--------------------------------------------------------------------------------
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-Q

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


               QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended June 30, 2000

                          Commission File Number 1-3924


                                   MAXXAM INC.
             (Exact name of Registrant as specified in its charter)



              DELAWARE                                  95-2078752
    (State or other jurisdiction                     (I.R.S. Employer
  of incorporation or organization)               Identification Number)


    5847 SAN FELIPE, SUITE 2600                          77057
           HOUSTON, TEXAS                              (Zip Code)
(Address of Principal Executive Offices)



       Registrant's telephone number, including area code: (713) 975-7600



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



            Number of shares of common stock outstanding at August 9,
                               2000: 6,748,351
--------------------------------------------------------------------------------


                                TABLE OF CONTENTS


PART I. - FINANCIAL INFORMATION


   Item 1.    Financial Statements:
              Report of Independent Public Accountants
              Consolidated Balance Sheet at June 30, 2000 and December 31,
                   1999
              Consolidated Statement of Operations for the three and six
                   months ended June 30, 2000 and 1999
              Consolidated Statement of Cash Flows for the six months ended
                   June 30, 2000 and 1999
              Condensed Notes to Consolidated Financial Statements

   Item 2.    Management's Discussion and Analysis of Financial Condition
                   and Results of Operations

   Item 3.    Quantitative and Qualitative Disclosures About Market Risk


PART II. - OTHER INFORMATION

   Item 1.    Legal Proceedings
   Item 4.    Submission of Matters to a Vote of Security Holders
   Item 6.    Exhibits and Reports on Form 8-K
   Signatures

APPENDIX A - GLOSSARY OF DEFINED TERMS




REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS




To MAXXAM Inc.:

We have reviewed the accompanying consolidated balance sheet of MAXXAM Inc. and
subsidiaries as of June 30, 2000, and the related consolidated statement of
operations for the three and six-month periods ended June 30, 2000 and 1999, and
the related consolidated statement of cash flows for the six-month periods ended
June 30, 2000 and 1999. These financial statements are the responsibility of the
company's management.

We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States, the objective
of which is the expression of an opinion regarding the financial statements
taken as whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with accounting principles generally accepted in the United States.

We have previously audited, in accordance with auditing standards generally
accepted in the United States, the accompanying consolidated balance sheet of
MAXXAM Inc. and subsidiaries as of December 31, 1999, and, in our report dated
March 7, 2000, we expressed an unqualified opinion on that statement.


Houston, Texas
August 11, 2000



                          MAXXAM INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET
                 (In millions of dollars, except share amounts)

<TABLE>
<CAPTION>

                                                                                          JUNE 30,     DECEMBER 31,
                                                                                            2000           1999
                                                                                        -------------  ------------
                                                                                         (Unaudited)
<S>                                                                                     <C>            <C>
ASSETS
   Cash and cash equivalents........................................................... $      195.4   $     275.7
   Marketable securities...............................................................        112.5          58.3
   Receivables:
      Trade, net of allowance for doubtful accounts of $6.1 and $6.0, respectively.....        193.7         169.4
      Other............................................................................        195.1         116.0
   Inventories.........................................................................        525.5         590.7
   Prepaid expenses and other current assets...........................................        156.8         192.7
                                                                                        -------------  ------------
        Total current assets...........................................................      1,379.0       1,402.8
Property, plant and equipment, net of accumulated depreciation of $996.9 and
   $977.9, respectively................................................................      1,252.9       1,222.2
Timber and timberlands, net of accumulated depletion of $184.7 and $180.6,
   respectively........................................................................        252.5         254.1
Investments in and advances to unconsolidated affiliates...............................         95.7         112.6
Deferred income taxes..................................................................        551.2         549.1
Restricted cash and marketable securities..............................................        129.2         159.0
Long-term receivables and other assets.................................................        681.0         693.3
                                                                                        -------------  ------------
                                                                                        $    4,341.5   $   4,393.1
                                                                                        =============  ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable.................................................................... $      255.3   $     243.1
   Accrued interest....................................................................         70.9          72.4
   Accrued compensation and related benefits...........................................        126.9         124.8
   Other accrued liabilities...........................................................        183.2         194.7
   Payable to affiliates...............................................................         84.1          85.8
   Short-term borrowings and current maturities of long-term debt......................         47.3          46.0
                                                                                        -------------  ------------
        Total current liabilities......................................................        767.7         766.8
Long-term debt, less current maturities................................................      1,939.9       1,956.8
Accrued postretirement medical benefits................................................        682.6         688.9
Other noncurrent liabilities...........................................................        767.0         810.1
                                                                                        -------------  ------------
        Total liabilities..............................................................      4,157.2       4,222.6
                                                                                        -------------  ------------
Commitments and contingencies
Minority interests.....................................................................        151.1         142.7
Stockholders' equity:
   Preferred stock, $.50 par value; 12,500,000 shares authorized; Class A $.05
      Non-Cumulative Participating Convertible Preferred Stock; 669,355 shares
      issued...........................................................................          0.3           0.3
   Common stock, $.50 par value; 28,000,000 shares authorized; 10,063,359 shares
      issued...........................................................................          5.0           5.0
   Additional capital..................................................................        225.3         225.3
   Accumulated deficit.................................................................        (86.9)       (102.1)
   Accumulated other comprehensive loss - additional minimum pension liability.........         (0.7)         (0.7)
   Treasury stock, at cost (shares held: preferred - 845; common: 3,149,608 and
      2,805,608, respectively).........................................................       (109.8)       (100.0)
                                                                                        -------------  ------------
        Total stockholders' equity ....................................................         33.2          27.8
                                                                                        -------------  ------------
                                                                                        $    4,341.5   $   4,393.1
                                                                                        =============  ============
<FN>

              The accompanying notes are an integral part of these
                             financial statements.
</FN>
</TABLE>


                          MAXXAM INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF OPERATIONS
                 (IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>

                                                                THREE MONTHS ENDED           SIX MONTHS ENDED
                                                                     JUNE 30,                    JUNE 30,
                                                            --------------------------- ---------------------------
                                                                2000          1999          2000          1999
                                                            ------------  ------------- ------------- -------------
                                                                                  (UNAUDITED)
                                                            ------------  ------------- ------------- -------------
<S>                                                         <C>           <C>           <C>           <C>
Net sales:
   Aluminum...............................................  $     542.5   $      525.0  $    1,108.2  $    1,004.4
   Forest products........................................         55.9           41.4         103.3          88.1
   Real estate............................................         12.3           17.6          18.5          28.2
   Racing.................................................          6.1            4.8          14.4          12.9
                                                            ------------  ------------- ------------- -------------
                                                                  616.8          588.8       1,244.4       1,133.6
                                                            ------------  ------------- ------------- -------------

Costs and expenses:
   Cost of sales and operations:
      Aluminum............................................        444.1          473.9         924.8         933.8
      Forest products.....................................         38.7           36.2          71.8          76.0
      Real estate.........................................          4.8           10.5           8.8          17.2
      Racing..............................................          4.2            3.1           8.8           7.3
   Selling, general and administrative expenses...........         39.3           39.0          81.5          78.4
   Depreciation, depletion and amortization...............         25.1           28.7          49.6          58.7
                                                            ------------  ------------- ------------- -------------
                                                                  556.2          591.4       1,145.3       1,171.4
                                                            ------------  ------------- ------------- -------------

Operating income (loss)...................................         60.6           (2.6)         99.1         (37.8)

Other income (expense):
   Gain on sale of Headwaters Timberlands.................            -              -             -         239.8
   Investment, interest and other income (expense), net...         11.5           15.2          34.5          24.5
   Interest expense.......................................        (49.1)         (49.2)        (98.7)        (98.6)
                                                            ------------  ------------- ------------- -------------
Income (loss) before income taxes and minority interests..         23.0          (36.6)         34.9         127.9
Credit (provision) for income taxes.......................         (9.3)          11.6         (13.8)        (55.8)
Minority interests........................................         (3.4)           6.9          (7.3)         21.9
                                                            ------------  ------------- ------------- -------------
Income (loss) before extraordinary item...................         10.3          (18.1)         13.8          94.0
Extraordinary item:
   Gain on repurchase of debt, net of income tax
      provision of $1.0...................................            -              -           1.4             -
                                                            ------------  ------------- ------------- -------------
Net income (loss).........................................  $      10.3   $      (18.1) $       15.2  $       94.0
                                                            ============  ============= ============= =============

Basic earnings (loss) per common share:
   Income (loss) before extraordinary item................  $      1.49   $      (2.59) $       1.93  $      13.42
   Extraordinary item.....................................            -              -          0.21            -
                                                            ------------  ------------- ------------- -------------
   Net income (loss)......................................  $      1.49   $      (2.59) $       2.14  $      13.42
                                                            ============  ============= ============= =============

Diluted earnings (loss) per common and common
   equivalent share:
   Income (loss) before extraordinary item................  $      1.36   $      (2.59) $       1.77  $      12.01
   Extraordinary item.....................................            -              -          0.19             -
                                                            ------------  ------------- ------------- -------------
   Net income (loss)......................................  $      1.36   $      (2.59) $       1.96  $      12.01
                                                            ============  ============= ============= =============

<FN>

              The accompanying notes are an integral part of these
                             financial statements.
</FN>
</TABLE>


                          MAXXAM INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF CASH FLOWS
                            (IN MILLIONS OF DOLLARS)

<TABLE>
<CAPTION>
                                                                                               SIX MONTHS ENDED
                                                                                                   JUNE 30,
                                                                                            -----------------------
                                                                                               2000        1999
                                                                                            ----------  -----------
                                                                                                  (UNAUDITED)
                                                                                            ----------  -----------
<S>                                                                                         <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income.............................................................................  $    15.2   $     94.0
   Adjustments to reconcile net income to net cash provided by
      (used for) operating activities:
      Depreciation, depletion and amortization............................................       49.6         58.7
      Gain on sale of Headwaters Timberlands..............................................          -       (239.8)
      Extraordinary gain on repurchase of debt............................................       (1.4)           -
      Net gains on other asset dispositions...............................................       (0.6)       (51.4)
      Net sales (purchases) of marketable securities......................................      (43.0)       (31.3)
      Net gains on marketable securities..................................................      (11.2)        (9.6)
      Minority interests..................................................................        7.3        (21.9)
      Amortization of deferred financing costs and discounts on long-term debt............        3.5          5.1
      Equity in (earnings) loss of unconsolidated affiliates, net of dividends received...        9.5         (3.4)
      Increase (decrease) in cash resulting from changes in:
        Receivables.......................................................................     (101.1)        17.7
        Inventories.......................................................................       65.0         31.4
        Prepaid expenses and other assets.................................................       28.1        (21.7)
        Accounts payable..................................................................      (12.5)       (25.1)
        Accrued and deferred income taxes.................................................        4.0         48.0
        Payable to affiliates and other accrued liabilities...............................       (8.9)         3.8
        Long-term assets and long-term liabilities........................................      (52.1)         8.3
      Other...............................................................................       (1.5)         3.1
                                                                                            ----------  -----------
        Net cash used for operating activities............................................      (50.1)      (134.1)
                                                                                            ----------  -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Net proceeds from dispositions of property and investments.............................       39.6        372.7
   Capital expenditures...................................................................      (72.0)       (49.2)
   Restricted cash withdrawals used to acquire timberlands................................        0.3         12.9
   Other..................................................................................       (0.7)        (3.1)
                                                                                            ----------  -----------
      Net cash provided by (used for) investing activities................................      (32.8)       333.3
                                                                                            ----------  -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Net borrowings under revolving credit agreements.......................................       34.9            -
   Proceeds from issuance of long-term debt...............................................        0.7          1.0
   Redemptions, repurchases and principal payments on long-term debt......................      (30.1)        (8.7)
   Redemption of preference stock.........................................................       (2.5)        (1.4)
   Restricted cash withdrawals (deposits).................................................        9.3       (289.4)
   Treasury stock repurchases.............................................................       (9.7)           -
   Other..................................................................................          -          1.3
                                                                                            ----------  -----------
      Net cash provided by (used for) financing activities................................        2.6       (297.2)
                                                                                            ----------  -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS.................................................      (80.3)       (98.0)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD..........................................      275.7        294.2
                                                                                            ----------  -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................................................  $   195.4   $    196.2
                                                                                            ==========  ===========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
   Interest paid, net of capitalized interest.............................................  $    96.6   $     93.6
   Income taxes paid......................................................................        7.6          8.9
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
   Repurchase of debt using restricted cash and marketable securities.....................  $    20.1   $        -

<FN>

              The accompanying notes are an integral part of these
                             financial statements.
</FN>

</TABLE>


                          MAXXAM INC. AND SUBSIDIARIES

              CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.    GENERAL

      The information contained in the following notes to the consolidated
financial statements is condensed from that which would appear in the annual
consolidated financial statements; accordingly, the consolidated financial
statements included herein should be reviewed in conjunction with the
consolidated financial statements and related notes thereto contained in the
Form 10-K. Any capitalized terms used but not defined in these Condensed Notes
to Consolidated Financial Statements are defined in the "Glossary of Defined
Terms" contained in Appendix A. All references to the "Company" include MAXXAM
Inc. and its subsidiary companies unless otherwise indicated or the context
indicates otherwise. Accounting measurements at interim dates inherently involve
greater reliance on estimates than at year end. The results of operations for
the interim periods presented are not necessarily indicative of the results to
be expected for the entire year.

      The consolidated financial statements included herein are unaudited;
however, they include all adjustments of a normal recurring nature which, in the
opinion of management, are necessary to present fairly the consolidated
financial position of the Company at June 30, 2000, the consolidated results of
operations for the three and six months ended June 30, 2000 and 1999 and the
consolidated cash flows for the six months ended June 30, 2000 and 1999.

      There were no reconciling items between net income and comprehensive
income in either of the three and six month periods ended June 30, 2000 and
1999.

      LABOR RELATED COSTS
      Kaiser has been operating five of its U.S. facilities with salaried
employees and other workers as a result of the September 30, 1998 strike by the
USWA and the subsequent "lock-out" by Kaiser in January 1999. In June 2000,
Kaiser and USWA representatives agreed to a methodology to resolve the remaining
differences between the parties. During July 2000, the USWA announced that its
members had voted to accept this methodology. Under the agreement between Kaiser
and the USWA, the parties continued to negotiate certain matters until
mid-August. Since Kaiser and the USWA were unable to reach a complete agreement,
the parties will proceed with binding arbitration. The arbitration will be
completed by mid-September 2000, and it is expected that the USWA workers will
return to the plants during September and October 2000.

      As certain financial terms remain to be arbitrated, Kaiser cannot estimate
the financial statement impact of the pending labor settlement. While Kaiser
expects that many of its labor and financial objectives will be achieved in the
pending settlement, it is anticipated that the labor settlement will result in
certain one time charges and re- integration costs.

      Kaiser has continued to accrue certain benefits (such as pension and other
postretirement benefit costs/liabilities) for the USWA members during the period
of the strike and subsequent lock-out. For purposes of computing the benefit-
related costs and liabilities to be reflected in the accompanying interim
consolidated financial statements, Kaiser 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 as a result of the above described
process will be reflected in future results during the term of any new contract.

      ACCOUNTING PRONOUNCEMENTS
     SFAS No. 133 requires companies to recognize all derivative instruments as
assets or liabilities in the balance sheet and to measure those instruments at
fair value. SFAS No. 137 delayed the required implementation date of SFAS No.
133 to no later than January 1, 2001. SFAS No. 138, which amends certain
requirements of SFAS No. 133, was issued in June 2000. Under SFAS Nos. 133 and
138, the Company will be required to "mark-to-market" its hedging positions at
the end of each period in advance of the period of recognition for the
transactions to which the hedges relate. Changes in the fair value of the
Company's open hedging positions will be reflected as an increase or reduction
in stockholders' equity through comprehensive income. The impact of the changes
in fair value of the Company's hedging positions will be reversed from
comprehensive income (net of any fluctuations in other "open" positions) and
will be reflected in traditional net income upon the occurrence of the
transactions to which the hedges relate. Currently, the dollar amount of the
Company's comprehensive income adjustments is not significant. Accordingly,
there is no significant difference between "traditional" net income and
comprehensive income. However, differences between comprehensive income and
traditional net income may become significant in future periods as SFAS Nos. 133
and 138 will result in fluctuations in comprehensive income and stockholders'
equity in periods of price volatility, despite the fact that the Company's cash
flow and earnings will be "fixed" to the extent hedged. The Company will likely
implement SFAS Nos. 133 and 138 as of January 1, 2001.

      SAB No. 101 provides interpretive guidance on the proper recognition,
presentation and disclosure of revenues in financial statements. The Company
believes its revenue recognition policies are in compliance with generally
accepted accounting principles and the related interpretive guidance set forth
in SAB No. 101; however, the Company is continuing to review these policies to
determine if any modifications are required. The implementation date of SAB No.
101 has been extended to December 2000.

2.    SEGMENT INFORMATION

      The following table presents financial information by reportable segment
(in millions).

<TABLE>
<CAPTION>


                                               FOREST          REAL         RACING                    CONSOLIDATED
                                ALUMINUM      PRODUCTS        ESTATE      OPERATIONS     CORPORATE        TOTAL
                              ------------  -------------  ------------  ------------- -------------  -------------
<S>                           <C>           <C>            <C>           <C>           <C>            <C>
Net sales to unaffiliated
   customers for the three
   months ended:
      June 30, 2000.........  $     542.5   $       55.9   $      12.3   $        6.1  $          -   $      616.8
      June 30, 1999.........        525.0           41.4          17.6            4.8             -          588.8

Operating income (loss)
   for the three months
   ended:
      June 30, 2000.........         53.0            8.6           1.4            0.1          (2.5)          60.6
      June 30, 1999.........          2.2           (3.3)          0.8           (0.1)         (2.2)          (2.6)

Depreciation, depletion
   and amortization for the
   three months ended:
      June 30, 2000.........         18.1            4.9           1.6            0.4           0.1           25.1
      June 30, 1999.........         22.6            4.3           1.3            0.4           0.1           28.7

Net sales to unaffiliated
   customers for the six
   months ended:
      June 30, 2000.........      1,108.2          103.3          18.5           14.4             -        1,244.4
      June 30, 1999.........      1,004.4           88.1          28.2           12.9             -        1,133.6

Operating income (loss)
   for the six months ended:
      June 30, 2000.........         91.4           14.4          (2.1)           1.5          (6.1)          99.1
      June 30, 1999.........        (29.3)          (4.7)         (1.3)           2.2          (4.7)         (37.8)

Depreciation, depletion
   and amortization for the
   six months ended:
      June 30, 2000.........         36.2            9.5           2.9            0.7           0.3           49.6
      June 30, 1999.........         45.5            9.2           3.2            0.6           0.2           58.7

Total assets as of:
      June 30, 2000.........      3,147.0          705.7         189.0           40.2         259.6        4,341.5
      December 31, 1999.....      3,142.7          843.8         190.4           38.0         178.2        4,393.1

</TABLE>


      Operating income (loss) in the column entitled "Corporate" represents
corporate general and administrative expenses not directly attributable to the
reportable segments. This column also serves to reconcile the total of the
reportable segments' amounts to totals in the Company's consolidated financial
statements.

3.    INCIDENT AT GRAMERCY FACILITY

      In July 1999, Kaiser's Gramercy, Louisiana, alumina refinery was
extensively damaged by an explosion in the digestion area of the plant. A number
of employees were injured in the incident, several of them severely. As a result
of the incident, alumina production at the facility was completely curtailed.
Construction on the damaged part of the facility began during the first quarter
of 2000. Initial production at the plant is expected to commence during the
third quarter of 2000. Based on current estimates, full production is expected
to be achieved during the first quarter of 2001. Kaiser has received the
regulatory permit required to operate the plant once the facility is ready to
resume production.

      The cause of the incident is under investigation by Kaiser and
governmental agencies. In January 2000, MSHA issued 21 citations and in March
2000 proposed that Kaiser be assessed a penalty of $0.5 million in connection
with its investigation of the incident. The citations allege, among other
things, that certain aspects of the plant's operations were unsafe and that such
mode of operation contributed to the explosion. Kaiser disagrees with the
substance of the citations and has challenged them and the associated penalty.
It is possible that other civil or criminal fines or penalties could be levied
against Kaiser. However, as more fully explained below, based on what is known
to date and discussions with Kaiser's advisors, Kaiser believes that the
financial impact of this incident on operating results (in excess of insurance
deductibles and self-retention provisions) will be largely offset by insurance
coverage. Deductibles and self-retention provisions under the insurance coverage
for the incident total $5.0 million, which amounts were charged to cost of sales
and operations in the third quarter of 1999.

      Kaiser has significant amounts of insurance coverage related to the
Gramercy incident. Kaiser's insurance coverage has five separate components:
property damage, clean-up and site preparation, business interruption, liability
and workers' compensation. The insurance coverage components are discussed
below.

      Property Damage
      Kaiser's insurance policies provide that it will be reimbursed for the
costs of repairing or rebuilding the damaged portion of the facility using new
materials of like kind and quality with no deduction for depreciation. In 1999,
based on discussions with the insurance carriers and their representatives and
third party engineering reports, Kaiser recorded a minimum expected property
damage reimbursement amount of $100 million. This amount was classified as
long-term receivables and other assets as such proceeds, when received, will be
invested in property, plant and equipment. During the quarter ended June 30,
2000, there was approximately $48.0 million of Gramercy-related capital
spending. During the quarter ended June 30, 2000, $24.0 million of the insurance
proceeds received were reflected as a reduction of the minimum property damage
receivable based on the percentage of minimum expected costs to be funded by
insurance proceeds to total rebuild costs. The balance of the minimum property
damage receivable of $76.0 million will be reduced during the last six months of
2000 as insurance recoveries are received and construction continues.

      Clean-up and Site Preparation
      The Gramercy facility has incurred incremental costs for clean up and
other activities during 1999 and has continued to incur such costs during 2000.
These clean-up and site preparation activities have been offset by accruals of
approximately $24.9 million, of which $6.6 million and $10.9 million was accrued
during the quarter and six months ended June 30, 2000, for estimated insurance
recoveries.

      Business Interruption
      Kaiser's insurance policies provide for the reimbursement of specified
continuing expenses incurred during the interruption period plus lost profits
(or less expected losses) plus other expenses incurred as a result of the
incident. Operations at the Gramercy facility and a sister facility in Jamaica,
which supplies bauxite to Gramercy, will continue to incur operating expenses
until full production at the Gramercy facility is restored. Kaiser will also
incur increased costs as a result of agreements to supply certain of Gramercy's
major customers with alumina, despite the fact that Kaiser had declared force
majeure with respect to the contracts shortly after the incident. Kaiser is
purchasing alumina from third parties, in excess of the amounts of alumina
available from other Kaiser-owned facilities, to supply these customers' needs
as well as to meet intersegment requirements. The excess cost of such open
market purchases is expected to be substantially offset by insurance recoveries.
However, if certain sublimits within Kaiser's insurance coverage were deemed to
apply, Kaiser's operating results could be negatively affected. In consideration
of the foregoing items, as of June 30, 2000, Kaiser had recorded expected
business interruption insurance recoveries totaling $106.8 million, of which
$40.5 million and $65.8 million were recorded during the quarter and six months
ended June 30, 2000, as a reduction of cost of sales and operations. These
amounts substantially offset actual expenses incurred during the period. Such
business interruption insurance amounts represent estimates of Kaiser's business
interruption coverage based on discussions with the insurance carriers and their
representatives and are therefore subject to change.

      Since production has been completely curtailed at the Gramercy facility,
Kaiser has, for the time being, suspended depreciation of the facility.
Depreciation expense for the first six months of 1999 was approximately $6.0
million. Once production of the facility is restored, depreciation will
re-commence. Such depreciation is expected to exceed prior historical rates,
primarily due to the increased capital costs on the newly constructed assets.

      Liability
      The incident has also resulted in more than 60 individual and class action
lawsuits being filed against Kaiser alleging, among other things, property
damage and personal injury. In addition, a claim for alleged business
interruption losses has been made by a neighboring business. The aggregate
amount of damages sought in the lawsuits and other claims cannot be determined
at this time; however, Kaiser does not believe the damages will exceed the
amount of coverage under its liability policies.

      Workers' Compensation
      Claims relating to all of the injured employees are expected to be covered
under Kaiser's workers' compensation or liability policies. However, the
aggregate amount of workers' compensation claims cannot be determined at this
time, and it is possible that such claims could exceed Kaiser's coverage
limitations. While it is presently impossible to determine the aggregate amount
of claims that may be incurred, or whether they will exceed Kaiser's coverage
limitations, Kaiser believes that any amount in excess of the coverage
limitations will not have a material effect on its consolidated financial
position or liquidity. However, it is possible that as additional facts become
available, additional charges may be required and such charges could be material
to the period in which they are recorded.

      Timing of Insurance Recoveries
      From the date of the Gramercy incident through June 30, 2000, Kaiser had
expended or incurred costs or losses associated with the Gramercy incident (that
were not capital expenditures) totaling $131.7 million consisting of clean-up,
site preparation and business interruption costs. From the date of the Gramercy
incident through June 30, 2000, $88.1 million of insurance recoveries related to
these costs had been received. In addition, during the second quarter of 2000,
Kaiser spent approximately $48.0 million on Gramercy-related construction
activities and received insurance recoveries of $24.0 million for capital
expenditures related to the minimum property damage receivable. Gramercy-related
capital spending prior to the second quarter of 2000 was not significant. Kaiser
continues to work with the insurance carriers to maximize the amount of
recoveries and to minimize, to the extent possible, the period of time between
when Kaiser expends funds and when it is reimbursed. However, Kaiser will likely
have to continue to fund an average of 30 - 60 days of property damage and
business interruption activity, unless some other arrangement is agreed to with
the insurance carriers, and such amounts will be significant. Kaiser believes it
has sufficient financial resources to fund the construction and business
interruption costs on an interim basis. However, no assurances can be given in
this regard.

4.    WASHINGTON SMELTERS' OPERATING LEVEL

      As a result of unprecedented high market prices for power in the Pacific
Northwest, Kaiser has temporarily curtailed approximately 128,000 tons of its
annual primary aluminum production at the Tacoma and Mead, Washington, smelters
and has sold 100 megawatts of power that it had under contract through June 30,
2001. As a result of the curtailment, Kaiser will avoid the need to purchase
power on a variable cost basis. Additionally, the sale of power is expected to
substantially mitigate the cash impact of the potline curtailment over the
contract period for which the power was sold. To implement the curtailment,
Kaiser has temporarily curtailed the two and one-half operating potlines at its
Tacoma smelter and two and one-half out of a total of eight potlines at its Mead
smelter. One-half of a potline at the Tacoma smelter was already curtailed.

   As a result of the sale of the power, Kaiser recorded a net pre-tax gain of
approximately $15.8 million, which amount was composed of gross proceeds of
$31.3 million offset by incremental excess power costs in the second quarter,
employee termination expenses and other fixed commitments. The net gain was
recorded as a reduction of costs of sales and operations.

5.    SIGNIFICANT ACQUISITIONS AND DISPOSITIONS

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

      During the quarter ended March 31, 2000, Kaiser, in the ordinary course of
business, sold certain non-operating properties for total proceeds of
approximately $12.0 million. The sale did not have a material impact on Kaiser's
operating results for the six months ended June 30, 2000.

      In February 2000, Kaiser completed the previously announced sale of its
Micromill assets and technology to a third party for a nominal payment at
closing and future payments based on subsequent performance and profitability of
the Micromill technology. The sale did not have a material impact on Kaiser's
operating results for the six months ended June 30, 2000.

      Headwaters Transactions
      On March 1, 1999, the United States and California acquired the Headwaters
Timberlands, approximately 5,600 acres of timberlands containing a significant
amount of virgin old growth timber, from Pacific Lumber and its wholly owned
subsidiary, Salmon Creek. Salmon Creek received $299.9 million for its 4,900
acres, and for its 700 acres, Pacific Lumber received the 7,700 acre Elk River
Timberlands, which Pacific Lumber contributed to Scotia LLC in June 1999. See
Note 10 below for a discussion of additional agreements entered into on March 1,
1999.

      As a result of the disposition of the Headwaters Timberlands, the Company
recognized a pre-tax gain of $239.8 million ($142.1 million net of deferred
taxes or $18.17 per share) in 1999. This amount represents the gain attributable
to the portion of the Headwaters Timberlands for which the Company received
$299.9 million in cash. With respect to the remaining portion of the Headwaters
Timberlands for which the Company received the Elk River Timberlands, no gain
has been recognized as this represented an exchange of substantially similar
productive assets. These timberlands have been reflected in the Company's
financial statements at an amount which represents the Company's historical cost
for the timberlands which were transferred to the United States.

      Scotia LLC and Pacific Lumber also entered into agreements with California
for the future sale of two timber properties known as the Owl Creek grove and
the Grizzly Creek grove. Under these agreements, Scotia LLC would sell the Owl
Creek grove to California, no later than June 30, 2001, for the lesser of the
appraised fair market value or $79.7 million, and California must purchase from
Pacific Lumber, no later than October 31, 2000, all or a portion of the Grizzly
Creek grove for a purchase price determined based on fair market value, but not
to exceed $20.0 million. California also has a five year option under these
agreements to purchase additional property in the Grizzly Creek grove. The sale
of the Owl Creek grove or Grizzly Creek grove will not be reflected in the
Company's financial statements until each has been concluded.

6.    RESTRICTED CASH AND MARKETABLE SECURITIES

      Cash and marketable securities include the following amounts which are
restricted (in millions):

<TABLE>
<CAPTION>

                                                                          JUNE 30,     DECEMBER 31,
                                                                            2000           1999
                                                                        ------------- --------------
<S>                                                                     <C>           <C>
Current assets:
   Cash and cash equivalents:
      Amounts held as security for short positions
      in marketable securities .......................................  $       53.7  $        44.8
      Other restricted cash and cash equivalents......................           9.7            9.3
                                                                        ------------- --------------
                                                                                63.4           54.1
                                                                        ------------- --------------
   Marketable securities, restricted:
      Amounts held in SAR Account.....................................          16.0           15.9
                                                                        ------------- --------------

Long-term restricted cash and marketable securities:
   Amounts held in SAR Account........................................         143.8          153.2
   Amounts held in Prefunding Account.................................           3.0            3.3
   Other amounts restricted under the Timber Notes Indenture..........           0.3            0.4
   Other long-term restricted cash....................................           2.2            2.1
   Less: Amounts attributable to Timber Notes held in SAR Account.....         (20.1)             -
                                                                        ------------- --------------
                                                                               129.2          159.0
                                                                        ------------- --------------

Total restricted cash and marketable securities.......................  $      208.6  $       229.0
                                                                        ============= ==============

</TABLE>


7.    INVENTORIES

      Inventories consist of the following (in millions):

<TABLE>
<CAPTION>

                                                                                         JUNE 30,     DECEMBER 31,
                                                                                           2000           1999
                                                                                       ------------  --------------
<S>                                                                                    <C>           <C>
Aluminum Operations:
   Finished fabricated aluminum products.............................................  $      92.3   $       118.5
   Primary aluminum and work in process..............................................        166.0           189.4
   Bauxite and alumina...............................................................         96.0           124.1
   Operating supplies and repair and maintenance parts...............................        125.3           114.1
                                                                                       ------------  --------------
                                                                                             479.6           546.1
                                                                                       ------------  --------------
Forest Products Operations:
   Lumber............................................................................         28.2            23.2
   Logs..............................................................................         17.7            21.4
                                                                                       ------------  --------------
                                                                                              45.9            44.6
                                                                                       ------------  --------------
                                                                                       $     525.5   $       590.7
                                                                                       ============  ==============
</TABLE>


8.    LONG-TERM DEBT

      Long-term debt consists of the following (in millions):

<TABLE>
<CAPTION>

                                                                                        JUNE 30,      DECEMBER 31,
                                                                                          2000            1999
                                                                                     --------------  --------------
<S>                                                                                  <C>             <C>
12% MGHI Senior Secured Notes due August 1, 2003...................................  $       120.2   $       125.2
6.55% Scotia LLC Class A-1 Timber Collateralized Notes due July 20, 2028...........          139.6           152.6
7.11% Scotia LLC Class A-2 Timber Collateralized Notes due July 20, 2028...........          243.2           243.2
7.71% Scotia LLC Class A-3 Timber Collateralized Notes due July 20, 2028...........          463.3           463.3
KACC Credit Agreement..............................................................           37.6               -
107/8% KACC Senior Notes due October 15, 2006, including premium...................          225.6           225.6
97/8% KACC Senior Notes due February 15, 2002, net of discount.....................          224.6           224.6
Alpart CARIFA Loans................................................................           56.0            60.0
12 3/4% KACC Senior Subordinated Notes due February 1, 2003........................          400.0           400.0
Other aluminum operations debt.....................................................           53.5            62.6
Other notes and contracts, primarily secured by receivables, buildings,
    real estate and equipment......................................................           27.6            27.2
                                                                                     --------------  --------------
                                                                                           1,991.2         1,984.3
      Less: Current maturities.....................................................          (28.3)          (27.5)
           Timber Notes held in SAR Account........................................          (23.0)              -
                                                                                     --------------  --------------
                                                                                     $     1,939.9   $     1,956.8
                                                                                     ==============  ==============
</TABLE>


      The amount attributable to the Timber Notes held in the SAR Account of
$20.1 million reflected in Note 6 above represents the amount paid to acquire
$23.0 million of principal amount of Timber Notes. This repurchase resulted in
an extraordinary gain of $1.4 million, net of tax.

9.    PER SHARE INFORMATION

      Basic earnings (loss) per share is calculated by dividing net income
(loss) by the weighted average number of common shares outstanding during the
period including the weighted average impact of the shares of common stock
issued and treasury stock acquired during the year from the date of issuance or
repurchase. The weighted average common shares outstanding were 6,913,751 shares
and 7,000,863 shares for the three months ended June 30, 2000 and 1999,
respectively, and 7,064,960 shares and 7,000,863 shares for the six months ended
June 30, 2000 and 1999, respectively.

      Diluted earnings (loss) per share calculations also include the dilutive
effect of the Class A Preferred Stock (which is convertible into Common Stock)
as well as common and preferred stock options. The weighted average number of
common and common equivalent shares was 7,582,261shares and 7,000,863 shares for
the three months ended June 30, 2000 and 1999, respectively, and 7,736,606
shares and 7,824,871 shares for the six months ended June 30, 2000 and 1999,
respectively. The impact of outstanding convertible stock and stock options of
831,309 was excluded from the weighted average share calculation for the three
months ended June 30, 1999 as its effect would have been antidilutive.

10.     CONTINGENCIES

   ALUMINUM OPERATIONS

      Environmental Contingencies
      Kaiser is subject to a number of environmental laws, to fines or penalties
assessed for alleged breaches of such environmental laws, and to claims and
litigation based upon such laws. Kaiser is subject to a number of claims under
CERCLA and, along with certain other entities, has been named as a potentially
responsible party for remedial costs at certain third-party sites listed on the
National Priorities List under CERCLA.

      Based on Kaiser's evaluation of these and other environmental matters,
Kaiser has established environmental accruals primarily related to potential
solid waste disposal and soil and groundwater remediation matters. At June 30,
2000, the balance of such accruals, which are primarily included in other
noncurrent liabilities, was $46.6 million. These environmental accruals
represent Kaiser's estimate of costs reasonably expected to be incurred based on
presently enacted laws and regulations, currently available facts, existing
technology and Kaiser's assessment of the likely remediation actions to be
taken. Kaiser expects that these remediation actions will be taken over the next
several years and estimates that annual expenditures to be charged to these
environmental accruals will be approximately $3.0 million to $9.0 million for
the years 2000 through 2004 and an aggregate of approximately $20.0 million
thereafter.

      As additional facts are developed and definitive remediation plans and
necessary regulatory approvals for implementation of remediation are established
or alternative technologies are developed, changes in these and other factors
may result in actual costs exceeding the current environmental accruals. Kaiser
believes that it is reasonably possible that costs associated with these
environmental matters may exceed current accruals by amounts that could range,
in the aggregate, up to an estimated $41.0 million. 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, Kaiser is
working to resolve certain of these matters. Kaiser believes that it has
insurance coverage available to recover certain incurred and future
environmental costs and is pursuing claims in this regard. No assurances can be
given that Kaiser will be successful in its attempts to recover incurred or
future costs from 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 impossible to
determine the actual costs that ultimately may be incurred, management 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
      Kaiser 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 Kaiser or exposure to products
containing asbestos produced or sold by Kaiser. The lawsuits generally relate to
products Kaiser has not sold for at least 20 years. At June 30, 2000, the number
of such claims pending was approximately 110,000, as compared with 100,000 at
December 31, 1999. During 1999, approximately 29,300 of such claims were
received and 15,700 were settled or dismissed. During the quarter and six months
ended June 30, 2000, approximately 8,300 and 14,700 of such claims were received
and 3,600 and 4,700 of such claims were settled or dismissed. The foregoing
claim and settlement figures as of and for the quarter ended June 30, 2000, do
not reflect the fact that as of June 30, 2000, Kaiser had reached agreements
under which it expects to settle approximately 71,800 of the pending
asbestos-related claims over an extended period.

     Kaiser maintains a liability for estimated asbestos-related costs for
claims filed to date and an estimate of claims to be filed over a 10 year period
(i.e., through 2009). Kaiser's estimate is based on its view, at each balance
sheet date, of the current and anticipated number of asbestos-related claims,
the timing and amounts of asbestos-related payments,the status of ongoing
litigation and settlement initiatives, and the advice of Wharton Levin
Ehrmantraut Klein & Nash, P.A., with respect to the current state of the law
related to asbestos claims. However, there are inherent uncertainties involved
in estimating asbestos-related costs and Kaiser's actual costs could exceed its
estimates due to changes in facts and circumstances after the date of each
estimate. Further, while Kaiser does not believe there is a reasonable basis for
estimating asbestos-related costs beyond 2009 and, accordingly, no accrual has
been recorded for any costs which may be incurred beyond 2009, Kaiser expects
that such costs may continue beyond 2009, and that such costs could be
substantial. As of June 30, 2000, an estimated asbestos-related cost accrual of
$377.8 million, before consideration of insurance recoveries, has been reflected
in the accompanying financial statements primarily in other noncurrent
liabilities. Kaiser estimates that annual future cash payments for
asbestos-related costs will range from approximately $75.0 million to $100.0
million in the years 2000 to 2002, approximately $35.0 million for each of the
years 2003 and 2004, and an aggregate of approximately $50.0 million thereafter.

      Kaiser believes that it has insurance coverage available to recover a
substantial portion of its asbestos-related costs. Although Kaiser 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 and other insurance carriers will depend on the pace of
claims review and processing by such carriers and on the resolution of any
disputes regarding coverage under such policies. Kaiser believes that
substantial recoveries from the insurance carriers are probable. Kaiser reached
this conclusion after considering its prior insurance-related recoveries in
respect of asbestos-related claims, existing insurance policies, and the advice
of Heller Ehrman White & McAuliffe LLP with respect to applicable insurance
coverage law relating to the terms and conditions of those policies.
Accordingly, an estimated aggregate insurance recovery of $319.9 million,
determined on the same basis as the asbestos-related cost accrual, is recorded
primarily in long-term receivables and other assets at June 30, 2000. However,
no assurance can be given that Kaiser will be able to project similar recovery
percentages for future asbestos-related claims or that the amounts related to
future asbestos-related claims will not exceed Kaiser's aggregate insurance
coverage.

      Kaiser continues to monitor claims activity, the status of lawsuits
(including settlement initiatives), legislative developments, and costs incurred
in order to ascertain whether an adjustment to the existing accruals should be
made to the extent that historical experience may differ significantly from
Kaiser'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 believes that, based on the factors discussed in
the preceding paragraphs, the resolution of asbestos-related uncertainties and
the incurrence of asbestos-related costs net of related insurance recoveries
should not have a material adverse effect on the Company's consolidated
financial position or liquidity. However, as Kaiser's estimates are periodically
re-evaluated, additional charges may be necessary and such charges could be
material to the results of the period in which they are recorded.

      Labor Matters
      In connection with the USWA strike and subsequent lock-out by Kaiser,
certain allegations of ULPs have been filed with the NLRB by the USWA. Kaiser
responded to all such allegations and believes that they were without merit. In
July 1999, the Oakland, California, regional office of the NLRB dismissed all
material charges filed against Kaiser. In September 1999, the union filed an
appeal of this ruling with the NLRB general counsel's office in Washington, D.C.
In April 2000, Kaiser was notified by the general counsel of the NLRB of the
dismissal of 22 of 24 allegations of ULPs previously brought against it by the
USWA. In June 2000, the general counsel of the NLRB directed the Oakland
Regional Office to issue a complaint on two allegations for trial before an
administrative law judge. Also, in June 2000, the Oakland Regional Office issued
a complaint, and a trial date has been set for November 2000. Any outcome from
the trial before the administrative law judge would be subject to an additional
appeal either by the USWA or Kaiser. This process could take months or years. If
these proceedings eventually resulted in a definitive ruling against Kaiser, it
could be obligated to provide back pay to USWA members at the five plants, and
such amount could be significant. However, 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 effect on the Company's
consolidated financial position, results of operations, or liquidity.

      FOREST PRODUCTS OPERATIONS

      Regulatory and environmental matters play a significant role in the
Company's forest products business, which is subject to a variety of California
and federal laws and regulations, as well as the HCP and SYP and Pacific
Lumber's 2000 timber operator's license, dealing with timber harvesting
practices, threatened and endangered species and habitat for such species, and
air and water quality. As further described in Note 5 "Headwaters Transactions,"
on March 1, 1999, Pacific Lumber and the Company consummated the Headwaters
Agreement with the United States and California. In addition to the transfer of
the Headwaters Timberlands described in Note 4, the SYP and the HCP were
approved and the Permits were issued.

       The SYP complies with certain California Board of Forestry regulations
requiring timber companies to project timber growth and harvest on their
timberlands over a 100-year planning period and to demonstrate that their
projected average annual harvest for any decade within a 100-year planning
period will not exceed the average annual harvest level during the last decade
of the 100-year planning period. The SYP is effective for 10 years (subject to
review after five years) and may be amended by Pacific Lumber, subject to
approval by the CDF. Revised SYPs will be prepared every decade that address the
harvest level based upon reassessment of changes in the resource base and other
factors. The HCP and the Permits allow incidental "take" of certain species
located on the Company's timberlands which have been listed as endangered or
threatened under the ESA and/or CESA so long as there is no "jeopardy" to the
continued existence of such species. The HCP identifies the measures to be
instituted in order to minimize and mitigate the anticipated level of take to
the greatest extent practicable. The SYP is also subject to certain of these
provisions. The HCP and related Permits have a term of 50 years. The Company
believes that the SYP and the HCP should in the long- term expedite the
preparation and facilitate approval of its THPs, although the Company is
experiencing difficulties in the THP approval process as it implements these
agreements.

      Under the Federal Clean Water Act, the EPA is required to establish TMDLs
in water courses that have been declared to be "water quality impaired." The EPA
and the North Coast Regional Water Quality Control Board are in the process of
establishing TMDLs for 17 northern California rivers and certain of their
tributaries, including nine water courses that flow within the Company's
timberlands. The Company expects this process to continue into 2010. In the
December 16, 1999 EPA report dealing with TMDLs on two of the nine water
courses, the agency indicated that the requirements under the HCP would
significantly address the sediment issues that resulted in TMDL requirements for
these water courses. Nevertheless, establishment of the final TMDL requirements
applicable to the Company's timberlands will be a lengthy process, and the final
TMDL requirements applicable to the Company's timberlands may require aquatic
protection measures that are different from or in addition to the prescriptions
to be developed pursuant to the watershed analysis process provided for in the
HCP.

      Lawsuits are pending and threatened which seek to prevent the Company from
implementing the HCP and/or the SYP, implementing certain of the Company's
approved THPs or carrying out certain other operations. On December 2, 1997, the
Wrigley lawsuit and the Rollins lawsuit were filed against the Company, certain
of its subsidiaries and others. These actions allege, among other things, that
the defendants' logging practices have damaged the plaintiffs' properties and
property values by contributing to landslides (Rollins lawsuit) and the
destruction of certain watersheds (Wrigley lawsuit). The Company believes that
it has strong factual and legal defenses with respect to these matters; however,
there can be no assurance that they will not have a material adverse effect on
its financial position, results of operations or liquidity. On March 31, 1999,
the EPIC-SYP/Permits lawsuit was filed alleging various violations of the CESA
and the CEQA, and challenging, among other things, the validity and legality of
the Permits issued by California and the SYP. On March 31, 1999, the USWA
lawsuit was filed also challenging the validity and legality of the SYP. The
Company believes that appropriate procedures were followed throughout the public
review and approval process concerning the HCP and the SYP, and the Company is
working with the relevant government agencies to defend these challenges.
Although uncertainties are inherent in the final outcome of the EPIC-SYP/Permits
lawsuit and the USWA lawsuit, the Company believes that the resolution of these
matters should not result in a material adverse effect on its financial
condition, results of operations or the ability to harvest timber. While the
Company expects environmentally focused objections and lawsuits to continue, it
believes that the HCP, the SYP and the Permits should enhance its position in
connection with these continuing challenges and, over time, reduce or minimize
such challenges.

      OTS CONTINGENCY AND RELATED MATTERS

     On December 26, 1995, the OTS initiated a formal administrative proceeding
against the Company and others by filing the Notice. The Notice alleges, among
other things, misconduct by the Respondents with respect to the failure of USAT,
a wholly owned subsidiary of UFG. At the time of receivership, the Company owned
approximately 13% of the voting stock of UFG. The Notice claims, among other
things, that the Company was a savings and loan holding company, that with
others it controlled USAT, and that, as a result of such status, it was
obligated to maintain the net worth of USAT. The Notice makes numerous other
allegations against the Company and the other Respondents, including that
through USAT it was involved in prohibited transactions with Drexel Burnham
Lambert Inc. The hearing on the merits of this matter commenced on September 22,
1997 and concluded on March 1, 1999. On February 10, 1999, the OTS and FDIC
settled with all of the Respondents (except Mr. Charles Hurwitz, Chairman and
Chief Executive Officer of the Company, the Company and Federated) for $1.0
million and limited cease and desist orders.

      Post hearing briefing concluded on January 31, 2000. In its post-hearing
brief, the OTS claims, among other things, that the remaining Respondents, Mr.
Hurwitz, the Company and Federated, are jointly and severally liable to pay
either $821.3 million in restitution or reimbursement of $362.6 million for
alleged unjust enrichment. The OTS also claims that each remaining Respondent
should be required to pay $4.6 million in civil money penalties, and that Mr.
Hurwitz should be prohibited from engaging in the banking industry. The
Respondents' brief claims that none of them has any liability in this matter. A
recommended decision by the administrative law judge is not expected any sooner
than the third or fourth quarter of 2000. A final agency decision would
thereafter be issued by the OTS Director. Such decision would then be subject to
appeal by any of the parties to the federal appellate court.

      On August 2, 1995, the FDIC filed the FDIC action. The original complaint
was against Mr. Hurwitz and alleged damages in excess of $250.0 million based on
the allegation that Mr. Hurwitz was a controlling shareholder, de facto senior
officer and director of USAT, and was involved in certain decisions which
contributed to the insolvency of USAT. The original complaint further alleged,
among other things, that Mr. Hurwitz was obligated to ensure that UFG, Federated
and the Company maintained the net worth of USAT. In January 1997, the FDIC
filed an amended complaint which seeks, conditioned on the OTS prevailing in its
administrative proceeding, unspecified damages from Mr. Hurwitz relating to
amounts the OTS does not collect from the Company and Federated with respect to
their alleged obligations to maintain USAT's net worth.

      On May 31, 2000, the Company, Federated and Mr. Hurwitz filed the FDIC
Counterclaim. The FDIC Counterclaim states that the FDIC illegally paid the OTS
to bring claims against the Company, Federated and Mr. Hurwitz. The Company,
Federated and Mr. Hurwitz are asking that the FDIC be ordered to not make any
further payments to the OTS to fund the administrative proceedings described
above, and they are seeking reimbursement of attorneys' fees and damages from
the FDIC. As of June 30, 2000, such fees were in excess of $30 million.

      The Company's bylaws provide for indemnification of its officers and
directors to the fullest extent permitted by Delaware law. The Company is
obligated to advance defense costs to its officers and directors, subject to the
individual's obligation to repay such amount if it is ultimately determined that
the individual was not entitled to indemnification. In addition, the Company's
indemnity obligation can, under certain circumstances, include amounts other
than defense costs, including judgments and settlements. The Company has
concluded that it is unable to determine a reasonable estimate of the loss (or
range of loss), if any, that could result from these contingencies. Accordingly,
it is impossible to assess the ultimate outcome of the foregoing matters or
their potential impact on the Company; however, any adverse outcome of these
matters could have a material adverse effect on the Company's consolidated
financial position, results of operations or liquidity.

      Other Matters
      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 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 June 30, 2000, the net unrealized loss on Kaiser's position in aluminum
forward sales and option contracts (excluding the impact of those contracts
discussed below which have been marked to market), energy forward purchase and
option contracts, and forward foreign exchange contracts, was approximately
$24.9 million (based on applicable quarter-end published market prices). As
Kaiser'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 generally be offset by losses or gains,
respectively, on the transactions being hedged.

      ALUMINA AND ALUMINUM
      Kaiser'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 AMT Price has ranged from
approximately $.50 to $1.00 per pound.

      From time to time in the ordinary course of business, Kaiser enters into
hedging transactions to provide price risk management in respect of the net
exposure of earnings and cash flows 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 Kaiser to effectively fix the price that Kaiser will
receive for its shipments. Kaiser also uses option contracts (i) to establish a
minimum price for its product shipments, (ii) to establish a "collar" or range
of prices for its anticipated sales and/or (iii) to permit it to realize
possible upside price movements. As of June 30, 2000, Kaiser had entered into
option contracts that established a price range for an additional 136,000,
362,000 and 161,000 tons of primary aluminum with respect to 2000, 2001 and
2002, respectively.

      Additionally, as of June 30, 2000, Kaiser had also entered into a series
of transactions with a counterparty that will provide it 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 from July 2000 through June 2001. Kaiser
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 later transactions terminate
is well below current market prices. While Kaiser believes that the October 2001
and later 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. For the three and six months ended June 30, 2000, Kaiser recorded
mark-to-market pre-tax gains (losses) of ($6.0 million) and $8.4 million,
respectively, in investment, interest and other income (expense), net associated
with the transactions described in this paragraph.

      As of June 30, 2000, Kaiser had sold forward virtually all of the alumina
available to it in excess of its projected internal smelting requirements for
2000, 2001 and 2002 at prices indexed to future prices of primary aluminum.

      ENERGY
      Kaiser is exposed to energy price risk from fluctuating prices for fuel
oil, diesel oil and natural gas consumed in the production process. Kaiser 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
June 30, 2000, Kaiser held option contracts for the purchase of approximately
13,500 MMBtu of natural gas per day for the period October 2000 through December
2000 and 9,500 MMBtu of natural gas per day for the period January 2001 through
June 2001. As of June 30, 2000, Kaiser also held a combination of fixed price
purchase and option contracts for an average of 232,000 barrels per month of
fuel oil for the remainder of 2000.

      FOREIGN CURRENCY
      Kaiser enters into forward exchange contracts to hedge material cash
commitments to foreign subsidiaries or affiliates. At June 30, 2000, Kaiser had
net forward foreign exchange contracts for the purchase of 149.5 million
Australian dollars from July 2000 through July 2001, in respect of its
Australian dollar denominated commitments from July 2000 through July 2001. In
addition, Kaiser has entered into option contracts that establish a price range
for the purchase of 30.0 million Australian dollars for the period July 2000
through June 2001.

12.   SUBSEQUENT EVENT

      During August 2000, Kaiser agreed to sell certain power that it had under
contract for the third quarter of 2001. The power being sold is in excess of
Kaiser's current and expected future operating requirements. The power sale,
which is subject to final documentation, will yield net proceeds, and is
expected to result in a net pre-tax gain, of approximately $40.0 million during
the third quarter of 2000.

ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS

      The following should be read in conjunction with the financial statements
in Part I, Item 1 of this Report and Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Item 8.
"Financial Statements and Supplementary Data" of the Form 10-K. Any capitalized
terms used but not defined in this Item are defined in the "Glossary of Defined
Terms" contained in Appendix A.

      This Quarterly Report on Form 10-Q contains statements which constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements appear in a number of places in
this section, in Item 3. "Quantitative and Qualitative Disclosures About Market
Risk" and in Part II. Item 1. "Legal Proceedings." Such statements can be
identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "estimates," "will," "should," "plans" or "anticipates" or the
negative thereof or other variations thereon or comparable terminology, or by
discussions of strategy. Readers are cautioned that any such forward- looking
statements are not guarantees of future performance and involve significant
risks and uncertainties, and that actual results may vary materially from those
in the forward-looking statements as a result of various factors. These factors
include the effectiveness of management's strategies and decisions, general
economic and business conditions, developments in technology, new or modified
statutory or regulatory requirements and changing prices and market conditions.
This Form 10-Q and the Form 10-K identify other factors that could cause such
differences between such forward-looking statements and actual results. No
assurance can be given that these are all of the factors that could cause actual
results to vary materially from the forward-looking statements.

RESULTS OF OPERATIONS

      The Company operates in four principal industries: aluminum, through its
majority owned subsidiary, Kaiser, an integrated aluminum producer; forest
products, through MGI and its wholly owned subsidiaries, principally Pacific
Lumber and Britt; real estate investment and development, managed through MPC;
and racing operations through SHRP, Ltd. MGHI owns 100% of MGI and is a wholly
owned subsidiary of the Company. All references to the "Company," "Kaiser,"
"MGHI," "MGI" and "Pacific Lumber," "MPC" and "SHRP, Ltd." refer to the
respective companies and their subsidiaries, unless otherwise indicated or the
context indicates otherwise.

   ALUMINUM OPERATIONS

      Aluminum operations account for a substantial portion of the Company's
revenues and operating results. Kaiser, through its principal subsidiary KACC,
operates in four business segments: bauxite and alumina, primary aluminum,
flat-rolled products and engineered products. Kaiser uses a portion of its
bauxite, alumina and primary aluminum production for additional processing at
certain of its downstream facilities. Intersegment transfers are valued at
estimated market prices.

      Industry Overview

      Kaiser's operating results are sensitive to changes in the prices of
alumina, primary aluminum and fabricated aluminum products, and also depend to a
significant degree on the volume and mix of all products sold and on Kaiser's
hedging strategies. Primary aluminum prices have historically been subject to
significant cyclical fluctuations (see Note 11 to the Consolidated Financial
Statements for a discussion of Kaiser's hedging activities).

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

     During 1999, the AMT Price per pound of primary aluminum declined from the
low $.60 range at the beginning of the year to a low of approximately $.57 per
pound in February and then began a steady increase ending 1999 at $.79 per
pound. During the first quarter of 2000, the average AMT Price was $.79 per
pound. During the second quarter of 2000, the average AMT Price was $.72 per
pound; however, in mid-June the price began to increase, ending the second
quarter at approximately $.77 per pound. The average AMT Price for primary
aluminum for the week ended July 28, 2000, was approximately $.76 per pound.

      Summary
      The following table presents selected operational and financial
information with respect to the Company's aluminum operations for the three and
six months ended June 30, 2000 and 1999.

<TABLE>
<CAPTION>

                                                                     THREE MONTHS ENDED              SIX MONTHS ENDED
                                                                          JUNE 30,                       JUNE 30,
                                                                   -------------------------     -------------------------
                                                                      2000           1999           2000          1999
                                                                   -----------  ------------     -----------   -----------
                                                                                 (In millions of dollars,
                                                                                except shipments and prices)
<S>                                                                <C>          <C>              <C>           <C>
Shipments:(1)
   Alumina:
      Third party................................................       538.9         611.4          976.4        1,098.4
      Intersegment...............................................       156.7         189.3          434.3          339.6
                                                                   -----------    ----------     -----------    -----------
        Total alumina............................................       695.6         800.7        1,410.7        1,438.0
                                                                   -----------    ----------     -----------    -----------
   Primary aluminum:
      Third party................................................        86.1          69.0          165.5          131.9
      Intersegment...............................................        37.5          46.3           85.4           85.8
                                                                   -----------    ----------     -----------    -----------
        Total primary aluminum...................................       123.6         115.3          250.9          217.7
                                                                   -----------    ----------     -----------    -----------
   Flat-rolled products..........................................        39.0          59.0           90.8          111.5
                                                                   -----------    ----------     -----------    -----------
   Engineered products...........................................        44.3          43.5           91.6           84.9
                                                                   -----------    ----------     -----------    -----------
Average realized third party sales price: (3)
   Alumina (per ton).............................................  $      204     $     170      $     204     $      171
   Primary aluminum (per pound)..................................         .69           .66            .71            .65
Net sales:
   Bauxite and alumina:
      Third party (includes net sales of bauxite)................  $    120.2 (2) $   110.8      $   221.0 (2) $    200.5
      Intersegment...............................................        29.5 (2)      29.6           86.3 (2)       52.6
                                                                   -----------    ----------     -----------    -----------
        Total bauxite and alumina................................       149.7         140.4          307.3          253.1
                                                                   -----------    ----------     -----------    -----------
   Primary aluminum:
      Third party................................................       130.6         100.5          257.7          189.6
      Intersegment...............................................        57.5          63.1          139.6          112.2
                                                                   -----------    ----------     -----------    -----------
        Total primary aluminum...................................       188.1         163.6          397.3          301.8
                                                                   -----------    ----------     -----------    -----------
   Flat-rolled products..........................................       121.4         155.3          275.1          303.6
   Engineered products...........................................       145.0         137.8          304.5          271.3
   Minority interests............................................        25.3          20.6           49.9           39.4
   Eliminations..................................................       (87.0)        (92.7)        (225.9)        (164.8)
                                                                   -----------    ----------     -----------    -----------
        Total net sales..........................................  $    542.5     $   525.0      $ 1,108.2      $ 1,004.4
                                                                   ===========    ==========     ===========    ===========
Operating income (loss)(4).......................................  $     53.0     $     2.2      $    91.4      $   (29.3)
                                                                   ===========    ==========     ===========    ===========
Income (loss) before income taxes and minority interests.........  $     18.2     $   (24.0)     $    38.3      $   (81.9)
                                                                   ===========    ==========     ===========    ===========
Capital expenditures and investments in unconsolidated
   affiliates....................................................  $     69.1     $    13.8      $    85.8      $    30.3
                                                                   ===========    ==========     ===========    ===========

<FN>
-----------------------
(1)   Shipments are expressed in thousands of metric tons.  A metric ton is
      equivalent to 2,204.6 pounds.
(2)   Net sales for the three and six months ended June 30, 2000, included
      approximately 68,000 tons and 145,000 tons, respectively, of alumina
      purchased from third parties and resold to certain unaffiliated customers
      and 15,000 tons and 54,000 tons, respectively, of alumina purchased from
      third parties and transferred to Kaiser's primary aluminum business unit.
(3)   Average realized prices for the Kaiser's flat-rolled products and
      engineered products segments are not presented as such prices are subject
      to fluctuations due to changes in product mix. Average realized third
      party sales prices for alumina and primary aluminum include the impact of
      hedging activities.
(4)   Operating income for the three and six months ended June 30, 2000,
      included the following: estimated business interruption insurance
      recoveries totaling $40.5 million and $65.8 million, respectively;
      approximately $1.5 million and $3.5 million, respectively, of
      non-recurring expenses related to corporate staff cost reduction and
      efficiency initiatives; a non-recurring pre-tax gain of $15.8 million
      relating to the sale of power; and $0.7 million of non-recurring pre-tax
      costs related to product line exit.  Additionally, depreciation was
      suspended for the Gramercy facility as a result of the July 5, 1999
      incident. Depreciation expense for the Gramercy facility for the six
      months ended June 30, 1999, was approximately $6.0 million. Operating
      income (loss) for the quarter and six months ended June 30, 1999,
      included potline restart costs of $2.5 million and $9.6 million,
      respectively. Kaiser's Micromill assets and technology were sold to a
      third party in February 2000.

</FN>
</TABLE>


      Recent Events and Developments

      Incident at Gramercy

      In July 1999, Kaiser's Gramercy, Louisiana, alumina refinery was
extensively damaged by an explosion in the digestion area of the plant. See Note
3 to the Consolidated Financial Statements for further information regarding the
incident at the Gramercy facility.

      Construction on the damaged part of the facility began during the first
quarter of 2000. Initial production at the plant is expected to commence during
the third quarter of 2000. Based on current estimates, full production is
expected to be achieved during the first quarter of 2001. Kaiser has received
the regulatory permit required to operate the plant once the facility is ready
to resume production.

      In March 2000, MSHA proposed that Kaiser be assessed a penalty of $0.5
million in connection with the citations issued from its investigation of the
incident. Kaiser disagrees with the substance of the MSHA citations and has
challenged them and the associated penalty. However, it is possible that other
civil or criminal fines or penalties could be levied against Kaiser.

      From the date of the Gramercy incident through June 30, 2000, Kaiser had
expended or incurred costs or losses associated with the Gramercy incident
totaling $131.7 million, consisting of clean-up, site preparation and business
interruption costs. From the date of the Gramercy incident through June 30,
2000, $88.1 million of insurance recoveries related to these costs had been
received. In addition, during the second quarter of 2000, Kaiser spent
approximately $48.0 million on Gramercy-related construction activities and
received $24.0 million of insurance recoveries for capital expenditures related
to the rebuilding of the Gramercy facility. Gramercy-related capital spending
prior to the second quarter of 2000 was not significant.

      Washington Smelters' Operating Level
      As a result of unprecedented high market prices for power in the Pacific
Northwest, Kaiser has temporarily curtailed approximately 128,000 tons of its
annual primary aluminum production at the Tacoma and Mead, Washington, smelters
and has sold 100 megawatts of power that it had under contract through June 30,
2001. As a result of the curtailment, Kaiser will avoid the need to purchase
power on a variable cost basis. Additionally, the sale of power is expected to
substantially mitigate the cash impact of the potline curtailment over the
contract period for which the power was sold. To implement the curtailment,
Kaiser has temporarily curtailed the two and one-half operating potlines at its
Tacoma smelter and two and one-half out of a total of eight potlines at its Mead
smelter. One-half of a potline at the Tacoma smelter was already curtailed.

      As a result of the sale of the power, Kaiser recorded a net pre-tax gain
of approximately $15.8 million which amount was composed of gross proceeds of
$31.3 million offset by incremental excess power costs in the second quarter,
employee termination expenses and other fixed commitments. The net gain was
recorded as a reduction of cost of sales and operations.

      Labor Matters
      Substantially all of Kaiser's hourly workforce at its Gramercy, Louisiana,
alumina refinery, Mead and Tacoma, Washington, aluminum smelters, Trentwood,
Washington, rolling mill, and Newark, Ohio, extrusion facility were covered by a
master labor agreement with the USWA which expired on September 30, 1998. The
parties did not reach an agreement prior to the expiration of the master
agreement and the USWA chose to strike. In January 1999, Kaiser declined an
offer by the USWA to have the striking workers return to work at the five plants
without a new agreement. Kaiser imposed a lock-out to support its bargaining
position and continues to operate the plants with salaried employees and other
workers as it has since the strike began.

      In June 2000, Kaiser and USWA representatives agreed to a methodology to
resolve the remaining differences between the parties. During July 2000, the
USWA announced that its members had voted to accept this methodology. Under the
agreement between Kaiser and the USWA, the parties continued to negotiate
certain matters until mid-August. Since Kaiser and the USWA were unable to reach
a complete agreement, the parties will proceed with binding arbitration. The
arbitration will be completed by mid-September 2000, and it is expected that the
USWA workers will return to the plants during September and October 2000.

      As certain financial terms remain to be arbitrated, Kaiser cannot estimate
the financial statement impact of the pending labor settlement. While Kaiser
expects that many of its labor and financial objectives will be achieved in the
pending settlement, it is anticipated that the labor settlement will result in
certain one time charges and re-integration costs.

      In connection with the USWA strike and subsequent lock-out by Kaiser,
certain allegations of ULPs have been filed with the NLRB by the USWA. Kaiser
responded to all such allegations and believes that they were without merit. In
July 1999, the Oakland, California, regional office of the NLRB dismissed all
material charges filed against Kaiser. In September 1999, the union filed an
appeal of this ruling with the NLRB general counsel's office in Washington, D.C.
In April 2000, Kaiser was notified by the general counsel of the NLRB of the
dismissal of 22 of 24 allegations of ULPs previously brought against it by the
USWA. In June 2000, the general counsel of the NLRB directed the Oakland
Regional Office to issue a complaint on two allegations for trial before an
administrative law judge. Also, in June 2000, the Oakland Regional Office issued
a complaint, and a trial date has been set for November 2000. Any outcome from
the trial before the administrative law judge would be subject to an additional
appeal either by the USWA or Kaiser. This process could take months or years. If
these proceedings eventually resulted in a definitive ruling against Kaiser, it
could be obligated to provide back pay to USWA members at the five plants, and
such amount could be significant. However, 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 effect on the Company's
consolidated financial position, results of operations, or liquidity.

      Strategic Initiatives
      Kaiser has devoted significant efforts analyzing its existing asset
portfolio with the intent of focusing its efforts and capital in sectors of the
industry that are considered most attractive and in which Kaiser believes it is
well positioned to capture value. This process has continued in 2000. In the
first quarter of 2000, Kaiser, in the ordinary course of business, sold certain
non-operating properties and its Micromill assets and technology. In June 2000,
Kaiser purchased the assets of a drawn tube aluminum fabricating operation. This
acquisition is part of Kaiser's continued focus on growing its engineered
products operations.

      Another area of emphasis has been a continuing focus on managing Kaiser's
legacy liabilities. Kaiser believes that it has insurance coverage available to
recover certain incurred and future environmental costs and a substantial
portion of its asbestos-related costs and is actively pursuing claims in this
regard. The timing and amount of future recoveries of asbestos-related claims
from insurance carriers remain a major priority of Kaiser, but will depend on
the pace of claims review and processing by such carriers and the resolution of
any disputes regarding coverage under the insurance policies.

      Flat-Rolled Products
      In December 1999, Kaiser announced that its flat-rolled products business
unit expects to accelerate its product mix shift toward higher value added
product lines such as heat-treat, beverage can lid and tab stock, automotive and
other niche businesses, and away from beverage can body stock. This process
should be completed during the fourth quarter of 2000, at which point Kaiser
will assess related issues such as employment levels at the Trentwood facility.
Although the shift in product mix is expected to have a favorable impact on
Kaiser's results and financial position over the long term, it is possible that
such a product mix shift may result in certain one-time charges.

      Net Sales

     Bauxite and alumina. Third party net sales of alumina increased 8% for the
quarter ended June 30, 2000, as compared to the same period in 1999 as a 20%
increase in third party average realized prices was partially offset by a 12%
decrease in third party shipments. The increase in average realized prices was
due to an increase in primary aluminum market prices related to Kaiser's primary
aluminum-linked customers sales contracts, partially offset by allocated net
losses from Kaiser's hedging activities. The decrease in quarter-over-quarter
shipments resulted primarily from differences in the timing of shipments and, to
a lesser extent, the net effect of the Gramercy incident, after considering the
68,000 tons of alumina purchased by Kaiser in 2000 from third parties to fulfill
third party sales contracts. Intersegment net sales of alumina were essentially
flat for the quarter ended June 30, 2000, as compared to the same period in
1999. A 23% increase in the intersegment average realized price was offset by a
17% decrease in intersegment shipments. The increase in the intersegment average
realized price is the result of increases in primary aluminum prices from period
to period as intersegment transfers are made on the basis of market prices on a
lagged basis of one month. The decrease in shipments was due to the timing of
shipments as well as the unfavorable impact of the curtailments of the potlines
at Kaiser's Washington smelters in mid-June 2000 as discussed above.
Intersegment net sales included approximately 15,000 tons of alumina purchased
from third-parties and transferred to the primary aluminum business unit.

   For the six-month period ended June 30, 2000, third party net sales of
alumina were 10% higher than the comparable period in 1999 as a 19% increase in
third party average realized prices was partially offset by an 11% decrease in
third party shipments. The increase in average realized prices and decrease in
third party shipments during the first six months of 2000 as compared to 1999
was attributable to the same price and volume factors discussed above. Third
party net sales included approximately 145,000 tons of alumina purchased by
Kaiser from third parties to fulfill third party sales contracts. Intersegment
net sales for the six month period ended June 30, 2000, increased 64% as
compared to the same period in 1999. The increase was due to a 28% increase in
the intersegment average realized price and a 28% increase in intersegment
shipments. The increase in the intersegment average realized price is the result
of increases in primary aluminum prices from period to period as intersegment
transfers are made on the basis of market prices on a lagged basis of one month.
The increase in shipments was due to the favorable impact of operating more
potlines at Kaiser's smelters during the first four months of 2000 as compared
to the same months in 1999. Intersegment net sales included approximately 54,000
tons of alumina purchased from third-parties and transferred to the primary
aluminum business unit.

      Primary aluminum. Third party net sales of primary aluminum were up 30%
for the second quarter of 2000, as compared to the same period in 1999 as a
result of a 25% increase in third party shipments and a 5% increase in third
party averaged realized prices. The increase in shipments was primarily due to
the favorable impact of the increased operating rate at the Valco and Washington
smelters offset, in part, by the mid-June 2000 curtailment of the potlines at
the Washington smelters discussed above. The increase in the average realized
prices reflects the 13% increase in primary aluminum market prices partially
offset by allocated net losses from Kaiser's hedging activities. Intersegment
net sales were down approximately 9% between the second quarter of 2000 and the
second quarter of 1999. This decrease was the result of a 19% decrease in
intersegment shipments offset, in part, by a 13% increase in intersegment
average realized prices. The increase in the intersegment average realized price
was due to higher market prices for primary aluminum.

      For the six-month period ended June 30, 2000, third party sales of primary
aluminum increased approximately 36% from the comparable period in 1999,
reflecting a 25% increase in third party shipments and a 9% increase in third
party average realized prices. The increases in year-to-date 2000 shipments and
prices compared to 1999 were attributable to the same factors described above.
Intersegment net sales for the first half of 2000 were up 24% as compared to the
same period in 1999. This increase primarily resulted from a 25% increase in
average realized prices reflecting higher market prices for primary aluminum.
Intersegment shipments were essentially flat.

      Flat-rolled products. Net sales of flat-rolled products decreased by 22%
during the second quarter 2000 as compared to 1999 as a 34% decrease in
shipments was offset by an 18% increase in average realized prices. The decrease
in shipments was primarily due to reduced shipments of can body stock as a part
of Kaiser's planned exit from this product line. Offsetting the reduced can body
stock shipments was a modest quarter over quarter improvement in heat-treat
products. The increase in average realized prices primarily reflects the change
in product mix (resulting from the can stock body exit) as well as the pass
through to customers of increased market prices for primary aluminum.

   For the six-month period ended June 30, 2000, net sales of flat-rolled
products decreased by 9% as compared to the same period in 1999 as a 19%
decrease in shipments was offset by an 11% increase in average realized prices.
The decline in year-to-date 2000 shipments is primarily attributable to the
aforementioned decline in can body stock offset, in part, by increased shipments
of general engineering heat-treat products. The increase in the average realized
price reflects the pass through to customers of increased market prices for
primary aluminum offset, in part, by the substantial decline in the demand for
aerospace heat-treat products subsequent to the first quarter of 1999.

     Engineered products. Net sales of engineered products increased
approximately 5% during the second quarter 2000 as compared to 1999, reflecting
a 2% increase in product shipments and a 3% increase in average realized prices.
Increased product shipments are the result of increased demand in the
distribution market offset by reduced engineered component deliveries resulting
from a product line exit. The increase in average realized prices reflects
increased prices for soft alloy extrusions offset, in part, by a shift in
product mix. For the six-month period ended June 30, 2000, net sales of
engineered products increased approximately 12% as compared to the same period
in 1999 as the result of an 8% increase in product shipments and a 4% increase
in average realized prices. In addition to the factors described above for the
quarter ended June 30, 2000, the price and value factors for the six-month
period ended June 30, 2000, also reflect a short-term market related spike in
certain hard alloy extrusion products. The changes in average realized prices
for the quarter and six-month periods ended June 30, 2000, also reflect the pass
through to customers of increased market prices for primary aluminum.

   Operating Income (Loss)

      Bauxite and alumina. Operating income for the quarter and six-month
periods ended June 30, 2000, increased from the comparable periods in 1999
primarily as the result of the increases in the average realized prices offset
in part by the net decrease in shipments as discussed above.

      Primary aluminum. Operating income for the quarter and six-month periods
ended June 30, 2000, was up from the comparable periods 1999. The primary reason
for the increases was the improvements in average realized prices and net
shipments discussed above. However, both years' operating results included
several non-recurring transactions. The quarter and six-month periods ended June
30, 2000, results also included a net gain of $15.8 million associated with the
sale of power described above; while the quarter and six-month periods ended
June 30, 1999, results included costs of approximately $2.5 million and $9.6
million, respectively, associated with preparing and restarting potlines at the
Valco and Washington smelters. In addition, primary aluminum operating income
for the quarter and six-month periods ended June 30, 2000, have been adversely
affected by increases in alumina and electric power costs. Even after excluding
the excess power costs experienced by Kaiser in the second quarter in the
Pacific Northwest, power costs have increased. New agreements entered into in
both Ghana and Wales will provide for increased power stability but at increased
costs.

      Flat-rolled products. The decrease in operating income in the quarter and
the six-month periods ended June 30, 2000, were attributable to the same factors
described above. Operating income also reflects the benefit of lower plant
overhead and reduced major maintenance spending.

      Engineered products. Operating income increased in the quarter and
six-month period ended June 30, 2000, as compared to the comparable periods in
1999. These increases primarily reflect the impact of the demand in the
distribution and redraw rod markets. Operating income for the quarter and six
month periods ended June 30, 2000, included non-recurring severance charges of
$0.7 million related to a product line exit. Operating income for the six months
ended June 30, 1999, included equity in earnings of $2.5 million from Kaiser's
50% interest in AKW, which was sold in April 1999.

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

      Income (Loss) Before Income Taxes and Minority Interests

      Income (loss) before income taxes and minority interests for the quarter
ended June 30, 2000, increased compared to the second quarter 1999 due to the
increase in operating income discussed above offset by pre-tax losses of $6.0
million to reflect mark-to-market adjustments on certain primary aluminum
hedging transactions. For the six months ended June 30, 2000, income (loss)
before income taxes and minority interests increased over the comparable prior
year period due to the increase in operating income discussed above and due to
pre-tax gains of $8.4 million to reflect mark- to-market adjustments on certain
primary aluminum adjustments.

      Results for the quarter and six-month periods ended June 30, 1999,
included three essentially offsetting items. A favorable $50.5 million pre-tax
gain on the sale of Kaiser's interests in AKW was offset by a non-cash pre-tax
charge of $38.0 million for asbestos-related claims and a pre-tax charge of
$13.5 million to reflect a mark-to-market adjustment on certain primary aluminum
hedging transactions.


   FOREST PRODUCTS OPERATIONS

      The Company's forest products operations are conducted by MGI, through
Pacific Lumber and Britt. MGI's business is somewhat seasonal, and its net sales
have been historically higher in the months of April through November than in
the months of December through March. Management expects that MGI's revenues and
cash flows will continue to be seasonal. Accordingly, MGI's results for any one
quarter are not necessarily indicative of results to be expected for the full
year.

      Due to Pacific Lumber's difficulties in implementing the Environmental
Plans and the resulting lower harvests on its property, Pacific Lumber's
production of redwood lumber has decreased. Furthermore, logging costs have
increased due to the harvest of smaller diameter logs and compliance with
environmental regulations and the Environmental Plans. Pacific Lumber has been
able to lessen the impact of these factors by instituting a number of measures
at its sawmills during the past several years designed to enhance the efficiency
of its operations, such as modernization and expansion of its manufactured
lumber facilities and other improvements in lumber recovery. See also
"--Trends."

      The following table presents selected operational and financial
information for the three and six months ended June 30, 2000 and 1999.

<TABLE>
<CAPTION>


                                                                     THREE MONTHS ENDED        SIX MONTHS ENDED
                                                                          JUNE 30,                 JUNE 30,
                                                                   -----------------------  -----------------------
                                                                      2000         1999        2000        1999
                                                                   -----------  ----------  ----------  -----------
                                                                           (IN MILLIONS OF DOLLARS, EXCEPT
                                                                                SHIPMENTS AND PRICES)
                                                                   -----------  ----------  ----------  -----------
<S>                                                                <C>          <C>         <C>         <C>
Shipments:
   Lumber: (1)
      Redwood upper grades.......................................         3.8         6.4         7.3         14.2
      Redwood common grades......................................        41.2        28.9        76.6         67.6
      Douglas-fir upper grades...................................         3.2         2.5         5.7          4.5
      Douglas-fir common grades..................................        19.8        12.4        38.9         27.7
      Other......................................................         1.7         1.9         4.7          4.4
                                                                   -----------  ----------  ----------  -----------
        Total lumber.............................................        69.7        52.1       133.2        118.4
                                                                   ===========  ==========  ==========  ===========
   Wood chips (2)................................................        45.5        31.2        84.5         76.6
                                                                   ===========  ==========  ==========  ===========

Average sales price:
   Lumber: (3)
      Redwood upper grades.......................................  $    1,830   $   1,499   $   1,728   $    1,454
      Redwood common grades......................................         759         625         750          588
      Douglas-fir upper grades...................................       1,342       1,322       1,324        1,299
      Douglas-fir common grades..................................         372         450         398          410
   Wood chips (4)................................................          69          74          66           78

Net sales:
   Lumber, net of discount.......................................  $     50.1   $    36.6   $    93.8   $     78.2
   Wood chips....................................................         3.2         2.3         5.6          5.9
   Cogeneration power............................................         1.0         0.7         1.6          1.3
   Other.........................................................         1.6         1.8         2.3          2.7
                                                                   -----------  ----------  ----------  -----------
        Total net sales..........................................  $     55.9   $    41.4   $   103.3   $     88.1
                                                                   ===========  ==========  ==========  ===========
Operating income (loss)..........................................  $      8.6   $    (3.3)  $    14.4   $     (4.7)
                                                                   ===========  ==========  ==========  ===========
Operating cash flow (5)..........................................  $     13.5   $     1.0   $    23.9   $      4.5
                                                                   ===========  ==========  ==========  ===========
Income (loss) before income taxes and minority interests (6).....  $     (1.5)  $    (9.7)  $    (6.4)  $    216.5
                                                                   ===========  ==========  ==========  ===========
Capital expenditures.............................................  $      4.1   $     5.2   $     6.0   $     17.6
                                                                   ===========  ==========  ==========  ===========
<FN>
---------------------------
(1)   Lumber shipments are expressed in millions of board feet.
(2)   Wood chip shipments are expressed in thousands of bone dry units of
      2,400 pounds.
(3)   Dollars per thousand board feet.
(4)   Dollars per bone dry unit.
(5)   Operating income before depletion and depreciation, also referred to
      as "EBITDA."
(6)   Results for the six months ended June 30, 1999 include a $239.8 million
      gain on the sale of the Headwaters Timberlands.

</FN>
</TABLE>


        Net Sales
        Net sales for the three and six month periods ended June 30, 2000
increased from the comparable 1999 periods. For the quarter, net sales increased
primarily due to higher shipments of common grade redwood and Douglas-fir lumber
and due to higher prices for redwood lumber. This improvement was offset
somewhat by lower shipments of upper grade redwood lumber due to continuing
reductions in the volume of logs available for the production of lumber
products. The failure of government agencies to approve THPs in a timely manner
continues to adversely affect log supply and disrupt the normal functioning of
business operations. Net sales for the six months ended June 30, 2000 increased
over the comparable prior year period due to higher prices for redwood lumber.
While shipments for common grade redwood and for upper and common grade
Douglas-fir lumber increased, this improvement was substantially offset by lower
shipments of upper grade redwood lumber.

        Operating Income (Loss)
        The forest products segment had an increase in operating income for the
three and six months ended June 30, 2000 as compared to operating loss for the
comparable 1999 periods, primarily due to increases in net sales discussed
above. In addition, costs of sales and operations as a percentage of net sales
were lower due to increased efficiencies at the sawmills and a reduction in
logging costs.

        Income (Loss) Before Income Taxes and Minority Interests
        Income before income taxes for the quarter ended June 30, 2000 increased
from the comparable 1999 period, primarily due to higher operating income
discussed above. Income before income taxes for the first half of 2000 decreased
from the comparable prior year period, principally due to the gain on the sale
of the Headwaters Timberlands of $239.8 million ($142.1 million net of deferred
taxes or $18.17 per share).

   REAL ESTATE OPERATIONS

      The Company, principally through its wholly owned subsidiaries, invests in
and develops residential and commercial real estate primarily in Puerto Rico,
Arizona and California.

<TABLE>
<CAPTION>

                                                                     THREE MONTHS ENDED        SIX MONTHS ENDED
                                                                          JUNE 30,                 JUNE 30,
                                                                   -----------------------  -----------------------
                                                                      2000         1999        2000        1999
                                                                   -----------  ----------  ----------  -----------
                                                                               (IN MILLIONS OF DOLLARS)

<S>                                                                <C>          <C>         <C>         <C>
Net sales........................................................  $     12.3   $    17.6   $    18.5   $     28.2
Operating income (loss)..........................................         1.4         0.8        (2.1)        (1.3)
Income before income taxes and minority interests................         6.1         3.3         5.5          2.8
Capital expenditures, net of tax credit..........................         1.6         2.2         2.6          0.7

</TABLE>

        Net Sales
        Net sales for the quarter and six months ended June 30, 2000 decreased
from the same prior year periods primarily due to lower sales of real estate at
the Company's Palmas del Mar, Fountain Hills and Mirada development projects.

        Operating Income (Loss)
        Operating income increased for the quarter ended June 30, 2000 from the
same period in 1999 primarily due to an insurance reimbursement for business
interruption experienced at Palmas del Mar as a result of a 1998 hurricane. The
operating loss increased for the six months ended June 30, 2000 from the same
period in 1999 primarily due to lower net sales discussed above.

        Income Before Income Taxes and Minority Interests
        Income before income taxes and minority interests for the quarter and
six months ended June 30, 2000 increased when compared to the same periods in
1999 primarily due to higher equity in earnings from real estate joint ventures
in Arizona.

   RACING OPERATIONS

      Industry Overview

      The Company, through its subsidiaries, has a 98.9% ownership interest in
SHRP, Ltd., a Texas limited partnership, which owns and operates Sam Houston
Race Park, a Class 1 horse racing facility in Houston, Texas, and Valley Race
Park, a greyhound racing facility located in Harlingen, Texas, which began
operations in mid-March of 2000. Results of operations between periods are
generally not comparable due to the timing, varying lengths and types of racing
meets held. Historically, Sam Houston Race Park has derived a significant amount
of its annual net pari-mutuel commissions from live racing and simulcasting. Net
pari-mutuel commissions have typically been highest during the first and fourth
quarters of the year, the time during which live thoroughbred racing has
historically been conducted.

<TABLE>
<CAPTION>

                                                                     THREE MONTHS ENDED        SIX MONTHS ENDED
                                                                          JUNE 30,                 JUNE 30,
                                                                   -----------------------  -----------------------
                                                                      2000         1999        2000        1999
                                                                   -----------  ----------  ----------  -----------
                                                                               (IN MILLIONS OF DOLLARS)
<S>                                                                <C>          <C>         <C>         <C>
Net sales........................................................  $      6.1   $     4.8   $    14.4   $     12.9
Operating income (loss)..........................................         0.1        (0.1)        1.5          2.2
Income before income taxes and minority interests................           -          -          1.3          2.0
Capital expenditures.............................................         0.7         0.3         3.9          0.4

</TABLE>


      Net Sales
      Net sales for the racing segment in the quarter and six months ended June
30, 2000 were higher compared to the same periods in 1999 due to the opening of
Valley Race Park.

      Operating Income (Loss)
      Operating income for the racing segment for the quarter ended June 30,
2000 was comparable to the same period in 1999. Operating income for the racing
segment decreased for the six months ended June 30, 2000 from the same period in
1999 due to increases in marketing-related expenses at Sam Houston Race Park and
due to start-up expenses at Valley Race Park.

      Income Before Income Taxes and Minority Interests
      Income before income taxes and minority interests for this segment
decreased for the six months ended June 30, 2000 as compared to the six months
ended June 30, 1999 primarily due to the decrease in operating income discussed
above. Results between the quarters ended June 30, 2000 and June 30, 1999 were
comparable.

   OTHER ITEMS NOT DIRECTLY RELATED TO INDUSTRY SEGMENTS

<TABLE>
<CAPTION>

                                                                     THREE MONTHS ENDED        SIX MONTHS ENDED
                                                                          JUNE 30,                 JUNE 30,
                                                                   ------------------------------------------------
                                                                      2000         1999        2000        1999
                                                                   -----------  ----------  ----------  -----------
                                                                               (IN MILLIONS OF DOLLARS)

<S>                                                                <C>          <C>         <C>         <C>
Operating loss...................................................  $     (2.5)  $    (2.2)  $    (6.1)  $     (4.7)
Income (loss) before income taxes and minority interests.........         0.2        (6.2)       (3.8)       (11.5)

</TABLE>


      The operating losses represent corporate general and administrative
expenses that are not allocated to the Company's industry segments. The income
(loss) before income taxes and minority interests includes operating losses,
investment, interest and other income (expense) and interest expense, including
amortization of deferred financing costs, which are not attributable to the
Company's industry segments. The income (loss) before income taxes and minority
interests for the quarter and six months ended June 30, 2000 showed improvement
over the prior year periods due to the increase in earnings on marketable
securities.

      Minority Interests
      Minority interests represent the minority stockholders' interest in the
Company's aluminum operations.

FINANCIAL CONDITION AND INVESTING AND FINANCING ACTIVITIES

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

   PARENT COMPANY AND MGHI

      The Company conducts its operations primarily through its subsidiaries.
Creditors of subsidiaries of the Company as well as KACC's preferred
stockholders have priority with respect to the assets and earnings of such
subsidiaries over the claims of the creditors of the Company. As of June 30,
2000, the indebtedness of the Company's subsidiaries and the minority interests
attributable to KACC's preferred stockholders reflected on the Consolidated
Balance Sheet were $1,973.9 million and $17.7 million, respectively. Certain of
the Company's subsidiaries, principally Kaiser and MGHI (and in turn MGHI's
subsidiaries), are restricted by their various debt instruments as to the amount
of funds that can be paid in the form of dividends or loaned to the Company. As
of June 30, 2000, the Company's other subsidiaries (principally real estate) had
an aggregate of nonrestricted cash and unused borrowing availability of
approximately $24.1 million which could have been paid to the Company. During
the six months ended June 30, 2000, the Company received $11.2 million from its
real estate subsidiaries.

      During the six months ended June 30, 2000, MGHI received an aggregate of
$108.4 million in dividends from MGI, $90.0 million of which was made available
using proceeds from the sale of the Headwaters Timberlands. MGHI in turn paid a
$45.0 million dividend to the Company.

      During the six months ended June 30, 2000, $5.0 million of MGHI Notes were
repurchased by MGHI, reducing the outstanding balance to $120.2 million.

      For the period from January 1, 2000 through the date of this report, the
Company purchased 509,400 shares of its common stock for $12.7 million.

      Kaiser has an effective shelf registration statement covering the offering
of up to 10 million shares of Kaiser common stock owned by the Company.

      As of June 30, 2000, the Company (excluding its subsidiaries) had cash and
marketable securities of approximately $79.6 million, and MGHI (excluding its
subsidiaries) had cash and marketable securities of $58.7 million.

      The Company believes that its existing resources, together with the cash
available from subsidiaries and financing sources, will be sufficient to fund
its working capital requirements for the next year. With respect to its
long-term liquidity, the Company believes that its existing cash and cash
resources, together with the cash proceeds from the sale of assets and
distributions from its subsidiaries should be sufficient to meet its working
capital requirements and required debt service obligations. However, there can
be no assurance that the Company's cash resources, together with the cash
proceeds from the sale of assets, distributions from its subsidiaries and other
sources of financing, will be sufficient for such purposes. Any adverse outcome
of the litigation or the regulatory and environmental matters described in Note
10 to the Consolidated Financial Statements could materially adversely affect
the Company's consolidated financial position, results of operations or
liquidity.

   ALUMINUM OPERATIONS

      At June 30, 2000, Kaiser had working capital of $332.4 million, compared
with working capital of $336.0 million at December 31, 1999. The decrease in
working capital primarily resulted from an increase in trade and other
receivables offset by decreases in inventories, prepaid expenses and other
current assets and an increase in accounts payable. The increase in trade
receivables reflects the increased market prices for primary aluminum. The
increase in other receivables was primarily due to the sale of power (see Note 4
to the Consolidated Financial Statements) and an increase in the estimated
business interruption insurance recoveries related to the Gramercy facility
incident (see Note 3 to the Consolidated Financial Statements). The decrease in
inventories reflects a planned focus on inventory reduction and efficiency
initiatives and the exit from production of can body stock at the flat-rolled
products business unit. Changes in receivables and inventories reflect the
factors described in "--Results of Operations--Aluminum Operations." The
decrease in prepaid expenses and other current assets resulted primarily from
receipts by Kaiser of margin deposits resulting from reduced margin requirements
due to lower end of period primary aluminum market prices. The increase in
accounts payable was primarily due to the timing of payments for third party
alumina purchases as well as increased capital spending related to the Gramercy
incident.

     Capital expenditures during the six months ended June 30, 2000 were $85.8
million, consisting primarily of $54.9 million for the rebuilding of the
Gramercy facility and $13.3 million for the purchase of the non-working capital
assets of a drawn tube aluminum fabricating operation (see Note 5 to the
Consolidated Financial Statements). The remainder of the 2000 capital
expenditures were used to improve production efficiency and reduce operating
costs at Kaiser's other facilities. Total consolidated capital expenditures,
excluding the expenditures for the rebuilding of the Gramercy facility, are
expected to be between $80.0 million and $115.0 million per annum in each of
2000 through 2002 (of which approximately 10% is expected to be funded by
Kaiser's minority partners in certain foreign joint ventures). See below for a
discussion of Gramercy related capital spending. Kaiser's management continues
to evaluate numerous projects all of which would require substantial capital,
both in the United States and overseas. The level of capital expenditures may be
adjusted from time to time depending on Kaiser's price outlook for primary
aluminum and other products, its ability to assure future cash flows through
hedging or other means, Kaiser's financial position and other factors.

      Kaiser is highly leveraged and has significant debt service requirements.
At June 30 2000, Kaiser had long-term debt of $997.3 million, compared with
$972.8 million at December 31, 1999.

      At June 30, 2000, $37.6 million of borrowings were outstanding under the
KACC Credit Agreement. Kaiser had $207.8 million (of which $59.7million could
have been used for letters of credit) of unused availability remaining under the
KACC Credit Agreement at June 30, 2000. As of July 31, 2000, $25.3 million of
borrowings were outstanding under the KACC Credit Agreement.

      In addition to the shelf registration covering 10.0 million shares of
Kaiser's common stock owned by the Company discussed above (the proceeds of
which sale would be paid to the Company rather than Kaiser), Kaiser has an
effective shelf registration statement covering the offering from time to time
of up to $150.0 million of equity securities.

      Kaiser's near-term liquidity will be, as more fully discussed below,
affected by the Gramercy incident and the amount of net payments for asbestos
liabilities.

      From the date of the Gramercy incident through June 30, 2000, Kaiser had
expanded or incurred costs or losses associated with the Gramercy incident
totaling $131.7 million, consisting of clean-up, site preparation and business
interruption costs. From the date of the Gramercy incident through June 30,
2000, $88.1 million of insurance recoveries related to these costs had been
received. In addition, during the second quarter of 2000, Kaiser spent
approximately $48.0 million on Gramercy-related construction activities and
received $24.0 million of insurance recoveries for capital expenditures related
to the rebuilding of the Gramercy facility, which amount reduced the minimum
property damage receivable recorded in the fourth quarter of 1999. Until all
construction activity at the Gramercy facility is completed and full production
is restored, Kaiser will continue to incur substantial business interruption
costs and capital spending. Business interruption costs are expected to be
substantially offset by insurance recoveries. A minimum of an additional $76.0
million of capital spending is expected to be funded by insurance recoveries.
The remainder of the Gramercy- related capital expenditures will be funded by
Kaiser using existing cash resources, funds from operations and/or borrowings
under the KACC Credit Agreement. The amount of capital expenditures to be funded
by Kaiser will depend on, among other things, the ultimate cost and timing of
the rebuild and negotiations with the insurance carriers. Kaiser continues to
work with the insurance carriers to maximize the amount of recoveries and to
minimize, to the extent possible, the period of time between when Kaiser expends
funds and when it is reimbursed. Kaiser will likely have to continue to fund an
average of 30 - 60 days of property damage and business interruption activity,
unless some other arrangement is agreed with the insurance carriers, and such
amounts will be significant. Kaiser believes it has sufficient financial
resources to fund the construction and business interruption costs on an interim
basis. However, no assurances can be given in this regard.

      Kaiser's estimated annual cash payments, prior to insurance recoveries,
for asbestos-related costs will be approximately $75.0 million to $100.0 million
for each of the years 2000 through 2002. Kaiser believes that it will recover a
substantial portion of these payments from insurance. However, delays in
receiving these or future insurance repayments would have an adverse impact on
Kaiser's liquidity.

      While no assurance can be given that the existing cash sources will be
sufficient to meet Kaiser's short-term liquidity requirements, Kaiser believes
that its existing cash resources, together with cash flows from operations and
borrowings under the KACC Credit Agreement, will be sufficient to satisfy its
working capital and capital expenditure requirements for the next year.

      Kaiser's ability to make payments on and to refinance its debt on a
long-term basis depends on its ability to generate cash in the future. This, to
a certain extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors beyond Kaiser's control. Kaiser will
need to refinance all or a substantial portion of its debt on or before its
maturity. No assurance can be given that Kaiser will be able to refinance its
debt on acceptable terms. However, with respect to long-term liquidity, Kaiser
believes that operating cash flow, together with the ability to obtain both
short and long-term financing, should provide sufficient funds to meet its
working capital and capital expenditure requirements.

   FOREST PRODUCTS OPERATIONS

      As of June 30, 2000, MGI and its subsidiaries had cash and marketable
securities, including short and long-term amounts, of $246.8 million. Short and
long-term restricted cash and marketable securities includes $159.8 million held
in the SAR Account (including $20.1 million of repurchased Timber Notes). The
fair value of the SAR Account, including the acquired Timber Notes, as of June
30, 2000 was $160.3 million.

      Long-term debt, including current maturities, was $829.7 million as of
June 30, 2000 as compared to $860.2 million at December 31, 1999. The decrease
in long-term debt was primarily due to the repurchase of $23.0 million principal
amount of Timber Notes using $20.1 million of funds held in the SAR Account. In
addition, long-term debt declined as a result of principal payments on the
Timber Notes. On May 26, 2000, the Scotia LLC Line of Credit was extended for an
additional year to July 15, 2001. As of June 30, 2000, $5.6 million was
outstanding under the Scotia LLC Line of Credit which was subsequently paid on
July 20, 2000. On the July 20, 2000 note payment date for the Timber Notes,
Scotia LLC had $3.1 million in cash available to pay the $31.1 million of
interest due. Scotia LLC borrowed the remaining $28.0 million in funds under the
Scotia LLC Line of Credit. In addition, Scotia LLC repaid $2.9 million of
principal on the Timber Notes using funds held in the SAR Account.

      As of June 30, 2000, $38.3 million of borrowings was available under the
Pacific Lumber Credit Agreement, no borrowings were outstanding and letters of
credit outstanding amounted to $12.6 million.

      MGI and its subsidiaries anticipate that existing cash, cash equivalents,
marketable securities, funds available from the SAR Account and available
sources of financing will be sufficient to fund their working capital and
capital expenditure requirements for the next year. With respect to their
long-term liquidity, although MGI and its subsidiaries believe that their
existing cash and cash equivalents should provide sufficient funds to meet their
working capital and capital expenditure requirements and their required debt
service obligations, until such time as Pacific Lumber has adequate cash flows
from operations and/or dividends from Scotia LLC, there can be no assurance that
this will be the case. Furthermore, due to its highly leveraged condition, MGI
is more sensitive than less leveraged companies to factors affecting its
operations, including governmental regulation and litigation affecting its
timber harvesting practices (see Note 10 to the Consolidated Financial
Statements), increased competition from other lumber producers or alternative
building products and general economic conditions.

   REAL ESTATE OPERATIONS

      As of June 30, 2000, the real estate segment had cash and marketable
securities of $22.7 million, $5.6 million of which is restricted. Long-term
debt, including current maturities, was $26.4 million as of June 30, 2000 as
compared to $25.5 million as of December 31, 1999. As of June 30, 2000, the
Company's real estate subsidiaries had approximately $14.4 million available for
use under two revolving bank credit facilities which allow for a maximum of
$23.6 million outstanding. There were $2.1 million of outstanding borrowings and
letters of credit outstanding amounted to $1.6 million.

      The Company believes that the existing cash and credit facilities of its
real estate subsidiaries are sufficient to fund the working capital and capital
expenditure requirements of such subsidiaries for the next year. With respect to
the long- term liquidity of such subsidiaries, the Company believes that their
ability to generate cash from the sale of their existing real estate, together
with their ability to obtain financing and joint venture partners, should
provide sufficient funds to meet their working capital and capital expenditure
requirements.

   RACING OPERATIONS

      At June 30, 2000, SHRP, Ltd. had cash and cash equivalents of $9.3
million, $4.1 million of which is restricted for payment of purses and
property taxes, and a line of credit from its partners of $1.7 million,
substantially all of which is the Company's portion. Long-term debt before
discount, excluding $69.7 million of SHRP Notes held by affiliates, was $0.2
million as of June 30, 2000. On August 7, 2000, SHRP, Ltd. redeemed all of the
SHRP Notes not owned by affiliates. The Company believes that the existing cash
of SHRP, Ltd. and its other resources are sufficient to fund its short and long-
term working capital, indebtedness and capital expenditure requirements other
than in respect of the SHRP Notes.

      In January 2000, SHRP, Ltd. acquired Valley Race Park for $2.4 million.
SHRP, Ltd. incurred an additional $0.3 million in capital expenditures on this
facility during the six months ended June 30, 2000.

TRENDS

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

      The Company's forest products operations are conducted by MGI through
Pacific Lumber and Britt. Regulatory and environmental matters play a
significant role in Pacific Lumber's operations. See Note 10 to the Consolidated
Financial Statements and Item 1. "Business - Forest Products Operations" of the
Form 10-K for a discussion of these matters. Compliance with such laws,
regulations and judicial and administrative interpretations, and related
litigation have increased the cost of logging operations and at times have
delayed or reduced harvest. The Company's forest products segment has also been
adversely affected by a lack of available logs as a result of a severely
diminished supply of available THPs. Prior to the consummation of the Headwaters
Agreement on March 1, 1999, the reduced number of approved THPs was attributable
to several factors, including a significantly reduced level of THPs submitted by
Pacific Lumber to the CDF during the second half of 1998 and during the first
two months of 1999. See Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Trends" of the Form 10-K for a
discussion of other factors which affected THP submissions and approvals during
the above time period.

      With the consummation of the Headwaters Agreement, Pacific Lumber has
completed its work in connection with preparation of the Environmental Plans;
however, significant additional work continues to be required in connection with
their implementation. As a result of the implementation process, 1999 was a
transition period for Pacific Lumber with respect to the filing and approval of
its THPs. The transition period has continued into 2000. The rate of submissions
and approvals of THPs during the six months ended June 30, 2000 is higher than
that for 1999. However, monthly submissions and approvals continue to be slower
than Pacific Lumber's expectations and slower than Pacific Lumber has
historically experienced prior to 1998. This is because government agencies have
failed to approve THPs in a timely manner. Nevertheless, Pacific Lumber
anticipates that after a transition period, the implementation of the
Environmental Plans will streamline the process of preparing THPs and
potentially shorten the time to obtain approval of THPs.

      There can be no assurance that Pacific Lumber will not continue to
experience difficulties in receiving approvals of its THPs similar to those it
has been experiencing. Furthermore, there can be no assurance that certain
pending legal, regulatory and environmental matters or future governmental
regulations, legislation or judicial or administrative decisions, or adverse
weather conditions, would not have a material adverse effect on the Company's
financial position, results of operations or liquidity. See Part II. Item 1.
"Legal Proceedings" and Note 10 to the Consolidated Financial Statements for
further information regarding regulatory and legal proceedings affecting the
Company's operations.


ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


      The information included under Item 3. "Quantitative and Qualitative
Disclosures About Market Risk" in the Company's Form 10-Q for the quarterly
period ended March 31, 2000 is incorporated by reference.

                           PART II. OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

      Reference is made to Item 3 of the Form 10-K for information concerning
material legal proceedings with respect to the Company. The following material
developments have occurred with respect to such legal proceedings subsequent to
the filing of the Form 10-K.

      MAXXAM INC. LITIGATION

      USAT Matters
      On May 31, 2000, the Company, Federated and Mr. Hurwitz filed the FDIC
Counterclaim. The FDIC Counterclaim states that the FDIC illegally paid the OTS
to bring claims against the Company, Federated and Mr. Hurwitz. The Company,
Federated and Mr. Hurwitz are asking that the FDIC be ordered to not make any
further payments to the OTS to fund the administrative proceedings described in
Note 10 to the Consolidated Financial Statements, and they are seeking
reimbursement of attorney's fees and damages from the FDIC. As of June 30, 2000,
such fees were in excess of $30 million.

      KAISER LITIGATION

      Gramercy Litigation
      With respect to the Gramercy litigation described in the Form 10-K, in
March 2000, MSHA proposed that Kaiser be assessed a penalty of $0.5 million in
connection with the 21 citations previously issued by MSHA with regard to the
Gramercy incident. The citations allege, among other things, that certain
aspects of the plant's operations were unsafe and that such mode of operation
contributed to the explosion. Kaiser disagrees with the substance of the
citations and has challenged them and the associated penalty. It is possible
that other civil or criminal fines or penalties could be levied against Kaiser.

      A number of employees were injured in the incident, several of them
severely. Kaiser may be liable for claims relating to the injured employees. The
incident has resulted in more than 60 lawsuits, many of which were styled as
class action suits, being filed against Kaiser and others on behalf of more than
16,000 claimants. Such lawsuits allege, among other things, property damage,
business interruption loss and personal injury. Such lawsuits were filed on
dates ranging from July 5, 1999 through July 9, 2000, principally in the
Fortieth Judicial District Court for the Parish of St. John the Baptist, State
of Louisiana or in the Twenty-Third Judicial District Court for the Parish of
St. James or the Parish of Ascension, State of Louisiana. Two of such lawsuits
were filed in the United States District Court, Eastern District of Louisiana.
Discovery has begun in such cases. The aggregate amount of damages sought in the
lawsuits cannot be determined at this time.

      PACIFIC LUMBER LITIGATION

      On March 10, 2000, the EPIC/THP 97-520 lawsuit was filed in the Superior
Court of Humboldt County. Plaintiffs allege that the CDF violated the Forest
Practices Act and the California Public Resources Code by approving an amendment
to THP 97-520 (which covers approximately 700 acres of timberlands adjoining the
Headwaters Timberlands) as a "minor" amendment. The plaintiffs seek an order
requiring the CDF to withdraw its approval of the minor amendment to THP 97-520,
and enjoining Pacific Lumber from harvesting under THP 97-520. In July 2000, the
Court issued a preliminary injunction enjoining Pacific Lumber from harvesting
under THP 97-520. It is impossible for Pacific Lumber to assess the potential
impact of this matter in the short term, but it believes that an adverse outcome
will not in the long term have a material adverse effect on its consolidated
financial position, results of operations or liquidity.

      With respect to the Rollins lawsuit described in the Form 10-K, on April
26, 2000, the Court dismissed four of the plaintiffs' ten causes of action,
including their allegations that the defendants had violated the California
business and professions code; on June 6, 2000, the Court dismissed another of
the plaintiffs' causes of action; and on June 20, 2000, the Court granted
summary judgment in favor of the defendants with respect to the plaintiffs'
claim for punitive damages.


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

      The annual meeting of stockholders of the Company was held on May 24,
2000, at which meeting the stockholders voted to elect Messrs. Cruikshank,
Friedman, Levin, Rosenberg and Rosenthal, management's slate of nominees, as
directors of the Company. Stockholders voted against a proposal to declassify
the Company's Board of Directors, against a proposal regarding cumulative voting
for the election of the Company's Common Directors and against a proposal
regarding independent directors. The results of the matters voted upon at the
meeting are shown below.


NOMINEES FOR DIRECTOR

      The Company's Board of Directors increased the number of directors to
serve on the Board from five to seven members (effective immediately prior to
the annual meeting of stockholders held on May 24, 2000). The nominees for
election as directors of the Company are listed below, together with voting
information for each nominee. Messrs. Charles E. Hurwitz and Paul N. Schwartz
continued as directors for the Company.

      NOMINEES FOR ELECTION BY HOLDERS OF COMMON STOCK

      Robert J. Cruikshank - 3,982,499 votes for, 139,772 votes withheld and -0-
         broker non-votes.
      Stanley D. Rosenberg - 3,949,882 votes for, 172,389 votes withheld and -0-
         broker non-votes.
      Michael J. Rosenthal - 3,949,877 votes for, 172,394 votes withheld and -0-
         broker non-votes.
      Abner J. Mikva - 531,135 votes for, 6,104 votes withheld and -0- broker
         non-votes.
      Paul Simon - 531,135 votes for, 6,104 votes withheld and -0- broker
         non-votes.

      NOMINEES FOR ELECTION BY HOLDERS OF COMMON STOCK AND CLASS A PREFERRED
      STOCK

      J. Kent Friedman - 10,601,094 votes for, 184,567 votes withheld and -0-
         broker non-votes.
      Erza G. Levin - 10,633,359 votes for, 152,302 votes withheld and -0-
         broker non-votes.

PROPOSAL REGARDING CUMULATIVE VOTING

      1,300,304 votes for, 9,998,800 votes against, 23,796 votes abstaining and
-0- broker non-votes.

PROPOSAL TO DECLASSIFY THE COMPANY'S BOARD OF DIRECTORS

      1,367,659 votes for, 9,930,734 votes against, 24,507 votes abstaining and
-0- broker non-votes.

PROPOSAL REGARDING INDEPENDENT DIRECTORS

      1,133,303 votes for, 10,164,969 votes against, 24,628 votes abstaining and
-0- broker non-votes.


ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

a.    EXHIBITS:

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

            10.2      Form of Non-Employee Director Stock Option Agreement
                      pursuant to the Kaiser 1997 Omnibus Stock Incentive Plan
                      (incorporated herein by reference to Exhibit 10.3 to
                      Kaiser's Quarterly Report on Form 10-Q for the quarter
                      ended June 30, 2000, File No. 1-9447)

           *23        Consent of Arthur Andersen LLP

           *27        Financial Data Schedule for the six months ended June 30,
                         2000

   * Included with this filing.

      b.        REPORTS ON FORM 8-K:

           None.


                                   SIGNATURES


      Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, who have signed this report on behalf of
the Registrant and as the principal financial and accounting officers of the
Registrant.


                                                   MAXXAM INC.





Date: August 11, 2000      By:               /S/ PAUL N. SCHWARTZ
                              --------------------------------------------------
                                                Paul N. Schwartz
                                 President, Chief Financial Officer and Director
                                          (Principal Financial Officer)



Date: August 11, 2000      By:             /S/ ELIZABETH D. BRUMLEY
                              --------------------------------------------------
                                              Elizabeth D. Brumley
                                                   Controller
                                         (Principal Accounting Officer)



                                                                    APPENDIX A


                            GLOSSARY OF DEFINED TERMS


AKW:  AKW L.P., an aluminum wheels joint venture

AMT Price:  Average Midwest United States transaction price for primary aluminum

Britt:  Britt Lumber Co., Inc., an indirect wholly owned subsidiary of MGI

CDF:  California Department of Forestry and Fire Protection

CERCLA: Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended by the Superfund Amendments and Reauthorization Act of 1986

CEQA:  California Environmental Quality Act

CESA:  California Endangered Species Act

Class A Preferred Stock: Class A $.05 Non-Cumulative Participating Convertible
Preferred Stock of the Company

Common Stock:  $0.50 par value common stock of the Company

Company:  MAXXAM Inc.

Environmental Plans:  The HCP and the SYP

EPA:  Environmental Protection Agency

EPIC-SYP/Permits lawsuit: An action entitled Environmental Protection
Information Association, Sierra Club v. California Department of Forestry and
Fire Protection, California Department of Fish and Game, The Pacific Lumber
Company, Scotia Pacific Company LLC, Salmon Creek Corporation, et al. (No.
99CS00639) filed March 31, 1999 in the Superior Court of Sacramento County

EPIC/THP 97-520 lawsuit: A lawsuit entitled Environmental Protection Information
Center, Sierra Club v. California Department of Forestry and Fire Protection,
Does I-X, Scotia Pacific Holding Company, Pacific Lumber Company and Does XI-XX
(THP 520) (No. CV-000170) filed on March 10, 2000 in the Superior Court of
Humboldt County

ESA:  The federal Endangered Species Act

FDIC:  Federal Deposit Insurance Corporation

FDIC action: An action filed by the FDIC on August 2, 1995 entitled Federal
Deposit Insurance Corporation, as manager of the FSLIC Resolution Fund v.
Charles E. Hurwitz (No. H-95-3956) in the U.S. District Court for the Southern
District of Texas

FDIC Counterclaim: A counterclaim to the FDIC action filed by Mr. Hurwitz, the
Company and Federated on May 31, 2000 stating that the FDIC illegally paid the
OTS to bring claims against them

Federated: Federated Development Company, a principal stockholder of the
Company

Forest Practice Act:  The California Forest Practice Act

Form 10-K: The Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission for the fiscal year ended December 31, 1999

HCP: The habitat conservation plan covering multiple species approved on March
1, 1999 in connection with the consummation of the Headwaters Agreement

Headwaters Agreement: The September 28, 1996 agreement between Pacific Lumber,
Scotia LLC, Salmon Creek, the United States and California which provided the
framework for the acquisition by the United States and California of the
Headwaters Timberlands

Headwaters Timberlands: Approximately 5,600 acres of Pacific Lumber timberlands
consisting of two forest groves commonly referred to as the Headwaters Forest
and the Elk Head Springs Forest which were sold to the United States and
California on March 1, 1999

KACC: Kaiser Aluminum & Chemical Corporation, Kaiser's principal operating
subsidiary

KACC Credit Agreement: The revolving credit facility with KACC and a bank under
which KACC is able to borrow by means of revolving credit advances and letters
of credit (up to $125.0 million) in an aggregate amount equal to the lesser of
$325.0 million or a borrowing base relating to eligible accounts receivable plus
eligible inventory

Kaiser: Kaiser Aluminum Corporation, a subsidiary of the Company engaged in
aluminum operations

LME:  London Metal Exchange

MPC:  MAXXAM Property Company, a wholly-owned subsidiary of the Company

MGHI:  MAXXAM Group Holdings Inc., a wholly owned subsidiary of the Company

MGI:  MAXXAM Group Inc., a wholly owned subsidiary of MGHI

MMBtu:  Million British thermal unit

MSHA: The U.S. Mine Safety and Health Administration

NLRB: National Labor Relations Board

Notice: A Notice of Charges filed on December 26, 1995 by the OTS against the
Respondents, including the Company and others with respect to the failure of
USAT

OTS:  The United States Department of Treasury's Office of Thrift Supervision

Pacific Lumber:  The Pacific Lumber Company, a wholly-owned subsidiary of MGI

Pacific Lumber Credit Agreement: The revolving credit agreement between Pacific
Lumber and a bank which provides for borrowings of up to $60.0 million, all of
which may be used for revolving borrowings, $20.0 million of which may be used
for standby letters of credit and $30.0 million of which may be used for
timberland acquisitions.

Permits: The incidental take permits issued by the United States and California
pursuant to the HCP

Prefunding Account: Restricted cash held in an account by the trustee under the
indenture governing the Timber Notes to enable Scotia LLC to acquire timberlands

Respondents: The Company, Federated, Mr. Charles Hurwitz and others

Rollins lawsuit: An action entitled Jennie Rollins, et al. v. Charles Hurwitz,
John Campbell, Pacific Lumber, MAXXAM Group Holdings Inc., Scotia Pacific
Holding Company, MAXXAM Group Inc., MAXXAM Inc., Barnum Timber Company (No.
9700400) filed on December 2, 1997 in the Superior Court of Humboldt County

SAB No. 101: Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements" released by the U.S. Securities and Exchange Commission in
December 1999

Salmon Creek:  Salmon Creek LLC, a wholly owned subsidiary of Pacific Lumber

SAR Account: Funds held in a reserve account to support principal payments on
the Timber Notes

Scotia LLC: Scotia Pacific Company LLC, a limited liability company wholly
owned by Pacific Lumber

Scotia LLC Line of Credit: The agreement between a group of lenders and Scotia
LLC pursuant to which it may borrow in order to pay interest on the Timber Notes

SFAS No. 133: Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities"

SFAS No. 137: Statement of Financial Accounting Standards No. 137, "Accounting
for Derivative Instruments and Hedging Activities - Deferral of Effective Date
of SFAS No. 133"

SFAS No. 138: Statement of Financial Accounting Standards No. 138, "Accounting
for Certain Derivative Instruments and Certain Hedging Activities - An Amendment
of FASB Statement No. 133"

SHRP, Ltd.: Sam Houston Race Park, Ltd., a 98.9%-owned subsidiary of the
Company

SHRP Notes:  The 11% Senior Secured Extendible Notes of SHRP, Ltd.

SYP: The sustained yield plan approved on March 1, 1999 in connection with the
consummation of the Headwaters Agreement

THP: Timber harvesting plan required to be filed with and approved by the CDF
prior to the harvesting of timber

Timber Notes: Scotia LLC's $867.2 million original aggregate principal amount of
6.55% Series B Class A-1 Timber Collateralized Notes, 7.11% Series B Class A-2
Timber Collateralized Notes and 7.71% Series B Class A-3 Timber Collateralized
Notes due July 20, 2028

Timber Notes Indenture:  The indenture governing the Timber Notes

TMDLs:  Total maximum daily load limits

UFG:  United Financial Group, Inc.

ULPs:  Unfair labor practices

USAT:  United Savings Association of Texas

USWA:  United Steelworkers of America

USWA lawsuit: An action entitled United Steelworkers of America, AFL-CIO, CLC,
and Donald Kegley v. California Department of Forestry and Fire Protection, The
Pacific Lumber Company, Scotia Pacific Company LLC and Salmon Creek Corporation
(No. 99CS00626) filed on March 31, 1999 in the Superior Court of Sacramento
County

Valco: Volta Aluminium Company Limited, Kaiser's 90%-owned smelter facility in
Ghana

VRA:  Volta River Authority, an electric power supplier to Valco

Wrigley lawsuit: An action entitled Kristi Wrigley, et al. v. Charles Hurwitz,
John Campbell, Pacific Lumber, MAXXAM Group Holdings Inc., Scotia Pacific
Holding Company, MAXXAM Group Inc., MAXXAM Inc., Scotia Pacific Company LLC and
Federated Development Company (No. 9700399) filed on December 2, 1997 in the
Superior Court of Humboldt County