining power that it had under contract through September 2001. These power
sales, before consideration of any applicable non-energy costs (which have yet
to be determined), are expected to result in pre-tax gains of approximately
$260.0 in the first quarter of 2001. Approximately one-half of the net proceeds
are expected to be received in late March 2001, with the balance being received
periodically through October 2001. Based on the forward price for power
experienced during the first quarter of 2001, the value of the remaining power
that the Company has under contract that can be sold is estimated to be between
$20.0 and $40.0.

Future Power Supply. During October 2000, the Company signed a new power
contract with the BPA under which the BPA will provide the Company's operations
in the State of Washington with power during the period October 2001 through
September 2006. The contract will provide the Company with sufficient power to
fully operate the Company's Trentwood facility as well as approximately 40% of
the combined capacity of the Company's Mead and Tacoma aluminum smelting
operations. Power costs under the new contract are expected to exceed the cost
of power under the Company's current BPA contract by between 20% to 60% and,
perhaps, by as much as 100% in certain periods. Additional provisions of the new
BPA contract include a take-or-pay requirement, an additional cost recovery
mechanism under which the Company's base power rate could be increased and
clauses under which the Company's power allocation could be curtailed, or its
costs increased, in certain instances. The Company does not have any remarketing
rights under the new BPA contract. The Company has the right to terminate the
contract until certain pricing and other provisions of the BPA contract are
finalized, which is expected to be mid-2001.

Depending on the ultimate price for power under the terms of the new BPA
contract or the availability of an alternate power supply at an acceptable
price, the Company may be unable to operate the Mead and Tacoma smelters in the
near or long-term. Under the Company's contract with the USWA, the Company is
liable for certain severance and supplemental unemployment benefits for laid-off
workers. Costs related to the period from January 1, 2001 to September 30, 2001
have been accrued to the extent the costs were fixed and determinable. However,
the Company may become liable for additional costs. In particular, the Company
would become liable for certain early retirement benefits for USWA workers at
the Mead and Tacoma facilities if such facilities are not restarted prior to
late 2002 or early 2003. Such costs could be significant and would adversely
impact the Company's operating results and liquidity.

8.   LONG-TERM DEBT

Long-term debt and its maturity schedule are as follows:
                                                                                                                December 31,
                                                                                                       2006  -----------------
                                                                                                        and     2000     1999
                                                       2001      2002    2003       2004      2005    After    Total    Total
------------------------------------------------------------------------------------------------------------------------------
Credit Agreement                                    $  30.4                                                   $  30.4  $  10.4
97/8% Senior Notes due 2002, net                             $  224.8                                           224.8    224.6
107/8% Senior Notes due 2006, net                                                                   $  225.5    225.5    225.6
12 3/4% Senior Subordinated Notes due 2003                               $ 400.0                                400.0    400.0
Alpart CARIFA Loans - (fixed and variable rates)
     due 2007, 2008                                                                                     56.0     56.0     60.0
Other borrowings (fixed and variable rates)             1.2        .2         .2  $    .2  $    .2      50.7     52.7     52.2
                                                    -------- ---------   -------  -------  -------  --------   ------  -------
Total                                               $  31.6  $  225.0    $ 400.2  $    .2  $    .2  $  332.2    989.4    972.8
                                                    ======== =========   =======  =======  =======  ========
Less current portion                                                                                             31.6       .3
                                                                                                               ------  -------
     Long-term debt                                                                                           $ 957.8  $ 972.5
                                                                                                              =======  =======

Credit Agreement and Liquidity. The Company has a credit agreement, as amended,
(the "Credit Agreement") which provides a secured, revolving line of credit
through August 15, 2001. 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 $300.0 (reduced from $325.0 in December
2000) or a borrowing base relating to eligible accounts receivable and eligible
inventory. As of December 31, 2000, $155.3 (of which $69.3 could have been used
for letters of credit) was available to the Company under the Credit Agreement.
The Credit Agreement is unconditionally guaranteed by the Company and by certain
significant subsidiaries of the Company. Interest on any outstanding balances
will bear a spread (which varies based on the results of a financial test) over
either a base rate or LIBOR, at the Company's option. The interest rate at
December 31, 2000 was 11.0%. As of February 28, 2001, there were $94.0 of
borrowings outstanding under the Credit Agreement and remaining availability of
approximately $120.0. However, proceeds of approximately $130.0 related to 2001
power sales are expected to be received at or near March 30, 2001, and an
additional $130.0 of power proceeds will be received periodically through
October 2001 with respect to other power sales made during the first quarter of
2001.

It is the Company's intention to extend or replace the Credit Agreement prior to
its expiration. However, in order for the Credit Agreement to be extended, on a
short-term basis, beyond August 2001, the Company will have to have a plan to
mitigate the $225.0 million of 97/8% Notes, due February 2002. For the Credit
Agreement to be extended past February 2003, both the 97/8% Notes and the 12
3/4% Notes, due February 2003, will have to be retired and/or refinanced. As of
February 28, 2001, the Company had received approval from the Credit Agreement
lenders to purchase up to $50.0 of the 97/8% Notes. As of February 28, 2001, the
Company has purchased approximately $1.0 of 97/8% Notes.

As previously disclosed, the Company is considering the possible sale of part or
all of its interests in certain operating assets. The contemplated transactions
are in various stages of development. The Company expects that at least one
operating asset will be sold. The Company has multiple transactions under way.
It is unlikely, however, that it would consummate all of the transactions under
consideration. Further, there can be no assurance as to the likelihood, timing
or terms of such sales. The Company would expect to use the proceeds from any
such sales for debt reduction, capital spending or some combination thereof.

Alpart CARIFA Loans. In December 1991, Alumina Partners of Jamaica ("Alpart")
entered into a loan agreement with the Caribbean Basin Projects Financing
Authority ("CARIFA"). As of December 31, 2000, Alpart's obligations under the
loan agreement were secured by two letters of credit aggregating $59.7. The
Company was a party to one of the two letters of credit in the amount of $38.8
in respect of its ownership interest 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.

During March 2000, Alpart redeemed $4.0 principal amount of the CARIFA loans.
During March 2001, Alpart redeemed an additional $34.0 principal amount of the
CARIFA loans and, accordingly, the Company's letter of credit securing the loans
was reduced to $15.3. The March 2001 redemption had a modest beneficial effect
on the unused availability remaining under the Credit Agreement as the
additional Credit Agreement borrowings of $22.1 required for the Company's share
of the redemption were more than offset by a reduction in the amount of letters
of credit outstanding.

Debt Covenants and Restrictions. The Credit Agreement requires the Company to
comply with certain financial covenants and places restrictions on the Company'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); (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 97/8% Notes, its 107/8% Notes
and its 12 3/4% Notes are guaranteed, jointly and severally, by certain
subsidiaries of the Company. The indentures governing the 97/8% Notes, the
107/8% 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 97/8% Notes, the 107/8% 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.

The Credit Agreement significantly restricts the Company's ability to pay
dividends on its common stock.

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 the Company. The restricted net assets of the Company totaled $87.0
and $70.7 at December 31, 2000 and 1999, respectively.

9.   INCOME TAXES

Income (loss) before income taxes and minority interests by geographic area is
as follows:

                                            Year Ended December 31,
                                  -------------------------------------------
                                      2000             1999            1998
-----------------------------------------------------------------------------
Domestic                          $   (96.3)      $    (81.4)      $   (93.2)
Foreign                               122.0             (8.1)           77.7
                                  ----------      -----------      ----------
     Total                        $    25.7       $    (89.5)      $   (15.5)
                                  ==========      ===========      ==========

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) benefit for income taxes on income (loss) before income taxes
and minority interests consists of:

                                           Federal           Foreign           State          Total
---------------------------------------------------------------------------------------------------
2000     Current                      $      (1.8)      $     (35.3)     $      (.3)     $   (37.4)
         Deferred                            35.3              (8.9)            (.7)          25.7
                                      ------------      ------------     -----------     ----------
              Total                   $      33.5       $     (44.2)     $     (1.0)     $   (11.7)
                                      ============      ============     ===========     ==========

1999     Current                      $       (.5)      $     (23.1)     $      (.3)     $   (23.9)
         Deferred                            43.7               7.1             5.7           56.5
                                      ------------      ------------     -----------     ----------
              Total                   $      43.2       $     (16.0)     $      5.4      $    32.6
                                      ============      ============     ===========     ==========

1998     Current                      $      (1.7)      $     (16.5)     $      (.2)     $   (18.4)
         Deferred                            44.3             (12.5)            3.0           34.8
                                      ------------      ------------     -----------     ----------
              Total                   $      42.6       $     (29.0)     $      2.8      $    16.4
                                      ============      ============     ===========     ==========

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

                                                                                              Year Ended December 31,
                                                                                        -----------------------------------
                                                                                            2000          1999         1998
---------------------------------------------------------------------------------------------------------------------------
Amount of federal income tax (provision) benefit based on the statutory rate            $  (9.0)      $  31.4      $   5.4
Revision of prior years' tax estimates and other changes in valuation allowances           (1.8)          1.1          8.3
Percentage depletion                                                                        3.0           2.8          3.2
Foreign taxes, net of federal tax benefit                                                  (3.2)         (3.2)        (1.9)
Other                                                                                       (.7)           .5          1.4
                                                                                        --------      --------     --------
(Provision) benefit for income taxes                                                    $ (11.7)      $  32.6      $  16.4
                                                                                        ========      ========     ========

The components of the Company's net deferred income tax assets are as follows:
                                                                         December 31,
                                                                 -----------------------------
                                                                       2000             1999
----------------------------------------------------------------------------------------------
Deferred income tax assets:
     Postretirement benefits other than pensions                 $     267.4       $    274.7
     Loss and credit carryforwards                                     124.0            118.1
     Other liabilities                                                 143.7            146.3
     Other                                                             180.8            193.3
     Valuation allowances                                             (122.3)          (125.6)
                                                                 ------------      -----------
         Total deferred income tax assets-net                          593.6            606.8
                                                                 ------------      -----------
Deferred income tax liabilities:
     Property, plant, and equipment                                   (105.1)          (101.6)
     Other                                                             (26.2)           (69.6)
                                                                 ------------      -----------
         Total deferred income tax liabilities                        (131.3)          (171.2)
                                                                 ------------      -----------
Net deferred income tax assets                                   $     462.3       $    435.6
                                                                 ============      ===========

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, the Company has the ability to carry forward such loss for 20 taxable
years. Accordingly, 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, 2000 and 1999, $56.0 and $39.1, respectively, of the net
deferred income tax assets listed above are included in 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 in 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. The tax allocation agreement of the KACC Subgroup with MAXXAM terminated
pursuant to its terms, effective for taxable periods beginning after June 30,
1993. However, payments or refunds for periods prior to July 1, 1993 related to
certain 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.

At December 31, 2000, 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 $84.2
and $1.0, respectively, which expire periodically through 2019 and 2011,
respectively, foreign tax credit ("FTC") carryforwards of $65.7, which expire
primarily in 2004 and 2005, and alternative minimum tax ("AMT") credit
carryforwards of $26.1, which have an indefinite life. The Company also has AMT
net operating loss and FTC carryforwards of $44.7 and $89.8, respectively,
available, subject to certain limitations, to offset future alternative minimum
taxable income, which expire periodically through 2019 and 2005, respectively.

10.  EMPLOYEE BENEFIT AND INCENTIVE PLANS

Pension and Other Postretirement Benefit Plans. Retirement plans are
non-contributory for salaried and hourly employees and generally provide for
benefits based on formulas which consider such items as length of service and
earnings during years of service. The Company's funding policies meet or exceed
all regulatory requirements.

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

                                                               Pension Benefits                  Medical/Life Benefits
                                                        --------------------------------     ------------------------------
                                                             2000        1999      1998         2000       1999       1998
                                                        --------------------------------     ------------------------------
Weighted-average assumptions as of December 31,
Discount rate                                               7.75%       7.75%      7.00%        7.75%      7.75%      7.00%
Expected return on plan assets                              9.50%       9.50%      9.50%          -          -          -
Rate of compensation increase                               4.00%       4.00%      5.00%        4.00%      4.00%      4.00%

In 2000, the average annual assumed rate of increase in the per capita cost of
covered benefits (i.e., health care cost trend rate) is 8.0% for all
participants. The assumed rate of increase is assumed to decline gradually to
5.0% in 2009 for all participants and remain at that level thereafter.

The following table presents the funded status of the Company's pension and
other postretirement benefit plans as of December 31, 2000 and 1999, and the
corresponding amounts that are included in the Company's Consolidated Balance
Sheets:

                                                               Pension Benefits                  Medical/Life Benefits
                                                       --------------------------------    --------------------------------
                                                            2000              1999              2000              1999
                                                       --------------    --------------    --------------     -------------
Change in Benefit Obligation:
     Obligation at beginning of year                   $       806.0     $       872.5     $       615.4      $      616.8
     Service cost                                               19.0              14.6               5.3               5.2
     Interest cost                                              60.5              59.7              45.0              41.5
     Currency exchange rate change                              -                 (5.7)               -                 -
     Curtailments, settlements and amendments                   33.7                .4             (33.4)               -
     Actuarial (gain) loss                                       9.1             (44.5)             79.5                .1
     Benefits paid                                             (92.5)            (91.0)            (53.6)            (48.2)
                                                       --------------    --------------    --------------     -------------
         Obligation at end of year                             835.8             806.0             658.2             615.4
                                                       --------------    --------------    --------------     -------------
Change in Plan Assets:
     FMV of plan assets at beginning of year                   857.8             801.8                -                 -
     Actual return on assets                                   (18.0)            133.0                -                 -
     Employer contributions                                     10.7              14.0              53.6              48.2
     Benefits paid                                             (92.5)            (91.0)            (53.6)            (48.2)
                                                       --------------    --------------    --------------     -------------
     FMV of plan assets at end of year                         758.0             857.8               -                 -
                                                       --------------    --------------    --------------     -------------
     Obligation in excess of (less than) plan
         assets                                                 77.8             (51.8)            658.2             615.4
     Unrecognized net actuarial gain (loss)                     25.1             131.9             (21.6)             56.7
     Unrecognized prior service costs                          (45.1)            (15.2)             78.3              57.7
     Adjustment required to recognize minimum liability          1.8               1.2                -                 -
     Intangible asset and other                                  3.0               2.6                -                 -
                                                       --------------    --------------    --------------     -------------
         Accrued benefit liability                     $        62.6     $        68.7     $       714.9      $      729.8
                                                       ==============    ==============    ==============     =============

The aggregate accumulated benefit obligation and fair value of plan assets for
pension plans with accumulated benefit obligation in excess of plan assets were
$789.3 and $748.5, respectively, as of December 31, 2000, and $92.4 and $79.7,
respectively, as of December 31, 1999.

                                                               Pension Benefits                  Medical/Life Benefits
                                                       ---------------------------------  ---------------------------------
                                                          2000       1999        1998         2000       1999       1998
                                                       ---------- ----------- ----------  ----------- ---------- ----------
Components of Net Periodic Benefit Costs:
     Service cost                                      $    19.0  $     14.6  $    14.2    $     5.3  $     5.2  $     4.2
     Interest cost                                          60.5        59.7       59.7         45.0       41.5       37.5
     Expected return on assets                             (77.9)      (72.9)     (69.4)            -          -         -
     Amortization of prior service cost                      3.9         3.3        3.2        (12.8)     (12.1)     (12.4)
     Recognized net actuarial (gain) loss                   (1.9)         .7        1.4            -          -       (7.1)
                                                       ---------- ----------- ----------   ---------- ---------- ----------
     Net periodic benefit cost                               3.6         5.4        9.1         37.5       34.6       22.2
     Curtailments, settlements, etc.                          .1          .4        3.2            -          -          -
                                                       ---------- ----------- ----------   ---------- ---------- ----------
         Adjusted net periodic benefit costs           $     3.7  $      5.8  $    12.3    $    37.5  $    34.6  $    22.2
                                                       ========== =========== ==========   ========== ========== ==========

Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plan. A one-percentage- point change in assumed
health care cost trend rates would have the following effects:

                                                                    1% Increase       1% Decrease
                                                                   -------------    ---------------
Increase (decrease) to total of service and interest cost          $        6.8       $       (5.0)
Increase (decrease) to the postretirement benefit obligation       $       68.3       $      (48.0)

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, the Company 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 $5.7,
$6.0 and $7.5 for the years ended December 31, 2000, 1999 and 1998,
respectively.

Up to 8,000,000 shares of the Company's Common Stock were reserved for issuance
under its stock incentive compensation plans. At December 31, 2000, 1,861,752
shares of Common Stock remained available for issuance under those plans. Stock
options granted pursuant to the Company's nonqualified stock option program are
granted at or above the prevailing market price, generally vest at a rate of 20
- 33% per year, and have a five or 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.

                                                                          2000          1999         1998
-----------------------------------------------------------------------------------------------------------
Outstanding at beginning of year ($10.24, $9.98 and $10.45)           4,239,210     3,049,122      819,752
Granted ($10.23, $11.15 and $9.79)                                      757,335     1,218,068    2,263,170
Exercised ($7.25 in both years)                                            -           (7,920)     (10,640)
Expired or forfeited ($11.08, $11.02 and $9.60)                        (620,598)      (20,060)     (23,160)
                                                                      ----------    ----------   ----------
Outstanding at end of year ($10.24, $10.24 and $9.98)                 4,375,947     4,239,210    3,049,122
                                                                      ==========    ==========   ==========
Exercisable at end of year ($10.18, $10.17 and $10.09)                2,380,491     1,763,852    1,261,262
                                                                      ==========    ==========   ==========

Options exercisable at December 31, 2000 had exercisable prices ranging from
$6.13 to $12.75 and a weighted average remaining contractual life of 3.4 years.

11.  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. In
connection with the USWA settlement agreement (see Note 5), during March 2001,
the Company redeemed all of the Redeemable Preference Stock (350,872 shares
outstanding at December 31, 2000). The amount applicable to the unredeemed
shares at December 31, 2000 ($17.5), was included in Other accrued liabilities.
The net cash impact of the redemption on the Company was only approximately $5.5
because approximately $12.0 of the redemption amount had previously been funded
into redemption funds (included in Prepaid expenses).

12.  STOCKHOLDERS' EQUITY

Preference Stock. The Company has four series of $100 par value Cumulative
Convertible Preference Stock ("$100 Preference Stock") outstanding with annual
dividend requirements of between 41/8% 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.

Note Receivable from Parent. The Note receivable from parent bears interest at a
fixed rate of 65/8% and matures on December 21, 2020. Interest and principal
payments are payable over a 15-year term pursuant to a predetermined schedule
starting December 21, 2006. Accrued interest is accounted for as additional
contribution to capital.

13.  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 14), 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 are scheduled to 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 Company's share of the aggregate
minimum amount of required future principal payments at December 31, 2000, is
$101.5 which matures as follows: $14.1 in 2001, $43.0 in 2002 and $44.4 in 2003.
The Company's share of payments, including operating costs and certain other
expenses under the agreements, has ranged between $92.0 - $96.0 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, 2000, are as
follows: years ending December 31, 2001 - $36.5; 2002 - $32.3; 2003 - $29.4;
2004 - $26.9; 2005 - $26.4; thereafter - $78.0. The future minimum rentals
receivable under noncancelable subleases was $132.3 at December 31, 2000.

Rental expenses were $42.5, $41.1 and $34.5, for the years ended December 31,
2000, 1999 and 1998, respectively.

The Company has a long-term liability, net of estimated subleases income
(included in Long-term liabilities), on a building in which the Company has not
maintained offices for a number of years, but for which it is responsible for
lease payments as master tenant through 2008 under a sale-and-leaseback
agreement. During 2000, the Company reduced its net lease obligation by $17.0
(see Note 1) to reflect new third-party sublease agreements which resulted in
occupancy and lease rates above those previously projected.

Environmental Contingencies. The Company 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. The
Company currently is subject to a number of claims 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, 2000, 1999 and 1998:

                                                   2000        1999       1998
------------------------------------------------------------------------------
Balance at beginning of period                  $ 48.9      $ 50.7     $ 29.7
Additional accruals                                2.6         1.6       24.5
Less expenditures                                 (5.4)       (3.4)      (3.5)
                                                -------     -------    -------
Balance at end of period                        $ 46.1      $ 48.9     $ 50.7
                                                =======     =======    =======

These environmental accruals represent the Company's estimate of costs
reasonably expected to be incurred based on presently enacted laws and
regulations, currently available facts, existing technology, and the Company's
assessment of the likely remediation action to be taken. The Company expects
that these remediation actions will be taken over the next several years and
estimates that annual expenditures to be charged to these environmental accruals
will be approximately $3.0 to $12.0 for the years 2001 through 2005 and an
aggregate of approximately $21.0 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 $35.0. 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 pursuing claims in this regard.
During December 1998, the Company received recoveries totaling approximately
$35.0 from certain of its insurers related to current and future claims. Based
on the Company's analysis, a total of $12.0 of such recoveries was allocable to
previously accrued (expensed) items and, therefore, was reflected in earnings
during 1998 (see Note 1 - Other Income (Expense)). The remaining recoveries were
offset against increases in the total amount of environmental reserves. No
assurances can be given that the Company will be successful in other attempts to
recover incurred or future costs from other insurers or that the amount of
recoveries received will ultimately be adequate to cover costs incurred.

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 sold for
more than 20 years.

The following table presents the changes in number of such claims pending for
the years ended December 31, 2000, 1999 and 1998.

                                                                       2000         1999         1998
-------------------------------------------------------------------------------------------------------
Number of claims at beginning of period                              100,000       86,400       77,400
Claims received                                                       30,600       29,300       22,900
Claims settled or dismissed                                          (19,800)     (15,700)     (13,900)
                                                                    ---------    ---------    ---------
Number of claims at end of period                                    110,800      100,000       86,400
                                                                    =========    =========    =========
Number of claims at end of period (included above) covered
     by agreements under which the Company expects to settle
     over an extended period                                          66,900       31,900       30,000
                                                                    =========    =========    =========

The Company maintains a liability for estimated asbestos-related costs for
claims filed to date and an estimate of claims to be filed over a 10 year period
(i.e., through 2010). The Company's estimate is based on the Company's view, at
each balance sheet date, of the current and anticipated number of
asbestos-related claims, the timing and amounts of asbestos-related payments,
the status of ongoing litigation and settlement initiatives, and the advice of
Wharton Levin Ehrmantraut Klein & Nash, P.A., with respect to the current
state of the law related to asbestos claims. However, there are inherent
uncertainties involved in estimating asbestos- related costs and the Company's
actual costs could exceed the Company's estimates due to changes in facts and
circumstances after the date of each estimate. Further, while the Company does
not presently believe there is a reasonable basis for estimating
asbestos-related costs beyond 2010 and, accordingly, no accrual has been
recorded for any costs which may be incurred beyond 2010, the Company expects
that such costs are likely to continue beyond 2010, and that such costs could be
substantial.

The Company believes that it has insurance coverage available to recover a
substantial portion of its asbestos-related costs. Although the Company has
settled asbestos-related coverage matters with certain of its insurance
carriers, other carriers have not yet agreed to settlements and disputes with
certain carriers exist. The timing and amount of future recoveries from these
and other insurance carriers will depend on the pace of claims review and
processing by such carriers and on the resolution of any disputes regarding
coverage under such policies. The Company believes that substantial recoveries
from the insurance carriers are probable. The Company reached this conclusion
after considering its prior insurance-related recoveries in respect of asbestos-
related claims, existing insurance policies, and the advice of Heller Ehrman
White & McAuliffe LLP with respect to applicable insurance coverage law
relating to the terms and conditions of those policies. During 2000, the Company
filed suit against a group of its insurers, after negotiations with certain of
the insurers regarding an agreement covering both reimbursement amounts and the
timing of reimbursement payments were unsuccessful. The litigation is intended,
among other things, to: (1) ensure that the insurers provide the Company with
timely and appropriate reimbursement payments for asbestos-related settlements
and related legal costs incurred; and (2) to resolve certain issues between the
parties with respect to how specific provisions of the applicable insurance
policies are to be applied. Given the significance of expected asbestos-related
payments in 2001 and 2002 based on settlement agreements in place at December
31, 2000, the receipt of timely and appropriate reimbursements from such
insurers is critical to the Company's liquidity. The court is not expected to
try the case until late 2001 or 2002. The Company is continuing to receive cash
payments from the insurers.

The following tables present historical information regarding the Company's
asbestos-related balances and cash flows:

                                                                        December 31,
                                                              -------------------------------
                                                                   2000              1999
---------------------------------------------------------------------------------------------
Liability (current portion of $130.0 and $53.0)               $       492.4     $       387.8
Receivable (included in Other assets)(1)                              406.3             315.5
                                                              -------------     -------------
                                                              $        86.1     $        72.3
                                                              =============     =============

(1)  The asbestos-related receivable was determined on the same basis as the
     asbestos-related cost accrual. However, no assurances can be given that the
     Company will be able to project similar recovery percentages for future
     asbestos-related claims or that the amounts related to future
     asbestos-related claims will not exceed the Company's aggregate insurance
     coverage. As of December 31, 2000 and 1999, $36.9 and $25.0, respectively,
     of the receivable amounts relate to costs paid. The remaining receivable
     amounts relate to costs that are expected to be paid by the Company in the
     future.

                                                                         Year Ended December 31,
                                                               -------------------------------------------     Inception
                                                                   2000          1999            1998           To Date
                                                               ------------  ------------    -------------  ---------------
Payments made, including related legal costs................   $      99.5   $      24.6     $       18.5   $        220.5
Insurance recoveries........................................          62.8           6.6             19.9            131.3
                                                               ------------  ------------    -------------  ---------------
                                                               $      36.7   $      18.0     $       (1.4)  $         89.2
                                                               ============  ============    =============  ===============

                                                                                 As of December 31, 2000
                                                                ------------------------------------------------------
                                                                   2001 and              2003 to
                                                                     2002                 2005              Thereafter
                                                                ---------------       -------------         ----------
Expected annual payment amounts, before considering
   insurance recoveries.......................................  $110.0 - $135.0       $25.0 - $50.0           $125.0

Management continues to monitor claims activity, the status of lawsuits
(including settlement initiatives), legislative developments, 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. This process resulted in the Company
reflecting charges of $43.0, $53.2 and $12.7 (included in Other income(expense)
- see Note 1) in the years ended December 31, 2000, 1999 and 1998, respectively,
for asbestos-related claims, net of expected insurance recoveries, based on
recent cost and other trends experienced by the Company and other companies.
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 or
liquidity. However, as the Company's estimates are periodically re-evaluated,
additional charges may be necessary and such charges could be material to the
results of the period in which they are recorded.

Labor Matters. In connection with the USWA strike and subsequent lock-out by the
Company, which was settled in September 2000, certain allegations of unfair
labor practices ("ULPs") were filed with the National Labor Relations Board
("NLRB") by the USWA. As previously disclosed, the Company responded to all such
allegations and believes that they were without merit. Twenty-two of twenty-four
allegations of ULPs previously brought against the Company by the USWA have been
dismissed. A trial before an administrative law judge for the two remaining
allegations commenced in November 2000 and is continuing. The Company is unable
to estimate when the trial will be completed. Any outcome from the trial before
the administrative law judge would be subject to additional appeals by the
general counsel of the NLRB, the USWA or the Company. This process could take
months or years. If these proceedings eventually resulted in a final ruling
against the Company with respect to either allegation, it could be obligated to
provide back pay to USWA members at the five plants and such amount could be
significant. The Company continues to believe that the charges are without
merit. While uncertainties are inherent in matters such as this and it is
presently impossible to determine the actual costs, if any, that may ultimately
arise in connection with this matter, the Company does not believe that the
ultimate outcome of this matter will have a material adverse impact on the
Company's liquidity or financial position. However, amounts paid, if any, in
satisfaction of this matter could be significant to the results of the period in
which they are recorded.

Other Contingencies. The Company is involved in various other claims, lawsuits,
and other proceedings relating to a wide variety of matters related to past or
present operations. 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.

14.   DERIVATIVE FINANCIAL INSTRUMENTS AND RELATED HEDGING PROGRAMS

In conducting its business, the Company uses various instruments, including
forward contracts and options, to manage the risks arising from fluctuations in
aluminum prices, energy prices and exchange rates. The Company enters into
hedging transactions to limit its exposure resulting from (1) its anticipated
sales of alumina, primary aluminum, and fabricated aluminum products, net of
expected purchase costs for items that fluctuate with aluminum prices, (2) the
energy price risk from fluctuating prices for natural gas, fuel oil and diesel
oil used in its production process, and (3) foreign currency requirements with
respect to its cash commitments with foreign subsidiaries and affiliates.

As the Company's hedging activities are generally designed to lock-in a
specified price or range of prices, gains or losses on the derivative contracts
utilized in these hedging activities (except the impact of those contracts
discussed below which have been marked to market) will generally offset at least
a portion of any losses or gains, respectively, on the transactions being
hedged. See Note 1 for a discussion of the effects of the new accounting
requirements under SFAS No. 133, which will be used for reporting results
beginning with the first quarter of 2001. The following table summarizes the
Company's derivative hedging positions at December 31, 2000:

                                                                             Estimated %
                                                                              of Annual
                                                             Notional      Sales/Purchases     Carrying         Market
               Commodity                     Period           Amount           Hedged            Value           Value
-----------------------------------       ------------     -------------   ---------------   -------------   ------------
Aluminum (in tons) -
       Option contracts                       2001               362,000       82%(1)        $       18.2    $       3.1
       Option contracts                       2002               262,000       52%(1)                10.9           13.4
       Option contracts                       2003                42,000        9%(1)                 1.8            1.7

Natural gas (in MMBtus per day) -
       Option contracts and swaps         1/01 to 6/01            27,900         24%                  1.3           21.8

Australian dollars (A$ per year) -
       Forwards and option contracts          2001              A$ 160.0         80%                  1.4           (5.2)
       Option contracts                   2002 to 2005         A$   90.0         56%                 12.2           13.3

(1)  As of February 28, 2001, the estimated percentages of annual sales of
     primary aluminum (equivalents) hedged for 2001, 2002 and 2003 were 82%, 63%
     and 14%, respectively.

During late 1999 and early 2000, the Company also entered into a series of
transactions with a counterparty that provided the Company with a premium over
the forward market prices at the date of the transaction for 2,000 tons of
primary aluminum per month during the period January 2000 through June 2001. The
Company also contracted with the counterparty to receive certain fixed prices
(also above the forward market prices at the date of the transaction) on 4,000
tons of primary aluminum per month over a three year period commencing October
2001, unless market prices during certain periods decline below a stipulated
"floor" price, in which case the fixed price sales portion of the transactions
terminate. The price at which the October 2001 and after transactions terminate
is well below current market prices. While the Company believes that the October
2001 and after transactions are consistent with its stated hedging objectives,
these positions do not qualify for treatment as a "hedge" under both pre-2001
and post-2001 accounting guidelines. Accordingly, these positions are
marked-to-market each period. See Note 1 for mark-to-market pre-tax gains
(losses) associated with the transactions for the years ended December 31, 2000,
1999 and 1998.

As of December 31, 2000, the Company had sold forward approximately 100% and 80%
of the alumina available to it in excess of its projected internal smelting
requirements for 2001 and 2002, respectively, at prices indexed to future prices
of primary aluminum.

15.  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 Company's operations are organized and managed by product type. The Company
operations include four operating segments of the aluminum industry and its
commodities marketing and corporate segments. The aluminum industry segments
include: Alumina and bauxite, Primary aluminum, Flat-rolled products and
Engineered products. The Alumina and bauxite business unit's principal products
are smelter grade alumina and chemical grade alumina hydrate, a value-added
product, for which the Company receives a premium over smelter grade market
prices. The Primary aluminum business unit produces commodity grade products as
well as value-added products such as rod and billet, for which the Company
receives a premium over normal commodity market prices. The Flat-rolled products
group sells value-added products such as heat treat aluminum sheet and plate
which are used in the aerospace and general engineering markets as well as
selling to the beverage container and specialty coil markets. The Engineered
products business unit serves a wide range of industrial segments including the
automotive, distribution, aerospace and general engineering markets. The Company
uses a portion of its bauxite, alumina and primary aluminum production for
additional processing at its downstream facilities. Transfers between business
units are made at estimated market prices. The Commodities marketing segment
includes the results of the Company's alumina and aluminum hedging activities
(see Note 14). The accounting policies of the segments are the same as those
described in Note 1. Business unit results are evaluated internally by
management before any allocation of corporate overhead and without any charge
for income taxes, interest expense or non- recurring charges.

Financial information by operating segment at December 31, 2000, 1999 and 1998
is as follows:

                                                              Year Ended December 31,
                                                     ----------------------------------------
                                                         2000           1999           1998
---------------------------------------------------------------------------------------------
Net Sales:(3)
   Bauxite and Alumina:(1)(4)
     Net sales to unaffiliated customers             $   442.2     $    395.8     $    445.2
     Intersegment sales                                  148.3          129.0          135.8
                                                     ----------    -----------    -----------
                                                         590.5          524.8          581.0
                                                     ----------    -----------    -----------
   Primary Aluminum:(2)(4)
     Net sales to unaffiliated customers                 563.7          432.9          390.7
     Intersegment sales                                  242.3          240.6          233.5
                                                     ----------    -----------    -----------
                                                         806.0          673.5          624.2
                                                     ----------    -----------    -----------
   Flat-Rolled Products                                  521.0          591.3          732.7
   Engineered Products                                   564.9          556.8          595.3
   Commodities Marketing(4)                              (25.4)          18.3           60.5
   Minority Interests                                    103.4           88.5           78.0
   Eliminations                                         (390.6)        (369.6)        (369.3)
                                                     ----------    -----------    -----------
                                                     $ 2,169.8     $  2,083.6     $  2,302.4
                                                     ==========    ===========    ===========

                                                                                Year Ended December 31,
                                                                       ----------------------------------------
                                                                          2000           1999            1998
---------------------------------------------------------------------------------------------------------------
Equity in income (loss) of unconsolidated affiliates:
   Bauxite and Alumina                                                 $    (8.4)    $      3.4     $     (3.2)
   Primary Aluminum                                                          3.6           (1.0)           1.2
   Engineered Products and Other                                               -            2.5            7.4
                                                                       ----------    -----------    -----------
                                                                       $    (4.8)    $      4.9     $      5.4
                                                                       ==========    ===========    ===========
Operating income (loss):(4)(6)
   Bauxite and Alumina - Note 2                                        $    57.2     $    (10.5)    $      5.5
   Primary Aluminum (5)                                                    100.1           (4.8)          28.3
   Flat-Rolled Products                                                     16.6           17.1           86.8
   Engineered Products                                                      34.1           38.6           51.5
   Commodities Marketing(4)                                                (48.7)          21.3           98.1
   Micromill                                                                 (.6)         (11.6)         (18.4)
   Eliminations                                                               .1            6.9            8.9
   Corporate and Other                                                     (61.1)         (61.5)         (64.7)
   Labor Settlement and Other Non-Recurring Operating
        Items, Net - Notes 5 and 6                                          41.9          (24.1)        (105.0)
                                                                       ----------    -----------    -----------
                                                                       $   139.6     $    (28.6)    $     91.0
                                                                       ==========    ===========    ===========
Depreciation and amortization:
   Bauxite and Alumina - Note 2                                        $    22.2     $     29.7     $     36.4
   Primary Aluminum                                                         24.8           27.8           29.9
   Flat-Rolled Products                                                     16.7           16.2           16.1
   Engineered Products                                                      11.5           10.7           10.8
   Corporate and Other (includes Micromill in 1999 and 1998)                 1.7            5.1            5.9
                                                                       ----------    -----------    -----------
                                                                       $    76.9     $     89.5     $     99.1
                                                                       ==========    ===========    ===========
Capital expenditures:
   Bauxite and Alumina - Note 2                                        $   254.6     $     30.4     $     26.9
   Primary Aluminum                                                          9.6           12.8           20.7
   Flat-Rolled Products                                                      7.6           16.6           20.4
   Engineered Products - Note 4                                             23.6            7.8            8.4
   Corporate and Other                                                       1.1             .8            1.2
                                                                       ----------    -----------    -----------
                                                                       $   296.5     $     68.4     $     77.6
                                                                       ==========    ===========    ===========

(1)  Net sales for 2000 and 1999, included approximately 267,000 tons and
     264,000 tons, respectively of alumina purchased from third parties and
     resold to certain unaffiliated customers of the Gramercy facility and
     55,000 tons and 131,000 tons, respectively, of alumina purchased from third
     parties and transferred to the Company's Primary aluminum business unit.
(2)  Net sales for 2000, 1999 and 1998 included approximately 206,500 tons,
     260,100 tons and 251,300 tons, respectively, of primary aluminum purchased
     from third parties to meet third-party and internal commitments.
(3)  Net sales for 1999 and 1998 for all segments have been restated to conform
     to a new accounting requirement which states that freight charges should be
     included in cost of products sold rather than netted against net sales as
     was the Company's prior policy.
(4)  Net sales and operating income (loss) for Bauxite and alumina and Primary
     aluminum segments for 1999 and 1998 have been restated to reflect a change
     in the Company's segment reporting. The results of the Company's metal
     hedging activities in the Commodities marketing segment are now set out
     separately rather than being allocated between the two commodity business
     units.
(5)  Operating income (loss) for 1999 included potline preparation and restart
     costs of $12.8.
(6)  The allocation of the labor settlement charge to the Company's business
     units for the year ended December 31, 2000, is as follows: Bauxite and
     Alumina - $2.1, Primary aluminum - $15.9, Flat-rolled products - $18.2 and
     Engineered products - $2.3.

                                                                           December 31,
                                                                 -------------------------------
                                                                      2000              1999
------------------------------------------------------------------------------------------------
Investments in and advances to unconsolidated affiliates:
   Bauxite and Alumina                                           $        56.0     $        71.6
   Primary Aluminum                                                       19.0              25.3
   Corporate and Other                                                     2.8               -
                                                                 -------------     -------------
                                                                 $        77.8     $        96.9
                                                                 =============     =============

                                                                            December 31,
                                                                  -------------------------------
                                                                      2000              1999
-------------------------------------------------------------------------------------------------
Segment assets:
   Bauxite and Alumina                                            $       957.0     $       777.7
   Primary Aluminum                                                       623.3             560.8
   Flat-Rolled Products                                                   337.7             423.2
   Engineered Products                                                    232.9             253.1
   Commodities Marketing                                                   62.1              99.0
   Corporate and Other (includes Micromill in 1999)                     1,134.4           1,089.1
                                                                  -------------     -------------
                                                                  $     3,347.4     $     3,202.9
                                                                  =============     =============

Geographical information for net sales, based on country of origin, and
long-lived assets follows:

                                                            Year Ended December 31,
                                                 ---------------------------------------------
                                                     2000            1999             1998
----------------------------------------------------------------------------------------------
Net sales to unaffiliated customers:
     United  States                              $    1,350.1    $     1,439.6    $    1,744.0
     Jamaica                                            298.5            233.1           237.0
     Ghana                                              237.5            153.2            89.8
     Other Foreign                                      283.7            257.7           231.6
                                                 ------------    -------------    ------------
                                                 $    2,169.8    $     2,083.6    $    2,302.4
                                                 ============    =============    ============

                                                       December 31,
                                               -----------------------------
                                                   2000             1999
----------------------------------------------------------------------------
Long-lived assets: (1)
     United States                             $       809.0    $      688.1
     Jamaica                                           290.3           288.2
     Ghana                                              80.8            84.1
     Other Foreign                                      73.8            90.2
                                               -------------    ------------
                                               $     1,253.9    $    1,150.6
                                               =============    ============

(1) Long-lived assets include Property, plant, and equipment, net and
    Investments in and advances to unconsolidated affiliates.

The aggregate foreign currency gain included in determining net income was
immaterial for the years ended December 31, 2000, 1999 and 1998. No single
customer accounted for sales in excess of 10% of total revenue in 2000, 1999 and
1998. Export sales were less than 10% of total revenue during the years ended
December 31, 2000, 1999 and 1998.

14.  SUPPLEMENTAL GUARANTOR INFORMATION

Kaiser Alumina Australia Corporation ("KAAC"), Kaiser Finance Corporation
("KFC"), Kaiser Jamaica Corporation ("KJC"), Alpart Jamaica Inc. ("AJI"), Kaiser
Bellwood Corporation ("Bellwood"), Kaiser Transaction Corp. ("KTC") 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, joint and several, guarantees of
the 97/8% Notes, the 107/8% Notes and the 12 3/4% Notes (the "Notes") (see Note
8). Such guarantees are full and unconditional. 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. Bellwood
is a wholly-owned subsidiary that holds the Company's interests in an extrusion
plant located in Richmond, Virginia. KTC is a wholly-owned subsidiary who, in
1999, acquired the remaining 45% in an alumina marketing venture from the
Company's joint venture partner. As of December 29, 2000, KTC was liquidated and
its assets and liabilities were merged into KACC. 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 Micromill facilities and related projects, if any. Since the Company sold
the Micromill assets in early 2000, the Micromill Subsidiaries' only asset is an
interest in future payments based on subsequent performance and profitability of
the Micromill technology. KAAC, KFC, KJC, AJI, Bellwood, KTC and the Micromill
Subsidiaries are hereinafter collectively referred to as the Subsidiary
Guarantors.

The presentation of Subsidiary Guarantors' financial information in 2000 has
changed as a result of changes in the Securities and Exchange Commission's
reporting rules in this regard. The Company is now required to present
consolidating balance sheets, statements of income (loss) and statements of cash
flows which present separately the Company, Subsidiary Guarantors, other
subsidiaries and eliminating entries. The change in the Subsidiary Guarantor
rules has caused the Company to change its presentation of the consolidating
financial information such that 1999 and 1998 Subsidiary Guarantors' balances
will not necessarily agree with the financial information previously presented.
All of the accompanying financial information only includes the balances and
results of KTC from March 1, 1999, the date of acquisition through December 29,
2000, the date of its liquidation.

                     CONDENSED CONSOLIDATING BALANCE SHEETS
                                DECEMBER 31, 2000

                                                             SUBSIDIARY         OTHER         ELIMINATING
                                               COMPANY       GUARANTORS     SUBSIDIARIES        ENTRIES     CONSOLIDATED
                                          ---------------- --------------- ---------------  -------------- --------------
ASSETS
Current assets                            $         677.8  $        126.5  $        214.0   $         -    $     1,018.3
Investments in subsidiaries                       2,583.8            -               -           (2,583.8)           -
Intercompany advances receivable (payable)       (2,338.3)          705.7         1,632.6             -              -
Investments in and advances to
   unconsolidated affiliates                         21.8            32.1            23.9             -             77.8
Property and equipment, net                         767.4           297.0           111.7             -          1,176.1
Deferred income taxes                               449.7             (.6)            3.2             -            452.3
Other assets                                        600.2             1.7            21.0             -            622.9
                                          ---------------- --------------- ---------------  -------------- --------------
                                          $       2,762.4  $      1,162.4  $      2,006.4   $    (2,583.8) $     3,347.4
                                          ================ =============== ===============  ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities                       $         492.3  $        242.2  $        106.9   $         -    $       841.4
Other long-term liabilities                       1,281.4            36.6            42.8             -          1,360.8
Long-term debt                                      901.7            56.0              .1             -            957.8
Minority interests                                   -               82.4            18.0             -            100.4
Stockholders' equity                                 87.0           745.2         1,838.6        (2,583.8)          87.0
                                          ---------------- --------------- ---------------  -------------- --------------
                                          $       2,762.4  $      1,162.4  $      2,006.4   $    (2,583.8) $     3,347.4
                                          ================ =============== ===============  ============== ==============

                     CONDENSED CONSOLIDATING BALANCE SHEETS
                                DECEMBER 31, 1999

                                                             SUBSIDIARY         OTHER         ELIMINATING
                                               COMPANY       GUARANTORS     SUBSIDIARIES        ENTRIES     CONSOLIDATED
                                          ---------------- --------------- ---------------  -------------- --------------
ASSETS
Current assets                            $         646.8  $        119.6  $        213.4   $         -    $       979.8
Investments in subsidiaries                       2,465.8            -               -           (2,465.8)           -
Intercompany advances receivable (payable)       (2,228.8)          552.9         1,675.9             -              -
Investments in and advances to
   unconsolidated affiliates                         25.3            47.7            23.9             -             96.9
Property and equipment, net                         626.6           305.9           121.2             -          1,053.7
Deferred income taxes                               413.8            23.3             1.1             -            438.2
Other assets                                        613.8             1.8            18.7             -            634.3
                                          ---------------- --------------- ---------------  -------------- --------------
                                          $       2,563.3  $      1,051.2  $      2,054.2   $    (2,465.8) $     3,202.9
                                          ================ =============== ===============  ============== ==============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities                       $         278.4  $        237.7  $        121.8   $         -    $       637.9
Other long-term liabilities                       1,282.5            36.4            86.7             -          1,405.6
Long-term debt                                      912.2            60.0              .3             -            972.5
Minority interests                                   -               80.4            16.3             -             96.7
Redeemable preference stock                          19.5            -               -                -             19.5
Stockholders' equity                                 70.7           636.7         1,829.1        (2,465.8)          70.7
                                          ---------------- --------------- ---------------  -------------- --------------
                                          $       2,563.3  $      1,051.2  $      2,054.2   $    (2,465.8) $     3,202.9
                                          ================ =============== ===============  ============== ==============

               CONDENSED CONSOLIDATING STATEMENTS OF INCOME (LOSS)
                      FOR THE YEAR ENDED DECEMBER 31, 2000

                                                             SUBSIDIARY         OTHER         ELIMINATING
                                               COMPANY       GUARANTORS     SUBSIDIARIES        ENTRIES     CONSOLIDATED
                                          ---------------- --------------- ---------------  -------------- --------------
Net sales                                 $       1,726.3  $        613.6  $      1,274.6   $    (1,444.7) $     2,169.8
Costs and expenses:
   Operating costs and expenses                   1,721.7           543.4         1,251.7        (1,444.7)       2,072.1
   Labor settlement charge                           38.5            -               -                -             38.5
   Other non-recurring operating items, net         (77.6)            2.2            (5.0)            -            (80.4)
                                          ---------------- --------------- ---------------  -------------- --------------
Operating income                                     43.7            68.0            27.9             -            139.6
Interest expense                                   (105.8)           (3.6)            (.2)            -           (109.6)
Other income (expense), net                         (56.0)           49.2             2.5             -             (4.3)
Benefit (provision) for income taxes                 53.8           (51.8)          (13.7)            -            (11.7)
Minority interests                                   -                5.3            (1.8)            -              3.5
Equity in income of subsidiaries                     81.8            -               -              (81.8)           -
                                          ---------------- --------------- ---------------  -------------- --------------
Net income (loss)                         $          17.5  $         67.1  $         14.7   $       (81.8) $        17.5
                                          ================ =============== ===============  ============== ==============

               CONDENSED CONSOLIDATING STATEMENTS OF INCOME (LOSS)
                      FOR THE YEAR ENDED DECEMBER 31, 1999

                                                             SUBSIDIARY         OTHER         ELIMINATING
                                               COMPANY       GUARANTORS     SUBSIDIARIES        ENTRIES     CONSOLIDATED
                                          ---------------- --------------- ---------------  -------------- --------------
Net sales                                 $       1,826.6  $        521.2  $      1,357.8   $    (1,622.0) $     2,083.6
Costs and expenses:
   Operating costs and expenses                   1,831.5           514.6         1,364.0        (1,622.0)       2,088.1
   Other non-recurring operating items, net           5.0            19.1            -                -             24.1
                                          ---------------- --------------- ---------------  -------------- --------------
Operating income (loss)                              (9.9)          (12.5)           (6.2)            -            (28.6)
Interest expense                                   (106.5)           (3.5)            (.1)            -           (110.1)
Other income (expense), net                          38.4             8.5             2.3             -             49.2
Benefit (provision) for income taxes                 28.4             2.7             1.5             -             32.6
Minority interests                                   -                5.1             (.6)            -              4.5
Equity in loss of subsidiaries                       (2.8)           -               -                2.8            -
                                          ---------------- --------------- ---------------  -------------- --------------
Net income (loss)                         $         (52.4) $           .3  $         (3.1)  $         2.8  $       (52.4)
                                          ================ =============== ===============  ============== ==============

               CONDENSED CONSOLIDATING STATEMENTS OF INCOME (LOSS)
                      FOR THE YEAR ENDED DECEMBER 31, 1998

                                                             SUBSIDIARY         OTHER         ELIMINATING
                                               COMPANY       GUARANTORS     SUBSIDIARIES        ENTRIES     CONSOLIDATED
                                          ---------------- --------------- ---------------  -------------- --------------
Net sales                                 $       2,019.7  $        522.3  $      1,230.6   $    (1,470.2) $     2,302.4
Costs and expenses:
   Operating costs and expenses                   1,897.8           500.1         1,178.7        (1,470.2)       2,106.4
   Other non-recurring operating items, net          60.0            45.0            -                -            105.0
                                          ---------------- --------------- ---------------  -------------- --------------
Operating income (loss)                              61.9           (22.8)           51.9             -             91.0
Interest expense                                   (106.1)           (3.4)            (.5)            -           (110.0)
Other income (expense)                              (29.6)           29.5             3.6             -              3.5
Benefit (provision) for income taxes                 46.9            (1.7)          (28.8)            -             16.4
Minority interests                                   -                5.3            (3.5)            -              1.8
Equity in income (loss) of subsidiaries              29.6            -               -              (29.6)           -
                                          ---------------- --------------- ---------------  -------------- --------------
Net income (loss)                         $           2.7  $          6.9  $         22.7   $       (29.6) $         2.7
                                          ================ =============== ===============  ============== ==============

                CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
                      FOR THE YEAR ENDED DECEMBER 31, 2000

                                                             SUBSIDIARY         OTHER         ELIMINATING
                                               COMPANY       GUARANTORS     SUBSIDIARIES        ENTRIES     CONSOLIDATED
                                          ---------------- --------------- ---------------  -------------- --------------
Net cash provided (used) by:
   Operating activities                   $          79.4  $        (10.6) $         16.3   $         -    $        85.1
   Investing activities                             (75.8)          (13.0)           (6.0)            -            (94.8)
   Financing activities                              16.0            (4.0)            (.1)            -             11.9
Intercompany activity                               (15.6)           27.6           (12.0)            -              -
                                          ---------------- --------------- ---------------  -------------- --------------
Net increase (decrease) in cash and
   cash equivalents during the year                   4.0            -               (1.8)            -              2.2
Cash and cash equivalents at
   beginning of year                                 18.4            -                2.8             -             21.2
                                          ---------------- --------------- ---------------  -------------- --------------
Cash and cash equivalents at
   end of year                            $          22.4  $         -     $          1.0   $         -    $        23.4
                                          ================ =============== ===============  ============== ==============

                CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
                      FOR THE YEAR ENDED DECEMBER 31, 1999

                                                             SUBSIDIARY         OTHER         ELIMINATING
                                               COMPANY       GUARANTORS     SUBSIDIARIES        ENTRIES     CONSOLIDATED
                                          ---------------- --------------- ---------------  -------------- --------------
Net cash provided (used) by:
   Operating activities                   $       (106.3)  $         19.2  $         (1.7)  $         -    $       (88.8)
   Investing activities                              20.3           (13.3)           (3.9)            -              3.1
   Financing activities                               8.8            -                (.2)            -              8.6
Intercompany activity                                 2.7            (6.8)            4.1             -              -
                                          ---------------- --------------- ---------------  -------------- --------------
Net decrease in cash and
   cash equivalents during the year                 (74.5)            (.9)           (1.7)            -            (77.1)
Cash and cash equivalents at
   beginning of year                                 92.9              .9             4.5             -             98.3
                                          ---------------- --------------- ---------------  -------------- --------------
Cash and cash equivalents at
   end of year                            $          18.4  $         -     $          2.8   $         -    $        21.2
                                          ================ =============== ===============  ============== ==============

                CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
                      FOR THE YEAR ENDED DECEMBER 31, 1998

                                                             SUBSIDIARY         OTHER         ELIMINATING
                                               COMPANY       GUARANTORS     SUBSIDIARIES        ENTRIES     CONSOLIDATED
                                          ---------------- --------------- ---------------  -------------- --------------
Net cash provided (used) by:
   Operating activities                   $         161.4  $         10.5  $          (.7)  $         -    $       171.2
   Investing activities                             (53.5)          (21.4)             .5             -            (74.4)
   Financing activities                              (6.9)           -               (7.4)            -            (14.3)
Intercompany activity                               (21.2)           11.8             9.4             -              -
                                          ---------------- --------------- ---------------  -------------- --------------
Net increase in cash and cash
   equivalents during the year                       79.8              .9             1.8             -             82.5
Cash and cash equivalents at
   beginning of year                                 13.1            -                2.7             -             15.8
                                          ---------------- --------------- ---------------  -------------- --------------
Cash and cash equivalents at
   end of year                            $          92.9  $           .9  $          4.5   $         -    $        98.3
                                          ===============  =============== ===============  ============== ==============

Notes to Condensed Consolidating Financial Information

Operating Income (Loss) - In addition to impairment charges of $19.1 and $45.0
for the years ended December 31, 1999 and 1998, respectively, to reduce the
carrying value of the Micromill Subsidiaries' assets to fair value (see Note 4),
the Subsidiary Guarantors' operating income (loss) for the years ended December
31, 1999 and 1998, included operating losses of the Micromill Subsidiaries of
$11.6 and $18.4, respectively. The Micromill Subsidiaries assets and technology
were sold in February 2000 (see Note 4).

Income Taxes - Consolidated income tax/benefit for 2000, 1999 and 1998 has been
allocated based on the income (loss) before income taxes of the Company,
Subsidiary Guarantors and other subsidiaries.

Foreign Currency - The functional currency of the Company and its subsidiaries
is the United States Dollar, and accordingly, pre- tax translation gains
(losses) are included in the Company's and Subsidiary Guarantors' operating
income (loss) and other income (expense), net balances. Such amounts for the
Company totaled $(27.2), $10.5 and $(11.8) for the years ended December 31,
2000, 1999 and 1998, respectively. Such amounts for the Subsidiary Guarantors
totaled $31.0, $(11.9) and $12.6 for the years ended December 31, 2000, 1999 and
1998, respectively.

Debt Covenants and Restrictions - The Indentures contain restrictions on the
ability of the Company's subsidiaries to transfer funds to the Company in the
form of dividends, loans or advances.

                                                                                       Quarter Ended
                                                                 ------------------------------------------------------------
(In millions of dollars, except share amounts)                    March 31,       June 30,       September 30,    December 31,
-----------------------------------------------------------------------------------------------------------------------------
2000
   Net sales                                                     $   575.7 (8) $   552.8 (8)    $  545.2 (8)     $  496.1
   Operating income                                                   37.1          51.5             2.9             48.1
   Net income                                                         11.7 (1)      11.0 (2)       (16.8)(3)         10.9(4)

1999
   Net sales                                                     $   490.3 (8) $   536.2 (8)    $  528.7 (8)     $  528.4 (8)
   Operating income (loss)                                           (32.9)           .8           (12.0)            15.5
   Net income (loss)                                                 (37.7)        (15.3)          (38.8)(5)         39.4 (6)

1998
   Net sales                                                     $   609.6 (8) $   626.8 (8)    $  552.9 (8)     $  513.1 (8)
   Operating income (loss)                                            45.0          55.4            30.9            (40.3)
   Net income (loss)                                                  12.4          17.4            11.2            (38.3)(7)

(1) Includes a pre-tax gain of $14.4 to reflect a mark-to-market adjustment on
    certain primary aluminum hedging transactions.

(2) Includes a pre-tax gain of $15.8 from the sale of power offset by a pre-tax
    charge of $6.0 to reflect a mark-to-market adjustment on certain primary
    aluminum hedging transactions and a pre-tax charge of $2.0 for certain
    severance and relocation costs associated with Corporate restructuring
    initiatives and product line exit.

(3) Includes a pre-tax labor settlement charge of $38.5, a non-cash pre-tax
    charge of $43.0 for asbestos-related claims, a pre-tax charge of $11.5 for
    incremental maintenance spending and pre-tax charges of $18.1 for
    non-recurring impairment and restructuring charges offset by a pre-tax gain
    of $40.5 from the sale of power, pre-tax gains of $39.0 related to real
    estate transactions and a pre-tax gain of $.9 to reflect a mark-to-market
    adjustment on certain primary aluminum hedging transactions.

(4) Includes a pre-tax gain of $103.2 from the sale of power and a pre-tax gain
    of $1.4 to reflect a mark-to-market adjustment on certain primary aluminum
    hedging transactions offset by a non-cash impairment loss of approximately
    $33.0, a LIFO inventory charge of $7.0 and a pre-tax charge of $5.3 for
    other non-recurring impairment and restructuring charges.

(5) Includes a non-cash pre-tax charge of $19.1 to reduce the carrying value of
    the Company's Micromill assets, a non-cash pre-tax charge of $15.2 for
    asbestos-related claims and a pre-tax charge of $5.9 to reflect a
    mark-to-market adjustment on certain primary aluminum hedging transactions.

(6) Includes a pre-tax gain of $85.0 on involuntary conversion at Gramercy
    facility.  See Note 2.

(7) Includes an unfavorable pre-tax strike-related gross profit impact of
    approximately $50.0, and a non-cash pre-tax charge of $45.0 related to
    impairment of the Company's Micromill assets.

(8) Net sales for the quarterly periods prior to the quarter ended December 31,
    2000 have been restated to conform to a new accounting principle that
    requires freight charges to be included in cost of products sold..

FIVE-YEAR FINANCIAL DATA
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------

                                                                                       December 31,
                                                               ------------------------------------------------------------
(In millions of dollars)                                           2000        1999        1998         1997        1996
---------------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
     Cash and cash equivalents                                 $     23.4  $     21.2   $    98.3   $     15.8   $    81.3
     Receivables                                                    436.0       266.9       288.2        345.3       255.6
     Inventories                                                    396.2       546.1       543.5        568.3       562.2
     Prepaid expenses and other current assets                      162.7       145.6       104.9        121.3       127.8
                                                               ----------- -----------  ----------  -----------  ----------
         Total current assets                                     1,018.3       979.8     1,034.9      1,050.7     1,026.9

Investments in and advances to unconsolidated affiliates             77.8        96.9       128.3        148.6       168.4
Property, plant, and equipment - net                              1,176.1     1,053.7     1,108.7      1,171.8     1,168.7
Deferred income taxes                                               452.3       438.2       376.9        329.0       263.3
Other assets                                                        622.9       634.3       346.0        317.2       308.6
                                                               ----------- -----------  ----------  -----------  ----------
         Total                                                 $  3,347.4  $  3,202.9   $ 2,994.8   $  3,017.3   $ 2,935.9
                                                               =========== ===========  ==========  ===========  ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Accounts payable and accruals                             $    671.8  $    501.5   $   434.6   $    457.6   $   453.1
     Accrued postretirement medical benefit obligation -
         current portion                                             58.0        51.5        48.2         45.3        50.1
     Payable to affiliates                                           80.0        84.6        75.3         82.4        96.9
     Long-term debt - current portion                                31.6          .3          .4          8.8         8.9
     Notes payable to parent - current portion                         -          -            -           -           8.6
                                                               ----------- -----------  ----------  -----------  ----------
         Total current liabilities                                  841.4       637.9       558.5        594.1       617.6

Long-term liabilities                                               703.9       727.3       533.0        492.0       458.1
Accrued postretirement medical benefit obligation                   656.9       678.3       694.3        720.3       722.5
Long-term debt                                                      957.8       972.5       962.6        962.9       953.0
Minority interests                                                  100.4        96.7       101.9         98.4        92.5
Redeemable preference stock                                            -         19.5        20.1         27.7        27.5

Stockholders' equity:
     Preference stock                                                  .7         1.5         1.5          1.6         1.7
     Common stock                                                    15.4        15.4        15.4         15.4        15.4
     Additional capital                                           2,300.8     2,173.0     2,052.8      1,939.8     1,829.8
     Retained earnings (accumulated deficit)                       (188.1)     (205.1)     (151.2)      (152.3)     (201.3)
   Accumulated other comprehensive income (loss)                     (1.8)       (1.2)         -           -          (2.8)
     Less: Note receivable from parent                           (2,040.0)   (1,912.9)   (1,794.1)    (1,682.6)   (1,578.1)
                                                               ----------- -----------  ----------  -----------  ----------
         Total stockholders' equity                                  87.0        70.7       124.4        121.9        64.7
                                                               ----------- -----------  ----------  -----------  ----------
         Total                                                 $  3,347.4  $  3,202.9   $ 2,994.8   $  3,017.3   $ 2,935.9
                                                               =========== ===========  ==========  ===========  ==========

FIVE-YEAR FINANCIAL DATA
STATEMENTS OF CONSOLIDATED INCOME (LOSS)
--------------------------------------------------------------------------------

                                                                             Year Ended December 31,
                                                        --------------------------------------------------------------------------
(In millions of dollars, except share amounts)               2000           1999          1998          1997           1996
----------------------------------------------------------------------------------------------------------------------------------
Net sales                                               $  2,169.8    $   2,083.6 (1) $   2,302.4 (1) $  2,423.3 (1) $ 2,238.8 (1)
                                                        -----------   --------------- --------------- -------------- -------------
Costs and expenses:
   Cost of products sold                                   1,891.4        1,893.5 (1)     1,892.2 (1)    2,001.3 (1)   1,905.8 (1)
   Depreciation and amortization                              76.9           89.5            99.1          102.5         107.6
   Selling, administrative, research and development,
     and gen                                                 103.8          105.1           115.1          129.9         125.3
   Labor settlement charge                                    38.5             -               -              -             -
   Other non-recurring operating items, net                  (80.4)          24.1           105.0           19.7            -
                                                        -----------   --------------- --------------- -------------- -------------
     Total costs and expenses                              2,030.2        2,112.2         2,211.4        2,253.4       2,138.7
                                                        -----------   --------------- --------------- -------------- -------------
Operating income (loss)                                      139.6          (28.6)           91.0          169.9         100.1

Other income (expense):
   Interest expense                                         (109.6)        (110.1)         (110.0)        (110.7)        (93.4)
   Gain on involuntary conversion at Gramercy facility          -            85.0             -              -              -
   Other - net                                                (4.3)         (35.8)            3.5            2.8          (2.6)
                                                        -----------   --------------- --------------- -------------- -------------
Income (loss) before income taxes and minority interests      25.7          (89.5)          (15.5)          62.0           4.1

(Provision) benefit for income taxes                         (11.7)          32.6            16.4           (9.4)          8.4

Minority interests                                             3.5            4.5             1.8            (.5)           .7
                                                        -----------   --------------- --------------- -------------- -------------
Net income (loss)                                       $     17.5    $     (52.4)    $       2.7     $     52.1     $    13.2
                                                        ===========   =============== =============== ============== =============
Dividends per common share                              $       -     $        -      $        -      $       -    $       -
                                                        ===========   =============== =============== ============== =============

(1)  Net sales and cost of products sold for prior years have been restated to
     conform to a new accounting principle that requires freight charges ($39.3
     in 1999, $46.0 in 1998, $50.1 in 1997 and $48.3 in 1996) to be included in
     cost of products sold.

ITEM 9.       CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
              FINANCIAL DISCLOSURE

None.

PART III

Information required under PART III (Items 10, 11, 12 and 13) has been omitted
from this Report since the Company intends to file with the Securities and
Exchange Commission, not later than 120 days after the close of its fiscal year,
a definitive proxy statement pursuant to Regulation 14A which involves the
election of directors, and such information is incorporated by reference from
such definitive proxy statement.

PART IV

ITEM 14.      EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)           INDEX TO FINANCIAL STATEMENTS AND SCHEDULES

              1.  Financial Statements

              Report of Independent Public Accountants

              Consolidated Balance Sheets

              Statements of Consolidated Income (Loss)

              Statements of Consolidated Stockholders' Equity and
                  Comprehensive Income (Loss)

              Statements of Consolidated Cash Flows

              Notes to Consolidated Financial Statements

              Quarterly Financial Data (Unaudited)

              Five-Year Financial Data

              2.  Financial Statement Schedules

                  Financial statement schedules are inapplicable or the required
                  information is included in the Consolidated Financial
                  Statements or the Notes thereto.

              3.  Exhibits

                  Reference is made to the Index of Exhibits immediately
                  preceding the exhibits hereto (beginning on page 67), which
                  index is incorporated herein by reference.

(b)           REPORTS ON FORM 8-K

              No Report on Form 8-K was filed by the Company during the last
              quarter of the period covered by this Report.

(c)           EXHIBITS

              Reference is made to the Index of Exhibits immediately preceding
              the exhibits hereto (beginning on page 67), which index is
              incorporated herein by reference.

                                   SIGNATURES

              Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

                                     KAISER ALUMINUM & CHEMICAL CORPORATION

         Date:  March 27, 2001       By    /S/ Raymond J. Milchovich
                                     -------------------------------------------
                                              Raymond J. Milchovich
                                        President, Chief Executive Officer
                                                 and Director

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

         Date:  March 27, 2001             /S/ Raymond J. Milchovich
                                     -------------------------------------------
                                              Raymond J. Milchovich
                                        President, Chief Executive Officer
                                                 and Director
                                        (Principal Executive Officer)

         Date:  March 27, 2001             /S/ John T. La Duc
                                     -------------------------------------------
                                             John T. La Duc
                                        Executive Vice President and
                                          Chief Financial Officer
                                       (Principal Financial Officer)

         Date:  March 27, 2001             /S/ Daniel D. Maddox
                                     -------------------------------------------
                                             Daniel D. Maddox
                                      Vice President and Controller
                                     (Principal Accounting Officer)

         Date:  March 27, 2001             /S/ George T. Haymaker, Jr.
                                     -------------------------------------------
                                             George T. Haymaker, Jr.
                                           Chairman of the Board

         Date:  March 27, 2001             /S/ Robert J. Cruikshank
                                     -------------------------------------------
                                           Robert J. Cruikshank
                                                  Director

         Date:  March 27, 2001             /S/ James T. Hackett
                                     -------------------------------------------
                                            James T. Hackett
                                                Director

         Date:  March 27, 2001             /S/ Charles E. Hurwitz
                                     -------------------------------------------
                                             Charles E. Hurwitz
                                                  Director

         Date:  March 27, 2001            /S/ Ezra G. Levin
                                     -------------------------------------------
                                             Ezra G. Levin
                                               Director

         Date:  March 27, 2001            /S/ James D. Woods
                                     -------------------------------------------
                                           James D. Woods
                                              Director

                                INDEX OF EXHIBITS

Exhibit
Number                                     Description
--------                                   -----------
 3.1            Restated Certificate of Incorporation of Kaiser Aluminum &
                Chemical Corporation ("KACC"), dated July 25, 1989 (incorporated
                by reference to Exhibit 3.1 to the Registration Statement on
                Form S-1 dated August 25, 1991, filed by KACC, Registration No.
                33-30645).

 3.2            Certificate of Retirement of KACC, dated February 7, 1990
                (incorporated by reference to Exhibit 3.2 to the Report on Form
                10-K for the period ended December 31, 1989, filed by KACC, File
                No. 1-3605).

 3.3            Amended and Restated By-Laws of KACC, dated October 1, 1997
                (incorporated by reference to Exhibit 3.3 to the Report on Form
                10-Q for the quarterly period ended September 30, 1997, filed by
                KACC, File No. 1-3605).

 4.1            Indenture, dated as of February 1, 1993, among KACC, as Issuer,
                Kaiser Alumina Australia Corporation, Alpart Jamaica Inc., and
                Kaiser Jamaica Corporation, as Subsidiary Guarantors, and The
                First National Bank of Boston, as Trustee, regarding KACC's 12
                3/4% Senior Subordinated Notes Due 2003 (incorporated by
                reference to Exhibit 4.1 to Form 10-K for the period ended
                December 31, 1992, filed by KACC, File No. 1-3605).

 4.2            First Supplemental Indenture, dated as of May 1, 1993, to the
                Indenture, dated as of February 1, 1993 (incorporated by
                reference to Exhibit 4.2 to the Report on Form 10-Q for the
                quarterly period ended June 30, 1993, filed by KACC, File No.
                1-3605).

 4.3            Second Supplemental Indenture, dated as of February 1, 1996, to
                the Indenture, dated as of February 1, 1993 (incorporated by
                reference to Exhibit 4.3 to the Report on Form 10-K for the
                period ended December 31, 1995, filed by Kaiser Aluminum
                Corporation ("Kaiser" or "KAC") File No. 1-9447).

 4.4            Third Supplemental Indenture, dated as of July 15, 1997, to the
                Indenture, dated as of February 1, 1993 (incorporated by
                reference to Exhibit 4.1 to the Report on Form 10-Q for the
                quarterly period ended June 30, 1997, filed by KAC, File No.
                1-9447).

 4.5            Fourth Supplemental Indenture, dated as of March 31, 1999, to
                the Indenture, dated as of February 1, 1993, (incorporated by
                reference to Exhibit 4.1 to the Report on Form 10-Q for the
                quarterly period ended March 31, 1999, filed by KAC, File No.
                1-9447).

 4.6            Indenture, dated as of February 17, 1994, among KACC, as Issuer,
                Kaiser Alumina Australia Corporation, Alpart Jamaica Inc.,
                Kaiser Jamaica Corporation, and Kaiser Finance Corporation, as
                Subsidiary Guarantors, and First Trust National Association, as
                Trustee, regarding KACC's 97/8% Senior Notes Due 2002
                (incorporated by reference to Exhibit 4.3 to the Report on Form
                10-K for the period ended December 31, 1993, filed by KAC, File
                No. 1-9447).

 4.7            First Supplemental Indenture, dated as of February 1, 1996, to
                the Indenture, dated as of February 17, 1994 (incorporated by
                reference to Exhibit 4.5 to the Report on Form 10-K for the
                period ended December 31, 1995, filed by KAC, File No. 1-9447).

 4.8            Second Supplemental Indenture, dated as of July 15, 1997, to the
                Indenture, dated as of February 17, 1994 (incorporated by
                reference to Exhibit 4.2 to the Report on Form 10-Q for the
                quarterly period ended June 30, 1997, filed by KAC, File No.
                1-9447).

 4.9            Third Supplemental Indenture, dated as of March 31, 1999, to the
                Indenture, dated as of February 17, 1994 (incorporated by
                reference to Exhibit 4.2 to the Report on Form 10-Q for the
                quarterly period ended March 31, 1999, filed by KAC, File No.
                1-9447).

 4.10           Indenture, dated as of October 23, 1996, among KACC, as Issuer,
                Kaiser Alumina Australia Corporation, Alpart Jamaica Inc.,
                Kaiser Jamaica Corporation, Kaiser Finance Corporation, Kaiser
                Micromill Holdings, LLC, Kaiser Sierra Micromills, LLC, Kaiser
                Texas Micromill Holdings, LLC and Kaiser Texas Sierra
                Micromills, LLC, as Subsidiary Guarantors, and First Trust
                National Association, as Trustee, regarding KACC's 107/8% Series
                B Senior Notes Due 2006 (incorporated by reference to Exhibit
                4.2 to the Report on Form 10-Q for the quarterly period ended
                September 30, 1996, filed by KAC, File No. 1-9447).

 4.11           First Supplemental Indenture, dated as of July 15, 1997, to the
                Indenture, dated as of October 23, 1996 (incorporated by
                reference to Exhibit 4.3 to the Report on Form 10-Q for the
                quarterly period ended June 30, 1997, filed by KAC, File No.
                1-9447).

 4.12           Second Supplemental Indenture, dated as of March 31, 1999, to
                the Indenture, dated as of October 23, 1996 (incorporated by
                reference to Exhibit 4.3 to the Report on Form 10-Q for the
                quarterly period ended March 31, 1999, filed by KAC, File No.
                1-9447).

 4.13           Indenture, dated as of December 23, 1996, among KACC, as Issuer,
                Kaiser Alumina Australia Corporation, Alpart Jamaica Inc.,
                Kaiser Jamaica Corporation, Kaiser Finance Corporation, Kaiser
                Micromill Holdings, LLC, Kaiser Sierra Micromills, LLC, Kaiser
                Texas Micromill Holdings, LLC, and Kaiser Texas Sierra
                Micromills, LLC, as Subsidiary Guarantors, and First Trust
                National Association, as Trustee, regarding KACC's 10 7/8%
                Series D Senior Notes due 2006 (incorporated by reference to
                Exhibit 4.4 to the Registration Statement on Form S-4, dated
                January 2, 1997, filed by KACC, Registration No. 333-19143).

 4.14           First Supplemental Indenture, dated as of July 15, 1997, to the
                Indenture, dated as of December 23, 1996 (incorporated by
                reference to Exhibit 4.4 to the Report on Form 10-Q for the
                quarterly period ended June 30, 1997, filed by KAC, File No.
                1-9447).

 4.15           Second Supplemental Indenture, dated as of March 31, 1999, to
                the Indenture, dated as of December 23, 1996 (incorporated by
                reference to Exhibit 4.4 to the Report on Form 10-Q for the
                quarterly period ended March 31, 1999, filed by KAC, File No.
                1-9447).

 4.16           Credit Agreement, dated as of February 15, 1994, among KAC,
                KACC, the financial institutions a party thereto, and
                BankAmerica Business Credit, Inc., as Agent (incorporated by
                reference to Exhibit 4.4 to the Report on Form 10-K for the
                period ended December 31, 1993, filed by KAC, File No. 1-9447).

 4.17           First Amendment to Credit Agreement, dated as of July 21, 1994,
                amending the Credit Agreement, dated as of February 15, 1994,
                among KAC, KACC, the financial institutions party thereto, and
                BankAmerica Business Credit, Inc., as Agent (incorporated by
                reference to Exhibit 4.1 to the Report on Form 10-Q for the
                quarterly period ended June 30, 1994, filed by KAC, File No.
                1-9447).

 4.18           Second Amendment to Credit Agreement, dated as of March 10,
                1995, amending the Credit Agreement, dated as of February 15,
                1994, as amended, among KAC, KACC, the financial institutions
                party thereto, and BankAmerica Business Credit, Inc., as Agent
                (incorporated by reference to Exhibit 4.6 to the Report on Form
                10-K for the period ended December 31, 1994, filed by KAC, File
                No. 1-9447).

 4.19           Third Amendment to Credit Agreement, dated as of July 20, 1995,
                amending the Credit Agreement, dated as of February 15, 1994, as
                amended, among KAC, KACC, the financial institutions a party
                thereto, and BankAmerica Business Credit, Inc., as Agent
                (incorporated by reference to Exhibit 4.1 to the Report on Form
                10-Q for the quarterly period ended June 30, 1995, filed by KAC,
                File No. 1-9447).

 4.20           Fourth Amendment to Credit Agreement, dated as of October 17,
                1995, amending the Credit Agreement, dated as of February 15,
                1994, as amended, among KAC, KACC, the financial institutions a
                party thereto, and BankAmerica Business Credit, Inc., as Agent
                (incorporated by reference to Exhibit 4.1 to the Report on Form
                10-Q for the quarterly period ended September 30, 1995, filed by
                KAC, File No. 1-9447).

 4.21           Fifth Amendment to Credit Agreement, dated as of December 11,
                1995, amending the Credit Agreement, dated as of February 15,
                1994, as amended, among KAC, KACC, the financial institutions a
                party thereto, and BankAmerica Business Credit, Inc., as Agent
                (incorporated by reference to Exhibit 4.11 to the Report on Form
                10-K for the period ended December 31, 1995, filed by KAC, File
                No. 1-9447).

 4.22           Sixth Amendment to Credit Agreement, dated as of October 1,
                1996, amending the Credit Agreement, dated as of February 15,
                1994, as amended, among KAC, KACC, the financial institutions a
                party thereto, and BankAmerica Business Credit, Inc., as Agent
                (incorporated by reference to Exhibit 4.1 to the Report on Form
                10-Q for the quarterly period ended September 30, 1996, filed by
                KAC, File No. 1-9447).

 4.23           Seventh Amendment to Credit Agreement, dated as of December 17,
                1996, amending the Credit Agreement, dated as of February 15,
                1994, as amended, among KAC, KACC, the financial institutions a
                party thereto, and BankAmerica Business Credit, Inc., as Agent
                (incorporated by reference to Exhibit 4.18 to the Registration
                Statement on Form S-4, dated January 2, 1997, filed by KACC,
                Registration No. 333-19143).

 4.24           Eighth Amendment to Credit Agreement, dated as of February 24,
                1997, amending the Credit Agreement, dated as of February 15,
                1994, as amended, among KACC, KAC, the financial institutions a
                party thereto, and BankAmerica Business Credit, Inc., as Agent
                (incorporated by reference to Exhibit 4.16 to the Report on Form
                10-K for the period ended December 31, 1996, filed by KAC, File
                No. 1-9447).

 4.25           Ninth Amendment to Credit Agreement, dated as of April 21, 1997,
                amending the Credit Agreement, dated as of February 15, 1994, as
                amended, among KACC, KAC, the financial institutions a party
                thereto, and BankAmerica Business Credit, Inc., as Agent
                (incorporated by reference to Exhibit 4.5 to the Report on Form
                10-Q for the quarterly period ended June 30, 1997, filed by KAC,
                File No. 1-9447).

 4.26           Tenth Amendment to Credit Agreement, dated as of June 25, 1997,
                amending the Credit Agreement, dated as of February 15, 1994, as
                amended, among KACC, KAC, the financial institutions a party
                thereto, and BankAmerica Business Credit, Inc., as Agent
                (incorporated by reference to Exhibit 4.6 to the Report on Form
                10-Q for the quarterly period ended June 30, 1997, filed by KAC,
                File No. 1-9447).

 4.27           Eleventh Amendment to Credit Agreement, dated as of October 20,
                1997, amending the Credit Agreement, dated as of February 15,
                1994, as amended, among KACC, KAC, the financial institutions a
                party thereto, and BankAmerica Business Credit, Inc., as Agent
                (incorporated by reference to Exhibit 4.7 to the Report on Form
                10-Q for the quarterly period ended September 30, 1997, filed by
                KAC, File No. 1-9447).

 4.28           Twelfth Amendment to Credit Agreement, dated as of January 13,
                1998, amending the Credit Agreement, dated as of February 15,
                1994, as amended, among KACC, KAC, the financial institutions a
                party thereto, and BankAmerica Business Credit, Inc., as Agent
                (incorporated by reference to Exhibit 4.24 to the Report on Form
                10-K for the period ended December 31, 1997, filed by KAC, File
                No. 1-9447).

 4.29           Thirteenth Amendment to Credit Agreement, dated as of July 20,
                1998, amending the Credit Agreement, dated as of February 15,
                1994, as amended, among KACC, KAC, the financial institutions
                party thereto, and BankAmerica Business Credit, Inc., as Agent
                (incorporated by reference to Exhibit 4 to the Report on Form
                10-Q for the quarterly period ended June 30, 1998, filed by KAC,
                File No. 1-9447).

 4.30           Fourteenth Amendment to Credit Agreement, dated as of December
                11, 1998, amending the Credit Agreement, dated as of February
                15, 1994, as amended, among KACC, KAC, the financial
                institutions party thereto, and BankAmerica Business Credit,
                Inc., as Agent (incorporated by reference to Exhibit 4.26 to the
                Report on Form 10-K for the period ended December 31, 1998,
                filed by KAC, File No. 1-9447).

 4.31           Fifteenth Amendment to Credit Agreement, dated as of February
                23, 1999, amending the Credit Agreement, dated as of February
                15, 1994, as amended, among KACC, KAC, the financial
                institutions party thereto, and BankAmerica Business Credit,
                Inc., as Agent (incorporated by reference to Exhibit 4.27 to the
                Report on Form 10-K for the period ended December 31, 1998,
                filed by KAC, File No. 1-9447.)

 4.32           Sixteenth Amendment to Credit Agreement, dated as of March 26,
                1999, amending the Credit Agreement, dated as of February 15,
                1994, as amended, among KACC, KAC, the financial institutions
                party thereto, and BankAmerica Business Credit, Inc., as Agent
                (incorporated by reference to Exhibit 4.28 to the Report on Form
                10-K for the period ended December 31, 1998, filed by KAC, File
                No. 1-9447).

 4.33           Seventeenth Amendment to Credit Agreement, dated as of September
                24, 1999, amending the Credit Agreement, dated as of February
                15, 1994, as amended, among KACC, KAC, the financial
                institutions party thereto, and Bank of America, N.A. (successor
                to BankAmerica Business Credit, Inc.), as Agent (incorporated by
                reference to Exhibit 4.1 to the Report on Form 10-Q for the
                quarterly period ended September 30, 1999, filed by KAC, File
                No. 1-9447).

 4.34           Eighteenth Amendment to Credit Agreement, dated as of February
                11, 2000, amending the Credit Agreement, dated as of February
                15, 1994, as amended, among KACC, KAC, the financial
                institutions party thereto, and Bank of America, N.A.
                (successor to BankAmerica Business Credit, Inc.), as Agent
                (incorporated by reference to Exhibit 4.34 to the Report on Form
                10-K for the period ended December 31, 1999, filed by KAC, File
                No. 1-9447).

*4.35           Nineteenth Amendment to Credit Agreement, dated as of December
                27, 2000, amending the Credit Agreement, dated as of February
                15, 1994, as amended, among KACC, KAC, the financial
                institutions party thereto, and Bank of America, N.A. (successor
                to BankAmerica Business Credit, Inc.), as Agent.

*4.36           Twentieth Amendment to Credit Agreement, dated as of January 26,
                2001, amending the Credit Agreement, dated as of February 15,
                1994, as amended, among KACC, KAC, the financial institutions
                party thereto, and Bank of America, N.A. (successor to
                BankAmerica Business Credit, Inc.), as Agent.

 4.37           Limited Waiver Regarding Repayment of CARIFA Bonds, dated
                February 17, 2000, among KAC, KACC, the financial institutions
                party thereto and Bank of America, N.A., as Agent (incorporated
                by reference to Exhibit 4.35 to the Report on Form 10-K for the
                period ended December 31, 1999, filed by KAC, File No. 1-9447).

 4.38           Agreement dated August 18, 2000, among KAC, KACC, the financial
                institutions party to the Credit Agreement dated as of February
                15, 1994, as amended, and Bank of America, N.A., as agent,
                regarding the Sale of the Center for Technology (incorporated by
                reference to Exhibit 4.1 to the Report on Form 10-Q for the
                period ended September 30, 2000, filed by KAC, File No. 1-9447).

 4.39           Intercompany Note between KAC and KACC (incorporated by
                reference to Exhibit 10.10 to the Report on Form 10-K for the
                period ended December 31, 1996, filed by MAXXAM Inc. ("MAXXAM"),
                File No. 1-3924).

 4.40           Confirmation of Amendment of Non-Negotiable Intercompany Note,
                dated as of October 6, 1993, between KAC and KACC (incorporated
                by reference to Exhibit 10.11 to the Report on Form 10-K for the
                period ended December 31, 1996, filed by MAXXAM, File No.
                1-3924).

*4.41           Amendment to Non-Negotiable Intercompany Note, dated as of
                December 11, 2000, between KAC and KACC.

 4.42           Senior Subordinated Intercompany Note between KAC and KACC dated
                February 15, 1994 (incorporated by reference to Exhibit 4.22 to
                the Report on Form 10-K for the  period ended December 31, 1993,
                filed by KAC, File No. 1-9447).

 4.43           Senior Subordinated Intercompany Note between KAC and KACC dated
                March 17, 1994 (incorporated by reference to Exhibit 4.23 to the
                Report on Form 10-K for the  period ended December 31, 1993,
                filed by KAC, File No. 1-9447).

                KACC has not filed certain long-term debt instruments not being
                registered with the Securities and Exchange Commission where the
                total amount of indebtedness authorized under any such
                instrument does not exceed 10% of the total assets of KACC and
                its subsidiaries on a consolidated basis. KACC agrees and
                undertakes to furnish a copy of any such instrument to the
                Securities and Exchange Commission upon its request.

 10.1           Form of indemnification agreement with officers and directors
                (incorporated by reference to Exhibit (10)(b) to the
                Registration Statement of KAC on Form S-4, File No. 33-12836).

 10.2           Tax Allocation Agreement, dated as of December 21, 1989, between
                MAXXAM and KACC (incorporated by reference to Exhibit 10.21 to
                Amendment No. 6 to the Registration Statement on Form S-1, dated
                December 14, 1989, filed by KACC, Registration No. 33-30645).

*10.3           Amendment of Tax Allocation Agreement, dated as of March 12,
                2001, between MAXXAM and KACC, amending the Tax Allocation
                Agreement dated as of December 21, 1989.

 10.4           Tax Allocation Agreement, dated as of February 26, 1991, between
                KAC and MAXXAM (incorporated by reference to Exhibit 10.23 to
                Amendment No. 2 to the Registration Statement on Form S-1, dated
                June 11, 1991, filed by KAC, Registration No. 33-37895).

 10.5           Tax Allocation Agreement, dated as of June 30, 1993, between
                KACC and KAC (incorporated by reference to Exhibit 10.3 to the
                Report on Form 10-Q for the quarterly period ended June 30,
                1993, filed by KACC, File No. 1-3605).

                  Executive Compensation Plans and Arrangements
                       [Exhibits 10.6 - 10.36, inclusive]

 10.6           Kaiser 1993 Omnibus Stock Incentive Plan (incorporated by
                reference to Exhibit 10.1 to the Report on Form 10-Q for the
                quarterly period ended June 30, 1993, filed by KACC, File No.
                1-3605).

 10.7           Kaiser 1995 Employee Incentive Compensation Program
                (incorporated by reference to Exhibit 10.1 to the Report on Form
                10-Q for the quarterly period ended March 31, 1995, filed by
                KAC, File No. 1-9447).

 10.8           Kaiser 1995 Executive Incentive Compensation Program
                (incorporated by reference to Exhibit 99 to the Proxy Statement,
                dated April 26, 1995, filed by KAC, File No. 1-9447).

 10.9           Kaiser 1997 Omnibus Stock Incentive Plan (incorporated by
                reference to Appendix A to the Proxy Statement, dated April 29,
                1997, filed by KAC, File No. 1-9447).

 10.10          Director and Non-Executive Chairman Agreement, dated January 1,
                2000, among KAC, KACC and George T. Haymaker, Jr. (incorporated
                by reference to Exhibit 10.13 to the Report on Form 10-K for the
                period ended December 31, 1999, filed by KAC, File No. 1-9447).

 10.11          Time-Based Stock Option Grant pursuant to the Kaiser 1997
                Omnibus Stock Incentive Plan to George T. Haymaker, Jr.,
                effective January 1, 1998 (incorporated by reference to Exhibit
                10.18 to the Report on Form 10-K for the period ended December
                31, 1998, filed by KAC, File No. 1-9447).

*10.12          Agreement among George T. Haymaker, Jr., KAC and KACC amending
                Time-Based Stock Option Grant.

 10.13          Performance-Accelerated Stock Option Grant pursuant to the
                Kaiser 1997 Omnibus Stock Incentive Plan to George T. Haymaker,
                Jr., effective January 1, 1998 (incorporated by reference to
                Exhibit 10.19 to the Report on Form 10-K for the period ended
                December 31, 1998, filed by KAC, File No. 1-9447).

*10.14          Agreement among George T. Haymaker, Jr., KAC and KACC amending
                Performance-Accelerated Stock Option Grant.

 10.15          Letter Agreement, dated January 1995, between KAC and Charles E.
                Hurwitz, granting Mr. Hurwitz  stock options under the Kaiser
                1993 Omnibus Stock Incentive Plan (incorporated by reference to
                Exhibit 10.17 to the Report on Form 10-K for the period ended
                December 31, 1994, filed by KAC, File No. 1-9447).

 10.16          Employment Agreement, dated as of June 1, 1999, between KACC and
                Raymond J. Milchovich (incorporated by reference to Exhibit 10.1
                to the Report on Form 10-Q for the quarterly period ended June
                30, 1999, filed by KAC, File No. 1-9447).

 10.17          Time-Based Stock Option Grant pursuant to the Kaiser 1997
                Omnibus Stock Incentive Plan to Raymond J. Milchovich, effective
                July 2, 1998 (incorporated by reference to Exhibit 10.4 to the
                Report on Form 10-Q for the quarterly period ended September 30,
                1998, filed by KAC, File No. 1-9447).

*10.18          Agreement among Raymond J. Milchovich, KAC and KACC amending
                1998 Time-Based Stock Option Grant.

 10.19          Time-Based Stock Option Grant pursuant to the Kaiser 1997
                Omnibus Stock Incentive Plan to Raymond J. Milchovich
                (incorporated by reference to Exhibit 10.4 to the Report on Form
                10-Q for the period ended September 30, 2000, filed by KAC,
                File No. 1-9447).

*10.20          Agreement among Raymond J. Milchovich, KAC and KACC amending
                1999 Time-Based Stock Option Grant.

 10.21          Restricted Stock Agreement between Raymond J. Milchovich, KAC
                and KACC pursuant to the Kaiser 1997 Omnibus Stock Incentive
                Plan (incorporated by reference to Exhibit 10.2 to the Report on
                Form 10-Q for the period ended September 30, 2000, filed by KAC,
                File No. 1-9447).

 10.22          Employment Agreement between KACC and John T. La Duc made
                effective for the period from January 1, 1998, to December 31,
                2002 (incorporated by reference to Exhibit 10.5 to the Report on
                Form 10-Q for the quarterly period ended September 30, 1998,
                filed by KAC, File No. 1-9447).

 10.23          Time-Based Stock Option Grant pursuant to the Kaiser 1997
                Omnibus Stock Incentive Plan to John T. La Duc, effective July
                10, 1998 (incorporated by reference to Exhibit 10.6 to the
                Report on Form 10-Q for the quarterly period ended September 30,
                1998, filed by KAC, File No. 1-9447).

 10.24          Time-Based Stock Option Grant pursuant to the Kaiser 1997
                Omnibus Stock Incentive Plan to Joseph A. Bonn, effective
                September 9, 1999 (incorporated by reference to Exhibit 10.1 to
                the Report on Form 10-Q for the period ended June 30, 2000,
                filed by KAC, File No. 1-9447).

 10.25          Executive Employment Agreement, effective December 1, 1999,
                between MAXXAM and J. Kent Friedman (incorporated by reference
                to Exhibit 10.52 to the Report on Form 10-K for the period ended
                December 31, 1999, filed by MAXXAM, File No. 1-3924).

 10.26          Time-Based Stock Option Grant pursuant to the Kaiser 1997
                Omnibus Stock Incentive Plan to J. Kent Friedman, effective
                December 1, 1999 (incorporated by reference to Exhibit 10.2 to
                the Report on Form 10-Q for the period ended June 30, 2000,
                filed by KAC, File No. 1-9447).

 10.27          Employment Agreement made and entered into as of September 1,
                1996, by and between KACC and Jack A. Hockema (incorporated by
                reference to Exhibit 10 to the Report on Form 10-Q for the
                quarterly period ended September 30, 1996, filed by KAC, File
                No. 1-9447).

 10.28          Letter Agreement, dated April 15, 1999, amending the Employment
                Agreement made and entered into as of September 1, 1996, by and
                between KACC and Jack A. Hockema (incorporated by reference to
                Exhibit 10.26 to the Report on Form 10-K for the period ended
                December 31, 1999, filed by KAC, File No. 1-9447).

 10.29          Description of compensation arrangements among KACC, KAC, and
                Jack A. Hockema (incorporated by reference to Exhibit 10.27 to
                the Report on Form 10-K for the period ended December 31, 1999,
                filed by KAC, File No. 1-9447).

 10.30          Stock Option Grant pursuant to the Kaiser 1997 Omnibus Stock
                Incentive Plan to Jack A. Hockema (incorporated by reference to
                Exhibit 10.1 to the Report on Form 10-Q for the period ended
                September 30, 2000, filed by KAC, File No. 1-9447).

 10.31          Letter Agreement, dated July 27, 1998, between KACC and John H.
                Walker (incorporated by reference to Exhibit 10.20 to the Report
                on Form 10-K for the period ended December 31, 1998, filed by
                KAC, File No. 1-9447).

 10.32          Description of Kaiser Severance Protection and Change of Control
                Benefits Program (incorporated by reference to Exhibit 10.21 to
                the Report on Form 10-K for the period ended December 31, 1998,
                filed by KAC, File No. 1-9447).

 10.33          Form of letter agreement with persons granted stock options
                under the Kaiser 1993 Omnibus Stock Incentive Plan to acquire
                shares of KAC Common Stock (incorporated by reference to Exhibit
                10.18 to the Report on Form 10-K for the period ended December
                31, 1994, filed by KAC, File No. 1-9447).

 10.34          Form of Enhanced Severance Agreement between KACC and key
                executive personnel (incorporated by reference to Exhibit 10.3
                to the Report on Form 10-Q for the period ended September 30,
                2000, filed by KAC, File No. 1-9447).

 10.35          Form of Non-Employee Director Stock Option Agreement pursuant to
                the Kaiser 1997 Omnibus Stock Incentive Plan (incorporated by
                reference to Exhibit 10.3 to the Report on Form 10-Q for the
                period ended June 30, 2000, filed by KAC, File No. 1-9447).

 10.36          Form of Deferred Fee Agreement between KAC, KACC, and directors
                of KAC and KACC (incorporated by reference to Exhibit 10 to the
                Report on Form 10-Q for the quarterly period ended March 31,
                1998, filed by KAC, File No. 1-9447).

*21             Significant Subsidiaries of KACC.

------------------------------------
*               Filed herewith
```