KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(In millions of dollars, except share amounts)


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the statements of Kaiser
Aluminum & Chemical Corporation (the "Company") and its majority owned
subsidiaries.  The Company is a wholly owned subsidiary of Kaiser Aluminum
Corporation ("Kaiser") which is a subsidiary of MAXXAM Inc. ("MAXXAM"). 
The Company operates in all principal aspects of the aluminum industry-the
mining of bauxite (the major aluminum bearing ore), the refining of bauxite
into alumina  (the intermediate material), the production of primary
aluminum, and the manufacture of fabricated and semi-fabricated aluminum
products.  The Company's production levels of alumina and primary aluminum
exceed its internal processing needs, which allows it to be a major seller
of alumina and primary aluminum to domestic and international third parties
(see Note 12).

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

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

Certain reclassifications of prior-year information were made to conform to
the current presentation.

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

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

<TABLE>
<CAPTION>
                                                                December 31,
                                                       ------------------------------
                                                                 1998            1997
-------------------------------------------------------------------------------------
<S>                                                    <C>             <C>
Finished fabricated products                           $        112.4  $        103.9
Primary aluminum and work in process                            205.6           226.6
Bauxite and alumina                                             109.5           108.4
Operating supplies and repair and maintenance parts             116.0           129.4
                                                       --------------  --------------
                                                       $        543.5  $        568.3
                                                       ==============  ==============

</TABLE>

DEPRECIATION
Depreciation is computed principally by the straight-line method at rates
based on the estimated useful lives of the various classes of assets.  The
principal estimated useful lives of land improvements, buildings, and
machinery and equipment are 8 to 25 years, 15 to 45 years, and 10 to 22
years, respectively.

STOCK-BASED COMPENSATION
The Company applies the intrinsic value method to account for a Kaiser
stock-based compensation plan whereby compensation cost is recognized only
to the extent that the quoted market price of the Kaiser stock at the
measurement date exceeds the amount Company employees must pay to acquire
the Kaiser stock.  No compensation cost has been recognized for this plan
as the Kaiser stock options granted in 1998 and 1997 were at the market
price.  No Kaiser stock options were granted in 1996.  (See Note 7).

OTHER INCOME (EXPENSE)
Other expense in 1998, 1997, and 1996, includes $12.7, $8.8, and $3.1 of
pre-tax charges related principally to establishing additional litigation
reserves for asbestos claims net of estimated aggregate insurance
recoveries pertaining to operations which were discontinued prior to the
acquisition of the Company by MAXXAM in 1988.  Other income in 1998
includes $12.0 attributable to insurance recoveries related to certain
incurred environmental costs.  (See Note 10).

DEFERRED FINANCING COSTS
Costs incurred to obtain debt financing are deferred and amortized over the
estimated term of the related borrowing.  Amortization of $3.9, $6.1, and
$5.6 is included in interest expense for the years ended December 31, 1998,
1997, and 1996, respectively.

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 board of directors.  Hedging
transactions are executed centrally on behalf of all of the Company's
business segments to minimize transaction costs, monitor consolidated net
exposures and allow for increased responsiveness to changes in market
factors.

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

The Company has established margin accounts and credit limits with certain
counterparties related to open forward sales and option contracts.  When
unrealized gains or losses are in excess of such credit limits, the Company
is entitled to receive advances from the counterparties on open positions
or is required to make margin deposits to counterparties, as the case may
be.  At December 31, 1998, the Company had received $9.9 of margin advances
from counterparties.  At December 31, 1997, the Company had neither
received nor made any margin deposits.  Management considers credit risk
related to possible failure of the counterparties to perform their
obligations pursuant to the derivative contracts to be minimal.

Deferred gains or losses as of December 31, 1998, are included in Prepaid
expenses and other current assets and Other accrued liabilities (See Note
11).

FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company estimates the fair value of its outstanding indebtedness to be
$950.0 and $1,020.0 at December 31, 1998 and 1997, respectively, based on
quoted market prices for the Company's 9-7/8% Senior Notes due 2002 (the
"9-7/8% Notes"), 12-3/4% Senior Subordinated Notes due 2003 (the "12-3/4%
Notes"), and 10-7/8% Senior Notes due 2006 (the "10-7/8% Notes"), and the
discounted future cash flows for all other indebtedness, using the current
rate for debt of similar maturities and terms.  The Company believes that
the carrying amount of other financial instruments is a reasonable estimate
of their fair value, unless otherwise noted.

LABOR RELATED COSTS
The Company is currently operating five of its U.S. facilities with
salaried employees and other workers 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.  For purposes of computing the
benefit related costs and liabilities to be reflected in the accompanying
consolidated financial statements for the year ended December 31, 1998
(such as pension and other postretirement benefit costs/liabilities), the
Company has based its accruals on the terms of the previously existing
(expired) USWA contract.  Any differences between the amounts accrued and
the amounts ultimately agreed to during the collective bargaining process
will be reflected in future results during the term of any new contract.

All incremental operating costs incurred as a result of the USWA strike and
subsequent lockout are being expensed as incurred. Such costs totaled
approximately $50.0 during 1998 (approximately $40.0 of which were incurred
in the fourth quarter). The Company's fourth quarter 1998 results also
reflect reduced profitability of approximately $10.0 resulting from the
strike-related curtailment of three potlines (representing approximately
70,000 tons* of annual capacity) at the Company's Mead and Tacoma,
Washington, smelters and certain other shipment delays experienced at the
other affected facilities at the outset of the USWA strike.

2.   INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES

Summary combined financial information is provided below for unconsolidated
aluminum investments, most of which supply and process raw materials.  The
investees are Queensland Alumina Limited ("QAL") (28.3% owned), Anglesey
Aluminium Limited ("Anglesey") (49.0% owned), and Kaiser Jamaica Bauxite
Company (49.0% owned).  The equity in income (loss) before income taxes of
such operations is treated as a reduction (increase) in cost of products
sold.  At December 31, 1998 and 1997, the Company's net receivables from
these affiliates were not material.  The summary combined financial
information for the years ended December 31, 1998 and 1997, also contains
the balances and results of AKW L.P.("AKW") (50.0% owned), an aluminum
wheels joint venture formed with a third party in May 1997.  (See Note 4). 
During early 1999, the Company signed a letter of intent to sell its
interest in AKW.  (See Note 14).

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

SUMMARY OF COMBINED FINANCIAL POSITION

<TABLE>
<CAPTION>
                                                                               December 31,
                                                                      ------------------------------
                                                                                1998            1997
----------------------------------------------------------------------------------------------------
<S>                                                                   <C>             <C>
Current assets                                                        $        356.0  $        393.0
Long-term assets (primarily property, plant, and equipment, net)               393.9           395.0
                                                                      --------------  --------------
     Total assets                                                     $        749.9  $        788.0
                                                                      ==============  ==============


Current liabilities                                                   $         92.2  $        117.1
Long-term liabilities (primarily long-term debt)                               396.6           400.8
Stockholders' equity                                                           261.1           270.1
                                                                      --------------  --------------
     Total liabilities and stockholders' equity                       $        749.9  $        788.0
                                                                      ==============  ==============


</TABLE>

SUMMARY OF COMBINED OPERATIONS

<TABLE>
<CAPTION>
                                                              Year Ended December 31,
                                                  ----------------------------------------------
                                                            1998            1997            1996
------------------------------------------------------------------------------------------------

<S>                                               <C>             <C>             <C>
Net sales                                         $       659.2   $       644.1   $       660.5 
Costs and expenses                                       (651.7)         (637.8)         (631.5)
Provision for income taxes                                 (2.7)           (8.2)           (8.7)
                                                  --------------  --------------  --------------
Net income (loss)                                 $         4.8   $        (1.9)  $        20.3 
                                                  ==============  ==============  ==============

Company's equity in income                        $         5.4   $         2.9   $         8.8 
                                                  ==============  ==============  ==============

Dividends received                                $         5.5   $        10.7   $        11.8 
                                                  ==============  ==============  ==============



</TABLE>

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. At December 31, 1998, the Company's investment in
its unconsolidated affiliates exceeded its equity in their net assets by
approximately $18.2 which amount will be fully amortized over the next two
years.  Amortization of the excess investment totaling $10.0, $11.4, and
$11.6 is included in Depreciation and amortization for the years ended
December 31, 1998, 1997, and 1996, respectively.

The Company and its affiliates have interrelated operations.  The Company
provides some of its affiliates with services such as financing,
management, and engineering. Significant activities with affiliates include
the acquisition and processing of bauxite, alumina, and primary aluminum.
Purchases from these affiliates were $235.1, $245.2, and $281.6 in the
years ended December 31, 1998, 1997, and 1996, respectively.

3.   PROPERTY, PLANT, AND EQUIPMENT

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

<TABLE>
<CAPTION>
                                                                December 31,
                                                       ------------------------------
                                                                 1998            1997
-------------------------------------------------------------------------------------
<S>                                                    <C>             <C>
Land and improvements                                  $       164.1   $       163.9 
Buildings                                                      229.5           228.3 
Machinery and equipment                                      1,549.5         1,529.1 

Construction in progress                                        43.8            51.2 
                                                       --------------  --------------
                                                             1,986.9         1,972.5 
Accumulated depreciation                                      (878.2)         (800.7)
                                                       --------------  --------------
     Property, plant, and equipment, net               $     1,108.7   $     1,171.8 
                                                       ==============  ==============


</TABLE>

During the fourth quarter of 1998, the Company decided to seek a strategic
partner for further development and deployment of its Micromill(TM)
technology.  While technological progress has been good, management
concluded that additional time and investment will be required to achieve
commercial success.  Given the Company's other strategic priorities, the
Company believes that bringing in added commercial and financial resources
is the appropriate course of action for capturing the maximum long-term
value.  This change in strategic course required a different accounting
treatment, and the Company correspondingly recorded a $45.0 impairment
charge to reduce the carrying value of the Micromill assets to
approximately $25.0.

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

4.   RESTRUCTURING OF OPERATIONS

During the second quarter of 1997, the Company recorded a $19.7
restructuring charge to reflect actions taken and plans initiated to
achieve reduced production costs, decreased corporate selling, general and
administrative expenses, and enhanced product mix. The significant
components of the restructuring charge were: (i) a net loss of
approximately $1.4 as a result of the contribution of certain net assets of
the Company's Erie, Pennsylvania, fabrication plant in connection with the
formation of AKW and the subsequent decision to close the remainder of the
Erie plant in order to consolidate its forging operations into two other
facilities; (ii) a charge of $15.6 associated with asset dispositions
regarding product rationalization and geographical optimization; and (iii)
a charge of approximately $2.7 for benefit and other costs associated with
the consolidation or elimination of certain corporate and other staff
functions.

5.   LONG-TERM DEBT

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

<TABLE>
<CAPTION>
                                                                                  2004    December 31,
                                                                                       -----------------
                                                                                   and     1998      1997
                                  1999      2000     2001      2002     2003     After    Total     Total
------------------------------------- ------------------ ------------------ ------------------ ---------
<S>                           <C>       <C>      <C>       <C>      <C>       <C>      <C>       <C>
Credit Agreement                                                                            -         -
9-7/8% Senior Notes due 2002,
     net                                                   $ 224.4                     $ 224.4   $ 224.2 
10-7/8% Senior Notes due 2006,
     net                                                                      $ 225.7    225.7     225.8 
12-3/4% Senior Subordinated
     Notes due 2003                                                 $ 400.0              400.0     400.0 
Alpart CARIFA Loans - (fixed
     and variable rates) due
     2007, 2008                                                                  60.0     60.0      60.0 
Other borrowings (fixed and
     variable rates)          $    .4   $    .3  $    .3        .3       .3      51.3     52.9      61.7 
                              -------   -------  -------   -------  -------   -------  -------   -------

Total                         $    .4   $    .3  $    .3   $ 224.7  $ 400.3   $ 337.0    963.0     971.7 
                              =======   =======  =======   =======  =======   =======

Less current portion                                                                        .4       8.8 
                                                                                       -------   -------

     Long-term debt                                                                    $ 962.6   $ 962.9 
                                                                                       =======   =======


</TABLE>

CREDIT AGREEMENT
In February 1994, the Company and Kaiser entered into a credit agreement
(as amended, the "Credit Agreement") which provides a $325.0 secured,
revolving line of credit through August 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
$325.0 or a borrowing base relating to eligible accounts receivable and
eligible inventory.  As of February 28, 1999, $274.1 (of which $74.1 could
have been used for letters of credit) was available to the Company under
the Credit Agreement.  The Credit Agreement is unconditionally guaranteed
by Kaiser and by certain significant subsidiaries of the Company.  Interest
on any outstanding balances will bear a premium (which varies based on the
results of a financial test) over either a base rate or LIBOR, at the
Company's option.

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

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

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

In December 1991, Alumina Partners of Jamaica ("Alpart") entered into a
loan agreement with the Caribbean Basin Projects Financing Authority
("CARIFA").  Alpart's obligations under the loan agreement are secured by
two letters of credit aggregating $64.2.  The Company is a party to one of
the two letters of credit in the amount of $41.7 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.

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 $124.4 and $121.9 at December
31, 1998 and 1997, respectively.

CAPITALIZED INTEREST
Interest capitalized in 1998, 1997, and 1996, was $3.0, $6.6, and $4.9,
respectively.

6.   INCOME TAXES

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

<TABLE>
<CAPTION>
                                                         Year Ended December 31,
                                             ----------------------------------------------
                                                       1998            1997            1996
-------------------------------------------------------------------------------------------
<S>                                          <C>             <C>             <C>
Domestic                                     $       (93.2)  $      (110.9)  $       (43.4)
Foreign                                               77.7           172.9            47.5 
                                             --------------  --------------  --------------
     Total                                   $       (15.5)  $        62.0   $         4.1 
                                             ==============  ==============  ==============

</TABLE>


Income taxes are classified as either domestic or foreign, based on whether
payment is made or due to the United States or a foreign country.  Certain
income classified as foreign is also subject to domestic income taxes.

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

<TABLE>
<CAPTION>

                                          Federal         Foreign           State           Total
-------------------------------------------------------------------------------------------------
<S>                                <C>             <C>             <C>             <C>
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 
                                   ==============  ==============  ==============  ==============

1997 Current                       $        (2.0)  $       (28.7)  $         (.2)  $       (30.9)
     Deferred                               30.0            (7.0)           (1.5)           21.5 
                                   --------------  --------------  --------------  --------------
          Total                    $        28.0   $       (35.7)  $        (1.7)  $        (9.4)
                                   ==============  ==============  ==============  ==============

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

</TABLE>


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

<TABLE>
<CAPTION>
                                                                                  Year Ended December 31,
                                                                      ----------------------------------------------
                                                                                1998            1997            1996
--------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>             <C>             <C>

Amount of federal income tax benefit (provision) based on the
     statutory rate                                                   $         5.4   $       (21.7)  $        (1.4)
Revision of prior years' tax estimates and other changes in
     valuation allowances                                                       8.3            12.5            10.0 
Percentage depletion                                                            3.2             4.2             3.9 
Foreign taxes, net of federal tax benefit                                      (1.9)           (3.1)           (5.5)
Other                                                                           1.4            (1.3)            1.4 
                                                                      --------------  --------------  --------------
Benefit (provision) for income taxes                                  $        16.4   $        (9.4)  $         8.4 
                                                                      ==============  ==============  ==============


</TABLE>

Included in revision of prior years' tax estimates and other changes in
valuation allowances for 1998, 1997 and 1996 shown above are $8.3, $12.5
and $9.8, respectively, related to the resolution of certain income tax
matters.

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

<TABLE>
<CAPTION>
                                                                     December 31,
                                                            ------------------------------
                                                                      1998            1997
------------------------------------------------------------------------------------------
<S>                                                         <C>             <C>
Deferred income tax assets:
     Postretirement benefits other than pensions            $       279.4   $       288.9 
     Loss and credit carryforwards                                   91.0            98.8 

     Other liabilities                                              146.4           169.3 
     Other                                                          132.1           100.9 
     Valuation allowances                                          (107.7)         (113.3)
                                                            --------------  --------------
          Total deferred income tax assets-net                      541.2           544.6 
                                                            --------------  --------------
Deferred income tax liabilities:
     Property, plant, and equipment                                (109.9)         (139.7)
     Other                                                          (54.8)          (54.8)
                                                            --------------  --------------
          Total deferred income tax liabilities                    (164.7)         (194.5)
                                                            --------------  --------------
Net deferred income tax assets                              $       376.5   $       350.1 
                                                            ==============  ==============



</TABLE>

The principal component of the Company's net deferred income tax assets is
the tax benefit, net of certain valuation allowances, associated with the
accrued liability for postretirement benefits other than pensions.  The
future tax deductions with respect to the turnaround of this accrual will
occur over a 30-to-40-year period.  If such deductions create or increase a
net operating loss, the Company has the ability to carry forward such loss
for 20 taxable years.  For these reasons, the Company believes that a long-term
view of profitability is appropriate and has concluded that this net deferred
income tax asset will more likely than not be realized.

A substantial portion of the valuation allowances provided by the Company
relates to loss and credit carryforwards.  To determine the proper amount
of valuation allowances with respect to these carryforwards, the Company
evaluated all appropriate factors, including any limitations concerning
their use and the year the carryforwards expire, as well as the levels of
taxable income necessary for utilization.  With regard to future levels of
income, the Company believes, based on the cyclical nature of its business,
its history of operating earnings, and its expectations for future years,
that it will more likely than not generate sufficient taxable income to
realize the benefit attributable to the loss and credit carryforwards for
which valuation allowances were not provided.

As of December 31, 1998 and 1997, $45.5 and $53.7, 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.  During 1997 MAXXAM reached a
settlement with the Internal Revenue Service regarding all remaining years
where the KACC Subgroup was included in the MAXXAM consolidated federal
income tax returns.  As a result of this settlement, the Company paid $11.8
to MAXXAM during 1997, in respect of its liabilities pursuant to its tax
allocation agreement with MAXXAM.  Payments or refunds for periods prior to
July 1, 1993, related to other jurisdictions could still be required
pursuant to the Company's tax allocation agreement with MAXXAM.  In
accordance with the Credit Agreement, any such payments to MAXXAM by the
Company would require lender approval, except in certain specific
circumstances.  The tax allocation agreement of the Company with MAXXAM
terminated pursuant to its terms, effective for taxable periods beginning
after June 30, 1993.

At December 31, 1998, 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 $28.2 and $4.9, respectively, which expire periodically
through 2012 and 2011, respectively, foreign tax credit ("FTC") carryforwards
of $47.0, which expire periodically through 2003, and alternative minimum tax
("AMT") credit carryforwards of $23.8, which have an indefinite
life.  The Company also has AMT net operating loss and FTC
carryforwards of $6.2 and $87.2, respectively, available, subject to
certain limitations, to offset future alternative minimum taxable income,
which expire periodically through 2011 and 2003, respectively.

7.   EMPLOYEE BENEFIT AND INCENTIVE PLANS

In the fourth quarter of 1998 the Company adopted Statement of Financial
Accounting Standard No. 132, Employers' Disclosures about Pensions and
Other Postretirement Benefits ("SFAS No. 132") which amends FASB Statements
No's. 87, 88, and 106.  SFAS No. 132 revises the disclosure requirements
related to pension and other postretirement benefits, but has no impact on
the computation of the reported amounts.  Prior year disclosures have been
reformatted to comply with SFAS No. 132's guidelines.

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

The 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:

<TABLE>
<CAPTION>
                                                 Pension Benefits                 Medical/Life Benefits
                                        ---------------------------------- ----------------------------------
                                              1998        1997        1996       1998        1997        1996
                                        ---------------------------------- ----------------------------------
<S>                                     <C>         <C>         <C>        <C>         <C>         <C>
Weighted-average assumptions as
     of December 31,
Discount rate                                7.00%       7.25%       7.75%      7.00%       7.25%       7.75%
Expected return on plan assets               9.50%       9.50%       9.50%        -           -           -
Rate of compensation increase                5.00%       5.00%       5.00%      4.00%       5.00%       5.00%


</TABLE>

In 1998 annual assumed rates of increase in the per capita cost of covered
benefits (i.e. health care cost trend rate) for non-HMO participants are
6.5% and 5.0% for HMO at all ages.  The assumed rate of
increase for non-HMO participants is assumed to decline gradually to 5.0%
in 2003 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, 1998 and 1997, and
the corresponding amounts that are included in the Company's Consolidated
Balance Sheets:

<TABLE>
<CAPTION>
                                                         Pension Benefits               Medical/Life Benefits
                                                  ------------------------------   ------------------------------
                                                       1998            1997             1998            1997
                                                  ------------------------------   ------------------------------
<S>                                               <C>             <C>              <C>             <C>
Change in Benefit Obligation:
Benefit obligation at beginning of year           $       873.0   $       816.2    $       544.5   $       602.8 
     Service cost                                          14.2            13.4              4.2             6.1 
     Interest cost                                         59.7            61.6             37.5            44.8 
     Currency exchange rate change                          (.4)           (6.0)             -               -
     Curtailments, settlements and amendments              (4.6)            -                4.0             -
     Actuarial (gain) loss                                 15.2            65.5             72.0           (66.3)
     Benefits paid                                        (84.6)          (77.7)           (45.4)          (42.9)
                                                  --------------  --------------   --------------  --------------
          Benefit obligation at end of year               872.5           873.0            616.8           544.5 
                                                  --------------  --------------   --------------  --------------

     Change in Plan Assets:
     FMV of plan assets at beginning of year              756.9           662.0              -               -
     Actual return on assets                              106.8           131.9              -               -
     Settlements                                           (5.5)            -                -               -
     Employer contributions                                28.2            40.7             45.4            42.9 
     Benefits paid                                        (84.6)          (77.7)           (45.4)          (42.9)
                                                  --------------  --------------   --------------  --------------
     FMV of plan assets at end of year                    801.8           756.9              -               -
                                                  --------------  --------------   --------------  --------------

     Benefit obligations in excess of plan assets          70.7           116.1             616.8          544.5 
     Unrecognized net actuarial (gain) loss                23.8             -               55.9           135.0 
     Unrecognized prior service costs                     (18.5)          (22.2)            69.8            86.1 
     Intangible asset and other                             4.3             5.4              -               -
                                                  --------------  --------------   --------------  --------------
          Accrued benefit liability               $        80.3   $        99.3    $       742.5   $       765.6 
                                                  ==============  ==============   ==============  ==============

</TABLE>

<TABLE>
<CAPTION>
                                                     Pension Benefits                        Medical/Life Benefits
                                        -----------------------------------------  -----------------------------------------
                                            1998           1997          1996          1998          1997           1996
                                        ------------ ----------------------------  -------------------------- --------------
<S>                                     <C>            <C>           <C>           <C>           <C>            <C>
Components of Net Periodic Benefit 
     Costs:
     Service cost                       $       14.2   $       13.4  $       12.9  $        4.2  $        6.1   $        3.8 
     Interest cost                              59.7           61.6          60.0          37.5          44.8           46.9 
     Expected return on assets                 (69.4)         (61.8)        (55.0)          -             -              -
     Amortization of prior service cost          3.2            3.4           3.5         (12.4)        (12.4)         (12.4)
     Recognized net actuarial (gain)
          loss                                   1.4            2.6           2.0          (7.1)          (.9)           -
                                        ------------   ------------  ------------  ------------  ------------   ------------
     Net periodic benefit cost                   9.1           19.2          23.4          22.2          37.6           38.3 
     Curtailments, settlements, etc.             3.2            3.7           2.0           -             -              -
                                        ------------   ------------  ------------  ------------  ------------   ------------
          Adjusted net periodic
               benefit costs            $       12.3   $       22.9  $       25.4  $       22.2  $       37.6   $       38.3 
                                        ============   ============  ============  ============  ============   ============



</TABLE>

The aggregate fair value of plan assets and accumulated benefit obligation
for pension plans with plan assets in excess of accumulated benefit
obligations were $293.0 and $280.7, respectively, as of December 31, 1998,
and $287.8 and $283.4, respectively, as of December 31, 1997.

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:

<TABLE>
<CAPTION>
                                                                         1% Increase     1% Decrease
                                                                      --------------  --------------

<S>                                                                   <C>             <C>
Increase (decrease) to total of service and interest cost             $         5.8   $        (4.3)
Increase (decrease) to the postretirement benefit obligation          $        64.3   $       (45.4)


</TABLE>

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

INCENTIVE PLANS
The Company has an unfunded incentive compensation program, which provides
incentive compensation based on performance against annual plans and over
rolling three-year periods.  In addition, Kaiser has a "nonqualified" stock
option plan and the Company has a defined contribution plan for salaried
employees.  The Company's expense for all of these plans was $7.5, $8.3,
and $(2.1) for the years ended December 31, 1998, 1997, and 1996,
respectively.

Up to 8,000,000 shares of Kaiser's Common Stock were reserved for issuance
under its stock incentive compensation plans.  At December 31, 1998,
3,634,621 shares of Kaiser Common Stock remained available for issuance
under those plans.  Stock options granted pursuant to the Company's
nonqualified stock option program are granted at the prevailing market
price, generally vest at a rate of 20 - 33% per year, and have a 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.

<TABLE>
<CAPTION>
                                                                           1998            1997            1996
---------------------------------------------------------------------------------------------------------------
<S>                                                              <C>             <C>             <C>
Outstanding at beginning of year ($10.45, $10.33, and $10.32)          819,752         890,395         926,085 
Granted ($9.79 and $10.06)                                           2,263,170          15,092            -
Exercised ($7.25, $8.33, and $8.99)                                    (10,640)        (48,410)         (8,275)
Expired or forfeited ($9.60, $10.12, and $10.45)                       (23,160)        (37,325)        (27,415)
                                                                 --------------  --------------  --------------

Outstanding at end of year ($9.98, $10.45, and $10.33)               3,049,122         819,752         890,395 
                                                                 ==============  ==============  ==============

Exercisable at end of year ($10.09, $10.53, and $10.47)              1,261,262         601,115         436,195 
                                                                 ==============  ==============  ==============

</TABLE>

In accordance with Statement of Financial Accounting Standards No. 123,
Accounting for Stock Based Compensation ("SFAS  No. 123"), the Company is
required to calculate pro forma compensation cost for all stock options
granted subsequent to December 31, 1994.  No stock options were granted
during 1996.  However, as shown in the table above, options were granted in
1998 and 1997 which would be subject to the pro forma calculation
requirements.  For SFAS No. 123 purposes, the fair value of the 1998 and
1997 stock option grants were estimated using a Black-Scholes option
pricing model.  The proforma after-tax effect of the estimated fair value
of the grants would be to reduce net income in 1998 and 1997 by $1.5 and
$.1, respectively.

8.   REDEEMABLE PREFERENCE STOCK

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

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

<TABLE>
<CAPTION>
                                                        1998            1997            1996
--------------------------------------------------------------------------------------------
<S>                                           <C>             <C>             <C>
Shares:
     Beginning of year                              595,053         634,684         737,363 
     Redeemed                                      (173,478)        (39,631)       (102,679)
                                              --------------  --------------  --------------

     End of year                                    421,575         595,053         634,684 
                                              ==============  ==============  ==============

</TABLE>

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

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

9.   STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME

Changes in stockholders' equity and comprehensive income were:

<TABLE>
<CAPTION>
                                                                                      Additional       Note
                                                                             Accu-       Minimum Receivable
                                         Preferred   Common   Additional   mulated       Pension       From
                                             Stock    Stock      Capital   Deficit     Liability     Parent    Total
---------------------------------------------------------- ---------------------- ---------------------------------
<S>                                     <C>        <C>      <C>         <C>         <C>          <C>        <C>
BALANCE, DECEMBER 31, 1995              $     1.7  $  15.4  $   1,730.7 $  (210.9)  $     (13.8) $(1,479.8) $  43.3 

     Net income                                                              13.2                              13.2 
          Minimum pension liability
               adjustment, net of tax                                                      11.0                11.0 
                                                                                                            -------
     Comprehensive income                                                                                      24.2 
     Interest on note receivable from
          parent                                                   98.3                              (98.3)      -
     Contribution for LTIP shares                                    .7                                          .7 
     Capital contribution                                            .1                                          .1 
     Dividends                                                                (.5)                              (.5)
     Redeemable preference stock
          accretion                                                          (3.1)                             (3.1)
                                        ---------- -------  ----------- ---------   -----------  ---------- -------

BALANCE, DECEMBER 31, 1996              $     1.7  $  15.4  $   1,829.8 $  (201.3)  $      (2.8) $(1,578.1) $  64.7 

     Net income                                                              52.1                              52.1 
          Minimum pension liability
               adjustment, net of tax                                                       2.8                 2.8 
                                                                                                            -------
     Comprehensive income                                                                                      54.9 
     Interest on note receivable from
          parent                                                  104.5                             (104.5)      -
     Contribution for LTIP shares                                    .6                                          .6 
     Capital contributions                                          4.9                                         4.9 
     Conversions                              (.1)                                                              (.1)
     Dividends                                                                (.7)                              (.7)
     Redeemable preference stock
          accretion                                                          (2.4)                             (2.4)
                                        ---------- -------  ----------- ---------   -----------  ---------- -------

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)      -
     Contribution 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 
                                        ========== =======  =========== =========   ===========  ========== =======


</TABLE>


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

The $100 Preference Stock can be exchanged for per share cash amounts
between $69 - $80.  The Company records the $100 Preference Stock at their
exchange amounts for financial statement presentation.

KAISER PREFERRED STOCK
PRIDES Convertible - During 1994, Kaiser issued 8,855,550 shares of
Kaiser's 8.255% PRIDES Convertible Preferred Stock ("PRIDES") and received
net proceeds for approximately $100.1.  Kaiser used such net proceeds to
make non-interest bearing loans to the Company in the aggregate principal
amount of $33.2 (the aggregate dividends scheduled to accrue on the shares
of PRIDES from the issuance date until December 31, 1997, the date on which
the outstanding PRIDES were to be mandatorily converted into shares of
Kaiser's Common Stock), evidenced by intercompany notes, and used the
balance of such net proceeds to make capital contributions to the Company
in the aggregate amount of $66.9.

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

NOTE RECEIVABLE FROM PARENT
The Note receivable from parent bears interest at a fixed rate of 6-5/8%
per annum.  No interest or principal payments are due until December 31,
2000, after which interest and principal will be payable on a 15-year term
pursuant to a predetermined schedule.  Accrued interest is accounted for as
additional contribution capital.

10.  COMMITMENTS AND CONTINGENCIES

COMMITMENTS
The Company has a variety of financial commitments, including purchase
agreements, tolling arrangements, forward foreign exchange and forward
sales contracts (see Note 11), letters of credit, and guarantees.  Such
purchase agreements and tolling arrangements include long-term agreements
for the purchase and tolling of bauxite into alumina in Australia by QAL. 
These obligations expire in 2008.  Under the agreements, the Company is
unconditionally obligated to pay its proportional share of debt, operating
costs, and certain other costs of QAL.  The Company's share of the
aggregate minimum amount of required future principal payments at December
31, 1998, is $97.6, of which approximately $12.0 is due in each of 2000 and
2001 with the balance being due thereafter.  The Company's share of
payments, including operating costs and certain other expenses under the
agreements, has ranged between $100.0 - $120.0 over the past three years. 
The Company also has agreements to supply alumina to and to purchase
aluminum from Anglesey.

Minimum rental commitments under operating leases at December 31, 1998, are
as follows: years ending December 31, 1999 - $35.8; 2000 - $33.4; 2001 -
$31.1; 2002 - $27.3; 2003 - $26.1; thereafter - $114.7.  The future minimum
rentals receivable under noncancelable subleases was $73.5 at December 31,
1998.

Rental expenses were $34.5, $30.4, and $29.6, for the years ended December
31, 1998, 1997, and 1996, respectively.

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

Based on the Company's evaluation of these and other environmental matters,
the Company has established environmental accruals, primarily related to
potential solid waste disposal and soil and groundwater remediation
matters.  The following table presents the changes in such accruals, which
are primarily included in Long-term liabilities, for the years ended
December 31, 1998, 1997, and 1996:

<TABLE>
<CAPTION>
                                                              1998            1997            1996
--------------------------------------------------------------------------------------------------
<S>                                                 <C>             <C>             <C>
Balance at beginning of period                      $        29.7   $        33.3   $        38.9 
Additional accruals                                          24.5             2.0             3.2 
Less expenditures                                            (3.5)           (5.6)           (8.8)
                                                    --------------  --------------  --------------

Balance at end of period                            $        50.7   $        29.7   $        33.3 
                                                    ==============  ==============  ==============

</TABLE>

These environmental accruals represent the Company's estimate of costs
reasonably expected to be incurred based on presently enacted laws and
regulations, currently available facts, existing technology, and the
Company's assessment of the likely remediation action to be taken.  The
Company expects that these remediation actions will be taken over the next
several years and estimates that annual expenditures to be charged to these
environmental accruals will be approximately $3.0 to $8.0 for the years
1999 through 2003 and an aggregate of approximately $29.0 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. As the resolution of these matters is subject to
further regulatory review and approval, no specific assurance can be given
as to when the factors upon which a substantial portion of this estimate is
based can be expected to be resolved.  However, the Company is currently
working to resolve certain of these matters.

The Company believes that it has insurance coverage available to recover
certain incurred and future environmental costs and is actively pursuing
claims in this regard.  Through September 30, 1998, no accruals were made
for any such insurance recoveries.  However, 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
the fourth quarter of 1998.  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 at least 20 years.

The following table presents the changes in number of such claims pending
for the years ended December 31, 1998, 1997, and 1996.

<TABLE>
<CAPTION>
                                                                      1998            1997            1996
----------------------------------------------------------------------------------------------------------
<S>                                                         <C>             <C>             <C>
Number of claims at beginning of period                            77,400          71,100          59,700 
Claims received                                                    22,900          15,600          21,100 
Claims settled or dismissed                                       (13,900)         (9,300)         (9,700)
                                                            --------------  --------------  --------------
Number of claims at end of period                                  86,400          77,400          71,100 
                                                            ==============  ==============  ==============

</TABLE>

The foregoing claims and settlement figures as of December 31, 1998, do not
reflect the fact that the Company has reached agreements under which it
will settle approximately 30,000 of the pending asbestos-related claims
over an extended period.

Based on past experience and reasonably anticipated future activity, the
Company has established an accrual for estimated asbestos-related costs for
claims filed and estimated to be filed through 2008.  There are inherent
uncertainties involved in estimating asbestos-related costs, and the
Company's actual costs could exceed these estimates.  The Company's accrual
was calculated based on the current and anticipated number of asbestos-
related claims, the prior timing and amounts of asbestos-related payments,
and the advice of Wharton Levin Ehrmantraut Klein & Nash, P.A., with
respect to the current state of the law related to asbestos claims. 
Accordingly, an estimated asbestos-related cost accrual of $186.2, before
consideration of insurance recoveries, is included primarily in Long-term
liabilities at December 31, 1998. While the Company does not presently
believe there is a reasonable basis for estimating such costs beyond 2008
and, accordingly, no accrual has been recorded for such costs which may be
incurred beyond 2008, there is a reasonable possibility that such costs may
continue beyond 2008, and such costs may be substantial.  The Company
estimates that annual future cash payments in connection with such
litigation will be approximately $16.0 to $28.0 for each of the years 1999
through 2003, and an aggregate of approximately $77.0 thereafter.

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.  The timing
and amount of future recoveries from these 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;
its existing insurance policies; and the advise of Heller Ehrman White &
McAuliffe with respect to applicable insurance coverage law relating to the
terms and conditions of those policies.  Accordingly, an estimated
aggregate insurance recovery of $152.5, determined on the same basis as the
asbestos-related cost accrual, is recorded primarily in Other assets at
December 31, 1998.

Management continues to monitor claims activity, the status of lawsuits
(including settlement initiatives), legislative progress, and costs
incurred in order to ascertain whether an adjustment to the existing
accruals should be made to the extent that historical experience may differ
significantly from the Company's underlying assumptions.  While
uncertainties are inherent in the final outcome of these asbestos
matters and it is presently impossible to determine the actual costs that
ultimately may be incurred and insurance recoveries that will be received,
management currently believes that, based on the factors discussed in the
preceding paragraphs, the resolution of asbestos-related uncertainties and
the incurrence of asbestos-related costs net of related insurance
recoveries should not have a material adverse effect on the Company's
consolidated financial position, results of operations, or liquidity.

LABOR MATTERS
In connection with the USWA strike and subsequent "lock-out" by the
Company, certain allegations of unfair labor practices ("ULPs") have been
filed with the National Labor Relations Board by the USWA and its members. 
The Company has responded to all such allegations and believes that they
are without merit.  If the allegations were sustained, the Company could be
required to make locked-out employees whole for back wages from the date of
the lock-out in January 1999.  While uncertainties are inherent in the
final outcome of such matters, the Company believes that the resolution of
the alleged ULPs should not result in a material adverse impact on the
Company's financial position, results of operations, or liquidity.

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

11.  DERIVATIVE FINANCIAL INSTRUMENTS AND RELATED HEDGING PROGRAMS

At December 31, 1998, the net unrealized gain on the Company's position in
aluminum forward sales and option contracts, natural gas and fuel oil
forward purchase and option contracts, and forward foreign exchange
contracts, was approximately $17.8 (based on comparisons to applicable
year-end published market prices).  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
will be offset by losses or gains, respectively, on the transactions being
hedged.

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

From time to time in the ordinary course of business, the Company enters
into hedging transactions to provide price risk management in respect of
the net exposure of earnings resulting from (i) anticipated sales of
alumina, primary aluminum and fabricated aluminum products, less (ii)
expected purchases of certain items, such as aluminum scrap, rolling ingot,
and bauxite, whose prices fluctuate with the price of primary aluminum. 
Forward sales contracts are used by the Company to effectively fix the
price that the Company will receive for its shipments.  The Company also
uses option contracts (i) to establish a minimum price for its product
shipments, (ii) to establish a "collar" or range of price for its
anticipated sales, and/or (iii) to permit the Company to realize possible
upside price movements.  As of December 31, 1998, the Company had sold
forward, at fixed prices, approximately 24,000 tons of primary aluminum
with respect to 1999.  As of December 31, 1998, the Company had also
entered into option contracts that established a price range for an
additional 125,000 and 72,000 tons of primary aluminum with respect to 1999
and 2000, respectively.  Subsequent to December 31, 1998, the Company has
also entered into additional option contracts that established a price
range for an additional 201,000 tons of primary aluminum with respect to
2000.

Additionally, through December 31, 1998, the Company had also entered a
series of transactions with a counterparty that will provide 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
July 1999 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
current accounting guidelines. Accordingly, these positions will be "marked
to market" each period.

As of December 31, 1998, the Company had sold forward virtually all of the
alumina available to it in excess of its projected internal smelting
requirements for 1999 and 2000 at prices indexed to future prices of
primary aluminum.

ENERGY
The Company is exposed to energy price risk from fluctuating prices for
fuel oil and natural gas consumed in the production process. Accordingly,
the Company from time to time in the ordinary course of business enters
into hedging transactions with major suppliers of energy and energy related
financial instruments.  As of December 31, 1998, the Company had a
combination of fixed price purchase and option contracts for the purchase
of approximately 33,000 MMBtu of natural gas per day during 1999.  At
December 31, 1998, the Company also held a combination of fixed price
purchase and option contracts for an average of 246,000 barrels per month
of fuel oil and diesel fuel for 1999.

FOREIGN CURRENCY
The Company enters into forward exchange contracts to hedge material cash
commitments to foreign subsidiaries or affiliates.  At December 31, 1998,
the Company had net forward foreign exchange contracts totaling
approximately $141.4 for the purchase of 210.6 Australian dollars from
January 1999 through December 2000, in respect of its commitments for 1999
and 2000 expenditures denominated in Australian dollars.

12.  SEGMENT AND GEOGRAPHICAL AREA INFORMATION

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

The Company's operations are organized and managed by product type.  The
Company operates in four segments of the aluminum industry: 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 primarily sells rigid container sheet to can manufacturers
as well as value-added products such as heat treat aluminum sheet and plate
which are used in the aerospace and general engineering 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
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 or
interest expense.

The following segment information differs from that presented in prior
years as a result of the Company's adoption of Statement of Financial
Accounting Standard No.131, as of December 31, 1998.  Prior year
information has been restated to conform to the Company's new presentation
format.

Financial information by operating segment at December 31, 1998, 1997 and
1996 is as follows:

<TABLE>
<CAPTION>
                                                                        Year Ended December 31,
                                                            ----------------------------------------------
                                                                      1998            1997            1996
----------------------------------------------------------------------------------------------------------
<S>                                                         <C>             <C>             <C>
Net Sales:
     Bauxite and Alumina:
          Net sales to unaffiliated customers               $       472.7   $       411.7   $       431.0 
          Intersegment sales                                        135.8           201.7           194.1 
                                                            --------------  --------------  --------------
                                                                    608.5           613.4           625.1 
                                                            --------------  --------------  --------------
     Primary Aluminum:
          Net sales to unaffiliated customers                       409.8           543.4           538.3 
          Intersegment sales                                        233.5           273.8           217.4 
                                                            --------------  --------------  --------------
                                                                    643.3           817.2           755.7 
                                                            --------------  --------------  --------------
     Flat-Rolled Products                                           714.6           743.3           626.0 
     Engineered Products                                            581.3           581.0           504.4 
     Minority interests                                              78.0            93.8            90.8 
     Eliminations                                                  (369.3)         (475.5)         (411.5)
                                                            --------------  --------------  --------------
                                                            $     2,256.4   $     2,373.2   $     2,190.5 
                                                            ==============  ==============  ==============
Equity in income (loss) of unconsolidated
affiliates:
     Bauxite and Alumina                                    $        (3.2)  $        (7.0)  $         1.7 
     Primary Aluminum                                                 1.2             5.1             6.7 
     Engineered Products                                              7.8             4.8              -
     Corporate and Other                                              (.4)             -               .4 
                                                            --------------  --------------  --------------
                                                            $         5.4   $         2.9   $         8.8 
                                                            ==============  ==============  ==============
Operating income (loss):
     Bauxite and Alumina                                    $        42.0   $        54.2   $        27.7 
     Primary Aluminum                                                49.9           148.3            79.1 
     Flat-Rolled Products                                            70.8            28.2            35.3 
     Engineered Products                                             47.5            42.3            21.7 
     Micromill (1)                                                  (63.4)          (24.5)          (14.5)
     Eliminations                                                     8.9            (5.9)            8.3 
     Corporate and Other                                            (64.7)          (72.7)          (57.5)
                                                            --------------  --------------  --------------
                                                            $        91.0   $       169.9   $       100.1 
                                                            ==============  ==============  ==============
Depreciation and amortization:
     Bauxite and Alumina                                    $        36.4   $        39.4   $        41.5 
     Primary Aluminum                                                29.9            30.4            33.0 
     Flat-Rolled Products                                            16.1            16.0            16.9 
     Engineered Products                                             10.8            11.2            12.1 
     Micromill                                                        3.6             3.2              .5 
     Corporate and Other                                              2.3             2.3             3.6 
                                                            --------------  --------------  --------------
                                                            $        99.1   $       102.5   $       107.6 
                                                            ==============  ==============  ==============
Capital expenditures:
     Bauxite and Alumina                                    $        26.9   $        27.8   $        29.9 
     Primary Aluminum                                                20.7            42.6            28.1 
     Flat-Rolled Products                                            20.4            16.8            22.7 
     Engineered Products                                              8.4            31.2            18.3 
     Micromill                                                         .2             8.3            56.4 
     Corporate and Other                                              1.0             1.8             6.1 
                                                            --------------  --------------  --------------
                                                            $        77.6   $       128.5   $       161.5 
                                                            ==============  ==============  ==============

</TABLE>

(1)  1998 includes $45.0 fourth quarter impairment charge.

<TABLE>
<CAPTION>
                                                                               December 31,
                                                                      ------------------------------
                                                                           1998            1997
----------------------------------------------------------------------------------------------------
<S>                                                                   <C>             <C>
Investments in and advances to unconsolidated affiliates:
     Bauxite and Alumina                                              $        76.8   $        88.3 
     Primary Aluminum                                                          27.6            33.2 
     Engineered Products                                                       23.9            17.5 
     Corporate and Other                                                         -              9.6 
                                                                      --------------  --------------

                                                                      $       128.3   $       148.6 
                                                                      ==============  ==============

Segment assets:
     Bauxite and Alumina                                              $       669.0   $       692.8 
     Primary Aluminum                                                         580.8           633.9 
     Flat-Rolled Products                                                     431.2           466.5 
     Engineered Products                                                      294.5           318.6 
     Micromill                                                                 25.3            63.4 
     Corporate and Other                                                      994.0           842.1 
                                                                      -------------   -------------

                                                                      $     2,994.8   $     3,017.3 
                                                                      =============   =============

</TABLE>

Geographical area information relative to the Company's operations is
summarized as follows:

<TABLE>
<CAPTION>
                                                                        Year Ended December 31,
                                                            ----------------------------------------------
                                                                 1998            1997            1996
----------------------------------------------------------------------------------------------------------
<S>                                                         <C>             <C>             <C>
Net sales to unaffiliated customers:
          United  States                                    $      1,698.0  $      1,720.3  $      1,610.0
          Jamaica                                                    237.0           204.6           201.8
          Ghana                                                       89.8           234.2           198.3
          Other Foreign                                              231.6           214.1           180.4
                                                            --------------  --------------  --------------
                                                            $      2,256.4  $      2,373.2  $      2,190.5
                                                            ==============  ==============  ==============

</TABLE>


<TABLE>
<CAPTION>
                                                                     December 31,
                                                            ------------------------------
                                                                 1998            1997
------------------------------------------------------------------------------------------
<S>                                                         <C>             <C>
Long-lived assets: (1)
          United States                                     $        757.9  $        809.5
          Jamaica                                                    289.2           283.4
          Ghana                                                       90.2           100.4
          Other Foreign                                               99.7           127.1
                                                            --------------  --------------
                                                            $      1,237.0  $      1,320.4
                                                            ==============  ==============

</TABLE>

(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, 1998, 1997, and 1996.

No single customer accounted for sales in excess of 10% of total revenue in
1998, 1997, or 1996.

Export sales were less than 10% of total revenue during the years ended
December 31, 1998, 1997, and 1996.

13.  SUBSIDIARY GUARANTORS

Kaiser Alumina Australia Corporation ("KAAC"), Kaiser Finance Corporation
("KFC"), Kaiser Jamaica Corporation ("KJC"), Alpart Jamaica Inc. ("AJI"),
Kaiser Bellwood Corporation ("Bellwood"), and Kaiser Micromill Holding,
LLC, Kaiser Sierra Micromills, LLC, Kaiser Texas Micromill Holdings, LLC,
and Kaiser Texas Sierra Micromills, LLC (collectively referred to as the
"Micromill Subsidiaries") are domestic wholly owned (direct or indirect)
subsidiaries of the Company that have provided subordinated guarantees of
the 9-7/8% Notes, the 10-7/8% Notes and the 12-3/4% Notes (the "Notes")
(see Note 5).  KAAC and KJC and AJI are direct subsidiaries, which serve as
holding companies for the Company's investments in QAL and Alpart,
respectively.  KFC is a wholly owned subsidiary of KAAC, whose principal
business is making loans to the Company and its subsidiaries.  Bellwood is
a wholly owned subsidiary formed in June 1997 to acquire an extrusion plant
located in Richmond, Virginia from Reynolds Metals Company.  The Micromill
Subsidiaries are domestic wholly owned (direct or indirect) subsidiaries of
the Company which were formed to hold (directly or indirectly) certain of
the Company's interests in the Reno, Nevada and certain possible future
Micromill facilities and related projects, if any.

KAAC, KFC, KJC, AJI, Bellwood, and the Micromill Subsidiaries are
hereinafter collectively referred to as the "Subsidiary Guarantors."

Summary combined financial information for the Subsidiary Guarantors as of
December 31, 1998 and 1997 is shown below.  Such summary combined financial
information only includes the balances and results of Bellwood from July 1,
1997, the date of acquisition.

Summary of Combined Financial Position

<TABLE>
<CAPTION>
                                                                     December 31,
                                                            ------------------------------
                                                                      1998            1997
------------------------------------------------------------------------------------------
<S>                                                         <C>             <C>
ASSETS
Current assets                                              $       156.5   $       131.1 
Due from the Company                                                806.4           793.4 
Investments in and advances to unconsolidated affiliates             52.9            64.7 
Property, plant, and equipment - net                                323.6           355.7 
Other assets                                                         34.8            29.2 
                                                            --------------  --------------
     Total                                                  $     1,374.2   $     1,374.1 
                                                            ==============  ==============

Liabilities and Stockholders' Equity
Current liabilities                                         $       144.8   $       146.8 
Due to the Company                                                  453.9           423.6 
Other long-term liabilities                                          59.7            86.2 
Long-term debt - net of current maturity                             60.0            60.0 
Minority interests                                                   81.5            79.6 
Stockholders' equity                                                574.3           577.9 
                                                            --------------  --------------
     Total                                                  $     1,374.2   $     1,374.1 
                                                            ==============  ==============

</TABLE>

Summary of Combined Operations

<TABLE>
<CAPTION>
                                                                        Year Ended December 31,
                                                            ----------------------------------------------
                                                                      1998            1997            1996
----------------------------------------------------------------------------------------------------------
<S>                                                         <C>             <C>             <C>
Net sales                                                   $       522.3   $       495.1   $       430.5 
Costs and expenses                                                  526.0           452.2           413.8 
                                                            --------------  --------------  --------------

Operating income                                                     (3.7)           42.9            16.7 
Other income (expense):
     Interest and other income (expense)                             34.8            49.4           (28.0)
     Interest expense                                               (14.6)          (18.5)          (23.2)
                                                            --------------  --------------  --------------
Income (loss) before income taxes, and minority                      16.5            73.8           (34.5)
interests
(Provision) credit for income taxes                                 (22.6)          (43.8)            6.5 
Minority interests                                                    5.3             5.8             5.8 
                                                            --------------  --------------  --------------

Net income (loss)                                           $         (.8)  $        35.8   $       (22.2)
                                                            ==============  ==============  ==============


</TABLE>

Notes to Summary of Combined Financial Information for the Subsidiary
Guarantors

Costs and Expenses -  Costs and expenses for the year ended December 31,
1998, include an impairment charge to reduce the carrying value of the
Micromill assets to approximately $25.0 (see Note 3).

Income Taxes - The Subsidiary Guarantors, excluding the Micromill
Subsidiaries, are all members of the KACC Subgroup (see Note 6).  The
(provision) credit for income taxes reflected in the Summary of Combined
Operations for these entities was computed as if each of these entities
filed tax returns on a separate company basis.  No (provision) credit for
income taxes has been reflected for the Micromill Subsidiaries for the 1998
or 1997 pre-tax net losses of approximately $52.7 and $24.5, as the
entities are not subject to income tax.  However, taxable income or loss of
the Micromill Subsidiaries is included in the taxable income of the
Company.  Included in Other assets and Other long-term liabilities at
December 31, 1998, are $32.9 and $37.2 of deferred income tax assets and
liabilities, respectively, related to the Subsidiary Guarantors, excluding
the Micromill subsidiaries.

Receivables and Payables -- At December 31, 1998, receivables from and
payables to the Company reflected in the Summary of Combined Financial
Position include $747.9 and $213.3 of interest bearing loans, respectively.
The similar amounts at December 31, 1997 were $747.9 and $229.8.

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

Investments -- At December 31, 1998, KAAC held a 28.3% interest in QAL.
This investment is accounted for by the equity method. The equity in QAL's
loss before income taxes of $3.2 and $7.0 in 1998 and 1997, respectively,
is reflected in the Summary of Combined Operations in other income
(expense).

Foreign Currency -- The functional currency of the Subsidiary Guarantors is
the United States Dollar, and accordingly, translation gains (losses) are
included in net income (loss) in the Summary of Combined Operations.  Such
amounts totaled $17.2, $44.1, and $(24.6) for the years ended December 31,
1998, 1997, and 1996, respectively.

14.  SUBSEQUENT EVENTS
During the first quarter of 1999, two potlines at the Company's 90% owned
Valco facility, which were curtailed during most of 1998 (but for which
Valco received compensation from the Volta River Authority in the form of
energy credits) are being restarted. Additionally, during the first quarter
of 1999 the Company began restarting two potlines (representing
approximately 50,000 tons of annual capacity) at its Mead, Washington,
smelter, which were originally curtailed in September 1998 as a result of
the USWA strike.  One potline at the Company's Tacoma, Washington, smelter
has been prepared for restart, but remains curtailed due to management's
consideration of market-related and other factors.  The Company's first
quarter results will be adversely impacted by the effect of the restart
costs at the Valco and Mead facilities and the restart preparations at the
Tacoma facility.

During February 1999, the Company, through a subsidiary, completed the
acquisition of its joint venture partner's 45% interest in Kaiser LaRoche
Hydrate Partners ("KLHP") for a cash purchase price of approximately $10.0
subject to post-closing adjustments.  As the Company already owned 55% of
KLHP, the results of KLHP were already included in the Company's
consolidated financial statements.

During January 1999, the Company signed a letter of intent to sell its 50%
interest in AKW, an aluminum wheels joint venture, to its partner.  The
sale, which will result in the Company recognizing a net substantial gain,
is expected to be completed on or about March 31, 1999.  However, as the
transaction is subject to the negotiation of a definitive purchase
agreement, no assurances can be given that the transaction will be
completed.  The Company's equity in income of AKW was $7.8 and $4.8 for the
years ended December 31, 1998 and 1997, respectively.