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                       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, 2003

                          Commission file number 1-3605

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

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

             5847 SAN FELIPE, SUITE 2500, HOUSTON, TEXAS 77057-3268
               (Address of principal executive offices) (Zip Code)

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

      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 /  /

      Indicate by check mark whether the registrant is an accelerated filer (as
defined by Rule 12b-2 of the Exchange Act).  Yes /  / No /X/

      At July 31, 2003, the registrant had 46,171,365 shares of Common Stock
outstanding.

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

         KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
                             (Debtor-in-Possession)

                         PART I - FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

                           CONSOLIDATED BALANCE SHEETS
                            (In millions of dollars)

                                                                                      June 30,       December 31,
                                                                                        2003             2002
                                                                                   --------------   ---------------
                                                                                     (Unaudited)
                                     ASSETS
Current assets:
   Cash and cash equivalents                                                       $        83.9    $         78.7
   Receivables:
      Trade, less allowance for doubtful receivables of $11.0                              111.6             103.1
      Other                                                                                 43.6              51.4
   Inventories                                                                             227.1             254.9
   Prepaid expenses and other current assets                                                44.2              33.5
                                                                                   --------------   ---------------
      Total current assets                                                                 510.4             521.6

Investments in and advances to unconsolidated affiliates                                    77.4              69.7
Property, plant, and equipment - net                                                       983.1           1,009.9
Other assets                                                                               536.9             629.2
                                                                                   --------------   ---------------

      Total                                                                        $     2,107.8    $      2,230.4
                                                                                   ==============   ===============
                  LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
Liabilities not subject to compromise -
   Current liabilities:
      Accounts payable                                                             $       143.6    $        129.0
      Accrued interest                                                                       3.5               2.9
      Accrued salaries, wages, and related expenses                                         44.6              46.7
      Accrued postretirement medical benefit obligation - current portion                   60.2              60.2
      Other accrued liabilities                                                             49.1              64.3
      Payable to affiliates                                                                 41.6              28.0
      Long-term debt - current portion                                                       1.1                .9
                                                                                   --------------   ---------------
        Total current liabilities                                                          343.7             332.0

   Long-term liabilities                                                                    81.8              86.9
   Long-term debt                                                                           42.4              42.7
                                                                                   --------------   ---------------
                                                                                           467.9             461.6

Liabilities subject to compromise                                                        2,722.7           2,726.0

Minority interests                                                                         122.1             121.1
Commitments and contingencies
Stockholders' equity (deficit):
   Preference stock                                                                           .7                .7
   Common stock                                                                             15.4              15.4
   Additional capital                                                                    2,454.5           2,454.8
   Accumulated deficit                                                                  (1,240.0)         (1,113.6)
   Accumulated other comprehensive income (loss)                                          (243.8)           (243.9)
   Less:  Note receivable from parent                                                   (2,191.7)         (2,191.7)
                                                                                   --------------   ---------------
      Total stockholders' equity (deficit)                                              (1,204.9)         (1,078.3)
                                                                                   --------------   ---------------
        Total                                                                      $     2,107.8    $      2,230.4
                                                                                   ==============   ===============

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

                    STATEMENTS OF CONSOLIDATED INCOME (LOSS)
                                   (Unaudited)
                            (In millions of dollars)

                                                                      Quarter Ended             Six Months Ended
                                                                        June 30,                    June 30,
                                                                ------------------------    ------------------------
                                                                   2003         2002           2003         2002
                                                                -----------  -----------    ----------  ------------

Net sales                                                       $    358.4   $    386.3     $   697.8   $     756.9
                                                                -----------  -----------    ----------  ------------

Costs and expenses:
   Cost of products sold                                             366.6        362.5         719.9         702.7
   Depreciation and amortization                                      18.1         22.5          37.4          45.0
   Selling, administrative, research and development, and
      general                                                         27.3         29.3          51.9          70.5
   Non-recurring operating charges (benefits), net                     (.7)         7.5            .6           9.1
                                                                -----------  -----------    ----------  ------------
      Total costs and expenses                                       411.3        421.8         809.8         827.3
                                                                -----------  -----------    ----------  ------------

Operating loss                                                       (52.9)       (35.5)       (112.0)        (70.4)

Other income (expense):
   Interest expense (excluding unrecorded contractual
      interest expense of $23.7 for both quarters and
      $47.4 and $36.5 for the six-month periods, respectively)        (2.7)        (2.5)         (5.3)        (16.0)
   Reorganization items                                               (7.4)        (6.5)        (14.8)        (16.1)
   Other - net                                                         (.4)          .4          (1.7)          2.5
                                                                -----------  -----------    ----------  ------------

Loss from continuing operations before income taxes,
   minority interests and discontinued operations                    (63.4)       (44.1)       (133.8)       (100.0)

Benefit (provision) for income taxes                                    .3         (6.4)         (4.4)        (14.4)

Minority interests                                                     2.0          1.4           3.9           2.9
                                                                -----------  -----------    ----------  ------------

Loss from continuing operations                                      (61.1)       (49.1)       (134.3)       (111.5)
                                                                -----------  -----------    ----------  ------------

Discontinued operations:
   Loss from operations of curtailed Tacoma facility                   (.2)        (1.3)         (1.6)         (3.0)
   Gain from sale of Tacoma facility                                    -            -            9.5            -
                                                                -----------  -----------    ----------  ------------
Income (loss) from discontinued operations                             (.2)        (1.3)          7.9          (3.0)
                                                                -----------  -----------    ----------  ------------

Net loss                                                        $    (61.3)  $    (50.4)    $  (126.4)  $    (114.5)
                                                                ===========  ===========    ==========  ============

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

          STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY (DEFICIT) AND
                           COMPREHENSIVE INCOME (LOSS)
                                   (Unaudited)
                            (In millions of dollars)

                     For the Six Months Ended June 30, 2003

                                                                                     Accumulated      Note
                                                                          Accu-         Other      Receivable
                                      Preference Common    Additional    mulated    Comprehensive     From
                                         Stock     Stock     Capital     Deficit    Income (Loss)    Parent       Total
-------------------------------       ---------- --------- ----------  ----------  --------------  ----------- -----------
BALANCE, December 31, 2002            $      .7  $   15.4  $ 2,454.8   $(1,113.6)  $      (243.9)  $ (2,191.7) $ (1,078.3)
   Net loss                                   -         -          -      (126.4)            -             -       (126.4)
   Unrealized net increase in
      value of derivative instruments
      arising during the period
      (including net increase in
      value of $1.6 for the quarter
      ended June 30, 2003)                    -         -          -           -              .6           -           .6
   Reclassification adjustment for
      net realized gains on derivative
      instruments included in net
      loss (including net realized
      gains of $.2 for the quarter
      ended June 30, 2003)                    -         -          -           -             (.5)          -          (.5)
                                                                                                               -----------
   Comprehensive income (loss)                -         -          -           -             -             -       (126.3)

   Restricted stock cancellations             -         -        (.6)          -             -             -          (.6)
   Restricted stock accretion                 -         -         .3           -             -             -           .3
                                      ---------- --------- ----------  ----------  --------------  ----------- -----------
BALANCE, June 30, 2003                $      .7  $   15.4  $ 2,454.5   $(1,240.0)  $      (243.8)  $ (2,191.7) $ (1,204.9)
                                      ========== ========= ==========  ==========  ==============  =========== ===========

                     For the Six Months Ended June 30, 2002

                                                                                      Accumulated      Note
                                                                           Accu-         Other      Receivable
                                      Preference Common    Additional    mulated    Comprehensive     From
                                         Stock     Stock     Capital     Deficit    Income (Loss)    Parent       Total
-------------------------------       ---------- --------- ----------  ----------  --------------  ----------- -----------
BALANCE, December 31, 2001            $      .7  $   15.4  $ 2,437.6   $  (645.2)  $       (67.3)  $ (2,175.2) $   (434.0)
   Net loss                                   -         -          -      (114.5)            -             -       (114.5)
   Unrealized net decrease in
      value of derivative
      instruments during the
      period prior to settlement              -         -          -           -           (12.1)          -        (12.1)
   Reclassification adjustment
      for net realized gains on
      derivative instruments
      included in net loss
      (including net realized
      gains of $6.5 for the
      quarter ended June 30, 2002)            -         -          -           -           (14.9)          -        (14.9)
                                                                                                               -----------
   Comprehensive income (loss)                                     -           -             -             -       (141.5)

   Interest on note receivable
      from parent                             -         -       16.5           -             -          (16.5)         -
   Contributions for LTIP shares
      and restricted stock
      accretion                               -         -         .5           -             -             -           .5
                                      ---------- --------- ----------  ----------  --------------  ----------- -----------
BALANCE, June 30, 2002                $      .7  $   15.4  $ 2,454.6   $  (759.7)  $       (94.3)  $ (2,191.7) $   (575.0)
                                      ========== ========= ==========  ==========  ==============  =========== ===========

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

                      STATEMENTS OF CONSOLIDATED CASH FLOWS
                                   (Unaudited)
                            (In millions of dollars)

                                                                                               Six Months Ended
                                                                                                   June 30,
                                                                                            -----------------------
                                                                                               2003         2002
                                                                                            -----------  ----------
Cash flows from operating activities:
   Net loss                                                                                 $   (126.4)  $  (114.5)
   Adjustments to reconcile net loss to net cash (used) provided by operating activities:
      Depreciation and amortization (including deferred financing costs of $2.5 and $1.7,
        respectively)                                                                             39.9        46.7
      Non-cash charges for restructuring charges in 2003; restructuring charges and
        reorganization items in 2002                                                                .8        11.4
      Gain on sale of Tacoma facility in 2003 and real estate in 2002                             (9.5)       (4.0)
      Equity in earnings of unconsolidated affiliates, net of distributions                       (8.4)       (6.9)
      Minority interests                                                                          (3.9)       (2.9)
      (Increase) decrease in trade and other receivables                                           (.7)        5.9
      Decrease in inventories                                                                     27.8        28.1
      (Increase) decrease in prepaid expenses and other current assets                           (10.3)       34.2
      Increase in accounts payable and accrued interest                                           16.9        26.2
      Increase (decrease) in payable to affiliates and other accrued liabilities                  22.4       (29.5)
      Decrease in accrued and deferred income taxes                                              (35.8)       (2.0)
      Net cash impact of changes in long-term assets and liabilities                              31.9        13.0
      Other                                                                                        6.0        (4.6)
                                                                                            -----------  ----------
        Net cash (used) provided by operating activities                                         (49.3)        1.1
                                                                                            -----------  ----------

Cash flows from investing activities:
   Net proceeds from dispositions:  primarily Tacoma facility and interests in office
      building complex in 2003; miscellaneous real estate in 2002                                 75.1        20.3
   Capital expenditures                                                                          (19.2)      (19.9)
                                                                                            -----------  ----------
        Net cash provided by investing activities                                                 55.9          .4
                                                                                            -----------  ----------

Cash flows from financing activities:
   Incurrence of financing costs                                                                  (1.4)       (7.5)
                                                                                            -----------  ----------
        Net cash used by financing activities                                                     (1.4)       (7.5)
                                                                                            -----------  ----------

Net increase (decrease) in cash and cash equivalents during the period                             5.2        (6.0)
Cash and cash equivalents at beginning of period                                                  78.7       153.3
                                                                                            -----------  ----------
Cash and cash equivalents at end of period                                                  $     83.9   $   147.3
                                                                                            ===========  ==========

Supplemental disclosure of cash flow information:
   Interest paid, net of capitalized interest of $.7 and $.6, respectively                  $      2.0   $     2.3
   Income taxes paid                                                                              40.2        15.6

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

                     NOTES TO INTERIM CONSOLIDATED FINANCIAL
              STATEMENTS (In millions of dollars, except prices and
                               per share amounts)

1.    REORGANIZATION PROCEEDINGS

Kaiser Aluminum & Chemical Corporation (the "Company"), its parent company,
Kaiser Aluminum Corporation ("Kaiser"), and 24 of the Company's subsidiaries
have filed separate voluntary petitions in the United States Bankruptcy Court
for the District of Delaware (the "Court") for reorganization under Chapter 11
of the United States Bankruptcy Code (the "Code"); the Company, Kaiser and 15 of
the Company's subsidiaries (the "Original Debtors") filed in the first quarter
of 2002 and nine additional Company subsidiaries (the "Additional Debtors")
filed in the first quarter of 2003. The Original Debtors and Additional Debtors
are collectively referred to herein as the "Debtors" and the Chapter 11
proceedings of these entities are collectively referred to herein as the
"Cases." For purposes of this Report, the term "Filing Date" shall mean, with
respect to any particular Debtor, the date on which such Debtor filed its Case.
None of the Company's non-U.S. joint ventures are included in the Cases. The
Cases are being jointly administered. The Debtors are managing their businesses
in the ordinary course as debtors-in-possession subject to the control and
administration of the Court.

Original Debtors. During the first quarter of 2002, the Original Debtors filed
separate voluntary petitions for reorganization. The wholly owned subsidiaries
of the Company included in such filings were: Kaiser Bellwood Corporation,
Kaiser Aluminium International, Inc., Kaiser Aluminum Technical Services, Inc.,
Kaiser Alumina Australia Corporation (and its wholly owned subsidiary, Kaiser
Finance Corporation) and ten other entities with limited balances or activities.

The necessity for filing the Cases by the Original Debtors was attributable to
the liquidity and cash flow problems of the Company and its subsidiaries arising
in late 2001 and early 2002. The Company was facing significant near-term debt
maturities at a time of unusually weak aluminum industry business conditions,
depressed aluminum prices and a broad economic slowdown that was further
exacerbated by the events of September 11, 2001. In addition, the Company had
become increasingly burdened by asbestos litigation (see Note 7) and growing
legacy obligations for retiree medical and pension costs. The confluence of
these factors created the prospect of continuing operating losses and negative
cash flow, resulting in lower credit ratings and an inability to access the
capital markets.

The outstanding principal of, and accrued interest on, all debt of the Original
Debtors became immediately due and payable upon commencement of the Cases.
However, the vast majority of the claims in existence at the Filing Date
(including claims for principal and accrued interest and substantially all legal
proceedings) are stayed (deferred) during the pendency of the Cases. In
connection with the filing of the Original Debtors' Cases, the Court, upon
motion by the Original Debtors, authorized the Original Debtors to pay or
otherwise honor certain unsecured pre-Filing Date claims, including employee
wages and benefits and customer claims in the ordinary course of business,
subject to certain limitations. In July 2002, the Court also issued a final
order authorizing the Company to fund the cash requirements of its foreign joint
ventures in the ordinary course of business and to continue using the Company's
existing cash management systems. The Original Debtors also have the right to
assume or reject executory contracts existing prior to the Filing Date, subject
to Court approval and certain other limitations. In this context, "assumption"
means that the Original Debtors agree to perform their obligations and cure
certain existing defaults under an executory contract and "rejection" means that
the Original Debtors are relieved from their obligations to perform further
under an executory contract and are subject only to a claim for damages for the
breach thereof. Any claim for damages resulting from the rejection of an
executory contract is treated as a general unsecured claim in the Cases.

Generally, pre-Filing Date claims, including certain contingent or unliquidated
claims, against the Original Debtors will fall into two categories: secured and
unsecured. Under the Code, a creditor's claim is treated as secured only to the
extent of the value of the collateral securing such claim, with the balance of
such claim being treated as unsecured. Unsecured and partially secured claims do
not accrue interest after the Filing Date. A fully secured claim, however, does
accrue interest after the Filing Date until the amount due and owing to the
secured creditor, including interest accrued after the Filing Date, is equal to
the value of the collateral securing such claim. The amount and validity of
pre-Filing Date contingent or unliquidated claims, although presently unknown,
ultimately may be established by the Court or by agreement of the parties. As a
result of the Cases, additional pre-Filing Date claims and liabilities may be
asserted, some of which may be significant.

In October 2002, the Court set January 31, 2003 as the last date by which
holders of pre-Filing Date claims against the Original Debtors (other than
asbestos-related personal injury claims and certain hearing loss claims) could
file their claims. Any holder of a claim that was required to file a claim by
such date and did not do so may be barred from asserting such claim against any
of the Original Debtors and, accordingly, may not be able to participate in any
distribution in any of the Cases on account of such claim. Because the Company
has not had sufficient time to analyze the proofs of claim to determine their
validity, no provision has been included in the accompanying financial
statements for claims that have been filed. The January 31, 2003 bar date does
not apply to asbestos-related personal injury claims, for which the Original
Debtors reserve the right to establish a separate bar date at a later time. A
separate bar date for certain hearing loss claims, which was originally set for
June 30, 2003, has been extended to September 30, 2003.

Additional Debtors. On January 14, 2003, the Additional Debtors filed separate
voluntary petitions for reorganization. The wholly owned subsidiaries included
in such filings were: Kaiser Bauxite Company, Kaiser Jamaica Corporation, Alpart
Jamaica Inc., Kaiser Aluminum & Chemical of Canada Limited and five other
entities with limited balances or activities.

The Cases filed by the Additional Debtors were commenced, among other reasons,
to protect the assets held by these Debtors against possible statutory liens
that may arise and be enforced by the Pension Benefit Guaranty Corporation
("PBGC") primarily as a result of the Company's failure to meet a $17.0
accelerated funding requirement to its salaried employee retirement plan in
January 2003 (see Note 10 of Notes to Consolidated Financial Statements in the
Company's Form 10-K for the year ended December 31, 2002 for additional
information regarding the accelerated funding requirement). From an operating
perspective, the filing of the Cases by the additional Debtors had no impact on
the Company's day-to-day operations.

In connection with the Additional Debtors' filings, the Court authorized the
Additional Debtors to continue to make payments in the normal course of business
(including payments of pre-Filing Date amounts), including payments of wages and
benefits, payments for items such as materials, supplies and freight and
payments of taxes. The Court also approved the continuation of the Company's
existing cash management systems and routine intercompany transactions
involving, among other transactions, the transfer of materials and supplies
among affiliates.

In March 2003, the Court set May 15, 2003, as the last date by which holders of
pre-Filing Date claims against the Additional Debtors (other than
asbestos-related personal injury claims and certain hearing loss claims) could
file their claims.

All Debtors. The Debtors' objective is to achieve the highest possible
recoveries for all creditors and stockholders, consistent with the Debtors'
abilities to pay, and to continue the operations of their businesses. However,
there can be no assurance that the Debtors will be able to attain these
objectives or achieve a successful reorganization. While valuation of the
Debtors' assets and pre-Filing Date claims at this stage of the Cases is subject
to inherent uncertainties, the Debtors currently believe that it is likely that
their liabilities will be found in the Cases to exceed the fair value of their
assets. Therefore, the Debtors currently believe that it is likely that
pre-Filing Date claims will be paid at less than 100% of their face value and
the equity of the Company's stockholders will be diluted or cancelled. Because
of such possibility, the value of the Common Stock is speculative and any
investment in the Common Stock would pose a high degree of risk.

Under the Code, the rights of and ultimate payments to pre-Filing Date creditors
and stockholders may be substantially altered. At this time, it is not possible
to predict the outcome of the Cases, in general, or the effect of the Cases on
the businesses of the Debtors.

Two creditors' committees, one representing the unsecured creditors and the
other representing the asbestos claimants, have been appointed as official
committees in the Cases and, in accordance with the provisions of the Code, will
have the right to be heard on all matters that come before the Court. In July
2003, the Debtors asked the Court to approve the appointment of a committee of
salaried retirees (the "1114 Committee") with whom the Debtors can discuss
necessary changes, including the modification or termination, of certain retiree
benefits (such as medical and insurance) under Section 1114 of the Code. The
Debtors expect that the appointed committees, together with the legal
representative for potential future asbestos claimants that has been appointed
in the Cases, will play important roles in the Cases and the negotiation of the
terms of any plan or plans of reorganization. The Debtors are required to bear
certain costs and expenses for the committees and the legal representative for
potential future asbestos claimants, including those of their counsel and other
advisors.

The Debtors anticipate that substantially all liabilities of the Debtors as of
the date of the Filing will be resolved under one or more plans of
reorganization to be proposed and voted on in the Cases in accordance with the
provisions of the Code. Although the Debtors intend to file and seek
confirmation of such a plan or plans, there can be no assurance as to when the
Debtors will file such a plan or plans, or that such plan or plans will be
confirmed by the Court and consummated.

As provided by the Code, the Original Debtors had the exclusive right to propose
a plan of reorganization for 120 days following the initial Filing Date. The
Court has subsequently approved several extensions of the exclusivity period for
all Debtors, the most recent of which was set to expire July 31, 2003. A motion
to extend the exclusivity period through October 31, 2003, was filed by the
Debtors in late July 2003. By filing the motion to extend the exclusivity
period, the period is automatically extended until the September 22, 2003 Court
hearing date. As the Debtors' motion to extend the exclusivity period through
October 31, 2003 was agreed with by the creditors' committees in advance of the
filing, the Debtors expect the motion to be approved by the Court. Additional
extensions are likely to be sought. However, no assurance can be given that such
future extension requests will be granted by the Court. If the Debtors fail to
file a plan of reorganization during the exclusivity period, or if such plan is
not accepted by the requisite numbers of creditors and equity holders entitled
to vote on the plan, other parties in interest in the Cases may be permitted to
propose their own plan(s) of reorganization for the Debtors.

The Company expects that, when the Debtors ultimately file a plan of
reorganization, it will reflect the Company's strategic vision for emergence
from Chapter 11: (a) a standalone going concern with manageable leverage,
improved cost structure and competitive strength; (b) a company positioned to
execute its long-standing vision of market leadership and growth in fabricated
products specifically with a financial structure that provides financial
flexibility, including access to capital markets, for accretive acquisitions;
(c) a company that delivers a broad product offering and leadership in service
and quality for its customers and distributors; and (d) a company with continued
presence in those commodities markets that have the potential to generate
significant cash at steady-state metal prices. The Company's advisors have
developed a preliminary timeline that, assuming the current pace of the Cases
continues, could allow the Company to emerge from Chapter 11 in 2004. While no
assurances can be given in this regard, the Company's management continues to
push for an aggressive pace in advancing the Cases. Continued sales of non-core
assets and facilities that are ultimately determined not to be an important part
of the reorganized entity are likely. In light of the Company's stated strategy
of market leadership and growth in fabricated products and to further the
Company's ultimate planned emergence from Chapter 11, the Company has determined
that it is appropriate to explore the possible disposition of one or more of its
commodity assets. The Company, through its financial advisor, has been in
contact with a number of parties with possible interest in the commodity assets
and has provided a number of parties certain information pursuant to
confidentiality agreements. While no commodity asset sales are currently
imminent, it is possible that one or more sales may occur in late 2003 or the
first half of 2004. Any sale of assets would be subject to various prior
approvals including, but not limited to, approvals by the Company's Board of
Directors, the Court and the DIP Facility lenders and no assurances can be given
that acceptable offers will be received for any assets or that any assets will
ultimately be sold. The Company's strategic vision is subject to continuing
review in consultation with the Company's stakeholders and may also be modified
from time to time as the Cases proceed due to changes in such items as changes
in the global markets, changes in the economics of the Company's facilities or
changing financial circumstances.

Financial Statement Presentation. The accompanying consolidated financial
statements have been prepared in accordance with AICPA Statement of Position
90-7 ("SOP 90-7"), Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code, and on a going concern basis, which contemplates the
realization of assets and the liquidation of liabilities in the ordinary course
of business. However, as a result of the Cases, such realization of assets and
liquidation of liabilities are subject to a significant number of uncertainties.

Financial Information. Condensed consolidating financial statements of the
Debtors and non-Debtors are set forth below:

                     CONDENSED CONSOLIDATING BALANCE SHEETS
                                  JUNE 30, 2003

                                                                                      Consolidation/
                                           Original     Additional                      Elimination
                                            Debtors       Debtors       Non-Debtors       Entries      Consolidated
                                         ------------- -------------  -------------- ---------------- --------------
Current assets                           $      370.4  $       28.1   $       111.9  $          -     $       510.4
Investments in subsidiaries and
   affiliates                                 1,428.0         205.0              .1         (1,555.7)          77.4
Intercompany receivables (payables), net       (990.4)        897.6            92.8             -               -
Property and equipment, net                     583.6          18.3           381.2             -             983.1
Deferred income taxes                           (81.9)         81.9             -               -               -
Other assets                                    528.7            .4             7.8             -             536.9
                                         ------------- -------------  -------------- ---------------- --------------
                                         $    1,838.4  $    1,231.3   $       593.8  $      (1,555.7) $     2,107.8
                                         ============= =============  ============== ================ ==============

Liabilities not subject to compromise -
   Current liabilities                   $      243.2  $       23.5   $        90.5  $         (13.5) $       343.7
   Long-term liabilities                         77.4          16.4            30.4             -             124.2
Liabilities subject to compromise             2,722.7           -               -               -           2,722.7
Minority interests                               -              -             104.3             17.8          122.1
Stockholders' equity (deficit)               (1,204.9)      1,191.4           368.6         (1,560.0)      (1,204.9)
                                         ------------- -------------  -------------- ---------------- --------------
                                         $    1,838.4  $    1,231.3   $       593.8  $      (1,555.7) $     2,107.8
                                         ============= =============  ============== ================ ==============

For condensed consolidating balance sheets of the Debtors and non-Debtors as of
December 31, 2002, see Note 1 of Notes to Consolidated Financial Statements in
the Company's Form 10-K for the year ended December 31, 2002.

               CONDENSED CONSOLIDATING STATEMENTS OF INCOME (LOSS)
                       FOR THE QUARTER ENDED JUNE 30, 2003

                                                                                      Consolidation/
                                           Original     Additional                      Elimination
                                            Debtors       Debtors       Non-Debtors       Entries      Consolidated
                                         ------------- -------------  -------------- ---------------- --------------
Net sales                                $      324.7  $       12.1   $        25.4  $          (3.8) $       358.4
                                         ------------- -------------  -------------- ---------------- --------------
Costs and expenses -
   Operating costs and expenses                 371.7           4.9            39.2             (3.8)         412.0
   Non-recurring operating charges
      (benefits), net                             (.7)         -                -               -               (.7)
                                         ------------- -------------  -------------- ---------------- --------------
                                                371.0           4.9            39.2             (3.8)         411.3
                                         ------------- -------------  -------------- ---------------- --------------
Operating income (loss)                         (46.3)          7.2           (13.8)            -             (52.9)
Interest expense                                 (2.6)          -               (.1)            -              (2.7)
All other income (expense), net                  (7.3)         (3.6)             .3              2.8           (7.8)
Benefit (provision) for income tax and
   minority interests                             (.8)         (2.0)            5.1             -               2.3
Equity in income of subsidiaries                 (4.1)          -               -                4.1            -
                                         ------------- -------------  -------------- ---------------- --------------
Income (loss) from continuing operations        (61.1)          1.6            (8.5)             6.9          (61.1)
Discontinued operations                           (.2)          -               -               -               (.2)
                                         ------------- -------------  -------------- ---------------- --------------
Net income (loss)                        $      (61.3) $        1.6   $        (8.5) $           6.9  $       (61.3)
                                         ============= =============  ============== ================ ==============

               CONDENSED CONSOLIDATING STATEMENTS OF INCOME (LOSS)
                       FOR THE QUARTER ENDED JUNE 30, 2002

                                                                                      Consolidation/
                                           Original     Additional                      Elimination
                                            Debtors       Debtors       Non-Debtors       Entries      Consolidated
                                         ------------- -------------  -------------- ---------------- --------------
Net sales                                $      350.9  $       11.1   $        50.0  $         (25.7) $       386.3
                                         ------------- -------------  -------------- ---------------- --------------
Costs and expenses -
   Operating costs and expenses                 378.2           7.9            53.9            (25.7)         414.3
   Non-recurring operating charges                7.5           -               -               -               7.5
                                         ------------- -------------  -------------- ---------------- --------------
                                                385.7           7.9            53.9            (25.7)         421.8
                                         ------------- -------------  -------------- ---------------- --------------
Operating income (loss)                         (34.8)          3.2            (3.9)            -             (35.5)
Interest expense                                 (2.1)          -               (.4)            -              (2.5)
All other income (expense), net                  (5.7)         (2.8)            (.1)             2.5           (6.1)
Benefit (provision) for income tax and
   minority interests                             (.9)         (4.5)             .4             -              (5.0)
Equity in income of subsidiaries                 (5.6)          -               -                5.6            -
                                         ------------- -------------  -------------- ---------------- --------------
Income (loss) from continuing operations        (49.1)         (4.1)           (4.0)             8.1          (49.1)
Discontinued operations                          (1.3)          -               -               -              (1.3)
                                         ------------- -------------  -------------- ---------------- --------------
Net income (loss)                        $      (50.4) $       (4.1)  $        (4.0) $           8.1  $       (50.4)
                                         ============= =============  ============== ================ ==============

               CONDENSED CONSOLIDATING STATEMENTS OF INCOME (LOSS)
                     FOR THE SIX MONTHS ENDED JUNE 30, 2003

                                                                                      Consolidation/
                                           Original     Additional                      Elimination
                                            Debtors       Debtors       Non-Debtors       Entries      Consolidated
                                         ------------- -------------  -------------- ---------------- --------------
Net sales                                $      627.6  $       24.5   $        59.1  $         (13.4) $       697.8
                                         ------------- -------------  -------------- ---------------- --------------
Costs and expenses -
   Operating costs and expenses                 726.1          12.3            84.2            (13.4)         809.2
   Non-recurring operating charges
      (benefit), net                               .6           -               -               -                .6
                                         ------------- -------------  -------------- ---------------- --------------
                                                726.7          12.3            84.2            (13.4)         809.8
                                         ------------- -------------  -------------- ---------------- --------------
Operating income (loss)                         (99.1)         12.2           (25.1)            -            (112.0)
Interest expense                                 (4.9)          -               (.4)            -              (5.3)
All other income (expense), net                 (18.3)         (4.4)             .7              5.5          (16.5)
Benefit (provision) for income tax and
   minority interests                            (2.6)         (7.2)            9.3             -               (.5)
Equity in income of subsidiaries                 (9.4)          -               -                9.4            -
                                         ------------- -------------  -------------- ---------------- --------------
Income (loss) from continuing operations       (134.3)           .6           (15.5)            14.9         (134.3)
Discontinued operations                           7.9           -               -               -               7.9
                                         ------------- -------------  -------------- ---------------- --------------
Net income (loss)                        $     (126.4) $         .6   $       (15.5) $          14.9  $      (126.4)
                                         ============= =============  ============== ================ ==============

               CONDENSED CONSOLIDATING STATEMENTS OF INCOME (LOSS)
                     FOR THE SIX MONTHS ENDED JUNE 30, 2002

                                                                                      Consolidation/
                                           Original     Additional                      Elimination
                                            Debtors       Debtors       Non-Debtors       Entries      Consolidated
                                         ------------- -------------  -------------- ---------------- --------------
Net sales                                $      686.7  $       23.0   $       104.3  $         (57.1) $       756.9
                                         ------------- -------------  -------------- ---------------- --------------
Costs and expenses -
   Operating costs and expenses                 753.4           7.7           114.2            (57.1)         818.2
   Non-recurring operating charges                9.1           -               -               -               9.1
                                         ------------- -------------  -------------- ---------------- --------------
                                                762.5           7.7           114.2            (57.1)         827.3
                                         ------------- -------------  -------------- ---------------- --------------
Operating income (loss)                         (75.8)         15.3            (9.9)            -             (70.4)
Interest expense                                (15.2)          -               (.8)            -             (16.0)
All other income (expense), net                 (13.1)         (5.6)            -                5.1          (13.6)
Benefit (provision) for income tax and
   minority interests                            (3.7)        (10.4)            2.6             -             (11.5)
Equity in income of subsidiaries                 (3.7)          -               -                3.7            -
                                         ------------- -------------  -------------- ---------------- --------------
Income (loss) from continuing operations       (111.5)          (.7)           (8.1)             8.8         (111.5)
Discontinued operations                          (3.0)          -               -               -              (3.0)
                                         ------------- -------------  -------------- ---------------- --------------
Net income (loss)                        $     (114.5) $        (.7)  $        (8.1) $           8.8  $      (114.5)
                                         ============= =============  ============== ================ ==============

                CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
                     FOR THE SIX MONTHS ENDED JUNE 30, 2003

                                                                                      Consolidation/
                                           Original     Additional                      Elimination
                                            Debtors       Debtors       Non-Debtors       Entries      Consolidated
                                         ------------- -------------  -------------- ---------------- --------------
Net cash provided (used) by:
   Operating activities                  $      (62.7) $        (.8)  $        14.2  $          -     $       (49.3)
   Investing activities                          70.3           (.1)          (14.3)            -              55.9
   Financing activities                          (1.4)          -               -               -              (1.4)
                                         ------------- -------------  -------------- ---------------- --------------
Net (decrease) increase in cash and cash
   equivalents                                    6.2           (.9)            (.1)            -               5.2
Cash and cash equivalents at beginning
   of period                                     75.5           2.1             1.1             -              78.7
                                         ------------- -------------  -------------- ---------------- --------------
Cash and cash equivalents at end of      $       81.7  $        1.2   $         1.0  $          -     $        83.9
   period                                ============= =============  ============== ================ ==============

                CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
                     FOR THE SIX MONTHS ENDED JUNE 30, 2002

                                                                                      Consolidation/
                                           Original     Additional                      Elimination
                                            Debtors       Debtors       Non-Debtors       Entries      Consolidated
                                         ------------- -------------  -------------- ---------------- --------------
Net cash provided (used) by:
   Operating activities                  $      (19.1) $         .3   $        19.9  $          -     $         1.1
   Investing activities                          15.8           (.3)          (15.1)            -                .4
   Financing activities                          (7.5)          -               -               -              (7.5)
                                         ------------- -------------  -------------- ---------------- --------------
Net (decrease) increase in cash and cash
   equivalents                                  (10.8)          -               4.8             -              (6.0)
Cash and cash equivalents at beginning
   of period                                    151.6           1.4              .3             -             153.3
                                         ------------- -------------  -------------- ---------------- --------------
Cash and cash equivalents at end of
   period                                $      140.8  $        1.4   $         5.1  $          -     $       147.3
                                         ============= =============  ============== ================ ==============

Classification of Liabilities as "Liabilities Not Subject to Compromise" Versus
"Liabilities Subject to Compromise." Liabilities not subject to compromise
include: (1) liabilities incurred after the Filing Date of the Cases; (2)
pre-Filing Date liabilities that the Debtors expect to pay in full, including
priority tax and employee claims and certain environmental liabilities, even
though certain of these amounts may not be paid until a plan of reorganization
is approved; and (3) pre-Filing Date liabilities that have been approved for
payment by the Court and that the Debtors expect to pay (in advance of a plan of
reorganization) over the next twelve-month period in the ordinary course of
business, including certain employee related items (salaries, vacation and
medical benefits), claims subject to a currently existing collective bargaining
agreement, and postretirement medical and other costs associated with retirees
(however, see note (2) to the table below).

Liabilities subject to compromise refer to all other pre-Filing Date liabilities
of the Debtors. The amounts of the various categories of liabilities that are
subject to compromise are set forth below. These amounts represent the Company's
estimates of known or probable pre-Filing Date claims that are likely to be
resolved in connection with the Cases. Such claims remain subject to future
adjustments. Further, the Debtors currently believe that it is likely that
pre-Filing Date claims will be paid at less than 100% of their face value and
the equity of the Company's stockholders will be diluted or cancelled.

The amounts subject to compromise at June 30, 2003 and December 31, 2002
consisted of the following items:

                                                                                    June 30,         December 31,
                                                                                      2003               2002
                                                                                 ---------------   ----------------
Items, absent the Cases, that would have been considered current:
   Accounts payable                                                              $         48.5    $          47.6
   Accrued interest                                                                        44.0               44.0
   Accrued salaries, wages and related expenses(1)                                        159.0               59.0
   Other accrued liabilities (including asbestos liability of $130.0 - Note 7)            143.7              150.6
Items, absent the Cases, that would have been considered long-term:
   Accrued pension benefits                                                               287.7              362.7
   Accrued postretirement medical obligation(2)                                           665.0              672.4
   Long-term liabilities(3)                                                               544.6              559.5
   Debt (Note 5)                                                                          830.2              830.2
                                                                                 ---------------   ----------------
                                                                                 $      2,722.7    $       2,726.0
                                                                                 ===============   ================

(1)     Accrued salaries, wages and related expenses represent estimated minimum
        pension contributions that, absent the Cases, would have otherwise been
        payable. Amounts for the period ended June 30, 2003 include
        approximately $100.0 associated with estimated special liquidity and
        other payments that were not made. As previously disclosed, the Company
        does not currently expect to make any pension contributions in respect
        of its domestic pension plans. See Note 10 of Notes to Consolidated
        Financial Statements in the Company's Form 10-K for the year ended
        December 31, 2002 for additional information about non-payment of
        pension contributions.
(2)     In July 2003, the Debtors asked the Court to approve the appointment of
        the 1114 Committee with whom the Debtors can discuss necessary changes,
        including the modification or termination, of certain retiree benefits
        (such as medical and insurance) under Section 1114 of the Code.
        Separately, the Debtors have begun discussions with the appropriate
        union representatives to discuss modifications or termination of hourly
        retiree benefits pursuant to collective bargaining agreements. The
        Company has continued to report the current portion of accrued
        postretirement medical obligations as liabilities not subject to
        compromise, but this treatment is subject to change depending on the
        actions of the aforementioned discussions and specific actions by the
        Company.
(3)     Long-term liabilities include environmental liabilities of $22.7 at June
        30, 2003 and $21.7 at December 31, 2002 (Note 7) and asbestos
        liabilities of $480.1 at June 30, 2003 and December 31, 2002 (Note 7).

The classification of liabilities "not subject to compromise" versus liabilities
"subject to compromise" is based on currently available information and
analysis. As the Cases proceed and additional information and analysis is
completed or, as the Court rules on relevant matters, the classification of
amounts between these two categories may change. The amount of any such changes
could be significant. Additionally, as the Company evaluates the proofs of claim
filed in the Cases, adjustments will be made for those claims that the Company
believes will probably be allowed by the Court. The amount of such claims could
be significant.

Reorganization Items. Reorganization items under the Cases are expense or income
items that are incurred or realized by the Company because it is in
reorganization. These items include, but are not limited to, professional fees
and similar types of expenses incurred directly related to the Cases, loss
accruals or gains or losses resulting from activities of the reorganization
process, and interest earned on cash accumulated by the Debtors because they are
not paying their pre-Filing Date liabilities. For the quarter and six-month
periods ended June 30, 2003 and 2002, reorganization items were as follows:

                                                                      Quarter Ended             Six Months Ended
                                                                        June 30,                    June 30,
                                                                ------------------------    ------------------------
                                                                   2003         2002           2003         2002
                                                                -----------  -----------    ----------  ------------
Professional fees                                               $      7.6   $      7.2     $    15.2   $      10.9
Accelerated amortization of certain deferred
   financing costs                                                      -            -              -           4.5
Interest income                                                        (.3)         (.7)          (.5)         (1.1)
Other                                                                   .1           -             .1           1.8
                                                                -----------  -----------    ----------  ------------
                                                                $      7.4   $      6.5     $    14.8   $      16.1
                                                                ===========  ===========    ==========  ============

As required by SOP 90-7, in the first quarter of 2002, the Company recorded the
Debtors' pre-Filing Date debt that is subject to compromise at the allowed
amount. Accordingly, the Company accelerated the amortization of debt-related
premium, discount and costs attributable to this debt and recorded a net expense
of approximately $4.5 in Reorganization items during the first quarter of 2002.

Trust Fund. During the first quarter of 2002, the Company paid $5.8 into a trust
fund in respect of potential liability obligations of directors and officers.

2.    GENERAL

This Quarterly Report on Form 10-Q should be read in conjunction with the
Company's Annual Report on Form 10-K for the year ended December 31, 2002.

Going Concern. The interim consolidated financial statements of the Company have
been prepared on a "going concern" basis which contemplates the realization of
assets and the liquidation of liabilities in the ordinary course of business;
however, as a result of the commencement of the Cases, such realization of
assets and liquidation of liabilities are subject to a significant number of
uncertainties. Specifically, the interim consolidated financial statements do
not present: (a) the realizable value of assets on a liquidation basis or the
availability of such assets to satisfy liabilities, (b) the amount which will
ultimately be paid to settle liabilities and contingencies which may be allowed
in the Cases, or (c) the effect of any changes which may occur in connection
with the Debtors' capitalizations or operations of the Debtors as a result of a
plan of reorganization. Because of the ongoing nature of the Cases, the
discussions and consolidated financial statements contained herein are subject
to material uncertainties.

Principles of Consolidation. The Company is the principal subsidiary of Kaiser.
Kaiser is a subsidiary of MAXXAM Inc. ("MAXXAM"). MAXXAM and one of its wholly
owned subsidiaries together own approximately 62% of the Company's Common Stock,
with the remaining approximately 38% publicly held.

The accompanying unaudited interim consolidated financial statements have been
prepared in accordance with generally accepted accounting principles ("GAAP")
for interim financial information and the rules and regulations of the
Securities and Exchange Commission. Accordingly, these financial statements do
not include all of the disclosures required by GAAP for complete financial
statements. In the opinion of management, the unaudited interim consolidated
financial statements furnished herein include all adjustments, all of which are
of a normal recurring nature unless otherwise noted, necessary for a fair
statement of the results for the interim periods presented.

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

Operating results for the quarter and six-month periods ended June 30, 2003, are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2003.

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

See Note 2 of Notes to Consolidated Financial Statements in the Company's Form
10-K for the year ended December 31, 2002 and Note 8 for additional information
regarding derivative financial instruments.

3.    INVENTORIES

The classification of inventories is as follows:

                                                                    June 30,        December 31,
                                                                      2003              2002
                                                                 ---------------  ----------------
Finished fabricated aluminum products                            $         22.7   $          28.1
Primary aluminum and work in process                                       72.3              71.2
Bauxite and alumina                                                        53.1              72.9
Operating supplies and repair and maintenance parts                        79.0              82.7
                                                                 ---------------  ----------------
      Total                                                      $        227.1   $         254.9
                                                                 ===============  ================

Substantially all product inventories are stated at last-in, first-out ("LIFO")
cost, not in excess of market. Replacement cost is not in excess of LIFO cost.

4.    PACIFIC NORTHWEST SMELTER CURTAILMENTS AND RELATED POWER MATTERS

Future Power Supply and its Impact on Future Operating Rate. During October
2000, the Company signed a new power contract with the Bonneville Power
Administration ("BPA") under which the BPA, starting October 1, 2001, was to
provide the Company's operations in the State of Washington with approximately
290 megawatts of power through September 2006. The contract provided the Company
with sufficient power to fully operate the Company's Trentwood facility (which
requires up to an approximate 40 megawatts), as well as approximately 40% of the
combined capacity of the Company's Mead and Tacoma aluminum smelting operations
which have been curtailed since the last half of 2000.

As a part of the reorganization process, the Company concluded that it was in
its best interest to reject the BPA contract as permitted by the Code. As such,
with the authorization of the Court, the Company rejected the BPA contract on
September 30, 2002. The contract rejection gives rise to a pre-petition claim
(see Note 1). The BPA has filed a proof of claim for approximately $75.0 in
connection with the Cases in respect of the contract rejection. The claim is
expected to be settled in the overall context of the Debtors' plan of
reorganization. Accordingly, any payments that may be required as a result of
the rejection of the BPA contract are expected to only be made pursuant to a
plan of reorganization and upon the Company's emergence from the Cases. The
amount of the BPA claim will be determined either through a negotiated
settlement, litigation or a computation of prevailing power prices over the
contract period. As the amount of the BPA's claim in respect of the contract
rejection has not been determined, no provision has been made for the claim in
the accompanying financial statements. The Company has entered into a rolling
short-term contract with an alternate supplier to provide the power necessary to
operate its Trentwood facility.

In January 2003, the Company announced the indefinite curtailment of the Mead
facility. The curtailment of the Mead facility was due to the continuing
unfavorable market dynamics, specifically unattractive long-term power prices
and weak primary aluminum prices - both of which are significant impediments for
an older smelter with higher-than-average operating costs. The Mead facility is
expected to remain completely curtailed unless and until an appropriate
combination of reduced power prices, higher primary aluminum prices and other
factors occurs. The restart of a portion of the Company's Mead facility would
require the purchase of additional power from available sources. For the Company
to make such a decision, it would have to be able to purchase such power at a
reasonable price in relation to current and expected market conditions for a
sufficient term to justify its restart costs, which could be significant
depending on the number of lines restarted and the length of time between the
shutdown and restart. Given recent primary aluminum prices and the forward price
of power in the Northwest, it is unlikely that the Company will operate the Mead
facility in the near future. If the Company were to restart all or a portion of
its Mead facility, it would take at least three to six months to reach the full
operating rate for such operations, depending upon the number of lines
restarted. Even after achieving the full operating rate, operating only a
portion of the Mead facility would result in production/cost inefficiencies such
that operating results would, at best, be breakeven to modestly negative at
long-term primary aluminum prices. See Note 5 of Notes to Consolidated Financial
Statements in the Company's Form 10-K for the year ended December 31, 2002, for
a discussion of the Northwest smelters 2002 impairment charge.

In January 2003, the Court approved the sale of the Tacoma facility to the Port
of Tacoma. The sale closed in February 2003. See Note 9 for additional
discussion on the sale of the Tacoma facility.

5.    LONG-TERM DEBT

Debt consists of the following:

                                                                                       June 30,       December 31,
                                                                                         2003             2002
----------------------------------------------------------------------------------  ---------------  --------------
Secured:
   Post-Petition Credit Agreement                                                   $         -      $         -
   8 1/4% Alpart CARIFA Loans due 2007                                                        22.0            22.0
   7.6% Solid Waste Disposal Revenue Bonds due 2027                                           19.0            19.0
   Other borrowings (fixed rate)                                                               2.5             2.6
Unsecured (reflected as Liabilities Subject to Compromise):
   9 7/8% Senior Notes due 2002, net                                                         172.8           172.8
   10 7/8% Senior Notes due 2006, net                                                        225.0           225.0
   12 3/4% Senior Subordinated Notes due 2003                                                400.0           400.0
   Other borrowings (fixed and variable rates)                                                32.4            32.4
                                                                                    ---------------  --------------
Total                                                                                        873.7           873.8

Less - Current portion                                                                         1.1              .9
        Pre-Filing Date claims included in liabilities subject to compromise
          (Note 1)                                                                           830.2           830.2
                                                                                    ---------------  --------------
Long-term debt                                                                      $         42.4   $        42.7
                                                                                    ===============  ==============

Post-Petition Credit Agreement. On February 12, 2002, the Company and Kaiser
entered into a post-petition credit agreement with a group of lenders for
debtor-in-possession financing (the "DIP Facility"). In March 2003, certain of
the Additional Debtors were added as co-guarantors and the DIP Facility lenders
received super-priority status with respect to certain of the Additional
Debtors' assets. The DIP Facility provides for a secured, revolving line of
credit through the earlier of February 12, 2004 (extended to February 13, 2005
in August 2003 as discussed below), the effective date of a plan of
reorganization or voluntary termination by the Company. Under the DIP Facility,
the Company is able to borrow amounts by means of revolving credit advances and
to have issued for its benefit letters of credit (up to $125.0) in an aggregate
amount equal to the lesser of $300.0 (reduced to $285.0 in August 2003 as
discussed below) or a borrowing base relating to eligible accounts receivable,
eligible inventory and an amortizing fixed asset component, reduced by certain
reserves, as defined in the DIP Facility agreement. The DIP Facility is
guaranteed by Kaiser and certain significant subsidiaries of the Company.
Interest on any outstanding borrowings will bear a spread over either a base
rate or LIBOR, at the Company's option. As of June 30, 2003, $120.3 was
available to the Company under the DIP Facility (of which $78.8 could be used
for additional letters of credit) and no borrowings were outstanding under the
revolving credit facility.

The DIP Facility requires the Company to comply with certain financial covenants
and places restrictions on the Company's ability to, among other things, incur
debt and liens, make investments, pay dividends, undertake transactions with
affiliates, make capital expenditures, and enter into unrelated lines of
business. During March 2003, the Company obtained a waiver from the lenders in
respect of its compliance with a financial covenant covering the four-quarter
period ending March 31, 2003. The waiver was of limited duration and would have
lapsed on June 29, 2003. In May 2003, the Company obtained an extension and
modification of the March 2003 limited waiver for the financial covenant through
the four-quarter period ending June 30, 2003 until September 30, 2003 by when it
was contemplated that a formal amendment would be completed. Subsequently,
during June 2003 and August 2003, the Company and the DIP Facility lenders
completed two amendments. The first of the two amendments (the fifth amendment
to the DIP Facility) was necessary in order to permit the Company to take
certain actions necessary to facilitate access by Queensland Alumina Limited
("QAL"), the Company's 20% owned affiliate, to amounts available to QAL under
its existing financing arrangements, thereby reducing the Company's and the
other owners' funding requirements for QAL. The Company's share of such
additional financings at QAL is $43.0. The fifth amendment to the DIP Facility
was approved by the Court in June 2003. The major provisions of the second of
the two amendments (the sixth amendment to the DIP Facility) included: (a) an
extension of the maturity of the DIP Facility to February 2005, (b) an increase
in the eligible borrowing base amount under the DIP Facility by, among other
things, restoring the amortizing fixed assets subcomponent back to the original
$100.0 amount as of August 2003, (c) the incorporation of the May 2003 limited
waiver and also a modification of the financial covenant for periods beginning
June 30, 2003, and (d) a reduction of the commitment amount of the DIP Facility
to $285.0. The sixth amendment was approved on an interim basis by the Court on
August 13, 2003. Absent objections, the interim order will automatically become
final on August 19, 2003. As the motion to approve the sixth amendment was
agreed with the creditors' committees and the asbestos futures representative in
advance of the filing, the Company does not expect any objections and believes
that the sixth amendment will become fully effective. However, absolute
assurances cannot be given in this regard.

6.    INCOME TAXES

The benefit (provision) for income taxes of $.3 and $(6.4) for the quarters
ended June 30, 2003 and 2002, respectively, and $(4.4) and $(14.4) for the
six-month periods ended June 30, 2003 and 2002, respectively, relate primarily
to foreign income taxes. For the quarter and six-month periods ended June 30,
2003 and 2002, as a result of the Cases, the Company did not recognize any U.S.
income tax benefit for the losses incurred from its domestic operations
(including temporary differences) or any U.S. income tax benefit for foreign
income taxes. Instead, the increases in federal and state deferred tax assets as
a result of additional net operating losses and foreign tax credits generated in
2003 and 2002 were fully offset by increases in valuation allowances. See Note 9
of Notes to Consolidated Financial Statements in the Company's Form 10-K for the
year ended December 31, 2002 for additional information regarding the Deferred
Tax Assets and Valuation Allowances.

In March 2003, the Company paid approximately $22.0 in settlement of certain
foreign tax matters in respect of a number of prior periods.

7.    COMMITMENTS AND CONTINGENCIES

Impact of Reorganization Proceedings. During the pendency of the Cases,
substantially all pending litigation, except certain environmental claims and
litigation, against the Debtors is stayed. Generally, claims against a Debtor
arising from actions or omissions prior to its Filing Date will be settled in
connection with the plan of reorganization.

Commitments. The Company has a variety of financial commitments, including
purchase agreements, tolling arrangements, forward foreign exchange and forward
sales contracts (see Note 8), letters of credit, and guarantees. Such purchase
agreements and tolling arrangements include long-term agreements for the
purchase and tolling of bauxite into alumina in Australia by QAL. These
obligations are scheduled to expire in 2008. Under the agreements, the Company
is unconditionally obligated to pay its proportional share (20%) of debt,
operating costs, and certain other costs of QAL. The Company's share of the
aggregate minimum amount of required future principal payments as of June 30,
2003, was $52.0, which matured or will mature as follows: $32.0 in July 2003 and
$20.0 in 2006. The Company's share of QAL's debt principal payment in July 2003
was funded with additional QAL borrowings. During July 2002, the Company made
payments of approximately $29.5 to QAL to fund the Company's share of QAL's
scheduled debt maturities. The Company's share of payments, including operating
costs and certain other expenses under the agreements, has ranged between $95.0
- $103.0 per year over the past three years. The Company also has agreements to
supply alumina to and to purchase aluminum from Anglesey Aluminium Limited.

Minimum rental commitments under operating leases at December 31, 2002, were as
follows: years ending December 31, 2003 - $15.2; 2004 - $6.2; 2005 - $5.4; 2006
- $3.1; 2007 - $2.4; thereafter - $3.7. Pursuant to the Code, the Debtors may
elect to reject or assume unexpired pre-petition leases. At this time, no
decisions have been made as to which significant leases will be accepted or
rejected (see Note 1).

Rental expenses were $38.3, $41.0 and $42.5 for the years ended December 31,
2002, 2001 and 2000, respectively.

The Company had a long-term liability, net of estimated subleases income, on the
Kaiser Center office complex in Oakland, California, in which the Company had
not maintained offices for a number of years, but for which it was responsible
for lease payments as master tenant through 2008 under a sale-and-leaseback
agreement. The Company also held an investment in certain notes issued by the
owners of the building (which were included in Other Assets). In October 2002,
the Company entered into a contract to sell its interests in the office complex.
As the contract amount was less than the asset's net carrying value, the Company
recorded a non-cash impairment charge in 2002 of approximately $20.0. The sale
was approved by the Court in February 2003 and closed in March 2003. Net cash
proceeds were approximately $61.1.

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

Based on the Company's evaluation of these and other environmental matters, the
Company has established environmental accruals, primarily related to potential
solid waste disposal and soil and groundwater remediation matters. At June 30,
2003, the balance of such accruals was $59.3 (of which $22.7 was included in
Liabilities subject to compromise - see Note 1). These environmental accruals
represent the Company's estimate of costs reasonably expected to be incurred in
the ordinary course of business based on presently enacted laws and regulations,
currently available facts, existing technology, and the Company's assessment of
the likely remediation action to be taken. In the ordinary course, the Company
expects that these remediation actions would be taken over the next several
years and estimates that annual expenditures to be charged to these
environmental accruals will be approximately $8.0 to $12.0 in 2003 and 2004,
$1.0 to $4.0 in 2005 through 2007 and an aggregate of approximately $33.0
thereafter.

However, in furtherance of its reorganization, the Company has been negotiating
a possible multi-site resolution of the Company's environmental exposure at a
number of non-owned sites with various federal and state governmental regulatory
authorities. An agreement in principle has been reached with these parties under
which, among other things, the Company would agree to claims at such sites
totaling $25.5 ($18.2 greater than existing amounts accrued at June 30, 2003 for
these sites) and, in return, the governmental regulatory authorities would agree
that such claims would be treated as pre-Filing Date unsecured claims (i.e.
liabilities subject to compromise). While the Company believes it is likely that
the agreement with the various federal and state governmental regulatory
authorities will be signed during the third quarter of 2003, the agreement will
give the regulatory authorities the unilateral right to withdraw their approval
until after the conclusion of a public notice and comment period. Any agreement
would also be subject to Court approval. Because it is possible that objections
raised during the public comment process or objections made to the Court could
result in a significant modification or termination of the expected agreement,
the Company has not currently recorded any charge for any amounts above existing
accruals as such incremental liability was not believed to be "probable" (which
is the criteria for recognition under GAAP). However, it is possible that the
additional $18.2 (or a different amount) of charges may be required to be
recorded during the second half of 2003.

As additional facts are developed and definitive remediation plans and necessary
regulatory approvals for implementation of remediation are established or
alternative technologies are developed, changes in these and other factors may
result in actual costs exceeding the current environmental accruals. The Company
believes that it is reasonably possible that costs associated with these
environmental matters may exceed current accruals by amounts that could range,
in the aggregate, up to an estimated $33.0 (including the net impact of the
possible multi-site settlement discussed in the preceding paragraph). As the
resolution of these matters is subject to further regulatory review and
approval, no specific assurance can be given as to when the factors upon which a
substantial portion of this estimate is based can be expected to be resolved.
However, the Company is currently working to resolve certain of these matters.

The Company believes that it has insurance coverage available to recover certain
incurred and future environmental costs and may pursue claims in this regard.
However, no amounts have been accrued in the financial statements with respect
to such potential recoveries.

Asbestos Contingencies. The Company has been one of many defendants in a number
of lawsuits, some of which involve claims of multiple persons, in which the
plaintiffs allege that certain of their injuries were caused by, among other
things, exposure to asbestos during, and as a result of, their employment or
association with the Company or exposure to products containing asbestos
produced or sold by the Company. The lawsuits generally relate to products the
Company has not sold for more than 20 years. As of the initial Filing Date,
approximately 112,000 claims were pending. The lawsuits are currently stayed by
the Cases.

Due to the Cases, holders of asbestos claims are stayed from continuing to
prosecute pending litigation and from commencing new lawsuits against the
Debtors. However, during the pendency of the Cases, the Company expects
additional asbestos claims will be filed as part of the claims process. A
separate creditors' committee representing the interests of the asbestos
claimants has been appointed. The Debtors' obligations with respect to present
and future asbestos claims will be resolved pursuant to a plan of
reorganization.

The Company has accrued a liability for estimated asbestos-related costs for
claims filed to date and an estimate of claims to be filed through 2011. At June
30, 2003, the balance of such accrual was $610.1, all of which was included in
Liabilities subject to compromise (see Note 1). The Company's estimate is based
on the Company's view, at June 30, 2003, 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, P.A., with respect to the current state of
the law related to asbestos claims. However, there are inherent uncertainties
involved in estimating asbestos-related costs and the Company's actual costs
could exceed the Company's estimates due to changes in facts and circumstances
after the date of each estimate. Further, while the Company does not presently
believe there is a reasonable basis for estimating asbestos-related costs beyond
2011 and, accordingly, no accrual has been recorded for any costs which may be
incurred beyond 2011, the Company expects that the plan of reorganization
process may require an estimation of the Company's entire asbestos-related
liability, which may go beyond 2011, and that such costs could be substantial.

The Company believes that it has insurance coverage available to recover a
substantial portion of its asbestos-related costs. Although the Company has
settled asbestos-related coverage matters with certain of its insurance
carriers, other carriers have not yet agreed to settlements and disputes with
carriers exist. The timing and amount of future recoveries from these insurance
carriers will depend on the pendency of the Cases and on the resolution of any
disputes regarding coverage under the applicable insurance policies. The Company
believes that substantial recoveries from the insurance carriers are probable
and additional amounts may be recoverable in the future if additional claims are
added. The Company reached this conclusion after considering its prior
insurance-related recoveries in respect of asbestos-related claims, existing
insurance policies, and the advice of Heller Ehrman White & McAuliffe LLP with
respect to applicable insurance coverage law relating to the terms and
conditions of those policies. During 2000, the Company filed suit in San
Francisco Superior Court against a group of its insurers, which suit was
thereafter split into two related actions. Additional insurers were added to the
litigation in 2000 and 2002. During October 2001 and June 2003, the court ruled
favorably on a number of policy interpretation issues, one of which was affirmed
in February 2002 by an intermediate appellate court in response to a petition
from the insurers. The rulings did not result in any changes to the Company's
estimates of its current or future asbestos-related insurance recoveries. The
trial court may hear additional issues from time to time. Given the expected
significance of probable future asbestos-related payments, the receipt of timely
and appropriate payments from its insurers is critical to a successful plan of
reorganization and the Company's long-term liquidity.

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

                                                                  June 30,           December 31,
                                                                    2003                 2002
------------------------------------------------------------  -----------------   ------------------
Liability                                                     $          610.1    $           610.1
Receivable (included in Other assets)(1)                                 468.9                484.0
                                                              -----------------   ------------------
                                                              $          141.2    $           126.1
                                                              =================   ==================

(1)   The asbestos-related receivable was determined on the same basis as the
      asbestos-related cost accrual. However, no assurances can be given that
      the Company will be able to project similar recovery percentages for
      future asbestos-related claims or that the amounts related to future
      asbestos-related claims will not exceed the Company's aggregate insurance
      coverage. As of June 30, 2003 and December 31, 2002, $9.6 and $24.7,
      respectively, of the receivable amounts relate to costs paid. The
      remaining receivable amounts relate to costs that are expected to be paid
      by the Company in the future.

                                                                     Six Months
                                                                        Ended              Inception
                                                                    June 30, 2003           To Date
---------------------------------------------------------------   -----------------   ------------------
Payments made, including related legal costs                      $          -        $           355.7
Insurance recoveries                                                          15.1                260.2
                                                                  -----------------   ------------------
                                                                  $          (15.1)   $            95.5
                                                                  =================   ==================

During the pendency of the Cases, all asbestos litigation is stayed. As a
result, the Company does not expect to make any asbestos payments in the near
term. Despite the Cases, the Company continues to pursue insurance collections
in respect of asbestos-related amounts paid prior to its Filing Date.

Management continues to monitor claims activity, the status of lawsuits
(including settlement initiatives), legislative developments, and costs incurred
in order to ascertain whether an adjustment to the existing accruals should be
made to the extent that historical experience may differ significantly from the
Company's underlying assumptions. Additional asbestos-related claims are likely
to be asserted as a part of the Chapter 11 process. Management cannot reasonably
predict the ultimate number of such claims or the amount of the associated
liability. However, it is likely that such amounts could exceed, perhaps
significantly, the liability amounts reflected in the Company's consolidated
financial statements, which (as previously stated) is only reflective of an
estimate of claims through 2011. The Company's obligations in respect of the
currently pending and future asbestos-related claims will ultimately be
determined (and resolved) as a part of the overall Chapter 11 proceedings. It is
anticipated that resolution of these matters will be a lengthy process.
Management will continue to periodically reassess its asbestos-related
liabilities and estimated insurance recoveries as the Cases proceed. However,
absent unanticipated developments such as asbestos-related legislation, material
developments in other asbestos-related proceedings or in the Company's Chapter
11 proceedings, it is not anticipated that the Company will have sufficient
information to reevaluate its asbestos-related obligations and estimated
insurance recoveries until much later in the Cases. Any adjustments ultimately
deemed to be required as a result of the reevaluation of the Company's
asbestos-related liabilities or estimated insurance recoveries could have a
material impact on the Company's future financial statements.

Labor Matters. In connection with the United Steelworkers of America ("USWA")
strike and subsequent lock-out by the Company, which was settled in September
2000, certain allegations of unfair labor practices ("ULPs") were filed with the
National Labor Relations Board ("NLRB") by the USWA. As previously disclosed,
the Company has responded to all such allegations and believes that they were
without merit. Twenty-two of twenty-four allegations of ULPs previously brought
against the Company by the USWA have been dismissed. A trial before an
administrative law judge for the two remaining allegations concluded in
September 2001. In May 2002, the administrative law judge ruled against the
Company in respect of the two remaining ULP allegations and recommended that the
NLRB award back wages, plus interest, less any earnings of the workers during
the period of the lockout. The administrative law judge's ruling did not contain
any specific amount of proposed award and is not self-executing. The USWA has
filed a proof of claim for $240.0 in the Cases in respect of this matter. The
NLRB also filed a proof of claim in respect of this matter.

The NLRB claim was for $117.0, including interest of approximately $18.0.
Depending on the ultimate amount of any interest due and amount of offsetting
employee earnings and other factors, if the USWA ultimately were to prevail it
is possible that the amount of the award could exceed $100.0. It is also
possible that the Company may ultimately prevail on appeal and that no loss will
occur.

The Company continues to believe that the allegations are without merit and will
vigorously defend its position. The Company has appealed the ruling of the
administrative law judge to the full NLRB. The general counsel of the NLRB and
the USWA have cross-appealed. Any outcome from the NLRB appeal would be subject
to additional appeals in a United States Circuit Court of Appeals by the general
counsel of the NLRB, the USWA or the Company. This process could take several
years. Because the Company believes that it may prevail in the appeals process,
the Company has not recognized a charge in response to the adverse ruling.
However, it is possible that, if the Company's appeal(s) are not ultimately
successful, a charge in respect of this matter may be required in one or more
future periods and the amount of such charge(s) could be significant.

This matter is not currently stayed by the Cases. However, as previously stated,
seeing this matter to its ultimate outcome could take several years. Further,
any amounts ultimately determined by a court to be payable in this matter will
be dealt with in the overall context of the Debtors' plan of reorganization and
will be subject to compromise. Accordingly, any payments that may ultimately be
required in respect of this matter would only be paid upon or after the
Company's emergence from the Cases.

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

8.    DERIVATIVE FINANCIAL INSTRUMENTS AND RELATED HEDGING PROGRAMS

In conducting its business, the Company uses various instruments, including
forward contracts and options, to manage the risks arising from fluctuations in
aluminum prices, energy prices and exchange rates. The Company enters into
hedging transactions from time to time to limit its exposure resulting from (1)
its anticipated sales of alumina, primary aluminum, and fabricated aluminum
products, net of expected purchase costs for items that fluctuate with aluminum
prices, (2) the energy price risk from fluctuating prices for natural gas, fuel
oil and diesel oil used in its production process, and (3) foreign currency
requirements with respect to its cash commitments with foreign subsidiaries and
affiliates. As the Company's hedging activities are generally designed to
lock-in a specified price or range of prices, gains or losses on the derivative
contracts utilized in the hedging activities generally offset at least a portion
of any losses or gains, respectively, on the transactions being hedged.

2003. The following table summarizes the Company's material derivative positions
at June 30, 2003.

                                                                                  Estimated %
                                                                Notional          of Periods           Carrying/
                                                                Amount of       Sales/Purchases         Market
                Commodity                       Period          Contracts           Hedged               Value
-------------------------------------     ------------------  --------------   -----------------   ----------------

Aluminum (in tons*) -
      Option contracts                       7/03 to 9/03             54,000          96%          $      3.1

Energy -
   Fuel Oil (in barrels per month):
      Option contracts                       7/03 to 12/03           215,000          93%                  .7

   Natural gas (in mmbtu per day):
      Option contracts                       8/03 to 9/03                 35          (a)                  .2

------------------
a)      When the hedges in place as of June 30, 2003 and those placed in July
        2003 (see below) are combined with price limits in the Company's
        physical supply agreement, the Company's exposure to increases in
        natural gas prices has been substantially limited for August 2003 and
        September 2003 and approximately 60% of its exposure in October 2003 has
        been limited.

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

In July 2003, the Company purchased additional option contracts which cap the
price that the Company would have to pay for a portion of its natural gas
requirements for August, September and October 2003. During July 2003, the
Company also purchased option contracts that established a floor for
approximately one-third of its product sales that are linked to October 2003
primary aluminum prices.

The Company anticipates that, subject to prevailing economic conditions, it may
enter into additional hedging transactions with respect to primary aluminum
prices, natural gas and fuel oil prices and foreign currency values to protect
the interests of its constituents. However, no assurance can be given as to when
or if the Company will enter into such additional hedging activities.

As of June 30, 2003, the Company had sold forward substantially all of the
alumina available to it in excess of its projected internal smelting
requirements for the balance of 2003 and a vast majority of such alumina in 2004
and 2005 at prices indexed to future prices of primary aluminum.

2002. Because the agreements underlying the Company's hedging positions provided
that the counterparties to the hedging contracts could liquidate the Company's
hedging positions if the Company filed for reorganization, the Company chose to
liquidate these positions in advance of the Filing Date. Proceeds from the
liquidation totaled approximately $42.2. A net gain of $23.3 associated with
these liquidated positions was deferred and is being recognized over the period
during which the underlying transactions to which the hedges related are
expected to occur. The net gain upon liquidation consisted of: gains of $30.2
for aluminum contracts and losses of $5.0 for Australian dollars and $1.9 for
energy contracts. As of June 30, 2003, the remaining unamortized amount was
approximately a net loss of $1.8.

9.    DISCONTINUED OPERATIONS

The Company has previously disclosed that, in connection with the development of
a plan of reorganization, it conducted a study of the long-term competitive
position of the Mead and Tacoma facilities and potential options for these
facilities. When the Company received the preliminary results of the study, it
analyzed the findings and met with the USWA and other parties prior to making
its determination as to the appropriate action(s). The outcome of the study and
the Company's ongoing work on developing a plan of reorganization led the
Company to conclude that the Tacoma facility, whose aluminum smelting operations
had been curtailed since the last half of 2000, could not compete with the much
larger, newer and more efficient smelters, generally located outside the United
States. As a result, the Company entered into an agreement, which was approved
by the Court in January 2003, to sell the Tacoma facility to the Port of Tacoma
(the "Port"). Gross proceeds from the sale, before considering approximately
$4.0 of proceeds being held in escrow pending the resolution of certain
environmental and other issues, were approximately $12.1. The Port also agreed
to assume the on-site environmental remediation obligations. The sale closed in
February 2003. The sale resulted in a pre-tax gain of approximately $9.5. In
accordance with Statement of Financial Accounting Standards No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets ("SFAS No. 144"), the
operating results of the Tacoma facility for the quarter and six-month periods
ended June 30, 2003 and 2002 and the gain from the sale of the Tacoma facility
have been reported as discontinued operations in the accompanying Statements of
Consolidated Income (Loss). The balances and operating results associated with
the Tacoma facility were previously included in the Primary Aluminum business
segment.

10.   OTHER INCOME (EXPENSE) AND NON-RECURRING ITEMS

Non-Recurring Operating (Charges) Benefits, Net. The income (loss) impact
associated with non-recurring operating (charges) benefits, net for the quarter
and six-month periods ended June 30, 2003 and 2002, was as follows (the business
segment to which the item is applicable is indicated):

                                                                      Quarter Ended             Six Months Ended
                                                                        June 30,                    June 30,
                                                                ------------------------    ------------------------
                                                                   2003         2002           2003         2002
                                                                -----------  -----------    ----------  ------------
Restructuring charges -
   Primary Aluminum                                             $       -    $     (1.7)    $    (1.3)  $      (1.7)
   Bauxite & Alumina                                                   (.1)         (.3)          (.1)         (1.9)
   Fabricated Products                                                             (3.9)                       (3.9)
Product lines exit charge - Fabricated Products                         -          (1.6)            -          (1.6)
Other                                                                   .8           -             .8            -
                                                                -----------  -----------    ----------  ------------
                                                                $       .7   $     (7.5)    $     (.6)  $      (9.1)
                                                                ===========  ===========    ==========  ============

Restructuring charges in 2003 consist of employee benefit costs associated with
approximately 20 job eliminations during the first and second quarters of 2003
resulting primarily from the Primary aluminum business segment's Mead facility's
indefinite curtailment (see Note 4 ). Restructuring charges in 2002 resulted
from initiatives designed to increase operating cash flow, generate cash from
inventory reduction and improve the Company's financial flexibility. These
initiatives resulted in restructuring charges totaling $5.6 for employee
benefits and related costs for approximately 60 positions being eliminated in
the Primary aluminum and Fabricated products business segments during the second
quarter of 2002. All of the positions had been eliminated by the end of 2002.
Restructuring charges for the Bauxite & alumina business segment in 2002
consisted of third party costs associated with cost reduction efforts.

The product line exit charge in 2002 relates to a $1.6 LIFO inventory charge
which resulted from the Fabricated products segment's exit from the lid and tab
stock and brazing sheet product lines.

Other Income (Expense). Other income (expense), other than interest expense, for
the quarter and six-month periods ended June 30, 2003 included approximately
$1.7 of adverse foreign currency exchange impacts associated with a foreign tax
settlement in the first quarter of 2003. Other income (expense), other than
interest expense, in 2002 included a gain of $4.0 for the quarter and six-month
periods ended June 30, 2002 from the sale, in the ordinary course of business,
of certain non-operating property. Proceeds from the sale totaled $4.5.

11.   VALCO RELATED MATTERS

The amount of power made available to the Company's 90%-owned Volta Aluminium
Company ("Valco") by the Volta River Authority ("VRA") depends in large part on
the level of the lake that is the primary source for generating the
hydroelectric power used to supply the smelter. The level of the lake is
primarily a function of the level of annual rainfall and the alternative
(non-Valco) uses of the power generated, as directed by the VRA. The Company has
previously disclosed that Valco's power allocation was reduced in January 2003
resulting in the curtailment of two of its three operating potlines.

As previously disclosed, the lake level has been at or near a record low level.
Based on the level of the lake and the rate at which it had been declining, the
Company believed that curtailment of Valco's last remaining operating potline
was likely. Accordingly, in May 2003, the Company voluntarily curtailed the last
operating potline. Voluntary curtailment of the last operating potline: (1) may
provide Valco with an opportunity to run a greater number of potlines late in
2003 once the annual rainy season has replenished the lake level and Valco's
2004 power allocation is known (although no assurances can be provided in this
regard) and (2) offers the VRA and the Government of Ghana ("GoG") a
contribution toward conservation of the water supply to improve their ability to
meet Valco's power needs later in the year as well as meet the near-term needs
of the rest of Ghana.

In connection with such curtailments, $12.8 of employee end-of-service benefits
were paid ($5.9 in the second quarter) resulting in $8.1 of charges in the first
six months of 2003 ($3.8 in the second quarter). All charges are included in
Cost of products sold.

Valco has met with the GoG and the VRA and anticipates such discussions will
continue in respect of the current and future power situation and other matters.
Valco has objected to the power curtailments and expects to seek appropriate
compensation from the GoG. In addition, Valco and the Company have filed for
arbitration with the International Chamber of Commerce in Paris against both the
GoG and the VRA. However, no assurances can be given as to the ultimate success
of any such actions. Valco and the Company do not expect the voluntary
curtailment of the last operating potline to have any adverse impact on the
pending arbitrations or negotiations with the VRA and GoG.

12.   OPERATING SEGMENT INFORMATION

The Company uses a portion of its bauxite, alumina and primary aluminum
production for additional processing at its downstream facilities. Transfers
between business units are made at estimated market prices. The accounting
policies of the segments are the same as those described in Note 2 of Notes to
Consolidated Financial Statements in the Company's Form 10-K for the year ended
December 31, 2002. Business unit results are evaluated internally by management
before any allocation of corporate overhead and without any charge for income
taxes or interest expense. See Note 18 of Notes to Consolidated Financial
Statements in the Company's Form 10-K for the year ended December 31, 2002.

During the quarter ended June 30, 2003, the Company elected to change its
business segment reporting. Two of the Company's previously reported operating
segments, Flat-rolled products and Engineered products, have been designated as
one business segment, Fabricated products. The previously reported segments were
combined primarily due to a significant integration in the organization and
management of the two segments, as well as the similarity of their economic
characteristics, products, customers and production and distribution processes.
The change in segment reporting is also an outgrowth of the Company's strategic
vision as part of its planning for its ultimate emergence from Chapter 11.
Financial data for prior periods has been restated to conform to the revised
segment reporting.

Financial information by operating segment for the quarter and six-month periods
ended June 30, 2003 and 2002 is as follows:

                                                                   Quarter Ended               Six Months Ended
                                                                     June 30,                      June 30,
                                                            ---------------------------   --------------------------
                                                                2003           2002           2003          2002
                                                            ------------   ------------   ------------  ------------
Net Sales:
   Bauxite and Alumina:
      Net sales to unaffiliated customers                   $     139.9    $     114.9    $     275.5   $     228.5
      Intersegment sales                                             -             9.0           10.3          32.2
                                                            ------------   ------------   ------------  ------------
                                                                  139.9          123.9          285.8         260.7
                                                            ------------   ------------   ------------  ------------
   Primary Aluminum:
      Net sales to unaffiliated customers                          44.1           64.3           74.9         135.3
      Intersegment sales                                             -              .7             -            2.4
                                                            ------------   ------------   ------------  ------------
                                                                   44.1           65.0           74.9         137.7
                                                            ------------   ------------   ------------  ------------
   Fabricated Products                                            151.0          172.3          298.0         324.4
   Commodities Marketing (Note 8)                                   1.8           10.5            3.8          21.5
   Minority Interests                                              21.6           24.3           45.6          47.2
   Eliminations                                                      -            (9.7)         (10.3)        (34.6)
                                                            ------------   ------------   ------------  ------------
                                                            $     358.4    $     386.3    $     697.8   $     756.9
                                                            ============   ============   ============  ============
Operating income (loss):
   Bauxite and Alumina                                      $     (17.9)   $     (12.0)   $     (42.1)  $     (15.2)
   Primary Aluminum (Note 9)                                      (13.8)          (5.6)         (27.4)         (7.0)
   Fabricated Products                                             (1.8)            .7           (6.9)         (5.9)
   Commodities Marketing (Note 8)                                   1.7            8.4            2.9          19.1
   Eliminations                                                    (1.5)           2.4            1.0           2.9
   Corporate and Other                                            (20.3)         (21.9)         (38.9)        (55.2)
   Non-Recurring Operating (Charges) Benefits, Net
      (Note 10)                                                      .7           (7.5)           (.6)         (9.1)
                                                            ------------   ------------   ------------  ------------
                                                            $     (52.9)   $     (35.5)   $    (112.0)  $     (70.4)
                                                            ============   ============   ============  ============
Depreciation and amortization:
   Bauxite and Alumina                                      $       9.9    $       9.8    $      19.8   $      19.6
   Primary Aluminum                                                 2.2            5.4            4.4          10.7
   Fabricated Products                                              5.8            7.0           11.8          14.1
   Corporate and Other                                               .2             .3            1.4            .6
                                                            ------------   ------------   ------------  ------------
                                                            $      18.1    $      22.5    $      37.4   $      45.0
                                                            ============   ============   ============  ============

13.     SUPPLEMENTAL GUARANTOR INFORMATION

Certain domestic, wholly-owned (direct or indirect) subsidiaries of the Company
(hereinafter collectively referred to as the Subsidiary Guarantors) have
provided, joint and several, guarantees of the 9 7/8% Senior Notes, the 10 7/8%
Senior Notes, due 2006 and the 12 3/4% Senior Subordinated Notes (the "Notes").
Such guarantees are full and unconditional. See Note 19 of Notes to Consolidated
Financial Statements in the Company's Form 10-K for the year ended December 31,
2002 for a more complete discussion regarding the Subsidiary Guarantors and
their operations.

The accompanying financial information presents consolidating balance sheets,
statements of income (loss) and statements of cash flows showing separately the
Company, Subsidiary Guarantors, other subsidiaries and eliminating entries.

                     CONDENSED CONSOLIDATING BALANCE SHEETS
                                  JUNE 30, 2003

                                                             SUBSIDIARY         OTHER         ELIMINATING
                                               COMPANY       GUARANTORS     SUBSIDIARIES        ENTRIES     CONSOLIDATED
                                          ---------------- --------------- ---------------  -------------- --------------
ASSETS
Current assets                            $         306.2  $         65.0  $        139.2   $         -    $       510.4
Investments in subsidiaries                       2,645.5           171.7            -           (2,817.2)           -
Intercompany advances receivable
   (payable), net                                (2,235.8)          543.4         1,692.4             -              -
Investments in and advances to
   unconsolidated affiliates                         15.8            37.6            24.0             -             77.4
Property and equipment, net                         559.7            22.5           400.9             -            983.1
Deferred income taxes                               (54.9)           16.7            38.2             -              -
Other assets                                        528.5              .1             8.3             -            536.9
                                          ---------------- --------------- ---------------  -------------- --------------
                                          $       1,765.0  $        857.0  $      2,303.0   $    (2,817.2) $     2,107.8
                                          ================ =============== ===============  ============== ==============

LIABILITIES AND STOCKHOLDERS' EQUITY
   (DEFICIT)
Current liabilities                       $         194.5  $         38.8  $        110.4   $         -    $       343.7
Other long-term liabilities                          60.4            12.3             9.1             -             81.8
Long-term debt                                       20.4            -               22.0             -             42.4
Liabilities subject to compromise                 2,694.6            14.5            13.6             -          2,722.7
Minority interests                                   -               -               17.7           104.4          122.1
Stockholders' equity (deficit)                   (1,204.9)          791.4         2,130.2        (2,921.6)      (1,204.9)
                                          ---------------- --------------- ---------------  -------------- --------------
                                          $       1,765.0  $        857.0  $      2,303.0   $    (2,817.2) $     2,107.8
                                          ================ =============== ===============  ============== ==============

                     CONDENSED CONSOLIDATING BALANCE SHEETS
                                DECEMBER 31, 2002

                                                             SUBSIDIARY         OTHER         ELIMINATING
                                               COMPANY       GUARANTORS     SUBSIDIARIES        ENTRIES     CONSOLIDATED
                                          ---------------- --------------- ---------------  -------------- --------------
ASSETS
Current assets                            $         284.1  $         82.1  $        155.4   $         -    $       521.6
Investments in subsidiaries                       2,707.5           167.9            -           (2,875.4)           -
Intercompany advances receivable
   (payable), net                                (2,267.9)          588.0         1,679.9             -              -
Investments in and advances to
   unconsolidated affiliates                         15.3            30.4            24.0             -             69.7
Property and equipment, net                         578.6            23.2           408.1             -          1,009.9
Deferred income taxes                               (54.9)           16.7            38.2             -              -
Other assets                                        610.4              .2            18.6             -            629.2
                                          ---------------- --------------- ---------------  -------------- --------------
                                          $       1,873.1  $        908.5  $      2,324.2   $    (2,875.4) $     2,230.4
                                          ================ =============== ===============  ============== ==============

LIABILITIES AND STOCKHOLDERS' EQUITY
   (DEFICIT)
Current liabilities                       $         171.7  $         45.8  $        114.5   $         -    $       332.0
Other long-term liabilities                          56.8            12.1            18.0             -             86.9
Long-term debt                                       20.7            -               22.0             -             42.7
Liabilities subject to compromise                 2,702.2            13.6            10.2             -          2,726.0
Minority interests                                   -               -               18.8           102.3          121.1
Stockholders' equity (deficit)                   (1,078.3)          837.0         2,140.7        (2,977.7)      (1,078.3)
                                          ---------------- --------------- ---------------  -------------- --------------
                                          $       1,873.1  $        908.5  $      2,324.2   $    (2,875.4) $     2,230.4
                                          ================ =============== ===============  ============== ==============

               CONDENSED CONSOLIDATING STATEMENTS OF INCOME (LOSS)
                       FOR THE QUARTER ENDED JUNE 30, 2003

                                                             SUBSIDIARY         OTHER         ELIMINATING
                                               COMPANY       GUARANTORS     SUBSIDIARIES        ENTRIES     CONSOLIDATED
                                          ---------------- --------------- ---------------  -------------- --------------
Net sales                                 $         255.0  $        109.5  $        177.1   $      (183.2) $       358.4
Costs and expenses:
   Operating costs and expenses                     303.7           107.4           184.1          (183.2)         412.0
   Non-recurring operating items                      (.7)           -               -                -              (.7)
                                          ---------------- --------------- ---------------  -------------- --------------
Operating income (loss)                             (48.0)            2.1            (7.0)            -            (52.9)
Interest expense                                     (2.6)           -                (.1)            -             (2.7)
Reorganization items                                 (7.4)           -               -                -             (7.4)
Other income (expense), net                          25.7           (26.2)             .1             -              (.4)
Benefit (provision) for income taxes                  (.1)            (.7)            1.1             -               .3
Minority interests                                   -                1.4              .6             -              2.0
Equity in loss of subsidiaries                      (28.7)           -               -               28.7            -
                                          ---------------- --------------- ---------------  -------------- --------------
Income (loss) from continuing operations            (61.1)          (23.4)           (5.3)           28.7          (61.1)
Discontinued operations                               (.2)           -               -                -              (.2)
                                          ---------------- --------------- ---------------  -------------- --------------
Net income (loss)                         $         (61.3) $        (23.4) $         (5.3)  $        28.7  $       (61.3)
                                          ================ =============== ===============  ============== ==============

               CONDENSED CONSOLIDATING STATEMENTS OF INCOME (LOSS)
                       FOR THE QUARTER ENDED JUNE 30, 2002

                                                             SUBSIDIARY         OTHER         ELIMINATING
                                               COMPANY       GUARANTORS     SUBSIDIARIES        ENTRIES     CONSOLIDATED
                                          ---------------- --------------- ---------------  -------------- --------------
Net sales                                 $         280.8  $        109.6  $        212.2   $      (216.3) $       386.3
Costs and expenses:
   Operating costs and expenses                     318.3           114.2           198.1          (216.3)         414.3
   Non-recurring operating items                      7.5            -               -                -              7.5
                                          ---------------- --------------- ---------------  -------------- --------------
Operating income (loss)                             (45.0)           (4.6)           14.1             -            (35.5)
Interest expense                                     (2.2)           -                (.3)            -             (2.5)
Other income (expense), net                          17.0           (17.1)             .5             -               .4
Reorganization items                                 (6.5)           -               -                -             (6.5)
Benefit (provision) for income taxes                  (.4)           (1.4)           (4.6)            -             (6.4)
Minority interests                                   -                1.4                             -              1.4
Equity in loss of subsidiaries                      (12.0)           -               -               12.0            -
                                          ---------------- --------------- ---------------  -------------- --------------
Income (loss) from continuing operations            (49.1)          (21.7)            9.7            12.0          (49.1)
Discontinued operations                              (1.3)           -               -                -             (1.3)
                                          ---------------- --------------- ---------------  -------------- --------------
Net income (loss)                         $         (50.4) $        (21.7) $          9.7   $        12.0  $       (50.4)
                                          ================ =============== ===============  ============== ==============

               CONDENSED CONSOLIDATING STATEMENTS OF INCOME (LOSS)
                     FOR THE SIX MONTHS ENDED JUNE 30, 2003

                                                             SUBSIDIARY         OTHER         ELIMINATING
                                               COMPANY       GUARANTORS     SUBSIDIARIES        ENTRIES     CONSOLIDATED
                                          ---------------- --------------- ---------------  -------------- --------------
Net sales                                 $         487.4  $        227.9  $        352.7   $      (370.2) $       697.8
Costs and expenses:
   Operating costs and expenses                     591.7           231.6           356.1          (370.2)         809.2
   Non-recurring operating items                       .6            -               -                -               .6
                                          ---------------- --------------- ---------------  -------------- --------------
Operating income (loss)                            (104.9)           (3.7)           (3.4)            -           (112.0)
Interest expense                                     (5.0)           -                (.3)            -             (5.3)
Reorganization items                                (14.8)           -               -                -            (14.8)
Other income (expense), net                          52.6           (42.7)          (11.6)            -             (1.7)
Benefit (provision) for income taxes                  (.5)           (2.1)           (1.8)            -             (4.4)
Minority interests                                   -                2.9             1.0             -              3.9
Equity in loss of subsidiaries                      (61.7)           -               -               61.7            -
                                          ---------------- --------------- ---------------  -------------- --------------
Income (loss) from continuing operations           (134.3)          (45.6)          (16.1)           61.7         (134.3)
Discontinued operations                               7.9            -               -                -              7.9
                                          ---------------- --------------- ---------------  -------------- --------------
Net income (loss)                         $        (126.4) $        (45.6) $        (16.1)  $        61.7  $      (126.4)
                                          ================ =============== ===============  ============== ==============

               CONDENSED CONSOLIDATING STATEMENTS OF INCOME (LOSS)
                     FOR THE SIX MONTHS ENDED JUNE 30, 2002

                                                             SUBSIDIARY         OTHER         ELIMINATING
                                               COMPANY       GUARANTORS     SUBSIDIARIES        ENTRIES     CONSOLIDATED
                                          ---------------- --------------- ---------------  -------------- --------------
Net sales                                 $         571.1  $        214.1  $        455.1   $      (483.4) $       756.9
Costs and expenses:
   Operating costs and expenses                     652.2           221.1           428.3          (483.4)         818.2
   Non-recurring operating items                      9.1            -               -                -              9.1
                                          ---------------- --------------- ---------------  -------------- --------------
Operating income (loss)                             (90.2)           (7.0)           26.8             -            (70.4)
Interest expense                                    (15.5)           -                (.5)            -            (16.0)
Other income (expense), net                          11.2           (10.1)            1.4             -              2.5
Reorganization items                                (16.1)           -               -                -            (16.1)
Benefit (provision) for income taxes                   .4            (5.0)           (9.8)            -            (14.4)
Minority interests                                   -                2.8              .1             -              2.9
Equity in loss of subsidiaries                       (1.3)           -               -                1.3            -
                                          ---------------- --------------- ---------------  -------------- --------------
Income (loss) from continuing operations           (111.5)          (19.3)           18.0             1.3         (111.5)
Discontinued operations                              (3.0)           -               -                -             (3.0)
                                          ---------------- --------------- ---------------  -------------- --------------
Net income (loss)                         $        (114.5) $        (19.3) $         18.0   $         1.3  $      (114.5)
                                          ================ =============== ===============  ============== ==============

                CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
                     FOR THE SIX MONTHS ENDED JUNE 30, 2003

                                                             SUBSIDIARY         OTHER         ELIMINATING
                                               COMPANY       GUARANTORS     SUBSIDIARIES        ENTRIES     CONSOLIDATED
                                          ---------------- --------------- ---------------  -------------- --------------
Net cash provided (used) by:
   Operating activities                   $         (63.2) $         21.5  $         (7.6)  $         -    $       (49.3)
   Investing activities                              66.1             (.1)          (10.1)            -             55.9
   Financing activities                              (1.4)           -               -                -             (1.4)
Intercompany activity                                 7.2           (21.3)           14.1             -              -
                                          ---------------- --------------- ---------------  -------------- --------------
Net increase in cash and cash equivalents
   during the period                                  8.7              .1            (3.6)            -              5.2
Cash and cash equivalents at
   beginning of period                               72.8              .5             5.4             -             78.7
                                          ---------------- --------------- ---------------  -------------- --------------
Cash and cash equivalents at
   end of period                          $          81.5  $           .6  $          1.8   $         -    $        83.9
                                          ================ =============== ===============  ============== ==============

                CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
                     FOR THE SIX MONTHS ENDED JUNE 30, 2002

                                                             SUBSIDIARY         OTHER         ELIMINATING
                                               COMPANY       GUARANTORS     SUBSIDIARIES        ENTRIES     CONSOLIDATED
                                          ---------------- --------------- ---------------  -------------- --------------
Net cash provided (used) by:
   Operating activities                   $         (26.0) $         18.3  $          8.8   $         -    $         1.1
   Investing activities                              15.9             (.1)          (15.4)            -               .4
   Financing activities                              (7.5)           -               -                -             (7.5)
Intercompany activity                                 6.7           (17.6)           10.9             -              -

                                          ---------------- --------------- ---------------  -------------- --------------
Net (decrease) increase in cash and cash
   equivalents during the period                    (10.9)             .6             4.3             -             (6.0)
Cash and cash equivalents at
   beginning of period                              151.5            -                1.8             -            153.3
                                          ---------------- --------------- ---------------  -------------- --------------
Cash and cash equivalents at
   end of period                          $         140.6  $           .6  $          6.1   $         -    $       147.3
                                          ================ =============== ===============  ============== ==============

Notes to Condensed Consolidating Financial Information

Income Taxes - The benefit (provision) for income taxes for the quarter and
six-month periods ended June 30, 2003 and 2002, relate primarily to foreign
income taxes. As a result of the Cases, the Company did not recognize any income
tax benefit for the losses incurred from domestic operations (including
temporary differences) or any U.S. income tax benefit for foreign income taxes.
Instead, the increases in federal and state deferred tax assets as a result of
additional net operating losses and foreign tax credits generated were offset by
equal increases in valuation allowances.

Foreign Currency - The functional currency of the Company and its subsidiaries
is the United States Dollar, and accordingly, pre-tax translation gains (losses)
are included in the Company's and Subsidiary Guarantors' operating income (loss)
and other income (expense), net balances. Such amounts for the Company totaled
$23.8 and $11.8 for the quarters ended June 30, 2003 and 2002, respectively and
$38.0 and $15.7 for the six-month periods ended June 30, 2003 and 2002,
respectively. Such amounts for the Subsidiary Guarantors totaled $(25.1) and
$(12.1) for the quarters ended June 30, 2003 and 2002, respectively and $(39.4)
and $(16.2) for the six-month periods ended June 30, 2003 and 2002,
respectively.

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

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

This section should be read in conjunction with the response to Part I, Item 1,
of this Report.

This section contains statements which constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
These statements appear in a number of places in this section (see, for example,
"Recent Events and Developments," "Results of Operations," and "Liquidity and
Capital Resources"). 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 section
and Part I, Item 1. "Business - Factors Affecting Future Performance" in the
Company's Annual Report on Form 10-K for the year ended December 31, 2002, each
identify other factors that could cause actual results to vary. 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.

REORGANIZATION PROCEEDINGS

The Company, its parent company, Kaiser Aluminum Corporation ("Kaiser"), and 24
of the Company's subsidiaries have filed separate voluntary petitions in the
United States Bankruptcy Court for the District of Delaware (the "Court") for
reorganization under Chapter 11 of the United States Bankruptcy Code (the
"Code"); the Company, Kaiser and 15 of the Company's subsidiaries (the "Original
Debtors") filed in the first quarter of 2002 and nine additional Company
subsidiaries (the "Additional Debtors") filed in the first quarter of 2003. The
Original Debtors and Additional Debtors are collectively referred to herein as
the "Debtors" and the Chapter 11 proceedings of these entities are collectively
referred to herein as the "Cases." For purposes of this Report, the term "Filing
Date" shall mean, with respect to any particular Debtor, the date on which such
Debtor filed its Case. None of the Company's non-U.S. joint ventures are
included in the Cases. The Cases are being jointly administered. The Debtors are
managing their businesses in the ordinary course as debtors-in-possession
subject to the control and administration of the Court.

Original Debtors. The necessity for filing the Cases by the Original Debtors was
attributable to the liquidity and cash flow problems of the Company and its
subsidiaries arising in late 2001 and early 2002. The Company was facing
significant near-term debt maturities at a time of unusually weak aluminum
industry business conditions, depressed aluminum prices and a broad economic
slowdown that was further exacerbated by the events of September 11, 2001. In
addition, the Company had become increasingly burdened by asbestos litigation
and growing legacy obligations for retiree medical and pension costs. The
confluence of these factors created the prospect of continuing operating losses
and negative cash flow, resulting in lower credit ratings and an inability to
access the capital markets. In connection with the filing of the Original
Debtors' Cases, the Original Debtors are prohibited from paying pre-Filing Date
obligations other than those related to certain joint ventures and in certain
other limited circumstances approved by the Court.

Additional Debtors. The Cases filed by the Additional Debtors were commenced,
among other reasons, to protect the assets held by these Debtors against
possible statutory liens that might arise and be enforced by the Pension Benefit
Guaranty Corporation ("PBGC") primarily as a result of the Company's failure to
meet a $17.0 million accelerated funding requirement to its salaried employee
retirement plan in January 2003. From an operating perspective, the filing of
the Cases by the Additional Debtors had no impact on the Company's day-to-day
operations. In contrast to the circumstances of the Original Debtors, the Court
authorized the Additional Debtors to continue to make all payments in the normal
course of business (including payments of pre-Filing Date amounts) to creditors.

All Debtors. The Debtors' objective in the Cases is to achieve the highest
possible recoveries for all creditors and stockholders and to continue the
operation of their businesses. However, there can be no assurance that the
Debtors will be able to attain these objectives or to achieve a successful
reorganization. While valuation of the Debtors' assets and pre-Filing Date
claims at this stage of the Cases is subject to inherent uncertainties, the
Debtors currently believe that it is likely that their liabilities will be found
in the Cases to exceed the fair value of their assets. Therefore, the Debtors
currently believe that it is likely that pre-Filing Date claims will be paid at
less than 100% of their face value and the equity of the Company's stockholders
will be diluted or cancelled. Because of such possibility, the value of the
Common Stock is speculative and any investment in the Common Stock would pose a
high degree of risk.

As provided by the Code, the Original Debtors had the exclusive right to propose
a plan of reorganization for 120 days following the initial Filing Date. The
Court has subsequently approved several extensions of the exclusivity period for
all Debtors, the most recent of which was set to expire July 31, 2003. A motion
to extend the exclusivity period through October 31, 2003, was filed by the
Debtors in late July 2003. By filing the motion to extend the exclusivity
period, the period is automatically extended until the September 22, 2003 Court
hearing date. As the Debtors' motion to extend the exclusivity period through
October 31, 2003 was agreed with by the creditors' committees in advance of the
filing, the Debtors expect the motion to be approved by the Court. Additional
extensions are likely to be sought. However, no assurance can be given that such
future requests will be granted by the Court. If the Debtors fail to file a plan
of reorganization during the exclusivity period, or if such plan is not accepted
by the requisite numbers of creditors and equity holders entitled to vote on the
plan, other parties in interest in the Cases may be permitted to propose their
own plan(s) of reorganization for the Debtors.

The Company expects that, when the Debtors ultimately file a plan of
reorganization, it will reflect the Company's strategic vision for emergence
from Chapter 11: (a) a standalone going concern with manageable leverage,
improved cost structure and competitive strength, (b) a company positioned to
execute its long-standing vision of market leadership and growth in fabricated
products specifically with a financial structure that provides financial
flexibility, including access to capital markets, for accretive acquisitions,
(c) a company that delivers a broad product offering and leadership in service
and quality for its customers and distributors, and (d) a company with continued
presence in those commodities markets that have the potential to generate
significant cash at steady-state metal prices. The Company's advisors have
developed a preliminary timeline that, assuming the current pace of the Cases
continues, could allow the Company to emerge from Chapter 11 in 2004. While no
assurances can be given in this regard, the Company's management continues to
push for an aggressive pace in advancing the Cases. Continued sales of non-core
assets and facilities that are ultimately determined not to be an important part
of the reorganized entity are likely. In light of the Company's stated strategy
of market leadership and growth in fabricated products and to further the
Company's ultimate planned emergence from Chapter 11, the Company has determined
that it is appropriate to explore the possible disposition of one or more of its
commodity assets. The Company, through its financial advisor, has been in
contact with a number of parties with possible interest in the commodity assets
and has provided a number of parties certain information pursuant to
confidentiality agreements. While no commodity asset sales are currently
imminent, it is possible that one or more sales may occur in late 2003 or the
first half of 2004. Any sale of assets would be subject to various prior
approvals including, but not limited to, approvals by the Company's Board of
Directors, the Court and the DIP Facility lenders and no assurances can be given
that acceptable offers will be received for any assets or that any assets will
ultimately be sold. The Company's strategic vision is subject to continuing
review in consultation with the Company's stakeholders and may also be modified
from time to time as the Cases proceed due to changes in such items as changes
in the global markets, changes in the economics of the Company's facilities or
changing financial circumstances.

Impact of the Cases on Financial Information. In light of the Cases, the
accompanying financial information of the Company and related discussions of
financial condition and results of operations are based on the assumption that
the Company will continue as a "going concern," which contemplates the
realization of assets and the liquidation of liabilities in the ordinary course
of business; however, as a result of the commencement of the Cases, such
realization of assets and liquidation of liabilities are subject to a
significant number of uncertainties. Specifically, the financial information for
the quarter and six-month periods ended June 30, 2003, contained herein does not
present: (a) the realizable value of assets on a liquidation basis or the
availability of such assets to satisfy liabilities, (b) the amount which will
ultimately be paid to settle liabilities and contingencies that may be allowed
in the Cases, or (c) the effect of any changes that may occur in connection with
the Debtors' capitalizations or operations resulting from a plan of
reorganization. Because of the ongoing nature of the Cases, the discussions and
consolidated financial statements contained herein are subject to material
uncertainties.

RECENT EVENTS AND DEVELOPMENTS

Liquidity/Negative Cash Flow. Cash and cash equivalents increased $5.2 million
during the first six months of 2003. The net increase resulted from cash
generated from investing activities of $55.9 million (see Notes 7 and 10 of
Notes to Interim Consolidated Financial Statements) offset by cash used in
operating activities ($49.3 million) and financing activities ($1.4 million).
The $49.3 million of cash used by operating activities included receipts and
payments that are not typical and/or are non-recurring including: (a)
asbestos-related insurance receipts of $15.1 million, (b) a foreign income tax
payment related to prior periods of $22.0 million and (c) end of service benefit
payments totaling approximately $12.8 million in connection with the Company's
90%-owned Volta Aluminium Company Limited ("Valco") potline curtailments (see
below).

The balance of the cash used in operating activities (approximately $29.6
million during the first six months of 2003) resulted from a combination of
adverse market factors in the business segments in which the Company operates
including (a) primary aluminum prices that were below long-term averages, (b)
weak demand for fabricated metal products in general, but particularly for
engineered products, and (c) higher than average power, fuel oil and natural gas
prices.

Cash used in operations during 2002 of $49.6 million also had a number of
non-recurring receipts and payments, and was affected by similar operating
conditions and market factors as those experienced in 2003 (see Management's
Discussion and Analysis of Financial Condition and Results of Operations,
Significant Items, Liquidity/Negative Cash in the Company's Annual Report on
Form 10-K for the year ended December 31, 2002).

Despite the foregoing, the Company's liquidity (cash and cash equivalents plus
unused credit availability under the DIP Facility) has remained strong,
averaging approximately $200.0 million during the first six months of 2003.
Also, during August 2003, the Company and the lenders for the
debtor-in-possession financing (the "DIP Facility") completed an amendment to
the DIP Facility which, among other things, extended the maturity of the DIP
Facility to February 2005 and increased the amount of credit available under the
DIP Facility by, among other things, reinstating the amortizing fixed assets
subcomponent back to $100.0 as of August 2003 (see Note 5 of Notes to Interim
Consolidated Financial Statements for additional discussion of the amendment to
the DIP Facility). However, no assurances can be given that recent improvements
in primary aluminum price and fabricated product demand will be sustained or
that the Company's liquidity will not erode for other reasons.

Valco Operating Level. The amount of power made available to Valco by the Volta
River Authority ("VRA") depends in large part on the level of the lake that is
the primary source for generating the hydroelectric power used to supply the
smelter. The level of the lake is primarily a function of the level of annual
rainfall and the alternative (non-Valco) uses of the power generated, as
directed by the VRA.

During late 2000, Valco, the Government of Ghana ("GoG") and the VRA reached an
agreement, subject to Parliamentary approval, that would provide sufficient
power for Valco to operate at least three and one-half of its five potlines
through 2017. However, Parliamentary approval was not received and, in March
2002, the GoG reduced Valco's power allocation forcing Valco to curtail one of
its four operating potlines. Valco's power allocation was further reduced in
January 2003 resulting in the curtailment of two additional operating potlines.

As previously disclosed, the lake level has been at or near a record low level.
Based on the level of the lake and the rate at which it had been declining, the
Company believed that curtailment of Valco's last remaining operating potline
was likely. Accordingly, in May 2003, the Company voluntarily curtailed the last
operating potline. Voluntary curtailment of the last operating potline: (1) may
provide Valco with an opportunity to run a greater number of potlines late in
2003 once the annual rainy season has replenished the lake level and Valco's
2004 power allocation is known (although no assurances can be provided in this
regard) and (2) offers the VRA and GoG a contribution toward conservation of the
water supply to improve their ability to meet Valco's power needs later in the
year as well as meet the near-term needs of the rest of Ghana.

In connection with such curtailments, $12.8 million of employee end-of-service
benefits were paid ($5.9 million in the second quarter) resulting in $8.1
million of charges in the first six months of 2003 ($3.8 million in the second
quarter). All charges are included in Cost of products sold.

Valco has met with the GoG and the VRA and anticipates such discussions will
continue in respect of the current and future power situation and other matters.
Valco has objected to the power curtailments and expects to seek appropriate
compensation from the GoG. In addition, Valco and the Company have filed for
arbitration with the International Chamber of Commerce in Paris against both the
GoG and the VRA. However, no assurances can be given as to the ultimate success
of any such actions. Valco and the Company do not expect the voluntary
curtailment of the last operating potline to have any adverse impact on the
pending arbitrations or negotiations with the VRA and GoG.

Benefit (Legacy) Cost Matters. The Company has previously disclosed (since the
Filing Date) that pension and retiree medical obligations were significant
factors that would have to be addressed during the reorganization process.

As previously disclosed, the Company does not currently expect to make any
pension contributions in respect to its domestic pension plans during the
pendency of the Cases as it believes that virtually all amounts are pre-Filing
Date obligations. The Company did not make required accelerated funding payments
to its salaried employee retirement plan of $17.0 million in January 2003, $83.0
million in April 2003 or $60.5 million in July 2003 (such amounts are separate
standalone requirements and not additive). As previously disclosed, the Company
has met on several occasions with the PBGC, the government agency that
guarantees annuity payments from defined pension plans, to discuss alternative
solutions to the pension funding issue that would help the Company's emergence
from bankruptcy. These options could include extended amortization periods for
payments of unfunded liabilities or the potential termination of the plans.

Even though the Company is not making contributions to its domestic pension
plans, the Company's 2003 operating results are expected to be adversely
impacted by substantially higher pension-related expenses than those experienced
in 2002 (see Note 10 of Notes to Consolidated Financial Statements in the
Company's Form 10-K for the year ended December 31, 2002 for further information
regarding higher pension-related expenses in 2003). Before considering any
special pension-related charges that may occur in 2003, pension-related expenses
for 2003 are expected to be approximately $48.0 million, more than $20.0 million
higher than comparable 2002 pension-related expenses. Higher pension-related
expenses during the quarter and six-month periods ended June 30, 2003 adversely
impacted the operating results of all business units.

In July 2003, the Debtors asked the Court to approve the appointment of a
committee of salaried retirees (the "1114 Committee") with whom the Debtors can
discuss necessary changes, including the modification or termination, of certain
salaried retiree medical and insurance benefits under Section 1114 of the Code.

Environmental Matters. In furtherance of its reorganization, the Company has
been negotiating a possible multi-site resolution of the Company's environmental
exposure at a number of non-owned sites with various federal and state
governmental regulatory authorities. An agreement in principle has been reached
with these parties under which, among other things, the Company would agree to
claims at such sites totaling $25.2 million ($18.2 million greater than existing
amounts accrued at June 30, 2003 for these sites) and, in return, the
governmental regulatory authorities would agree that such claims would be
treated as pre-Filing Date unsecured claims (i.e. liabilities subject to
compromise). While the Company believes it is likely that the agreement with the
various federal and state governmental regulatory authorities will be signed
during the third quarter of 2003, the agreement will give the regulatory
authorities the unilateral right to withdraw their approval until after the
conclusion of a public notice and comment period. Any agreement would also be
subject to Court approval. Because it is possible that objections raised during
the public comment process or objections made to the Court could result in a
significant modification or termination of the expected agreement, the Company
has not currently recorded any charge for any amounts above existing accruals as
such incremental liability was not believed to be "probable" (which is the
criteria for recognition under generally accepted accounting principles).
However, it is possible that the additional $18.2 million (or a different
amount) of charges may be required to be recorded during the second half of
2003.

Indefinite Curtailment of Mead Facility. In January 2003, the Company announced
the indefinite curtailment of the Mead facility. The curtailment of the facility
was due to the continuing unfavorable market dynamics, specifically unattractive
long-term power prices and weak primary aluminum prices, both of which are
significant impediments for an older smelter with higher-than-average operating
costs. The Mead facility is expected to remain completely curtailed unless and
until an appropriate combination of reduced power prices, higher primary
aluminum prices and other factors occurs. See Note 4 of Notes to Interim
Consolidated Financial Statements and Note 5 of Notes to Consolidated Financial
Statements in the Company's Form 10-K for the year ended December 31, 2002 for
additional discussion of the Mead curtailment.

RESULTS OF OPERATIONS

As an integrated aluminum producer, the Company uses a portion of its bauxite,
alumina, and primary aluminum production for additional processing at certain of
its downstream facilities. Intersegment transfers are valued at estimated market
prices. The following table provides selected operational and financial
information on a consolidated basis with respect to the Company for the quarter
and six-month periods ended June 30, 2003 and 2002. The following data should be
read in conjunction with the Company's interim consolidated financial statements
and the notes thereto contained elsewhere herein. See Note 18 of Notes to
Consolidated Financial Statements in the Company's Form 10-K for the year ended
December 31, 2002, for further information regarding segments.

Interim results are not necessarily indicative of those for a full year. Average
realized prices for the Company's Fabricated products segment are not presented
in the following table as such prices are subject to fluctuations due to changes
in product mix.

                 SELECTED OPERATIONAL AND FINANCIAL INFORMATION
                                   (Unaudited)
              (In millions of dollars, except shipments and prices)

                                                                  Quarter Ended               Six Months Ended
                                                                    June 30,                      June 30,
                                                           ---------------------------   ---------------------------
                                                               2003          2002            2003          2002
                                                           ------------ --------------   ------------  -------------
Shipments:  (000 tons)
   Alumina
      Third Party                                                772.7          648.4        1,523.4        1,273.6
      Intersegment                                                  -            51.4           62.5          186.3
                                                           ------------ --------------   ------------  -------------
        Total Alumina                                            772.7          699.8        1,585.9        1,459.9
                                                           ------------ --------------   ------------  -------------
   Primary Aluminum
      Third Party                                                 32.0           46.7           53.6           98.0
      Intersegment                                                  -              .5             -             1.6
                                                           ------------ --------------   ------------  -------------
        Total Primary Aluminum                                    32.0           47.2           53.6           99.6
                                                           ------------ --------------   ------------  -------------
   Fabricated Products (Note 12)                                  42.8           48.3           83.6           90.1
                                                           ------------ --------------   ------------  -------------
Average Realized Third Party Sales Price:
   Alumina (per ton)                                       $       171  $         167    $       171   $        168
   Primary Aluminum (per pound)                            $       .63  $         .65    $       .63   $        .64
Net Sales:
   Bauxite and Alumina
      Third Party (includes net sales of bauxite)          $     139.9  $       114.9    $     275.5   $      228.5
      Intersegment                                                  -             9.0           10.3           32.2
                                                           ------------ --------------   ------------  -------------
        Total Bauxite and Alumina                                139.9          123.9          285.8          260.7
                                                           ------------ --------------   ------------  -------------
   Primary Aluminum
      Third Party                                                 44.1           64.3           74.9          135.3
      Intersegment                                                  -              .7            -              2.4
                                                           ------------ --------------   ------------  -------------
        Total Primary Aluminum                                    44.1           65.0           74.9          137.7
                                                           ------------ --------------   ------------  -------------
   Fabricated Products (Note 12)                                 151.0          172.3          298.0          324.4
   Commodities Marketing (Note 8)                                  1.8           10.5            3.8           21.5
   Minority Interests                                             21.6           24.3           45.6           47.2
   Eliminations                                                     -            (9.7)         (10.3)         (34.6)
                                                           ------------ --------------   ------------  -------------
      Total Net Sales                                      $     358.4  $       386.3    $     697.8   $      756.9
                                                           ============ ==============   ============  =============

Operating Income (Loss):
   Bauxite and Alumina                                     $     (17.9) $       (12.0)   $     (42.1)  $      (15.2)
   Primary Aluminum (Note 9)                                     (13.8)          (5.6)         (27.4)          (7.0)
   Fabricated Products (Note 12)                                  (1.8)            .7           (6.9)          (5.9)
   Commodities Marketing (Note 8)                                  1.7            8.4            2.9           19.1
   Eliminations                                                   (1.5)           2.4            1.0            2.9
   Corporate and Other                                           (20.3)         (21.9)         (38.9)         (55.2)
   Non-Recurring Operating (Charges) Benefits, Net
      (Note 10)                                                     .7           (7.5)           (.6)          (9.1)
                                                           ------------ --------------   ------------  -------------
      Total Operating Income (Loss)                        $     (52.9) $       (35.5)   $    (112.0)  $      (70.4)
                                                           ============ ==============   ============  =============
Net Loss                                                   $     (61.3) $       (50.4)   $    (126.4)  $     (114.5)
                                                           ============ ==============   ============  =============
Capital Expenditures                                       $      10.2  $        10.4    $      19.2   $       19.9
                                                           ============ ==============   ============  =============

OVERVIEW
The Company's operating results are sensitive to changes in prices of alumina,
primary aluminum, and fabricated aluminum products, and also depend to a
significant degree on the volume and mix of all products sold and on the
Company's hedging strategies. Primary aluminum prices have historically been
subject to significant cyclical price fluctuations. See Notes 2 and 8 of Notes
to Interim Consolidated Financial Statements for a discussion of the Company's
hedging activities.

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

During the six months ended June 30, 2002, the average London Metal Exchange
transaction price ("LME price") per pound of primary aluminum was $.62 per
pound. During the six months ended June 30, 2003, the average LME price was $.63
per pound. The average LME price for primary aluminum for the week ended July
25, 2003 was $.65 per pound.

QUARTER AND SIX MONTHS ENDED JUNE 30, 2003, COMPARED TO QUARTER AND SIX MONTHS
ENDED JUNE 30, 2002

SUMMARY
The Company reported a net loss of $61.3 million for the quarter ended June 30,
2003, compared to a net loss of $50.4 million for the second quarter of 2002.
For the six months ended June 30, 2003, the Company reported a net loss of
$126.4 million compared to a net loss of $114.5 million for the same period in
2002.

Net sales in the second quarter of 2003 totaled $358.4 million compared to
$386.3 million in the second quarter of 2002. Net sales for the six-month period
ended June 30, 2003, totaled $697.8 million compared to $756.9 million for the
six-month period ended June 30, 2002.

Bauxite and Alumina. Third party net sales of alumina for the quarter ended June
30, 2003, increased 22% as compared to the same period in 2002, due to a 19%
increase in third party shipments and a 2% increase in third party average
realized prices. For the six-month period ended June 30, 2003, third party net
sales of alumina were 22% higher than the comparable period in 2002 as the
result of a 20% increase in third party shipments and a 2% increase in third
party average realized prices. Third party shipments for the quarter and
six-month period were up primarily due to reduced intersegment requirements
resulting from Valco's 2003 potline curtailments (see "Recent Events and
Developments -- Valco Operating Level" above). The increases in average realized
prices during both periods were due to increases in primary aluminum market
prices to which the Company's third-party alumina sales contracts are linked.

As a result of Valco's potline curtailments discussed above, there were no
intersegment net sales of alumina to the Primary aluminum business unit for the
quarter ended June 30, 2003. Intersegment net sales for the six-month period
ended June 30, 2003, decreased 68% as compared to the same period in 2002
primarily as the result of a 66% decrease in the intersegment shipments due to
the 2003 Valco potline curtailments. In the near-term, absent a restart at
Valco, the only intersegment shipments expected are to the Company's 49%-owned
affiliate, Anglesey Aluminium Limited ("Anglesey"), which shipments typically
occur in the first and fourth quarters of each year.

Segment operating losses (before non-recurring items) for the quarter and
six-month periods ended June 30, 2003 were worse than the comparable periods in
2002. The primary reason for the period-to-period decreases in operating income
were higher energy costs ($10.0 million and $30.0 million during the quarter and
six months ended June 30, 2003, respectively), increases in foreign exchange
rates, and increased pension related expenses. These impacts were only partially
offset by the net increase in shipments and increase in average realized prices
discussed above and improved cost performance. Segment operating loss for the
quarter and six-month periods ended June 30, 2002, discussed above, excluded
non-recurring costs of $.3 million and $1.9 million, respectively, incurred in
connection with cost reduction initiatives.

Primary Aluminum. Third party net sales of primary aluminum decreased 31% for
the second quarter of 2003 as compared to the same period in 2002 primarily due
to a 31% decrease in third party shipments. For the six-month period ended June
30, 2003, third party sales of primary aluminum decreased approximately 45% from
the comparable period in 2002 primarily due to a 45% decrease in third party
shipments. The decreases in third party shipments were primarily due to the 2003
Valco potline curtailment discussed above.

Segment operating losses (before non-recurring items) for the quarter and
six-month periods ended June 30, 2003, were worse than the comparable periods in
2002. The primary reasons for the decreases were the decreases in net shipments
discussed above, increased pension related expenses and charges for
end-of-service benefits associated with the 2003 Valco potline curtailments
discussed above ($3.8 million for the quarter and $8.1 million for the six-month
period). The foregoing were only partially offset by lower depreciation expense,
resulting from the 2002 year-end impairment of the Mead smelter assets ($3.2
million for the quarter and $6.3 million for the six-month period), and
reductions in overhead costs primarily due to the Mead and Valco curtailments.
Segment operating loss for the six-month period ended June 30, 2003, discussed
above, excludes non-recurring restructuring charges of $1.3 million resulting
from the Mead facility indefinite curtailment (see Note 10 of Notes to Interim
Consolidated Financial Statements). Segment operating loss for the quarter and
six-month periods ended June 30, 2002, discussed above, excluded non-recurring
costs of $1.7 million incurred in connection with cost reduction initiatives.

Fabricated Products. Net sales of fabricated products decreased by 12% during
the second quarter 2003 as compared to 2002 primarily as a result of an 11%
decrease in shipments. For the six-month period ended June 30, 2003, net sales
of fabricated products decreased by approximately 8% as compared to the same
period in 2002 primarily as the result of a 7% decrease in shipments. Current
period shipments were lower than the comparable 2002 periods' shipments as a
result of the exit of the can lid and tab stock and brazing sheet products in
the second quarter of 2002 and weaker demand for engineered products offset, in
part, by a modest improvement in demand for general engineering and aerospace
heat-treat products.

Segment operating results for the quarter and six-month periods ended June 30,
2003, were modestly lower than the comparable period in 2002 primarily due to
the volume factors discussed above, increased energy costs (approximately $3.0
million in the quarter and $6.0 million in the six-month period) and increased
pension related expenses. The foregoing were offset, in part, by reductions in
overhead and other operating costs as a result of cost-cutting initiatives.
Segment operating results for the quarter and six-month periods ended June 30,
2002, excluded a $1.6 million non-cash LIFO inventory charge and non-recurring
costs of $3.9 million incurred in connection with cost reduction initiatives
both in the second quarter of 2002.

Commodities Marketing. In 2003, net sales for this segment represents net
settlements with third-party brokers for maturing derivative positions. In 2002,
net sales for this segment primarily represented recognition of deferred gains
from hedges closed prior to the commencement of the Cases. Gains or losses
associated with these liquidated positions were deferred in Other comprehensive
income and are being recognized as income and costs over the original hedging
periods as the underlying purchases/sales occur.

Segment operating income for the quarter and six-month periods ended June 30,
2003, decreased compared to the comparable periods in 2002 due to the prevailing
market prices during 2003 versus the higher prices implicit in the liquidation
of the positions in January 2002.

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

Corporate and Other. Corporate operating expenses represent corporate general
and administrative expenses which are not allocated to the Company's business
segments. Corporate operating expenses in the quarter and six-month periods
ended June 30, 2003, as compared to the same periods in 2002, were lower
primarily because corporate expenses in 2002 included special pension settlement
charges of approximately $2.9 million and $13.5 million, respectively. Corporate
expenses in 2003 also included an increase in pension-related expenses which was
partially offset by a decrease in payroll-related expenses resulting from 2002
salaried job eliminations. See Note 10 of Notes to Consolidated Financial
Statements in the Company's Form 10-K for the year ended December 31, 2002 for a
discussion of the special pension settlement charges in 2002.

LIQUIDITY AND CAPITAL RESOURCES
As a result of the filing of the Cases, claims against the Debtors for principal
and accrued interest on secured and unsecured indebtedness existing on the
Filing Date are stayed while the Debtors continue business operations as
debtors-in-possession, subject to the control and supervision of the Court. See
Note 1 of Notes to Interim Consolidated Financial Statements for additional
discussion of the Cases. At this time, it is not possible to predict the effect
of the Cases on the businesses of the Debtors.

Operating Activities. Operating activities used $49.3 million of cash during the
six months ended June 30, 2003. However, cash used in operations for the six
months ended June 30, 2003 included several receipt and payments that are not
typical and/or are non-recurring including: (a) asbestos-related insurance
receipts of $15.1 million, (b) a foreign income tax payment related to prior
periods of $22.0 million and (c) end of service benefits payments totaling
approximately $12.8 million in connection with the Valco potline curtailments.
The balance of the cash used in operations ($29.6 million) resulted from a
combination of adverse market factors in the business segments in which the
Company operates including: (a) primary aluminum prices that are below long-term
averages, (b) weak demand for fabricated metal products in general, but
particularly for engineered products, and (c) higher than average power, fuel
oil and natural gas prices. For the six months ended June 30, 2002, operating
activities provided cash of $1.1 million. However, such amount included the
non-recurring benefit of pre-Filing Date obligations that, absent the Cases,
would have been paid during the period.

Investing Activities. Capital expenditures during the six months ended June 30,
2003 were $19.2 million. The 2003 capital expenditures were incurred to improve
production efficiency and reduce operating costs at the Company's facilities.
Total consolidated capital expenditures are currently expected to be between
$35.0 and $80.0 million per annum in each of 2003 and 2004 (of which
approximately 20% is expected to be funded by the Company's minority partners in
certain foreign joint ventures). The level of capital expenditures may be
adjusted from time to time depending on the Company's price outlook for primary
aluminum and other products, the Company's ability to assure future cash flows
through hedging or other means, the Company's financial position and other
factors.

Financing Activities and Liquidity. On February 12, 2002, the Company and Kaiser
entered into the DIP Facility which provides for a secured, revolving line of
credit through the earlier of February 12, 2004 (extended to February 13, 2005
in August 2003 as discussed below), the effective date of a plan of
reorganization or voluntary termination by the Company. In March 2003, certain
of the Additional Debtors were added as co-guarantors and the DIP Facility
lenders received super priority status with respect to certain of the Additional
Debtors' assets. The Company is able to borrow under the DIP Facility by means
of revolving credit advances and to issue letters of credit (up to $125.0
million) in an aggregate amount equal to the lesser of $300.0 million (reduced
to $285.0 million in August 2003 as discussed below) or a borrowing base
relating to eligible accounts receivable, eligible inventory and eligible fixed
assets reduced by certain reserves, as defined in the DIP Facility agreement.
The DIP Facility is guaranteed by Kaiser and certain significant subsidiaries of
the Company. Interest on any outstanding borrowings will bear a spread over
either a base rate or LIBOR, at the Company's option. In accordance with the
Code and the DIP Facility, the Company is not permitted to pay any dividends or
purchase any of its common or preference stock.

During June 2003 and August 2003, the Company and the DIP Facility lenders
completed two amendments. The first of the two amendments (the fifth amendment
to the DIP Facility) was necessary in order to permit the Company to take
certain actions necessary to facilitate access by Queensland Alumina Limited
("QAL"), the Company's 20% owned affiliate, to amounts available to QAL under
its existing financing arrangements, thereby reducing the Company's and the
other owners' funding requirements for QAL. The Company's share of such
additional financings at QAL is $43.0 million. The fifth amendment to the DIP
Facility was approved by the Court in June 2003. The major provisions of the
second of the two amendments (the sixth amendment to the DIP Facility) included:
(a) an extension of the maturity of the DIP Facility to February 2005, (b) an
increase in the eligible borrowing base amount under the DIP Facility by, among
other things, restoring the amortizing fixed assets subcomponent back to the
original $100.0 million amount as of August 2003, (c) the incorporation of the
May 2003 limited waiver and also a modification of the financial covenant for
periods beginning June 30, 2003, and (d) a reduction of the commitment amount of
the DIP Facility to $285.0 million. The sixth amendment was approved on an
interim basis by the Court on August 13, 2003. Absent objections, the interim
order will automatically become final on August 19, 2003. As the motion to
approve the sixth amendment was agreed with the creditors' committees and the
asbestos futures representative in advance of the filing, the Company does not
expect any objections and believes that the sixth amendment will become fully
effective. However, absolute assurances cannot be given in this regard.

The Company currently believes that the cash and cash equivalents of $85.1
million at July 31, 2003, cash flows from operations, cash proceeds from the
sale of assets that are ultimately determined not to be an important part of the
reorganized entity and cash available from the DIP Facility will provide
sufficient working capital to allow the Company to meet its obligations during
the pendency of the Cases. At July 31, 2003, there were no outstanding
borrowings under the revolving credit facility and there were outstanding
letters of credit of approximately $46.2 million. As of July 31, 2003, $120.4
million (of which $78.8 million could be used for additional letters of credit)
was available to the Company under the DIP Facility and cash and cash
equivalents were approximately $85.1 million.

CRITICAL ACCOUNTING POLICIES
Critical accounting policies are those that are both very important to the
portrayal of the Company's financial condition and results, and require
management's most difficult, subjective, and/or complex judgments. Typically,
the circumstances that make these judgments difficult, subjective and/or complex
have to do with the need to make estimates about the effect of matters that are
inherently uncertain. While the Company believes that all aspect of its
financial statements should be studied and understood in assessing its current
(and expected future) financial condition and results, the Company believes that
the accounting policies that warrant additional attention include:

   1. The fact that the consolidated financial statements as of (and for the
      quarter and six-month periods ending) June 30, 2003 have been prepared on
      a "going concern" basis in accordance with AICPA Statement of Position
      90-7, Financial Reporting by Entities in Reorganization Under the
      Bankruptcy Code, and do not include possible impacts arising in respect of
      the Cases. The consolidated financial statements included elsewhere in
      this Report do not include any adjustments relating to the recoverability
      and classification of recorded asset amounts or the amount and
      classification of liabilities or the effect on existing stockholders'
      equity that may result from any plans, arrangements or other actions
      arising from the Cases, or the possible inability of the Company to
      continue in existence. Adjustments necessitated by such plans,
      arrangements or other actions could materially change the consolidated
      financial statements included elsewhere in this Report. For example,

      a.If the Company were to decide to sell certain assets not deemed a
        critical part of a reorganized Kaiser, such asset sales could result in
        gains or losses (depending on the asset sold) and such gains or losses
        could be significant. This is because, under generally accepted
        accounting principles ("GAAP"), assets to be held and used are evaluated
        for recoverability differently than assets to be sold or disposed of.
        Assets to be held and used are evaluated based on their expected
        undiscounted future net revenues. So long as the Company reasonably
        expects that such undiscounted future net revenues for each asset will
        exceed the recorded value of the asset being evaluated, no impairment is
        required. However, if possible or probable plans to sell or dispose of
        an asset or group of assets meet a number of specific criteria, then,
        under GAAP, such assets should be considered held for sale/disposition
        and their recoverability should be evaluated, for each asset, based on
        expected consideration to be received upon disposition. Sales or
        dispositions at a particular time will be affected by, among other
        things, the existing industry and general economic circumstances as well
        as the Company's own circumstances, including whether or not assets will
        (or must) be sold on an accelerated or more extended timetable. Such
        circumstances may cause the expected value in a sale or disposition
        scenario to differ materially from the realizable value over the normal
        operating life of assets, which would likely be evaluated on long-term
        industry trends.

      b.Additional pre-Filing Date claims may be identified through the proof of
        claim reconciliation process and may arise in connection with actions
        taken by the Debtors in the Cases. For example, while the Debtors
        consider rejection of the Bonneville Power Administration ("BPA")
        contract to be in the Company's best long-term interests, such rejection
        may increase the amount of pre-Filing Date claims by approximately $75.0
        million based on the BPA's proof of claim filed in connection with the
        Cases in respect of the contract rejection.

      c.As more fully discussed below, the amount of pre-Filing Date claims
        ultimately allowed by the Court in respect of contingent claims and
        benefit obligations may be materially different from the amounts
        reflected in the Interim Consolidated Financial Statements.

      While valuation of the Company's assets and pre-Filing Date claims at this
      stage of the Cases is subject to inherent uncertainties, the Company
      currently believes that it is likely that its liabilities will be found in
      the Cases to exceed the fair value of its assets. Therefore, the Company
      currently believes that it is likely that pre-Filing Date claims will be
      paid at less than 100% of their face value and the equity of the Company's
      stockholders will be diluted or cancelled. Because of such possibility,
      the value of the Common Stock is speculative and any investment in the
      Common Stock would pose a high degree of risk.

   2. The Company's judgments and estimates with respect to commitments and
      contingencies; in particular: (a) future asbestos related costs and
      obligations as well as estimated insurance recoveries, and (b) possible
      liability in respect of claims of unfair labor practices ("ULPs") which
      were not resolved as a part of the Company's September 2000 labor
      settlement.

      Valuation of legal and other contingent claims is subject to a great deal
      of judgment and substantial uncertainty. Under GAAP, companies are
      required to accrue for contingent matters in their financial statements
      only if the amount of any potential loss is both "probable" and the amount
      (or a range) of possible loss is "estimatable." In reaching a
      determination of the probability of an adverse ruling in respect of a
      matter, the Company typically consults outside experts. However, any such
      judgments reached regarding probability are subject to significant
      uncertainty. The Company may, in fact, obtain an adverse ruling in a
      matter that it did not consider a "probable" loss and which, therefore,
      was not accrued for in its financial statements. Further, in estimating
      the amount of any loss, in many instances a single estimation of the loss
      may not be possible. Rather, the Company may only be able to estimate a
      range for possible losses. In such event, GAAP requires that a liability
      be established for at least the minimum end of the range.

      The Company has two potentially material contingent obligations that are
      subject to significant uncertainty and variability in their outcome: (a)
      the United Steelworkers of America's ("USWA") ULP claim, and (b) the net
      obligation in respect of asbestos-related matters. Both of these matters
      are discussed in Note 7 of Notes to Interim Consolidated Financial
      Statements and it is important that you read this note.

      As more fully discussed in Note 7, we have not accrued any amount in our
      June 30, 2003 financial statements in respect of the USWA ULP matter as we
      do not consider the contingent loss to be "probable." The possible range
      of loss in this matter is in the $100.0 million to $250.0 million range
      based on the proof of claims filed by the National Labor Relations Board
      ("NLRB") and USWA in connection with the Company's reorganization
      proceedings. This matter is not currently stayed by the Cases. However, as
      previously stated, seeing this matter to its ultimate outcome could take
      several years. Further, any amounts ultimately determined by a court to be
      payable in this matter will be dealt with in the overall context of the
      Debtors' plan of reorganization and will be subject to compromise.
      Accordingly, any payments that may ultimately be required in respect of
      this matter would only be paid upon or after the Company's emergence from
      the Cases.

      Also, as more fully discussed in Note 7, the Company is one of many
      defendants in personal injury claims by large number of persons who assert
      that their injuries were caused by, among other things, exposure to
      asbestos during their employment or association with the Company or by
      exposure to products containing asbestos last produced or sold by the
      Company more than 20 years ago. It is difficult to predict the number of
      claims that will ultimately be made against the Company or the settlement
      value of such claims. As of June 30, 2003, the Company had recorded an
      obligation for approximately $610.1 million in respect of pending and an
      estimate of possible future asbestos claims through 2011. The Company did
      not accrue for amounts past 2011 because the Company believed that
      significant uncertainty existed in trying to estimate any such amounts.
      However, it is possible that a different number of claims will be made
      through 2011 and that the settlement amounts during this period may differ
      and that this will cause the actual amounts to differ materially from the
      Company's estimate. Further, the Company expects that, during its
      reorganization process, an estimate will have to be made in respect of its
      exposure to asbestos-related claims after 2011 and that such amounts could
      be substantial. Due to the Cases, holders of asbestos claims are stayed
      from continuing to prosecute pending litigation and from commencing new
      lawsuits against the Debtors. However, during the pendency of the Cases,
      the Company expects additional asbestos claims will be asserted as part of
      the claims process. A separate creditors' committee representing the
      interests of the asbestos claimants has been appointed. The Debtors'
      obligations with respect to present and future asbestos claims will be
      resolved pursuant to a plan of reorganization.

      The Company believes that it has insurance coverage in respect of its
      asbestos-related exposures and that substantial recoveries in this regard
      are probable. At June 30, 2003, the Company had recorded a receivable for
      approximately $468.9 million in respect of expected insurance recoveries
      related to existing claims and the estimate future claims through 2011.
      However, the actual amount of insurance recoveries may differ from the
      amount recorded and the amount of such differences could be material.
      Further, depending on the amount of asbestos-related claims ultimately
      determined to exist (including those in the periods after 2011), it is
      possible that the amount of such claims could exceed the amount of
      additional insurance recoveries available.

      See Note 7 of Notes to Interim Consolidated Financial Statements for a
      more complete discussion of these matters.

   3. The Company's judgments and estimates in respect of its employee benefit
      plans.

      Pension and post-retirement medical obligations included in the
      consolidated balance sheet are based on assumptions that are subject to
      variation from year-to-year. Such variations can cause the Company's
      estimate of such obligations to vary significantly. Restructuring actions
      (such as the indefinite curtailment of the Mead smelter) can also have a
      significant impact on such amounts.

      For pension obligations, the most significant assumptions used in
      determining the estimated year-end obligation are the assumed discount
      rate and long-term rate of return ("LTRR") on pension assets. Since
      recorded pension obligations represent the present value of expected
      pension payments over the life of the plans, decreases in the discount
      rate (used to compute the present value of the payments) will cause the
      estimated obligations to increase. Conversely, an increase in the discount
      rate will cause the estimated present value of the obligations to decline.
      The LTRR on pension assets reflects the Company's assumption regarding
      what the amount of earnings will be on existing plan assets (before
      considering any future contributions to the plans). Increases in the
      assumed LTRR will cause the projected value of plan assets available to
      satisfy pension obligations to increase, yielding a reduced net pension
      obligation. A reduction in the LTRR reduces the amount of projected net
      assets available to satisfy pension obligations and, thus, causes the net
      pension obligation to increase.

      For post-retirement obligations, the key assumptions used to estimate the
      year-end obligations are the discount rate and the assumptions regarding
      future medical costs increases. The discount rate affects the
      post-retirement obligations in a similar fashion to that described above
      for pension obligations. As the assumed rate of increase in medical costs
      goes up, so does the net projected obligation. Conversely, if the rate of
      increase is assumed to be smaller, the projected obligation will decline.

      See Note 10 of Notes to Consolidated Financial Statements in the Company's
      Form 10-K for the year ended December 31, 2002 for information regarding
      the Company's pension and post-retirement obligations. Actual results may
      differ from the assumptions made in computing the estimated June 30, 2003
      obligations and such differences may be material.

   4. The Company's judgment and estimates in respect to environmental
      commitments and contingencies.

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

      Based on the Company's evaluation of these and other environmental
      matters, the Company has established environmental accruals, primarily
      related to potential solid waste disposal and soil and groundwater
      remediation matters. These environmental accruals represent the Company's
      estimate of costs reasonably expected to be incurred on a going concern
      basis in the ordinary course of business based on presently enacted laws
      and regulations, currently available facts, existing technology, and the
      Company's assessment of the likely remediation action to be taken.
      However, making estimates of possible environmental remediation costs is
      subject to inherent uncertainties. 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.

      An example of how environmental accruals could change is the current
      situation of the Company's Mead smelter. The Company announced the
      indefinite curtailment of the Mead smelter in January 2003. The Mead
      smelter is expected to remain curtailed indefinitely unless and until an
      appropriate combination of reduced power prices, higher primary aluminum
      prices and other factors occurs to make a restart commercially feasible.
      However, at some point in the future, the Company may decide, due to
      economic conditions, foreign competition or other factors, to dispose of
      the facility. If, in connection with such hypothetical disposition the
      Company were required to dismantle, demolish or otherwise permanently
      close the Mead facility, the demolition and environmental remediation
      costs could be significant. While proceeds of a disposition might offset
      such costs, no assurances can be provided that receipts would fully or
      substantially offset the total costs of the environmental remediation
      costs.

      Another example of how environmental accruals could change is provided by
      the possible multi-site agreement discussed in Note 7 of Notes to Interim
      Consolidated Financial Statements. As a means of expediting the
      reorganization process and to assure treatment of the claims under a plan
      of reorganization that is favorable to the Debtors and their stakeholders,
      it may be in the best interests of the stakeholders for the Company to
      agree to claim amounts in excess of previous accruals, which were based on
      an ordinary course, going concern basis.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
In a new regulation issued in January 2003, the Securities and Exchange
Commission adopted amendments to existing rules, which require the Company to
provide explanations of its known contractual obligations in a tabular format
and its off-balance sheet arrangements in a separately captioned subsection of
the Management's Discussion and Analysis ("MD&A") section of the Company's
Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q. Although such
items are already fully disclosed in the Company's Commitments and Contingencies
notes (see Note 7 of Notes to Interim Consolidated Financial Statements and Note
14 of Notes to Consolidated Financial Statements in the Company's Form 10-K for
the year ended December 31, 2002), the principle of the amendments is that the
Company should disclose, in a single section, information regarding: (1) its
obligations and commitments to make future payments, such as debt and lease
agreements, and (2) material off-balance sheet arrangements and their material
effects on the Company's financial condition, results of operations, liquidity,
etc. in a tabular format.

The following summarizes the Company's significant contractual obligations at
June 30, 2003 (dollars in millions):

                                                                                 Payments due in
                                                            --------------------------------------------------------
                                                               Less than       2 - 3          4 - 5       More than
           Contractual Obligations                Total         1 Year         Years          Years        5 years
--------------------------------------------  ------------- -------------- -------------  ------------- ------------
Long-term debt, including capital lease of
   $2.6(a)                                    $       43.5  $         1.1  $        1.0   $       22.4  $      19.0
Operating leases                                      31.3            9.2           9.6            6.6          5.9
                                              ------------- -------------- -------------  ------------- ------------

Total cash contractual obligations            $       74.8  $        10.3  $       10.6   $       29.0  $      24.9
                                              ============= ============== =============  ============= ============

(a)     See Note 5 of Notes to Interim Consolidated Financial Statements for
        information in respect of long-term debt. Long-term debt obligations
        exclude debt subject to compromise of approximately $830.2 million which
        amounts will be dealt with in connection with a plan of reorganization.
        See Notes 1 and 5 of Notes to Interim Consolidated Financial Statements
        for additional information about debt subject to compromise.

The following paragraphs summarize the Company's off-balance sheet arrangements.

The Company owns a 20% interest in QAL, which owns one of the largest and most
competitive alumina refineries in the world, located in Queensland, Australia.
QAL refines bauxite into alumina, essentially on a cost basis, for the account
of its shareholders under long-term tolling contracts. The Company currently
sells its share of QAL's production to third parties. The shareholders,
including the Company, purchase bauxite from another QAL shareholder under
long-term purchase contracts. These tolling and purchase contracts are scheduled
to expire in 2008. Under the agreements, the Company is unconditionally
obligated to pay its proportional share of debt, operating costs and certain
other costs of QAL. The Company's share of the aggregate minimum amount of
future principal payments as of June 30, 2003 is $52.0 million, which matured or
will mature as follows: $32.0 million in July 2003 and $20.0 million in 2006.
The Company's share of QAL's debt principal payment in July 2003 was funded with
additional QAL borrowings. The Company's share of payments, including operating
costs and certain other expenses under the agreements, has ranged between $95.0
million and $103.0 million per year over the past three years.

The Company has agreements to supply alumina to and to purchase aluminum from
Anglesey, a 49.0% owned aluminum smelter in Holyhead, Wales.

As of June 30, 2003, outstanding letters of credit under the DIP Facility were
approximately $46.2 million, all which expire within the next twelve months. The
letters of credit relate to environmental, insurance, trade credit and other
activities. Approximately $15.3 million of the letters of credit are in respect
of the Company's 65% share of the $22.0 million Alpart CARIFA financing (see
Note 5 of Notes to Interim Consolidated Financial Statements) which are
reflected in the debt maturities table above. As such, that portion of the
letters of credit is duplicative of the obligation reflected in the table above.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's operating results are sensitive to changes in the prices of
alumina, primary aluminum, and fabricated aluminum products, and also depend to
a significant degree upon the volume and mix of all products sold. As discussed
more fully in Notes 2 and 8 of Notes to Interim Consolidated Financial
Statements, the Company historically has utilized hedging transactions to
lock-in a specified price or range of prices for certain products which it sells
or consumes in its production process and to mitigate the Company's exposure to
changes in foreign currency exchange rates. However, because the agreements
underlying the Company's hedging positions provided that the counterparties to
the hedging contracts could liquidate the Company's hedging positions if the
Company filed for reorganization, the Company chose to liquidate these positions
in advance of the initial Filing Date. The Company has only completed limited
hedging activities since the Filing Date (see below). The Company anticipates
that, subject to prevailing economic conditions, it may enter into additional
hedging transactions with respect to primary aluminum prices, natural gas and
fuel oil prices and foreign currency values to protect the interests of its
constituents. However, no assurance can be given as to when or if the Company
will enter into such additional hedging activities.

SENSITIVITY

Alumina and Primary Aluminum. Alumina and primary aluminum production in excess
of internal requirements is sold in domestic and international markets, exposing
the Company to commodity price opportunities and risks. The Company's hedging
transactions are intended to provide price risk management in respect of the net
exposure of earnings resulting from (i) anticipated sales of alumina, primary
aluminum and fabricated aluminum products, less (ii) expected purchases of
certain items, such as aluminum scrap, rolling ingot, and bauxite, whose prices
fluctuate with the price of primary aluminum. On average, before consideration
of hedging activities, variations in production and shipment levels, and timing
issues related to price changes, the Company estimates that during 2003 each
$.01 increase (decrease) in the market price per price-equivalent pound of
primary aluminum increases (decreases) the Company's annual pre-tax earnings by
approximately $5.0 million, based on recent operating levels. The impact on
pre-tax earnings linked to primary aluminum prices is due to the Valco potline
curtailments.

As of July 31, 2003, the Company has option contracts covering substantially all
of the Company's net hedgable volume for the third quarter of 2003 (at a strike
price of approximately $.645 per pound) and approximately one-third of its
October 2003 sales linked to primary aluminum prices (at a strike price of
approximately $.66 per pound).

Foreign Currency. The Company from time to time in the ordinary course of
business enters into forward exchange contracts to hedge material cash
commitments for foreign currencies. The Company's primary foreign exchange
exposure is related to the Company's Australian Dollar (A$) commitments in
respect of activities associated with its 20.0%-owned affiliate, QAL. The
Company estimates that, before consideration of any hedging activities, a US
$0.01 increase (decrease) in the value of the A$ results in an approximate $1.5
million (decrease) increase in the Company's annual pre-tax operating income.

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

The Company from time to time in the ordinary course of business enters into
hedging transactions with major suppliers of energy and energy related financial
instruments. As of June 30, 2003, the Company held option contracts which capped
the Company's price for fuel oil to $25.00 per barrel for substantially all of
its fuel oil needs in the last half of 2003.

As of July 31, 2003, the Company had option contracts which cap the average
price the Company would pay for natural gas to approximately $5.50 per mcf so
that, when combined with price limits in the physical gas supply agreement,
substantially all of the Company's exposure to increases in natural gas prices
during August 2003 and September 2003 was limited and approximately half of the
Company's exposure for October 2003 was limited.

ITEM 4.    CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. An evaluation of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures was performed as of the end of the period covered by this Report
under the supervision and with the participation of the Company's management,
including the Chief Executive Officer and Chief Financial Officer. Based on that
evaluation, the Company's management, including the Chief Executive Officer and
Chief Financial Officer, concluded that the Company's disclosure controls and
procedures were effective.

Changes in Internal Control. There have been no significant changes in the
Company's internal controls or in other factors that could significantly affect
internal controls subsequent to the date of their evaluation. Additionally, no
changes in the Company's internal controls over financial reporting have
occurred during the Company's most recently completed quarter that have
materially affected, or are reasonably likely to materially affect, the
Company's internal controls over financial reporting.

                           PART II - OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

Reference is made to Part I, Item 3. "LEGAL PROCEEDINGS" in the Company's Form
10-K for the year ended December 31, 2002 for information concerning material
legal proceedings with respect to the Company.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

   (a)  Exhibits.

        *4.1    Extension and Modification of Waiver Letter with Respect to
                Post-Petition Credit Agreement, dated May 5, 2003, among Kaiser
                Aluminum & Chemical Corporation ("KACC"), Kaiser Aluminum
                Corporation ("KAC"), the financial institutions party to the
                Post-Petition Credit Agreement, dated as of February 12, 2002,
                as amended, and Bank of America, N.A., as Agent.

        *4.2    Fifth Amendment to Post-Petition Credit Agreement, dated June 6,
                2003, amending the Post-Petition Credit Agreement dated February
                12, 2002, among KACC, KAC, certain financial institutions and
                Bank of America, N.A., as Agent.

        *31.1   Certification of Jack A. Hockema pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.

        *31.2   Certification of John T. La Duc pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.

        *32.1   Certification of Jack A. Hockema pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002.

        *32.2   Certification of John T. La Duc pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002.

   (b)  Reports on Form 8-K.

        No Reports on Form 8-K were filed by the Company during the quarter
        ended June 30, 2003.

---------------------------
*  Filed herewith.

                                    SIGNATURE

      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 as the principal financial officer and principal accounting
officer of the registrant, respectively.

                                    KAISER ALUMINUM & CHEMICAL
                                    CORPORATION

                                    By:  /s/ John T. La Duc
                                             John T. La Duc
                                       Executive Vice President and
                                         Chief Financial Officer
                                      (Principal Financial Officer)

                                    KAISER ALUMINUM & CHEMICAL
                                    CORPORATION

                                    By:  /s/ Daniel D. Maddox
                                             Daniel D. Maddox
                                     Vice President and Controller
                                    (Principal Accounting Officer)

Dated:  August 13, 2003
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