##### 









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 March 31, 2006


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.)
|                                                                                                        
|27422 PORTOLA PARKWAY, SUITE 350,
    FOOTHILL RANCH, CALIFORNIA(Address of principal executive offices) |  | 92610-2831(Zip Code)                    

Registrants telephone number, including area code


(949) 614-1740


þ o


12b-2


o o þ


12b-2 o þ












---



##### 



KAISER ALUMINUM & CHEMICAL CORPORATION AND
SUBSIDIARY COMPANIES


(Debtor-in-Possession)







PART I  FINANCIAL INFORMATION







|        |                     
|------- | --------------------
|Item 1. | Financial Statements

CONSOLIDATED BALANCE SHEETS


|                                                        |                                                                              |                                                                            |         |          |              |   |         |          |          |  
|------------------------------------------------------- | ---------------------------------------------------------------------------- | -------------------------------------------------------------------------- | ------- | -------- | ------------ | - | ------- | -------- | -------- | -
|                                                        |                                                                              | March 31,                                                                  |         |          | December 31, |  
|                                                        |                                                                              | 2006                                                                       |         |          | 2005         |  
|                                                        |                                                                              |                                                                            |         |          |              |  
|                                                        |                                                                              | (Unaudited)                                                                |        
|                                                        |                                                                              | (In millions of dollars)                                                   |        
|ASSETS                                                 
|Current assets:                                         |                                                                              |                                                                            |         |          |              |   |         |         
|                                                        | Cash and cash equivalents                                                    |                                                                            | $       | 38.5     |              |   | $       | 49.5     |         
|                                                        | Receivables:                                                                 |                                                                            |         |          |              |   |         |          |         
|                                                        |                                                                              | Trade, less allowance for doubtful receivables of $2.9 at both
    periods |         |          | 114.0        |   |         |          | 94.6     |  
|                                                        |                                                                              | Due from affiliate                                                         |         |          | 8.0          |   |         |          |         |  
|                                                        |                                                                              | Other                                                                      |         |          | 7.0          |   |         |          | 6.9      |  
|                                                        | Inventories                                                                  |                                                                            |         | 137.6    |              |   |         | 115.3    |         
|                                                        | Prepaid expenses and other current assets                                    |                                                                            |         | 29.1     |              |   |         | 21.0     |         
|                                                        |                                                                              |                                                                            |         |          |              |  
|                                                        |                                                                              | Total current assets                                                       |         |          | 334.2        |   |         |          | 287.3    |  
|Investments in and advances to unconsolidated affiliate |                                                                              |                                                                            | 15.5    |          |              |   | 12.6    |         
|Property, plant, and equipment  net                    |                                                                              |                                                                            | 233.8   |          |              |   | 223.4   |         
|Personal injury-related insurance recoveries receivable |                                                                              |                                                                            | 963.7   |          |              |   | 965.5   |         
|Goodwill                                                |                                                                              |                                                                            | 11.4    |          |              |   | 11.4    |         
|Other assets                                            |                                                                              |                                                                            | 43.1    |          |              |   | 38.7    |         
|                                                        |                                                                              |                                                                            |         |          |              |  
|                                                        | Total                                                                        |                                                                            | $       | 1,601.7  |              |   | $       | 1,538.9  |         
|                                                        |                                                                              |                                                                            |         |          |              |  
|                                                       
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)         
|Liabilities not subject to compromise                  |                                                                              |                                                                            |         |          |              |   |         |         
|                                                        | Current liabilities:                                                         |                                                                            |         |          |              |   |         |          |         
|                                                        |                                                                              | Accounts payable                                                           |         | $        | 70.8         |   |         | $        | 49.8     |  
|                                                        |                                                                              | Accrued interest                                                           |         |          | 1.1          |   |         |          | 1.0      |  
|                                                        |                                                                              | Accrued salaries, wages, and related expenses                              |         |          | 33.3         |   |         |          | 42.0     |  
|                                                        |                                                                              | Other accrued liabilities                                                  |         |          | 69.0         |   |         |          | 55.2     |  
|                                                        |                                                                              | Payable to affiliate                                                       |         |          | 15.5         |   |         |          | 14.8     |  
|                                                        |                                                                              | Long-term debt  current portion                                           |         |          | 1.1          |   |         |          | 1.1      |  
|                                                        |                                                                              | Discontinued operations current liabilities                               |         |          | 2.2          |   |         |          | 2.1      |  
|                                                        |                                                                              |                                                                            |         |          |              |  
|                                                        |                                                                              | Total current liabilities                                                  |         |          | 193.0        |   |         |          | 166.0    |  
|                                                        | Long-term liabilities                                                        |                                                                            |         | 47.2     |              |   |         | 42.0     |         
|                                                        | Long-term debt                                                               |                                                                            |         | 1.2      |              |   |         | 1.2      |         
|                                                        | Discontinued operations liabilities (liabilities subject
    to compromise) |                                                                            |         | 68.5     |              |   |         | 68.5     |         
|                                                        |                                                                              |                                                                            |         |          |              |  
|                                                        |                                                                              |                                                                            | 309.9   |          |              |   | 277.7   |         
|Liabilities subject to compromise                       |                                                                              |                                                                            | 4,392.2 |          |              |   | 4,400.1 |         
|Commitments and contingencies                           |                                                                              |                                                                            |         |          |              |   |         |         
|Stockholders equity (deficit):                         |                                                                              |                                                                            |         |          |              |   |         |         
|                                                        | Preference stock                                                             |                                                                            |         | .7       |              |   |         | .7       |         
|                                                        | Common stock                                                                 |                                                                            |         | 15.4     |              |   |         | 15.4     |         
|                                                        | Additional capital                                                           |                                                                            |         | 255.6    |              |   |         | 255.6    |         
|                                                        | Accumulated deficit                                                          |                                                                            |         | (3,363.3 | )            |   |         | (3,401.8 | )       
|                                                        | Accumulated other comprehensive income (loss)                                |                                                                            |         | (8.8     | )            |   |         | (8.8     | )       
|                                                        |                                                                              |                                                                            |         |          |              |  
|                                                        |                                                                              | Total stockholders equity (deficit)                                       |         |          | (3,100.4     | ) |         |          | (3,138.9 | )
|                                                        |                                                                              |                                                                            |         |          |              |  
|                                                        |                                                                              | Total                                                                      |         | $        | 1,601.7      |   |         | $        | 1,538.9  |  
|                                                        |                                                                              |                                                                            |         |          |              |  



1



---



##### 



KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY
COMPANIES


(Debtor-in


STATEMENTS OF CONSOLIDATED INCOME (LOSS)


|                                                                                                                 |                                                                                                     |                          |       |            |      |   |       |      |  
|---------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------- | ------------------------ | ----- | ---------- | ---- | - | ----- | ---- | -
|                                                                                                                 |                                                                                                     | Quarter Ended            |      
|                                                                                                                 |                                                                                                     | March 31,                |      
|                                                                                                                 |                                                                                                     |                          |      
|                                                                                                                 |                                                                                                     | 2006                     |       |            | 2005 |  
|                                                                                                                 |                                                                                                     |                          |       |            |      |  
|                                                                                                                 |                                                                                                     |                          |       | (Restated) |     
|                                                                                                                 |                                                                                                     | (Unaudited)              |      
|                                                                                                                 |                                                                                                     | (In millions of dollars) |      
|Net sales                                                                                                        |                                                                                                     | $                        | 336.3 |            |      | $ | 281.4 |     
|                                                                                                                 |                                                                                                     |                          |       |            |      |  
|Costs and expenses:                                                                                              |                                                                                                     |                          |       |            |      |   |       |     
|Cost of products sold                                                                                            |                                                                                                     |                          | 272.2 |            |      |   | 243.0 |     
|Depreciation and amortization                                                                                    |                                                                                                     |                          | 4.8   |            |      |   | 4.9   |     
|Selling, administrative, research and development, and general                                                   |                                                                                                     |                          | 15.2  |            |      |   | 12.2  |     
|Other operating charges                                                                                          |                                                                                                     |                          |      |            |      |   | 6.2   |     
|                                                                                                                 |                                                                                                     |                          |       |            |      |  
|Total costs and expenses                                                                                         |                                                                                                     |                          | 292.2 |            |      |   | 266.3 |     
|                                                                                                                 |                                                                                                     |                          |       |            |      |  
|Operating income                                                                                                 |                                                                                                     |                          | 44.1  |            |      |   | 15.1  |     
|Other income (expense):                                                                                          |                                                                                                     |                          |       |            |      |   |       |     
|                                                                                                                 | Interest expense (excluding unrecorded contractual interest
    expense of $23.7 for both quarters) |                          |       | (.8        | )    |   |       | (2.1 | )
|                                                                                                                 | Reorganization items                                                                                |                          |       | (6.4       | )    |   |       | (7.8 | )
|                                                                                                                 | Other  net                                                                                         |                          |       | 1.3        |      |   |       | (.4  | )
|                                                                                                                 |                                                                                                     |                          |       |            |      |  
|Income before income taxes and discontinued operations                                                           |                                                                                                     |                          | 38.2  |            |      |   | 4.8   |     
|Provision for income taxes                                                                                       |                                                                                                     |                          | (7.0  | )          |      |   | (2.4  | )   
|                                                                                                                 |                                                                                                     |                          |       |            |      |  
|Income from continuing operations                                                                                |                                                                                                     |                          | 31.2  |            |      |   | 2.4   |     
|Income from discontinued operations, net of income taxes                                                         |                                                                                                     |                          | 7.3   |            |      |   | 10.6  |     
|Cumulative effect on years prior to 2005 of adopting accounting
    for conditional asset retirement obligations |                                                                                                     |                          |      |            |      |   | (4.7  | )   
|                                                                                                                 |                                                                                                     |                          |       |            |      |  
|Net income                                                                                                       |                                                                                                     | $                        | 38.5  |            |      | $ | 8.3   |     
|                                                                                                                 |                                                                                                     |                          |       |            |      |  



2



---



##### 



KAISER ALUMINUM & CHEMICAL CORPORATION AND
SUBSIDIARY COMPANIES


(Debtor-in


STATEMENTS OF CONSOLIDATED STOCKHOLDERS EQUITY
(DEFICIT)


AND COMPREHENSIVE INCOME (LOSS)


For the Quarter Ended March 31, 2006


|                           |                                           |                          |    |   |        |   |      |            |  |             |             |   |            |               |          |      |        |   |       |   |  |   |   |   |  |   |          |      | 
|-------------------------- | ----------------------------------------- | ------------------------ | -- | - | ------ | - | ---- | ---------- |  | ----------- | ----------- | - | ---------- | ------------- | -------- | ---- | ------ | - | ----- | - |  | - | - | - |  | - | -------- | ---- | 
|                           |                                           |                          |    |   |        |   |      |            |  | Accumulated |             |   | Note       |               |         
|                           |                                           |                          |    |   |        |   |      |            |  | Other       |             |   | Receivable |               |         
|                           |                                           | Preference               |    |   | Common |   |      | Additional |  |             | Accumulated |   |            | Comprehensive |          |      | From   |   |      
|                           |                                           | Stock                    |    |   | Stock  |   |      | Capital    |  |             | Deficit     |   |            | Income (Loss) |          |      | Parent |   | Total |  
|                           |                                           |                          |    |   |        |   |      |            |  |             |             |   |            |               |          |      |        |   |       |  
|                           |                                           | (Unaudited)              |   
|                           |                                           | (In millions of dollars) |   
|BALANCE, December 31, 2005 |                                           | $                        | .7 |   |        | $ | 15.4 |            |  | $           | 255.6       |   |            | $             | (3,401.8 | )    |        | $ | (8.8  | ) |  | $ |  |   |  | $ | (3,138.9 | )   
|                           | Net income (same as comprehensive income) |                          |    |  |        |   |      |           |  |             |             |  |            |               |          | 38.5 |        |   |       |  |  |   |   |  |  |   |          | 38.5 | 
|                           |                                           |                          |    |   |        |   |      |            |  |             |             |   |            |               |          |      |        |   |       |   | 
|BALANCE, March 31, 2006    |                                           | $                        | .7 |   |        | $ | 15.4 |            |  | $           | 255.6       |   |            | $             | (3,363.3 | )    |        | $ | (8.8  | ) |  | $ |  |   |  | $ | (3,100.4 | )   
|                           |                                           |                          |    |   |        |   |      |            |  |             |             |   |            |               |          |      |        |   |       |   | 

For the Quarter Ended March 31, 2005


(Restated)


|                           |                                                                                                          |                          |    |   |        |   |      |            |  |             |             |          |            |               |          |     |        |   |      |       |   |   |          |         |  |   |          |      |  
|-------------------------- | -------------------------------------------------------------------------------------------------------- | ------------------------ | -- | - | ------ | - | ---- | ---------- |  | ----------- | ----------- | -------- | ---------- | ------------- | -------- | --- | ------ | - | ---- | ----- | - | - | -------- | ------- |  | - | -------- | ---- | -
|                           |                                                                                                          |                          |    |   |        |   |      |            |  | Accumulated |             |          | Note       |               |          |    
|                           |                                                                                                          |                          |    |   |        |   |      |            |  | Other       |             |          | Receivable |               |          |    
|                           |                                                                                                          | Preference               |    |   | Common |   |      | Additional |  |             | Accumulated |          |            | Comprehensive |          |     | From   |   |      |      
|                           |                                                                                                          | Stock                    |    |   | Stock  |   |      | Capital    |  |             | Deficit     |          |            | Income (Loss) |          |     | Parent |   |      | Total |  
|                           |                                                                                                          |                          |    |   |        |   |      |            |  |             |             |          |            |               |          |     |        |   |      |       |  
|                           |                                                                                                          | (Unaudited)              |   
|                           |                                                                                                          | (In millions of dollars) |   
|BALANCE, December 31, 2004 |                                                                                                          | $                        | .7 |   |        | $ | 15.4 |            |  | $           | 2,452.8     |          |            | $             | (2,648.3 | )   |        | $ | (5.5 | )     |   | $ | (2,191.7 | )       |  | $ | (2,376.6 | )   
|                           | Net income                                                                                               |                          |    |  |        |   |      |           |  |             |             |         |            |               |          | 8.3 |        |   |      |      |   |   |          |        |  |   |          | 8.3  |  
|                           | Unrealized net increase in value of derivative instruments
    arising during the period                 |                          |    |  |        |   |      |           |  |             |             |         |            |               |          |    |        |   |      | (.3   | ) |   |          |        |  |   |          | (.3  | )
|                           | Reclassification adjustment for net realized losses on
    derivative instruments included in net income |                          |    |  |        |   |      |           |  |             |             |         |            |               |          |    |        |   |      | .2    |   |   |          |        |  |   |          | .2   |  
|                           |                                                                                                          |                          |    |   |        |   |      |            |  |             |             |          |            |               |          |     |        |   |      |       |  
|                           | Comprehensive income (loss)                                                                              |                          |    |  |        |   |      |           |  |             |             |         |            |               |          |    |        |   |      |      |   |   |          |        |  |   |          | 8.2  |  
|                           | Release of note from parent                                                                              |                          |    |  |        |   |      |           |  |             |             | (2,197.2 | )          |               |          |    |        |   |      |      |   |   |          | 2,191.7 |  |   |          | (5.5 | )
|                           |                                                                                                          |                          |    |   |        |   |      |            |  |             |             |          |            |               |          |     |        |   |      |       |  
|BALANCE, March 31, 2005    |                                                                                                          | $                        | .7 |   |        | $ | 15.4 |            |  | $           | 255.6       |          |            | $             | (2,640.0 | )   |        | $ | (5.6 | )     |   | $ |         |         |  | $ | (2,373.9 | )   
|                           |                                                                                                          |                          |    |   |        |   |      |            |  |             |             |          |            |               |          |     |        |   |      |       |  



3



---



##### 



KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY
COMPANIES


(Debtor-in


STATEMENTS OF CONSOLIDATED CASH FLOWS


|                                                            |                                                                                                             |                                                                                                                            |       |            |       |   |       |       |       |  
|----------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------- | ----- | ---------- | ----- | - | ----- | ----- | ----- | -
|                                                            |                                                                                                             | Quarter Ended                                                                                                              |      
|                                                            |                                                                                                             | March 31,                                                                                                                  |      
|                                                            |                                                                                                             |                                                                                                                            |      
|                                                            |                                                                                                             | 2006                                                                                                                       |       |            | 2005  |  
|                                                            |                                                                                                             |                                                                                                                            |       |            |       |  
|                                                            |                                                                                                             |                                                                                                                            |       | (Restated) |      
|                                                            |                                                                                                             | (Unaudited)                                                                                                                |      
|                                                            |                                                                                                             | (In millions of                                                                                                            |      
|                                                            |                                                                                                             | dollars)                                                                                                                   |      
|Cash flows from operating activities:                       |                                                                                                             |                                                                                                                            |       |            |       |   |       |      
|                                                            | Net income                                                                                                  |                                                                                                                            | $     | 38.5       |       |   | $     | 8.3   |      
|                                                            | Less net income from discontinued operations                                                                |                                                                                                                            |       | 7.3        |       |   |       | 10.6  |      
|                                                            |                                                                                                             |                                                                                                                            |       |            |       |  
|                                                            | Net income (loss) from continuing operations                                                                |                                                                                                                            |       | 31.2       |       |   |       | (2.3  | )    
|                                                            | Adjustments to reconcile net loss from continuing operations to
    net cash used by continuing operations: |                                                                                                                            |       |            |       |   |       |       |      
|                                                            |                                                                                                             | Depreciation and amortization (including deferred financing
    costs of $.8 and $1.7, respectively)                       |       |            | 5.6   |   |       |       | 6.6   |  
|                                                            |                                                                                                             | Loss from cumulative effect on years prior to 2005 of adopting
    accounting for conditional asset retirement obligations |       |            |      |   |       |       | 4.7   |  
|                                                            |                                                                                                             | Gain on sale of real estate                                                                                                |       |            | (1.6  | ) |       |       |      |  
|                                                            |                                                                                                             | Equity in (income) loss of unconsolidated affiliate, net of
    distributions                                              |       |            | (2.9  | ) |       |       | 1.0   |  
|                                                            |                                                                                                             | (Increase) decrease in trade and other receivables                                                                         |       |            | (27.5 | ) |       |       | 2.8   |  
|                                                            |                                                                                                             | Increase in inventories                                                                                                    |       |            | (22.3 | ) |       |       | (.6   | )
|                                                            |                                                                                                             | (Increase) decrease in prepaid expenses and other current assets                                                           |       |            | (8.3  | ) |       |       | .5    |  
|                                                            |                                                                                                             | Increase (decrease) in accounts payable and accrued interest                                                               |       |            | 15.7  |   |       |       | (7.0  | )
|                                                            |                                                                                                             | Increase in other accrued liabilities                                                                                      |       |            | 2.3   |   |       |       | 4.1   |  
|                                                            |                                                                                                             | Increase (decrease) in payable to affiliate                                                                                |       |            | .7    |   |       |       | (2.1  | )
|                                                            |                                                                                                             | Increase (decrease) in accrued and deferred income taxes                                                                   |       |            | 2.6   |   |       |       | (.5   | )
|                                                            |                                                                                                             | Net cash impact of changes in long-term assets and liabilities                                                             |       |            | (4.7  | ) |       |       | (8.0  | )
|                                                            |                                                                                                             | Net cash used by discontinued operations                                                                                   |       |            | 7.5   |   |       |       | (7.4  | )
|                                                            |                                                                                                             | Other                                                                                                                      |       |            | .1    |   |       |       | (.1   | )
|                                                            |                                                                                                             |                                                                                                                            |       |            |       |  
|                                                            |                                                                                                             | Net cash used by operating activities                                                                                      |       |            | (1.6  | ) |       |       | (8.3  | )
|                                                            |                                                                                                             |                                                                                                                            |       |            |       |  
|Cash flows from investing activities:                       |                                                                                                             |                                                                                                                            |       |            |       |   |       |      
|                                                            | Capital expenditures, net of accounts payable of $5.2 in 2006                                               |                                                                                                                            |       | (10.6      | )     |   |       | (3.8  | )    
|                                                            | Net proceeds from sale of real estate                                                                       |                                                                                                                            |       | 1.0        |       |   |       |      |      
|                                                            |                                                                                                             |                                                                                                                            |       |            |       |  
|                                                            |                                                                                                             | Net cash used by investing activities                                                                                      |       |            | (9.6  | ) |       |       | (3.8  | )
|                                                            |                                                                                                             |                                                                                                                            |       |            |       |  
|Cash flows from financing activities:                       |                                                                                                             |                                                                                                                            |       |            |       |   |       |      
|                                                            | Financing costs, primarily DIP Facility related                                                             |                                                                                                                            |       |           |       |   |       | (3.3  | )    
|                                                            | Decrease (increase) in restricted cash                                                                      |                                                                                                                            |       | .2         |       |   |       | (15.0 | )    
|                                                            | Net cash used by discontinued operations: primarily increase in
    restricted cash                         |                                                                                                                            |       |           |       |   |       | (.5   | )    
|                                                            |                                                                                                             |                                                                                                                            |       |            |       |  
|                                                            |                                                                                                             | Net cash used by financing activities                                                                                      |       |            | .2    |   |       |       | (18.8 | )
|                                                            |                                                                                                             |                                                                                                                            |       |            |       |  
|Net decrease in cash and cash equivalents during the period |                                                                                                             |                                                                                                                            | (11.0 | )          |       |   | (30.9 | )    
|Cash and cash equivalents at beginning of period            |                                                                                                             |                                                                                                                            | 49.5  |            |       |   | 55.4  |      
|                                                            |                                                                                                             |                                                                                                                            |       |            |       |  
|Cash and cash equivalents at end of period                  |                                                                                                             | $                                                                                                                          | 38.5  |            |       | $ | 24.5  |      
|                                                            |                                                                                                             |                                                                                                                            |       |            |       |  
|Supplemental disclosure of cash flow information:           |                                                                                                             |                                                                                                                            |       |            |       |   |       |      
|                                                            | Interest paid, net of capitalized interest of $.4 and $.1                                                   |                                                                                                                            | $     |           |       |   | $     | .4    |      
|                                                            |                                                                                                             |                                                                                                                            |       |            |       |  
|                                                            | Income taxes paid                                                                                           |                                                                                                                            | $     | .4         |       |   | $     | 10.5  |      
|                                                            | Less income taxes paid by discontinued operations                                                           |                                                                                                                            |       |           |       |   |       | (8.7  | )    
|                                                            |                                                                                                             |                                                                                                                            |       |            |       |  
|                                                            |                                                                                                             | $                                                                                                                          | .4    |            |       | $ | 1.8   |      
|                                                            |                                                                                                             |                                                                                                                            |       |            |       |  



4



---



##### 



KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY
COMPANIES


(Debtor-in


NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS


(In millions of dollars)


(Unaudited)




|   |                           
|-- | --------------------------
|1. | Reorganization Proceedings

Background. debtors-in non-U.S.








day-to




5



---



##### 



KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY
COMPANIES


(Debtor-in


NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Case Administration.




Commodity-related and Inactive Subsidiaries.


6



---



##### 



KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY
COMPANIES


(Debtor-in


NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


7 8 7 8


3 4






7



---



##### 



KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY
COMPANIES


(Debtor-in


NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










Entities Containing the Fabricated Products and Certain Other
Operations.




8



---



##### 



KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY
COMPANIES


(Debtor-in


NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) All of the equity interests of existing stockholders of
    the Company would be cancelled without consideration.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| | (b) All post-petition and secured claims would either be
    assumed by the emerging entity or paid at emergence (see
    Exit Cost discussion below).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | (c) Pursuant to agreements reached with salaried and hourly
    retirees in early 2004, in consideration for the agreed
    cancellation of the retiree medical plan, as more fully
    discussed in Note 10, the Company is making certain fixed
    monthly payments into Voluntary Employee Beneficiary
    Associations (VEBAs) until emergence and has agreed
    thereafter to make certain variable annual VEBA contributions
    depending on the emerging entitys operating results and
    financial liquidity. In addition, upon emergence the VEBAs are
    entitled to receive a contribution of 66.9% of the new common
    stock of the emerged entity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | (d) The PBGC will receive a cash payment of $2.5 and 10.8%
    of the new common stock of the emerged entity in respect of its
    claims against KACOCL. In addition, as described in
    (f) below, the PBGC will receive shares of new common stock
    based on its direct claims against the Remaining Debtors (other
    than KACOCL) and its participation, indirectly through the KAAC/
    KFC Plan in claims of KFC against the Company, which the Company
    currently estimates will result in the PBGC receiving an
    additional 5.4% of the new common stock of the emerged entity
    (bringing the PBGCs total ownership percentage of the new
    entity to approximately 16.2%). The $2.5 cash payment discussed
    above is in addition to the cash amounts the Company has already
    paid the PBGC (see Note 10) and that the PBGC has
    received and will receive from the Liquidating Subsidiaries
    under the Liquidating Plans.                                                                                                                                                                                                                                                                
|
| | (e) Pursuant to an agreement reached in early 2005, all
    pending and future asbestos-related personal injury claims, all
    pending and future silica and coal tar pitch volatiles personal
    injury claims and all hearing loss claims would be resolved
    through the formation of one or more trusts to which all such
    claims would be directed by channeling injunctions that would
    permanently remove all liability for such claims from the
    Debtors. The trusts would be funded pursuant to statutory
    requirements and agreements with representatives of the affected
    parties, using (i) the Debtors insurance assets,
    (ii) $13.0 in cash from the Company, (iii) 100% of the
    equity in a Company subsidiary whose sole asset will be a piece
    of real property that produces modest rental income, and
    (iv) the new common stock of the emerged entity to be
    issued as per (f) below in respect of approximately $830.0
    of intercompany claims of KFC against the Company that are to be
    assigned to the trust, which the Company currently estimates
    will entitle the trusts to receive approximately 6.4% of the new
    common stock of the emerged entity.
|
| | (f) Other pre-petition general unsecured claims against the
    Remaining Debtors (other than KACOCL) are entitled to receive
    approximately 22.3% of the new common stock of the emerging
    entity in the proportion that their allowed claim bears to the
    total amount of allowed claims. Claims that are expected to be
    within this group include (i) any claims of the Senior
    Notes, the Sub Notes and PBGC (other than the PBGCs claim
    against KACOCL), (ii) the approximate $830.0 of
    intercompany claims that will be assigned to the personal injury
    trust(s) referred to in (e) above, and (iii) all
    unsecured trade and other general unsecured claims, including
    approximately $276.0 of intercompany claims of KFC against the
    Company. However, holders of general unsecured claims not
    exceeding a specified small amount will receive a cash payment
    equal to approximately 2.9% of their agreed claim value in lieu
    of                                                                                                                                                                                                                                      

9



---



##### 



KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY
COMPANIES


(Debtor-in


NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | new common stock. In accordance with the contractual
    subordination provisions of the indenture governing the Sub
    Notes and terms of the settlement between the holders of the
    Senior Notes and the holders of the Revenue Bonds, the new
    common stock or cash that would otherwise be distributed to the
    holders of the Sub Notes in respect of their claims against the
    Debtors would instead be distributed to holders of the Senior
    Notes and the Revenue Bonds on a pro rata basis based on the
    relative allowed amounts of their claims.







Financial Statement Presentation. 90-7 90-7), Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code


90-7.


10



---



##### 



KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY
COMPANIES


(Debtor-in


NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Financial Information. 90-7


Condensed Combined Balance Sheets


March 31, 2006 and December 31, 2005


|                                                                |  |           |     |  |              |   |     | 
|--------------------------------------------------------------- |  | --------- | --- |  | ------------ | - | --- | 
|                                                                |  | March 31, |     |  | December 31, |  
|                                                                |  | 2006      |     |  | 2005         |  
|                                                                |  |           |     |  |              |  
|Current assets                                                  |  | $         | 4.3 |  |              | $ | 2.3 | 
|Intercompany receivables (payables), net(1)                     |  |           | 2.6 |  |              |   | 4.0 | 
|                                                                |  |           |     |  |              |  
|                                                                |  | $         | 6.9 |  |              | $ | 6.3 | 
|                                                                |  |           |     |  |              |  
|Liabilities not subject to compromise  Current
    liabilities |  | $         | 3.6 |  |              | $ | 3.9 | 
|Long-term liabilities                                           |  |           | 1.3 |  |              |   | 1.4 | 
|Stockholders equity (deficit)(1)                               |  |           | 2.0 |  |              |   | 1.0 | 
|                                                                |  |           |     |  |              |  
|                                                                |  | $         | 6.9 |  |              | $ | 6.3 | 
|                                                                |  |           |     |  |              |  






|    |                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------
|(1) | Intercompany receivables (payables), net and stockholders
    equity (deficit) amounts are eliminated in consolidation.

11



---



##### 



KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY
COMPANIES


(Debtor-in


NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Condensed Combined Statements of Income (Loss)


For the Quarters Ended March 31, 2006 and 2005


|                                                  |  |               |     |   |      |   |     |  
|------------------------------------------------- |  | ------------- | --- | - | ---- | - | --- | -
|                                                  |  | Quarter Ended |    
|                                                  |  | March 31,     |    
|                                                  |  |               |    
|                                                  |  | 2006          |     |   | 2005 |  
|                                                  |  |               |     |   |      |  
|Costs and expenses  Operating costs and expenses |  | $             | (.3 | ) |      | $ | .1  |  
|                                                  |  |               |     |   |      |  
|Operating income (loss)                           |  |               | .3  |   |      |   | (.1 | )
|All other income (expense), net                   |  |               | .1  |   |      |   |    |  
|                                                  |  |               |     |   |      |  
|Income (loss) from continuing operations          |  |               | .4  |   |      |   | (.1 | )
|Discontinued operations                           |  |               |    |   |      |   |    |  
|                                                  |  |               |     |   |      |  
|Net income (loss)                                 |  | $             | .4  |   |      | $ | (.1 | )
|                                                  |  |               |     |   |      |  

Condensed Combined Statements of Cash Flows


For the Quarters Ended March 31, 2006 and 2005


|                                               |                         |               |     |     |      |   |    |   | 
|---------------------------------------------- | ----------------------- | ------------- | --- | --- | ---- | - | -- | - | 
|                                               |                         | Quarter Ended |    
|                                               |                         | March 31,     |    
|                                               |                         |               |    
|                                               |                         | 2006          |     |     | 2005 |  
|                                               |                         |               |     |     |      |  
|Net cash provided (used) by:                   |                         |               |     |     |      |   |    |  
|Financing activities                          |                         |               |     |     |      |   |    |  
|                                               | Continuing operations   |               | $   | 1.9 |      |   | $  |  | 
|                                               | Discontinued operations |               |     |    |      |   |    |  | 
|                                               |                         |               |     |     |      |  
|Net increase in cash and cash equivalents      |                         |               | 1.9 |     |      |   |   |  
|Cash and cash equivalents, beginning of period |                         |               | .4  |     |      |   | .4 |  
|                                               |                         |               |     |     |      |  
|Cash and cash equivalents, end of period       |                         | $             | 2.3 |     |      | $ | .4 |  
|                                               |                         |               |     |     |      |  

Classification of Liabilities as Liabilities Not
Subject to Compromise Versus Liabilities Subject to
Compromise.




12



---



##### 



KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY
COMPANIES


(Debtor-in


NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                             |  |           |         |   |              |   |         |  
|---------------------------------------------------------------------------- |  | --------- | ------- | - | ------------ | - | ------- | -
|                                                                             |  | March 31, |         |   | December 31, |  
|                                                                             |  | 2006      |         |   | 2005         |  
|                                                                             |  |           |         |   |              |  
|Accrued postretirement medical obligation (Note 10)                          |  | $         | 1,011.3 |   |              | $ | 1,017.0 |  
|Accrued asbestos and certain other personal injury liabilities
    (Note 11) |  |           | 1,115.0 |   |              |   | 1,115.0 |  
|Assigned intercompany claims for benefit of certain creditors                |  |           | 1,131.5 |   |              |   | 1,131.5 |  
|Debt (Note 8)                                                                |  |           | 847.6   |   |              |   | 847.6   |  
|Accrued pension benefits (Note 10)                                           |  |           | 625.8   |   |              |   | 626.2   |  
|Unfair labor practice settlement (Note 11)                                   |  |           | 175.0   |   |              |   | 175.0   |  
|Accounts payable                                                             |  |           | 30.4    |   |              |   | 29.8    |  
|Accrued interest                                                             |  |           | 44.7    |   |              |   | 44.7    |  
|Accrued environmental liabilities (Note 11)                                  |  |           | 29.2    |   |              |   | 30.7    |  
|Other accrued liabilities                                                    |  |           | 36.3    |   |              |   | 37.2    |  
|Proceeds from sale of commodity interests                                    |  |           | (654.6  | ) |              |   | (654.6  | )
|                                                                             |  |           |         |   |              |  
|                                                                             |  | $         | 4,392.2 |   |              | $ | 4,400.1 |  
|                                                                             |  |           |         |   |              |  






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The above amounts exclude $68.5 at March 31, 2006 and
    December 31, 2005 of liabilities subject to compromise
    related to discontinued operations. Approximately $42.1 of the
    excluded amounts at March 31, 2006 and December 31,
    2005 relate to a claim settlement in the fourth quarter of 2005
    (see Note 6). The balance of the amounts at March 31,
    2006 and December 31, 2005 were primarily accounts payable.



Reorganization Items.


|                  |  |               |     |   |      |   |     |  
|----------------- |  | ------------- | --- | - | ---- | - | --- | -
|                  |  | Quarter Ended |    
|                  |  | March 31,     |    
|                  |  |               |    
|                  |  | 2006          |     |   | 2005 |  
|                  |  |               |     |   |      |  
|Professional fees |  | $             | 7.0 |   |      | $ | 8.0 |  
|Interest income   |  |               | (.7 | ) |      |   | (.3 | )
|Other             |  |               | .1  |   |      |   | .1  |  
|                  |  |               |     |   |      |  
|                  |  | $             | 6.4 |   |      | $ | 7.8 |  
|                  |  |               |     |   |      |  

13



---



##### 



KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY
COMPANIES


(Debtor-in


NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                                           
|-- | ------------------------------------------
|2. | Summary of Significant Accounting Policies

10-Q 10-K


Going Concern.


Financial Statement
Presentation


Principles of Consolidation.








Derivative Financial Instruments.


14



---



##### 



KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY
COMPANIES


(Debtor-in


NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


marking-to mark-to Accounting for Derivative
Instruments and Hedging Activities marked-to mark-to






15



---



##### 



KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY
COMPANIES


(Debtor-in


NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






New Accounting Pronouncements. Share-Based
Payment Accounting for Stock-Based
Compensation Accounting for Stock Issued to Employees.


Inventory Costs, an Amendment of ARB No. 43,
Chapter 4


Accounting Changes and Error Corrections Accounting Changes Reporting Changes in Interim Financial Statements.


16



---



##### 



KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY
COMPANIES


(Debtor-in


NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |            
|-- | -----------
|3. | Inventories

last-in,


|                               |                                                      |           |       |      |              |   |       |      | 
|------------------------------ | ---------------------------------------------------- | --------- | ----- | ---- | ------------ | - | ----- | ---- | 
|                               |                                                      | March 31, |       |      | December 31, |  
|                               |                                                      | 2006      |       |      | 2005         |  
|                               |                                                      |           |       |      |              |  
|Fabricated products           |                                                      |           |       |      |              |   |       |     
|                               | Finished products                                    |           | $     | 43.3 |              |   | $     | 34.7 | 
|                               | Work in process                                      |           |       | 51.2 |              |   |       | 43.1 | 
|                               | Raw materials                                        |           |       | 32.4 |              |   |       | 26.3 | 
|                               | Operating supplies and repairs and maintenance parts |           |       | 10.6 |              |   |       | 11.1 | 
|                               |                                                      |           |       |      |              |  
|                               |                                                      |           | 137.5 |      |              |   | 115.2 |     
|Commodities  Primary aluminum |                                                      |           | .1    |      |              |   | .1    |     
|                               |                                                      |           |       |      |              |  
|                               |                                                      | $         | 137.6 |      |              | $ | 115.3 |     
|                               |                                                      |           |       |      |              |  



|   |                        
|-- | -----------------------
|4. | 2005 Adoption of FIN 47

Accounting for Conditional Asset Retirement Obligations, an
interpretation of FASB Statement No. 143
(SFAS No. 143)




17



---



##### 



KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY
COMPANIES


(Debtor-in


NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




10-K






|   |                             
|-- | ----------------------------
|5. | Restated 2005 Quarterly Data

10-Q 10-Q.


18



---



##### 



KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY
COMPANIES


(Debtor-in


NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                                                  
| | -------------------------------------------------
| | Statements of Consolidated Income 
    Unaudited

|                                                                                                                 |                                                                |                          |       |       |           |   |       |       |       | 
|---------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------- | ------------------------ | ----- | ----- | --------- | - | ----- | ----- | ----- | 
|                                                                                                                 |                                                                | As                       |       |       |          
|                                                                                                                 |                                                                | Previously               |       |       | As        |  
|                                                                                                                 |                                                                | Reported(1)              |       |       | Restated  |  
|                                                                                                                 |                                                                |                          |       |       |           |  
|                                                                                                                 |                                                                | March 31,                |       |       | March 31, |  
|                                                                                                                 |                                                                | 2005                     |       |       | 2005      |  
|                                                                                                                 |                                                                |                          |       |       |           |  
|Net sales                                                                                                        |                                                                | $                        | 281.4 |       |           | $ | 281.4 |      
|                                                                                                                 |                                                                |                          |       |       |           |  
|Costs and expenses:                                                                                              |                                                                |                          |       |       |           |   |       |      
|                                                                                                                 | Cost of products sold                                          |                          |       | 242.2 |           |   |       | 243.0 |      
|                                                                                                                 | Depreciation and amortization                                  |                          |       | 4.9   |           |   |       | 4.9   |      
|                                                                                                                 | Selling, administration, research and development, and general |                          |       | 17.7  |           |   |       | 12.2  |      
|                                                                                                                 | Other operating charges, net                                   |                          |       | 6.2   |           |   |       | 6.2   |      
|                                                                                                                 |                                                                |                          |       |       |           |  
|                                                                                                                 |                                                                | Total costs and expenses |       |       | 271.0     |   |       |       | 266.3 | 
|                                                                                                                 |                                                                |                          |       |       |           |  
|Operating income                                                                                                 |                                                                |                          | 10.4  |       |           |   | 15.1  |      
|Other income (expense):                                                                                          |                                                                |                          |       |       |           |   |       |      
|                                                                                                                 | Interest expense (excluding unrecorded interest expense        |                          |       | (2.1  | )         |   |       | (2.1  | )    
|                                                                                                                 | Reorganization items                                           |                          |       | (7.8  | )         |   |       | (7.8  | )    
|                                                                                                                 | Other  net                                                    |                          |       | (.4   | )         |   |       | (.4   | )    
|                                                                                                                 |                                                                |                          |       |       |           |  
|Income before income taxes and discontinued operations                                                           |                                                                |                          | .1    |       |           |   | 4.8   |      
|Provision for income taxes                                                                                       |                                                                |                          | (2.4  | )     |           |   | (2.4  | )    
|                                                                                                                 |                                                                |                          |       |       |           |  
|Income (loss) from continuing operations                                                                         |                                                                |                          | (2.3  | )     |           |   | 2.4   |      
|Income from discontinued operations                                                                              |                                                                |                          | 10.6  |       |           |   | 10.6  |      
|Cumulative effect on years prior to 2005 of adopting accounting
    for conditional asset retirement obligations |                                                                |                          | (4.7  | )     |           |   | (4.7  | )    
|                                                                                                                 |                                                                |                          |       |       |           |  
|Net income                                                                                                       |                                                                | $                        | 3.6   |       |           | $ | 8.3   |      
|                                                                                                                 |                                                                |                          |       |       |           |  

19



---



##### 



KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY
COMPANIES


(Debtor-in


NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                        
| | ---------------------------------------
| | Consolidated Balance Sheets  Unaudited

|                                  |                                               |                                                      |         |          |           |   |         |          |          |  
|--------------------------------- | --------------------------------------------- | ---------------------------------------------------- | ------- | -------- | --------- | - | ------- | -------- | -------- | -
|                                  |                                               | As                                                   |         |          |          
|                                  |                                               | Previously                                           |         |          | As        |  
|                                  |                                               | Reported(1)                                          |         |          | Restated  |  
|                                  |                                               |                                                      |         |          |           |  
|                                  |                                               | March 31,                                            |         |          | March 31, |  
|                                  |                                               | 2005                                                 |         |          | 2005      |  
|                                  |                                               |                                                      |         |          |           |  
|Liabilities subject to compromise |                                               | $                                                    | 3,952.9 |          |           | $ | 3,946.2 |         
|Stockholders equity (deficit):   |                                               |                                                      |         |          |           |   |         |         
|                                  | Preference Stock                              |                                                      |         | .7       |           |   |         | .7       |         
|                                  | Common stock                                  |                                                      |         | 15.4     |           |   |         | 15.4     |         
|                                  | Additional capital                            |                                                      |         | 255.6    |           |   |         | 255.6    |         
|                                  | Accumulated deficit                           |                                                      |         | (2,644.7 | )         |   |         | (2,640.0 | )       
|                                  | Accumulated other comprehensive income (loss) |                                                      |         | (7.6     | )         |   |         | (5.6     | )       
|                                  |                                               |                                                      |         |          |           |  
|                                  |                                               | Total stockholders equity (deficit)                 |         |          | (2,380.6  | ) |         |          | (2,373.9 | )
|                                  |                                               |                                                      |         |          |           |  
|                                  |                                               | Total liabilities and stockholders equity (deficit) |         | $        | 1,572.3   |   |         | $        | 1,572.3  |  
|                                  |                                               |                                                      |         |          |           |  



| |                                                      
| | -----------------------------------------------------
| | Statements of Consolidated Cash Flows 
    Unaudited

|                                                                 |                                                                                                                             |             |      |      |           |   |      |      |  
|---------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------- | ----------- | ---- | ---- | --------- | - | ---- | ---- | -
|                                                                 |                                                                                                                             | As          |      |      |          
|                                                                 |                                                                                                                             | Previously  |      |      | As        |  
|                                                                 |                                                                                                                             | Reported(1) |      |      | Restated  |  
|                                                                 |                                                                                                                             |             |      |      |           |  
|                                                                 |                                                                                                                             | March 31,   |      |      | March 31, |  
|                                                                 |                                                                                                                             | 2005        |      |      | 2005      |  
|                                                                 |                                                                                                                             |             |      |      |           |  
|Cash flows from operating activities:                            |                                                                                                                             |             |      |      |           |   |      |     
|                                                                 | Net income                                                                                                                  |             | $    | 3.6  |           |   | $    | 8.3  |  
|                                                                 | Less net income from discontinued operations                                                                                |             |      | 10.6 |           |   |      | 10.6 |  
|                                                                 |                                                                                                                             |             |      |      |           |  
|                                                                 | Net income (loss) from continuing operations, including from
    cumulative effect of adopting change in accounting in 2005 |             |      | (7.0 | )         |   |      | (2.3 | )
|(Decrease) increase in prepaid expenses and other current assets |                                                                                                                             |             | (2.5 | )    |           |   | .5   |     
|Increase in other accrued liabilities                            |                                                                                                                             |             | 4.8  |      |           |   | 4.1  |     
|Net cash impact of changes in long-term assets and liabilities   |                                                                                                                             |             | (1.0 | )    |           |   | (8.0 | )   
|Net cash used by operating activities                            |                                                                                                                             | $           | (8.3 | )    |           | $ | (8.3 | )   
|                                                                 |                                                                                                                             |             |      |      |           |  






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The As previously reported amounts shown above
    include the effect of the adoption of FIN 47 on
    December 31, 2005 retroactive to the beginning of the year
    as discussed in Note 4. Such retroactive application is
    required by GAAP and is not considered a
    restatement. The retroactive impact of the adoption
    of FIN 47 was a charge of $4.7 in the first quarter of 2005
    in respect of the cumulative effect upon adoption.

10-K




|   |                        
|-- | -----------------------
|6. | Discontinued Operations



20



---



##### 



KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY
COMPANIES


(Debtor-in


NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Accounting for the
Impairment or Disposal of Long-Lived Assets






|                           |  |               |     |  |      |   |      | 
|-------------------------- |  | ------------- | --- |  | ---- | - | ---- | 
|                           |  | Quarter Ended |    
|                           |  | March 31,     |    
|                           |  |               |    
|                           |  | 2006          |     |  | 2005 |  
|                           |  |               |     |  |      |  
|Net sales                  |  | $             |    |  |      | $ | 42.9 | 
|Operating income           |  |               |    |  |      |   | 11.4 | 
|Income before income taxes |  |               | 7.5 |  |      |   | 13.2 | 
|Net income                 |  |               | 7.3 |  |      |   | 10.6 | 







21



---



##### 



KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY
COMPANIES


(Debtor-in


NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                               
|-- | ------------------------------
|7. | Property, Plant, and Equipment



|                         |                                     |           |        |       |              |   |        |       | 
|------------------------ | ----------------------------------- | --------- | ------ | ----- | ------------ | - | ------ | ----- | 
|                         |                                     | March 31, |        |       | December 31, |  
|                         |                                     | 2006      |        |       | 2005         |  
|                         |                                     |           |        |       |              |  
|Land and improvements    |                                     | $         | 7.2    |       |              | $ | 7.7    |      
|Buildings                |                                     |           | 62.4   |       |              |   | 62.4   |      
|Machinery and equipment  |                                     |           | 460.7  |       |              |   | 460.4  |      
|Construction in progress |                                     |           | 38.5   |       |              |   | 25.0   |      
|                         |                                     |           |        |       |              |  
|                         |                                     |           | 568.8  |       |              |   | 555.5  |      
|Accumulated depreciation |                                     |           | (335.0 | )     |              |   | (332.1 | )    
|                         |                                     |           |        |       |              |  
|                         | Property, plant, and equipment, net |           | $      | 233.8 |              |   | $      | 223.4 | 
|                         |                                     |           |        |       |              |  

back-up




22



---



##### 



KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY
COMPANIES


(Debtor-in


NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |               
|-- | --------------
|8. | Long-Term Debt



|                           |                                                  |                                                                                             |       |       |              |   |       |       |        |  
|-------------------------- | ------------------------------------------------ | ------------------------------------------------------------------------------------------- | ----- | ----- | ------------ | - | ----- | ----- | ------ | -
|                           |                                                  | March 31,                                                                                   |       |       | December 31, |  
|                           |                                                  | 2006                                                                                        |       |       | 2005         |  
|                           |                                                  |                                                                                             |       |       |              |  
|Secured:                   |                                                  |                                                                                             |       |       |              |   |       |      
|                           | Post-Petition Credit Agreement                   |                                                                                             | $     |      |              |   | $     |      |       
|                           | Other borrowings (fixed rate)                    |                                                                                             |       | 2.3   |              |   |       | 2.3   |       
|Unsecured or Undersecured: |                                                  |                                                                                             |       |       |              |   |       |      
|                           | 97/8% Senior Notes due 2002, net                 |                                                                                             |       | 172.8 |              |   |       | 172.8 |       
|                           | 107/8% Senior Notes due 2006, net                |                                                                                             |       | 225.0 |              |   |       | 225.0 |       
|                           | 123/4% Senior Subordinated Notes due 2003        |                                                                                             |       | 400.0 |              |   |       | 400.0 |       
|                           | 7.6% Solid Waste Disposal Revenue Bonds due 2027 |                                                                                             |       | 17.4  |              |   |       | 17.4  |       
|                           | Other borrowings (fixed and variable rates)      |                                                                                             |       | 32.4  |              |   |       | 32.4  |       
|                           |                                                  |                                                                                             |       |       |              |  
|Total                      |                                                  |                                                                                             | 849.9 |       |              |   | 849.9 |      
|Less  Current portion     |                                                  |                                                                                             | (1.1  | )     |              |   | (1.1  | )    
|                           |                                                  | Pre-Filing Date claims included in subject to compromise
    (i.e. unsecured debt) (Note 1) |       |       | (847.6       | ) |       |       | (847.6 | )
|                           |                                                  |                                                                                             |       |       |              |  
|Long-term debt             |                                                  | $                                                                                           | 1.2   |       |              | $ | 1.2   |      
|                           |                                                  |                                                                                             |       |       |              |  





| |   |                                                                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Replaced the existing post-petition credit facility with a new
    $200.0 post-petition credit facility (the DIP
    Facility) and                                                                                                                                                                                       
|
| |  | Included a commitment, upon the Debtors emergence from the
    Chapter 11 proceedings, for exit financing in the form of a
    $200.0 revolving credit facility (the Revolving Credit
    Facility) and a fully drawn term loan (the Term
    Loan) of up to $50.0 (collectively referred to as
    Exit Financing).





23



---



##### 



KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY
COMPANIES


(Debtor-in


NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




















|   |             
|-- | ------------
|9. | Income Taxes







24



---



##### 



KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY
COMPANIES


(Debtor-in


NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




10-K


10-K




|    |                                     
|--- | ------------------------------------
|10. | Employee Benefit and Incentive Plans

Historical Pension and Other Postretirement Benefit
Plans.


Reorganization Efforts Affecting Pension and Post Retirement
Medical Obligations.




25



---



##### 



KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY
COMPANIES


(Debtor-in


NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)







Contingencies Regarding Settlement with the PBGC.


26



---



##### 



KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY
COMPANIES


(Debtor-in


NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                        
| | ---------------------------------------
| | Components of Net Periodic Benefit Cost



|                                |  |           |     |   |      |   |     |  
|------------------------------- |  | --------- | --- | - | ---- | - | --- | -
|                                |  | Quarter   |    
|                                |  | Ended     |    
|                                |  | March 31, |    
|                                |  |           |    
|                                |  | 2006      |     |   | 2005 |  
|                                |  |           |     |   |      |  
|Service cost                    |  | $         | .3  |   |      | $ | .3  |  
|Interest cost                   |  |           | .4  |   |      |   | .3  |  
|Expected return on plan assets  |  |           | (.4 | ) |      |   | (.2 | )
|Amortization of net (gain) loss |  |           | .1  |   |      |   |    |  
|                                |  |           |     |   |      |  
|Defined benefit plans           |  |           | .4  |   |      |   | .4  |  
|401K                            |  |           | 2.2 |   |      |   | 1.7 |  
|                                |  |           |     |   |      |  
|                                |  | $         | 2.6 |   |      | $ | 2.1 |  
|                                |  |           |     |   |      |  

10-K




| |                                          
| | -----------------------------------------
| | Description of Defined Contribution Plans











27



---



##### 



KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY
COMPANIES


(Debtor-in


NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |          
| | ---------
| | Cash Flow

Domestic Plans.








| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | An amount not to exceed $36.0 and payable on emergence from the
    Chapter 11 proceedings so long as the Companys
    liquidity (i.e. cash plus borrowing availability) is at least
    $50.0 after considering such payments. To the extent that less
    than the full $36.0 is paid and the Companys interests in
    Anglesey are subsequently sold, a portion of such sales
    proceeds, in certain circumstances, will be used to pay the
    shortfall.
|
| |  | On an annual basis, 10% of the first $20.0 of annual cash flow,
    as defined, plus 20% of annual cash flow, as defined, in excess
    of $20.0. Such annual payments will not exceed $20.0 and will
    also be limited (with no carryover to future years) to the
    extent that the payments do not cause the Companys
    liquidity to be less than $50.0.                                                                                                 
|
| |  | Advances of $3.1 in June 2004 and $1.9 per month thereafter
    until the Company emerges from the Cases. Any advances made
    pursuant to such agreement will constitute a credit toward the
    $36.0 maximum contribution due upon emergence.                                                                                                                                                                                                                 





28



---



##### 



KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY
COMPANIES


(Debtor-in


NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






Foreign Plans.




|    |                              
|--- | -----------------------------
|11. | Commitments and Contingencies

Impact of Reorganization Proceedings.


Commitments.




Environmental Contingencies.






29



---



##### 



KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY
COMPANIES


(Debtor-in


NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




10-K






Other Environmental Matters.


Asbestos and Certain Other Personal Injury Claims.




30



---



##### 



KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY
COMPANIES


(Debtor-in


NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|              |  |           |         |  |              |   |         | 
|------------- |  | --------- | ------- |  | ------------ | - | ------- | 
|              |  | March 31, |         |  | December 31, |  
|              |  | 2006      |         |  | 2005         |  
|              |  |           |         |  |              |  
|Liability     |  | $         | 1,115.0 |  |              | $ | 1,115.0 | 
|Receivable(1) |  |           | 963.7   |  |              |   | 965.5   | 
|              |  |           |         |  |              |  
|              |  | $         | 151.3   |  |              | $ | 149.5   | 
|              |  |           |         |  |              |  

|                                             |  |           |     |  |           |   |        |  
|-------------------------------------------- |  | --------- | --- |  | --------- | - | ------ | -
|                                             |  | Quarter   |     |  |          
|                                             |  | Ended,    |     |  |          
|                                             |  | March 31, |     |  | Inception |  
|                                             |  | 2006      |     |  | to Date   |  
|                                             |  |           |     |  |           |  
|Payments made, including related legal costs |  | $         |    |  |           | $ | (355.7 | )
|Insurance recoveries(2)                      |  |           | 1.8 |  |           |   | 269.5  |  
|                                             |  |           |     |  |           |  
|                                             |  | $         | 1.8 |  |           | $ | (86.2  | )
|                                             |  |           |     |  |           |  






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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. Amounts
    are stated in nominal dollars and not discounted to present
    value as the Company cannot currently project the actual timing
    of payments or insurance recoveries particularly in light of the
    expected treatment of such items in any plan of reorganization
    that is ultimately confirmed. The Company believes that, as of
    March 31, 2006, it had received all insurance recoveries
    that it is likely to collect in respect of asbestos-related
    costs paid. See Note 1.
|   
|(2) | Excludes certain amounts paid by insurers into escrow accounts
    (in respect of future settlements) more fully discussed below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                





31



---



##### 



KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY
COMPANIES


(Debtor-in


NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










32



---



##### 



KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY
COMPANIES


(Debtor-in


NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










33



---



##### 



KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY
COMPANIES


(Debtor-in


NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






Hearing Loss Claims.




Labor Matters.




34



---



##### 



KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY
COMPANIES


(Debtor-in


NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






Contingencies Regarding Settlement with the PBGC.




Other Contingencies.


35



---



##### 



KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY
COMPANIES


(Debtor-in


NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|    |                                                                  
|--- | -----------------------------------------------------------------
|12. | Derivative Financial Instruments and Related Hedging
    Programs







month-to




36



---



##### 



KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY
COMPANIES


(Debtor-in


NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|           |                                 |        |  |                    |         |  |           |       |  |  |   |     |  
|---------- | ------------------------------- | ------ |  | ------------------ | ------- |  | --------- | ----- |  |  | - | --- | -
|           |                                 |        |  | Notional           |         |  |          
|           |                                 |        |  | Amount of          |         |  | Carrying/ |      
|           |                                 |        |  | Contracts          |         |  | Market    |      
|Commodity  |                                 | Period |  |                    | (mmlbs) |  |           | Value | 
|           |                                 |        |  |                    |         |  |           |       | 
|Aluminum  |                                 |        |  |                    |         |  |           |       |  |  |   |    
|           | Option sale contracts           |        |  | 1/10 through 12/11 |         |  |           | 48.9  |  |  | $ | 6.5 |  
|           | Fixed priced purchase contracts |        |  | 4/06 through 12/06 |         |  |           | 29.8  |  |  |   | .5  |  
|           | Fixed priced sales contracts    |        |  | 1/07 through 12/07 |         |  |           | 23.9  |  |  |   | (.3 | )

|                  |                                 |        |  |                    |          |  |           |       |  |  |   |      |  
|----------------- | ------------------------------- | ------ |  | ------------------ | -------- |  | --------- | ----- |  |  | - | ---- | -
|                  |                                 |        |  | Notional           |          |  |          
|                  |                                 |        |  | Amount of          |          |  | Carrying/ |      
|                  |                                 |        |  | Contracts          |          |  | Market    |      
|Foreign Currency  |                                 | Period |  |                    | (mm GBP) |  |           | Value | 
|                  |                                 |        |  |                    |          |  |           |       | 
|Pounds Sterling  |                                 |        |  |                    |          |  |           |       |  |  |   |     
|                  | Option sales contracts          |        |  | 4/06 through 12/07 |          |  |           | 73.5  |  |  | $ | 1.9  |  
|                  | Fixed priced purchase contracts |        |  | 4/06 through 12/07 |          |  |           | 73.5  |  |  |   | (1.8 | )

|              |                                    |        |                    |           |  |         |           |  |  |     |  
|------------- | ---------------------------------- | ------ | ------------------ | --------- |  | ------- | --------- |  |  | --- | -
|              |                                    |        |                    | Notional  |  |         |          
|              |                                    |        |                    | Amount of |  |         | Carrying/ | 
|              |                                    |        |                    | Contracts |  |         | Market    | 
|Energy        |                                    | Period |                    | (mmbtu)   |  |         | Value     | 
|              |                                    |        |                    |           |  |         |           | 
|Natural gas  |                                    |        |                    |           |  |         |           |  |  |    
|              | Fixed priced purchase contracts(a) |        | 4/06 through 12/06 |           |  | 920,000 |           |  |  | (.5 | )






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | When the hedges in place as of March 31, 2006 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 approximately 64%
    of the natural gas purchases for April 2006 through June 2006,
    approximately 19% of the natural gas purchases for July 2006
    through September 2006 and approximately 11% of the natural gas
    purchases for October 2006 through December 2006.





|    |                        
|--- | -----------------------
|13. | Other Operating Charges

Other Operating Charges.




|    |                               
|--- | ------------------------------
|14. | Key Employee Retention Program



37



---



##### 



KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY
COMPANIES


(Debtor-in


NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|    |                                
|--- | -------------------------------
|15. | Pacific Northwest Power Matters





38



---



##### 



KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY
COMPANIES


(Debtor-in


NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                                          
|--- | -----------------------------------------
|16. | Segment and Geographical Area Information



10-K 10-K




39



---



##### 



KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY
COMPANIES


(Debtor-in


NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                 |                                   |               |       |       |      |   |       |       |  
|-------------------------------- | --------------------------------- | ------------- | ----- | ----- | ---- | - | ----- | ----- | -
|                                 |                                   | Quarter Ended |      
|                                 |                                   | March 31,     |      
|                                 |                                   |               |      
|                                 |                                   | 2006          |       |       | 2005 |  
|                                 |                                   |               |       |       |      |  
|Net Sales:                       |                                   |               |       |       |      |   |       |      
|                                 | Fabricated Products               |               | $     | 288.0 |      |   | $     | 244.4 |  
|                                 | Primary Aluminum                  |               |       | 48.3  |      |   |       | 37.0  |  
|                                 |                                   |               |       |       |      |  
|                                 |                                   | $             | 336.3 |       |      | $ | 281.4 |      
|                                 |                                   |               |       |       |      |  
|Segment Operating Income (Loss): |                                   |               |       |       |      |   |       |      
|                                 | Fabricated Products               |               | $     | 45.0  |      |   | $     | 25.4  |  
|                                 | Primary Aluminum                  |               |       | 8.7   |      |   |       | 2.8   |  
|                                 | Corporate and Other               |               |       | (9.6  | )    |   |       | (6.9  | )
|                                 | Other Operating Charges  Note 13 |               |       |      |      |   |       | (6.2  | )
|                                 |                                   |               |       |       |      |  
|                                 |                                   | $             | 44.1  |       |      | $ | 15.1  |      
|                                 |                                   |               |       |       |      |  

|                               |                     |               |     |     |      |   |     |     | 
|------------------------------ | ------------------- | ------------- | --- | --- | ---- | - | --- | --- | 
|                               |                     | Quarter Ended |    
|                               |                     | March 31,     |    
|                               |                     |               |    
|                               |                     | 2006          |     |     | 2005 |  
|                               |                     |               |     |     |      |  
|Depreciation and amortization: |                     |               |     |     |      |   |     |    
|                               | Fabricated Products |               | $   | 4.7 |      |   | $   | 4.9 | 
|                               | Corporate and Other |               |     | .1  |      |   |     |    | 
|                               |                     |               |     |     |      |  
|                               |                     | $             | 4.8 |     |      | $ | 4.9 |    
|                               |                     |               |     |     |      |  

|                      |                       |               |    |   |      |   |     |   |     | 
|--------------------- | --------------------- | ------------- | -- | - | ---- | - | --- | - | --- | 
|                      |                       | Quarter Ended |   
|                      |                       | March 31,     |   
|                      |                       |               |   
|                      |                       | 2006          |    |   | 2005 |  
|                      |                       |               |    |   |      |  
|Income taxes paid:(1) |                       |               |    |   |      |   |     |  
|                      | Fabricated Products  |               |    |   |      |   |     |   |    
|                      |                       | United States |    | $ |     |   |     | $ |    | 
|                      |                       | Canada        |    |   | .4   |   |     |   | 1.8 | 
|                      |                       |               |    |   |      |  
|                      |                       | $             | .4 |   |      | $ | 1.8 |  
|                      |                       |               |    |   |      |  






|    |                                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------
|(1) | Income taxes paid exclude foreign income tax paid by
    discontinued operations of $8.7 for the quarter ended
    March 31, 2005.



|    |                           
|--- | --------------------------
|17. | Parent Company Receivables



40



---



##### 



KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY
COMPANIES


(Debtor-in


NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                                   
|--- | ----------------------------------
|18. | Supplemental Guarantor Information

7 8 3 4 10-K




Condensed Consolidating Balance Sheets


March 31, 2006


|                                                                             |  |         |          |            |            |   |       |              |  |             |         |  |  |              |       |   |  |   |          |  
|---------------------------------------------------------------------------- |  | ------- | -------- | ---------- | ---------- | - | ----- | ------------ |  | ----------- | ------- |  |  | ------------ | ----- | - |  | - | -------- | -
|                                                                             |  |         |          | Subsidiary |            |   | Other |              |  | Eliminating |         |  | 
|                                                                             |  | Company |          |            | Guarantors |   |       | Subsidiaries |  |             | Entries |  |  | Consolidated |      
|                                                                             |  |         |          |            |            |   |       |              |  |             |         |  |  |              |      
|ASSETS                                                                      
|Current assets                                                               |  | $       | 254.9    |            |            | $ | 18.0  |              |  | $           | 61.3    |  |  | $            |      |   |  | $ | 334.2    |  
|Investments in subsidiaries                                                  |  |         | 71.2     |            |            |   |      |              |  |             |        |  |  |              | (71.2 | ) |  |   |         |  
|Intercompany advances receivable (payable)                                   |  |         | (68.4    | )          |            |   |      |              |  |             | 68.4    |  |  |              |      |   |  |   |         |  
|Investments in and advances to unconsolidated affiliate                      |  |         | 15.5     |            |            |   |      |              |  |             |        |  |  |              |      |   |  |   | 15.5     |  
|Property and equipment, net                                                  |  |         | 195.2    |            |            |   | 20.6  |              |  |             | 18.0    |  |  |              |      |   |  |   | 233.8    |  
|Personal injury-related insurance recoveries receivable                      |  |         | 963.7    |            |            |   |      |              |  |             |        |  |  |              |      |   |  |   | 963.7    |  
|Goodwill                                                                     |  |         | 11.4     |            |            |   |      |              |  |             |        |  |  |              |      |   |  |   | 11.4     |  
|Other assets                                                                 |  |         | 42.9     |            |            |   | .2    |              |  |             |        |  |  |              |      |   |  |   | 43.1     |  
|                                                                             |  |         |          |            |            |   |       |              |  |             |         |  |  |              |      
|                                                                             |  | $       | 1,486.4  |            |            | $ | 38.8  |              |  | $           | 147.7   |  |  | $            | (71.2 | ) |  | $ | 1,601.7  |  
|                                                                             |  |         |          |            |            |   |       |              |  |             |         |  |  |              |      
|                                                                            
|LIABILITIES AND STOCKHOLDERS EQUITY                                        
|Current liabilities                                                          |  | $       | 150.7    |            |            | $ | 7.1   |              |  | $           | 33.0    |  |  | $            |      |   |  | $ | 190.8    |  
|Discontinued operations current liabilities                                 |  |         | 1.9      |            |            |   |      |              |  |             | .3      |  |  |              |      |   |  |   | 2.2      |  
|Other long-term liabilities                                                  |  |         | 42.3     |            |            |   | 1.1   |              |  |             | 3.8     |  |  |              |      |   |  |   | 47.2     |  
|Long-term debt                                                               |  |         | 1.2      |            |            |   |      |              |  |             |        |  |  |              |      |   |  |   | 1.2      |  
|Discontinued operations liabilities (liabilities subject
    to compromise) |  |         | 26.4     |            |            |   |      |              |  |             | 42.1    |  |  |              |      |   |  |   | 68.5     |  
|Liabilities subject to compromise                                            |  |         | 4,364.3  |            |            |   | 14.1  |              |  |             | 13.8    |  |  |              |      |   |  |   | 4,392.2  |  
|Stockholders equity                                                         |  |         | (3,100.4 | )          |            |   | 16.5  |              |  |             | 54.7    |  |  |              | (71.2 | ) |  |   | (3,100.4 | )
|                                                                             |  |         |          |            |            |   |       |              |  |             |         |  |  |              |      
|                                                                             |  | $       | 1,486.4  |            |            | $ | 38.8  |              |  | $           | 147.7   |  |  | $            | (71.2 | ) |  | $ | 1,601.7  |  
|                                                                             |  |         |          |            |            |   |       |              |  |             |         |  |  |              |      

41



---



##### 



KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY
COMPANIES


(Debtor-in


NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Condensed Consolidating Balance Sheets


December 31, 2005


|                                                                             |  |         |          |            |            |   |       |              |  |             |         |  |  |              |       |   |  |   |          |  
|---------------------------------------------------------------------------- |  | ------- | -------- | ---------- | ---------- | - | ----- | ------------ |  | ----------- | ------- |  |  | ------------ | ----- | - |  | - | -------- | -
|                                                                             |  |         |          | Subsidiary |            |   | Other |              |  | Eliminating |         |  | 
|                                                                             |  | Company |          |            | Guarantors |   |       | Subsidiaries |  |             | Entries |  |  | Consolidated |      
|                                                                             |  |         |          |            |            |   |       |              |  |             |         |  |  |              |      
|ASSETS                                                                      
|Current assets                                                               |  | $       | 223.5    |            |            | $ | 13.9  |              |  | $           | 49.9    |  |  | $            |      |   |  | $ | 287.3    |  
|Investments in subsidiaries                                                  |  |         | 53.5     |            |            |   |      |              |  |             |        |  |  |              | (53.5 | ) |  |   |         |  
|Intercompany advances receivable (payable)                                   |  |         | (62.5    | )          |            |   |      |              |  |             | 62.5    |  |  |              |      |   |  |   |         |  
|Investments in and advances to unconsolidated affiliate                      |  |         | 12.6     |            |            |   |      |              |  |             |        |  |  |              |      |   |  |   | 12.6     |  
|Property and equipment, net                                                  |  |         | 184.7    |            |            |   | 20.5  |              |  |             | 18.2    |  |  |              |      |   |  |   | 223.4    |  
|Personal injury-related insurance recoveries receivable                      |  |         | 965.5    |            |            |   |      |              |  |             |        |  |  |              |      |   |  |   | 965.5    |  
|Goodwill                                                                     |  |         | 11.4     |            |            |   |      |              |  |             |        |  |  |              |      |   |  |   | 11.4     |  
|Other assets                                                                 |  |         | 38.5     |            |            |   | .2    |              |  |             |        |  |  |              |      |   |  |   | 38.7     |  
|                                                                             |  |         |          |            |            |   |       |              |  |             |         |  |  |              |      
|                                                                             |  | $       | 1,427.2  |            |            | $ | 34.6  |              |  | $           | 130.6   |  |  | $            | (53.5 | ) |  | $ | 1,538.9  |  
|                                                                             |  |         |          |            |            |   |       |              |  |             |         |  |  |              |      
|                                                                            
|LIABILITIES AND STOCKHOLDERS EQUITY                                        
|Current liabilities                                                          |  | $       | 128.1    |            |            | $ | 7.0   |              |  | $           | 28.8    |  |  | $            |      |   |  | $ | 163.9    |  
|Discontinued operations current liabilities                                 |  |         | 1.8      |            |            |   |      |              |  |             | .3      |  |  |              |      |   |  |   | 2.1      |  
|Other long-term liabilities                                                  |  |         | 36.9     |            |            |   | 1.2   |              |  |             | 3.9     |  |  |              |      |   |  |   | 42.0     |  
|Long-term debt                                                               |  |         | 1.2      |            |            |   |      |              |  |             |        |  |  |              |      |   |  |   | 1.2      |  
|Discontinued operations liabilities (liabilities subject
    to compromise) |  |         | 26.4     |            |            |   |      |              |  |             | 42.1    |  |  |              |      |   |  |   | 68.5     |  
|Liabilities subject to compromise                                            |  |         | 4,371.7  |            |            |   | 14.6  |              |  |             | 13.8    |  |  |              |      |   |  |   | 4,400.1  |  
|Stockholders equity                                                         |  |         | (3,138.9 | )          |            |   | 11.8  |              |  |             | 41.7    |  |  |              | (53.5 | ) |  |   | (3,138.9 | )
|                                                                             |  |         |          |            |            |   |       |              |  |             |         |  |  |              |      
|                                                                             |  | $       | 1,427.2  |            |            | $ | 34.6  |              |  | $           | 130.6   |  |  | $            | (53.5 | ) |  | $ | 1,538.9  |  
|                                                                             |  |         |          |            |            |   |       |              |  |             |         |  |  |              |      

42



---



##### 



KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY
COMPANIES


(Debtor-in


NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Condensed Consolidating Statements of Income (Loss)


For the Quarter Ended March 31, 2006


|                                         |                              |         |       |            |            |   |       |              |  |             |         |       |  |              |       |       |   |   |       |       | 
|---------------------------------------- | ---------------------------- | ------- | ----- | ---------- | ---------- | - | ----- | ------------ |  | ----------- | ------- | ----- |  | ------------ | ----- | ----- | - | - | ----- | ----- | 
|                                         |                              |         |       | Subsidiary |            |   | Other |              |  | Eliminating |         |       | 
|                                         |                              | Company |       |            | Guarantors |   |       | Subsidiaries |  |             | Entries |       |  | Consolidated |      
|                                         |                              |         |       |            |            |   |       |              |  |             |         |       |  |              |      
|Net sales                                |                              | $       | 280.8 |            |            | $ | 15.7  |              |  | $           | 118.7   |       |  | $            | (78.9 | )     |   | $ | 336.3 |      
|Costs and expenses:                      |                              |         |       |            |            |   |       |              |  |             |         |       |  |              |       |       |   |   |       |      
|                                         | Operating costs and expenses |         |       | 250.7      |            |   |       | 16.5         |  |             |         | 103.9 |  |              |       | (78.9 | ) |   |       | 292.2 | 
|                                         | Other operating charges      |         |       |           |            |   |       |             |  |             |         |      |  |              |       |      |   |   |       |      | 
|                                         |                              |         |       |            |            |   |       |              |  |             |         |       |  |              |      
|Operating income (loss)                  |                              |         | 30.1  |            |            |   | (.8   | )            |  |             | 14.8    |       |  |              |      |       |   |   | 44.1  |      
|Interest expense                         |                              |         | (.7   | )          |            |   |      |              |  |             | (.1     | )     |  |              |      |       |   |   | (.8   | )    
|Reorganization items                     |                              |         | (6.4  | )          |            |   |      |              |  |             |        |       |  |              |      |       |   |   | (6.4  | )    
|Other income (expense), net              |                              |         | 1.3   |            |            |   |      |              |  |             |        |       |  |              |      |       |   |   | 1.3   |      
|Provision for income taxes               |                              |         | (5.3  | )          |            |   |      |              |  |             | (1.7    | )     |  |              |      |       |   |   | (7.0  | )    
|Equity in income of subsidiaries         |                              |         | 12.2  |            |            |   |      |              |  |             |        |       |  |              | (12.2 | )     |   |   |      |      
|                                         |                              |         |       |            |            |   |       |              |  |             |         |       |  |              |      
|Income (loss) from continuing operations |                              |         | 31.2  |            |            |   | (.8   | )            |  |             | 13.0    |       |  |              | (12.2 | )     |   |   | 31.2  |      
|Income from discontinued operations      |                              |         | 7.3   |            |            |   |      |              |  |             |        |       |  |              |      |       |   |   | 7.3   |      
|                                         |                              |         |       |            |            |   |       |              |  |             |         |       |  |              |      
|Net income                               |                              | $       | 38.5  |            |            | $ | (.8   | )            |  | $           | 13.0    |       |  | $            | (12.2 | )     |   | $ | 38.5  |      
|                                         |                              |         |       |            |            |   |       |              |  |             |         |       |  |              |      

Condensed Consolidating Statements of Income (Loss)


For the Quarter Ended March 31, 2005


|                                                                                                                |                              |         |       |            |            |   |       |              |  |             |         |      |  |              |       |       |   |   |       |       | 
|--------------------------------------------------------------------------------------------------------------- | ---------------------------- | ------- | ----- | ---------- | ---------- | - | ----- | ------------ |  | ----------- | ------- | ---- |  | ------------ | ----- | ----- | - | - | ----- | ----- | 
|                                                                                                                |                              |         |       | Subsidiary |            |   | Other |              |  | Eliminating |         |      | 
|                                                                                                                |                              | Company |       |            | Guarantors |   |       | Subsidiaries |  |             | Entries |      |  | Consolidated |      
|                                                                                                                |                              |         |       |            |            |   |       |              |  |             |         |      |  |              |      
|Net sales                                                                                                       |                              | $       | 230.7 |            |            | $ | 11.0  |              |  | $           | 84.2    |      |  | $            | (44.5 | )     |   | $ | 281.4 |      
|Costs and expenses:                                                                                             |                              |         |       |            |            |   |       |              |  |             |         |      |  |              |       |       |   |   |       |      
|                                                                                                                | Operating costs and expenses |         |       | 216.2      |            |   |       | 13.3         |  |             |         | 75.1 |  |              |       | (44.5 | ) |   |       | 260.1 | 
|                                                                                                                | Other operating charges, net |         |       | 6.2        |            |   |       |             |  |             |         |     |  |              |       |      |   |   |       | 6.2   | 
|                                                                                                                |                              |         |       |            |            |   |       |              |  |             |         |      |  |              |      
|Operating income (loss)                                                                                         |                              |         | 8.3   |            |            |   | (2.3  | )            |  |             | 9.1     |      |  |              |      |       |   |   | 15.1  |      
|Interest expense                                                                                                |                              |         | (2.1  | )          |            |   |      |              |  |             |        |      |  |              |      |       |   |   | (2.1  | )    
|Reorganization items                                                                                            |                              |         | (7.8  | )          |            |   |      |              |  |             |        |      |  |              |      |       |   |   | (7.8  | )    
|Other income (expense), net                                                                                     |                              |         | (.4   | )          |            |   |      |              |  |             |        |      |  |              |      |       |   |   | (.4   | )    
|Provision for income taxes                                                                                      |                              |         | (1.1  | )          |            |   |      |              |  |             | (1.3    | )    |  |              |      |       |   |   | (2.4  | )    
|Equity in income (loss) of subsidiaries                                                                         |                              |         | 18.1  |            |            |   |      |              |  |             |        |      |  |              | (18.1 | )     |   |   |      |      
|                                                                                                                |                              |         |       |            |            |   |       |              |  |             |         |      |  |              |      
|Income (loss) from continuing operations                                                                        |                              |         | 15.0  |            |            |   | (2.3  | )            |  |             | 7.8     |      |  |              | (18.1 | )     |   |   | 2.4   |      
|Income (loss) from discontinued operations                                                                      |                              |         | (2.0  | )          |            |   | 12.7  |              |  |             | (.1     | )    |  |              |      |       |   |   | 10.6  |      
|Cumulative effect on years prior to 2005 of adopting accounting
    for conditional asset retirement obligation |                              |         | (4.7  | )          |            |   |      |              |  |             |        |      |  |              |      |       |   |   | (4.7  | )    
|                                                                                                                |                              |         |       |            |            |   |       |              |  |             |         |      |  |              |      
|Net income                                                                                                      |                              | $       | 8.3   |            |            | $ | 10.4  |              |  | $           | 7.7     |      |  | $            | (18.1 | )     |   | $ | 8.3   |      
|                                                                                                                |                              |         |       |            |            |   |       |              |  |             |         |      |  |              |      

43



---



##### 



KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY
COMPANIES


(Debtor-in


NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Condensed Consolidating Statements of Cash Flows


For the Quarter Ended March 31, 2006


|                                                                           |                         |         |       |            |            |   |       |              |   |             |         |     |              |   |   |   |  |   |       |      |  
|-------------------------------------------------------------------------- | ----------------------- | ------- | ----- | ---------- | ---------- | - | ----- | ------------ | - | ----------- | ------- | --- | ------------ | - | - | - |  | - | ----- | ---- | -
|                                                                           |                         |         |       | Subsidiary |            |   | Other |              |   | Eliminating |         |    
|                                                                           |                         | Company |       |            | Guarantors |   |       | Subsidiaries |   |             | Entries |     | Consolidated |  
|                                                                           |                         |         |       |            |            |   |       |              |   |             |         |     |              |  
|Net cash provided (used) by:                                               |                         |         |       |            |            |   |       |              |   |             |         |     |              |   |   |   |  |   |       |     
|Operating activities                                                      |                         |         |       |            |            |   |       |              |   |             |         |     |              |   |   |   |  |   |       |     
|                                                                           | Continuing operations   |         | $     | (11.0      | )          |   | $     | (4.9         | ) |             | $       | 6.8 |              |   | $ |  |  |   | $     | (9.1 | )
|                                                                           | Discontinued operations |         |       | 7.5        |            |   |       |             |   |             |         |    |              |   |   |   |  |   |       | 7.5  |  
|                                                                           |                         |         |       |            |            |   |       |              |   |             |         |     |              |   |  
|                                                                           |                         |         | (3.5  | )          |            |   | (4.9  | )            |   |             | 6.8     |     |              |   |   |   |  |   | (1.6  | )   
|                                                                           |                         |         |       |            |            |   |       |              |   |             |         |     |              |   |  
|Investing activities                                                      |                         |         |       |            |            |   |       |              |   |             |         |     |              |   |   |   |  |   |       |     
|                                                                           | Continuing operations   |         |       | (8.9       | )          |   |       | (.6          | ) |             |         | (.1 | )            |   |   |  |  |   |       | (9.6 | )
|                                                                           | Discontinued operations |         |       |           |            |   |       |             |   |             |         |    |              |   |   |  |  |   |       |     |  
|                                                                           |                         |         |       |            |            |   |       |              |   |             |         |     |              |   |  
|                                                                           |                         |         | (8.9  | )          |            |   | (.6   | )            |   |             | (.1     | )   |              |   |  |   |  |   | (9.6  | )   
|                                                                           |                         |         |       |            |            |   |       |              |   |             |         |     |              |   |  
|Financing activities                                                      |                         |         |       |            |            |   |       |              |   |             |         |     |              |   |   |   |  |   |       |     
|                                                                           | Continued operations    |         |       | .2         |            |   |       |             |   |             |         |    |              |   |   |  |  |   |       | .2   |  
|                                                                           | Discontinued operations |         |       |           |            |   |       |             |   |             |         |    |              |   |   |  |  |   |       |     |  
|                                                                           |                         |         |       |            |            |   |       |              |   |             |         |     |              |   |  
|                                                                           |                         |         | .2    |            |            |   |      |              |   |             |        |     |              |   |  |   |  |   | .2    |     
|                                                                           |                         |         |       |            |            |   |       |              |   |             |         |     |              |   |  
|Intercompany activity                                                      |                         |         | 0.6   |            |            |   | 5.5   |              |   |             | (6.1    | )   |              |   |  |   |  |   |      |     
|                                                                           |                         |         |       |            |            |   |       |              |   |             |         |     |              |   |  
|Net (decrease) increase in cash and cash equivalents during the
    period |                         |         | (11.6 | )          |            |   |      |              |   |             | .6      |     |              |   |  |   |  |   | (11.0 | )   
|Cash and cash equivalents at beginning of period                           |                         |         | 46.1  |            |            |   |      |              |   |             | 3.4     |     |              |   |  |   |  |   | 49.5  |     
|                                                                           |                         |         |       |            |            |   |       |              |   |             |         |     |              |   |  
|Cash and cash equivalents at end of period                                 |                         | $       | 34.5  |            |            | $ |      |              |   | $           | 4.0     |     |              | $ |  |   |  | $ | 38.5  |     
|                                                                           |                         |         |       |            |            |   |       |              |   |             |         |     |              |   |  

44



---



##### 



KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY
COMPANIES


(Debtor-in


NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Condensed Consolidating Statements of Cash Flows


For the Quarter Ended March 31, 2005


|                                                                           |                         |         |       |            |            |   |       |              |   |             |         |      |              |   |   |   |  |   |       |      |  
|-------------------------------------------------------------------------- | ----------------------- | ------- | ----- | ---------- | ---------- | - | ----- | ------------ | - | ----------- | ------- | ---- | ------------ | - | - | - |  | - | ----- | ---- | -
|                                                                           |                         |         |       | Subsidiary |            |   | Other |              |   | Eliminating |         |     
|                                                                           |                         | Company |       |            | Guarantors |   |       | Subsidiaries |   |             | Entries |      | Consolidated |  
|                                                                           |                         |         |       |            |            |   |       |              |   |             |         |      |              |  
|Net cash provided (used) by:                                               |                         |         |       |            |            |   |       |              |   |             |         |      |              |   |   |   |  |   |       |     
|Operating activities 
    Continuing operations                           |                         | $       | (6.0  | )          |            | $ | (5.1  | )            |   | $           | 10.2    |      |              | $ |  |   |  | $ | (.9   | )   
|                                                                           | Discontinued operations |         |       | .1         |            |   |       | 1.5          |   |             |         | (9.0 | )            |   |   |  |  |   |       | (7.4 | )
|                                                                           |                         |         |       |            |            |   |       |              |   |             |         |      |              |   |  
|                                                                           |                         |         | (5.9  | )          |            |   | (3.6  | )            |   |             | 1.2     |      |              |   |  |   |  |   | (8.3  | )   
|                                                                           |                         |         |       |            |            |   |       |              |   |             |         |      |              |   |  
|Investing activities 
    Continuing operations                           |                         |         | (3.0  | )          |            |   | (.3   | )            |   |             | (.5     | )    |              |   |  |   |  |   | (3.8  | )   
|                                                                           | Discontinued operations |         |       |           |            |   |       |             |   |             |         |     |              |   |   |  |  |   |       |     |  
|                                                                           |                         |         |       |            |            |   |       |              |   |             |         |      |              |   |  
|                                                                           |                         |         | (3.0  | )          |            |   | (.3   | )            |   |             | (.5     | )    |              |   |  |   |  |   | (3.8  | )   
|                                                                           |                         |         |       |            |            |   |       |              |   |             |         |      |              |   |  
|Financing activities 
    Continued operations                            |                         |         | (18.3 | )          |            |   |      |              |   |             |        |      |              |   |  |   |  |   | (18.3 | )   
|                                                                           | Discontinued operations |         |       |           |            |   |       | (1.5         | ) |             |         | 1.0  |              |   |   |  |  |   |       | (.5  | )
|                                                                           |                         |         |       |            |            |   |       |              |   |             |         |      |              |   |  
|                                                                           |                         |         | (18.3 | )          |            |   | (1.5  | )            |   |             | 1.0     |      |              |   |  |   |  |   | (18.8 | )   
|                                                                           |                         |         |       |            |            |   |       |              |   |             |         |      |              |   |  
|Intercompany activity                                                      |                         |         | (3.8  | )          |            |   | 5.4   |              |   |             | (1.6    | )    |              |   |  |   |  |   |      |     
|                                                                           |                         |         |       |            |            |   |       |              |   |             |         |      |              |   |  
|Net (decrease) increase in cash and cash equivalents during the
    period |                         |         | (31.0 | )          |            |   |      |              |   |             | .1      |      |              |   |  |   |  |   | (30.9 | )   
|Cash and cash equivalents at beginning of period                           |                         |         | 54.0  |            |            |   |      |              |   |             | 1.4     |      |              |   |  |   |  |   | 55.4  |     
|                                                                           |                         |         |       |            |            |   |       |              |   |             |         |      |              |   |  
|Cash and cash equivalents at end of period                                 |                         | $       | 23.0  |            |            | $ |      |              |   | $           | 1.5     |      |              | $ |  |   |  | $ | 24.5  |     
|                                                                           |                         |         |       |            |            |   |       |              |   |             |         |      |              |   |  






|    |                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------
|(1) | Discontinued operations financing activities relate to
    (increase)/decrease in restricted cash amounts

Notes To Condensed Consolidating Financial
Information


Impact of Cases


Income Taxes


Foreign Currency


45



---



##### 





|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 2. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations



10-K


Reorganization Proceedings


Background. debtors-in




Commodity-related and Inactive Subsidiaries.


7 8 7 8


3 4


46



---



##### 













47



---



##### 









Entities Containing the Fabricated Products and Certain Other
Operations.








| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) All of the equity interests of existing stockholders of
    the Company would be cancelled without consideration.                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| | (b) All post-petition and secured claims would either be
    assumed by the emerging entity or paid at emergence (see
    Exit Cost discussion below).                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | (c) Pursuant to agreements reached with salaried and hourly
    retirees in early 2004, in consideration for the agreed
    cancellation of the retiree medical plan, as more fully
    discussed in Note 10 of Notes to Interim Consolidated
    Financial Statements, the Company is making certain fixed
    monthly payments into Voluntary Employee Beneficiary
    Associations (VEBAs) until emergence and has agreed
    thereafter to make certain variable annual VEBA contributions
    depending on the emerging entitys operating results

48



---



##### 



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | and financial liquidity. In addition, upon emergence the VEBAs
    are entitled to receive a contribution of 66.9% of the new
    common stock of the emerged entity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | (d) The PBGC will receive a cash payment of
    $2.5 million and 10.8% of the new common stock of the
    emerged entity in respect of its claims against KACOCL. In
    addition, as described in (f) below, the PBGC will receive
    shares of new common stock based on its direct claims against
    the Remaining Debtors (other than KACOCL) and its participation,
    indirectly through the KAAC/ KFC Plan in claims of KFC against
    the Company, which the Company currently estimates will result
    in the PBGC receiving an additional 5.4% of the new common stock
    of the emerged entity (bringing the PBGCs total ownership
    percentage of the new entity to approximately 16.2%). The
    $2.5 million cash payment discussed above is in addition to
    the cash amounts the Company has already paid to the PBGC (see
    Note 10 of Notes to Interim Consolidated Financial
    Statements) and that the PBGC has received and will receive from
    the Liquidating Subsidiaries under the Liquidating Plans.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| | (e) Pursuant to an agreement reached in early 2005, all
    pending and future asbestos-related personal injury claims, all
    pending and future silica and coal tar pitch volatiles personal
    injury claims and all hearing loss claims would be resolved
    through the formation of one or more trusts to which all such
    claims would be directed by channeling injunctions that would
    permanently remove all liability for such claims from the
    Debtors. The trusts would be funded pursuant to statutory
    requirements and agreements with representatives of the affected
    parties, using (i) the Debtors insurance assets,
    (ii) $13.0 million in cash from the Company,
    (iii) 100% of the equity in a the Company subsidiary whose
    sole asset will be a piece of real property that produces modest
    rental income, and (iv) the new common stock of the emerged
    entity to be issued as per (f) below in respect of
    approximately $830.0 million of intercompany claims of KFC
    against the Company that are to be assigned to the trust, which
    the Company currently estimates will entitle the trusts to
    receive approximately 6.4% of the new common stock of the
    emerged entity.                                                                                                                                                                                                                                                                                                                                  
|
| | (f) Other pre-petition general unsecured claims against the
    Remaining Debtors (other than KACOCL) are entitled to receive
    approximately 22.3% of the new common stock of the emerging
    entity in the proportion that their allowed claim bears to the
    total amount of allowed claims. Claims that are expected to be
    within this group include (i) any claims of the Senior
    Notes, the Sub Notes and PBGC (other than the PBGCs claim
    against KACOCL), (ii) the approximate $830.0 million
    of intercompany claims that will be assigned to the personal
    injury trust(s) referred to in (e) above, and
    (iii) all unsecured trade and other general unsecured
    claims, including approximately $276.0 million of
    intercompany claims of KFC against the Company. However, holders
    of general unsecured claims not exceeding a specified small
    amount will receive a cash payment equal to approximately 2.9%
    of their agreed claim value in lieu of new common stock. In
    accordance with the contractual subordination provisions of the
    indenture governing the Sub Notes and terms of the settlement
    between the holders of the Senior Notes and the holders of the
    Revenue Bonds, the new common stock or cash that would otherwise
    be distributed to the holders of the Sub Notes in respect of
    their claims against the Debtors would instead be distributed to
    holders of the Senior Notes and the Revenue Bonds on a pro rata
    basis based on their relative allowed amounts of their claims.



49



---



##### 









Recent Events and Developments


Credit Arrangement.




Restated 2005 Quarterly Data. 10-Q 10-Q.


50



---



##### 







Asbestos-Related Insurance Coverage Conditional
Settlements.








51



---



##### 







Significant Charges Associated with the Reorganization
Process.




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A charge of $1,131.5 million in 2005 related to
    implementation of the Liquidating Plans, whereby (for purposes
    of computing distributions under the KAAC/ KFC Plan) the value
    of an intercompany claim is being treated as being for the
    benefit of certain third party creditors (see Liabilities
    subject to compromise in Note 1 of Notes to Interim
    Consolidated Financial Statements).
|
| |  | Charges related to the sale of commodity interests in 2003 and
    2004. These items are classified as discontinued
    operations in the accompanying financial statements. See
    Note 6 of Notes to Interim Consolidated Financial
    Statements for additional discussion of these items and amounts.                                                                                                     
|
| |  | Significant charges in 2003 and 2004 related to the termination
    of certain of the Companys previous pension and retiree
    medical plans and other agreements reached with the PBGC, the
    USWA and certain other labor unions. These items are discussed
    in Note 10 and Note 11 of Notes to Interim
    Consolidated Financial Statements.                                                           
|
| |  | Certain environmental charges in 2003 and 2004 associated with
    various settlements and transactions. See Note 11 of Notes
    to Interim Consolidated Financial Statements                                                                                                                                                                                                                                    



Environmental Matters.


52



---



##### 



Results of Operations




10-K


|                                                                                                                             |                            |                        |       |       |       |   |       |       |       | 
|---------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ---------------------- | ----- | ----- | ----- | - | ----- | ----- | ----- | 
|                                                                                                                             |                            | Quarter Ended          |      
|                                                                                                                             |                            | March 31,              |      
|                                                                                                                             |                            |                        |      
|                                                                                                                             |                            | 2006                   |       |       | 2005  |  
|                                                                                                                             |                            |                        |       |       |       |  
|Shipments(mm lbs):                                                                                                           |                            |                        |       |       |       |   |       |      
|                                                                                                                             | Fabricated Products        |                        |       | 137.7 |       |   |       | 126.4 |      
|                                                                                                                             | Primary Aluminum           |                        |       | 39.1  |       |   |       | 38.4  |      
|                                                                                                                             |                            |                        |       |       |       |  
|                                                                                                                             |                            |                        | 176.8 |       |       |   | 164.8 |      
|                                                                                                                             |                            |                        |       |       |       |  
|Average Realized Third Party Sales Price (per pound):                                                                        |                            |                        |       |       |       |   |       |      
|                                                                                                                             | Fabricated Products(1)     |                        | $     | 2.09  |       |   | $     | 1.93  |      
|                                                                                                                             | Primary Aluminum(2)        |                        | $     | 1.20  |       |   | $     | .95   |      
|Net Sales:                                                                                                                   |                            |                        |       |       |       |   |       |      
|                                                                                                                             | Fabricated Products        |                        | $     | 288.0 |       |   | $     | 244.4 |      
|                                                                                                                             | Primary Aluminum           |                        |       | 48.3  |       |   |       | 37.0  |      
|                                                                                                                             |                            |                        |       |       |       |  
|                                                                                                                             |                            | Total Net Sales        |       | $     | 336.3 |   |       | $     | 281.4 | 
|                                                                                                                             |                            |                        |       |       |       |  
|Segment Operating Income (Loss)(3):                                                                                          |                            |                        |       |       |       |   |       |      
|                                                                                                                             | Fabricated Products        |                        | $     | 45.0  |       |   | $     | 25.4  |      
|                                                                                                                             | Primary Aluminum(4)        |                        |       | 8.7   |       |   |       | 2.8   |      
|                                                                                                                             | Corporate and Other        |                        |       | (9.6  | )     |   |       | (6.9  | )    
|                                                                                                                             | Other Operating Charges(5) |                        |       |      |       |   |       | (6.2  | )    
|                                                                                                                             |                            |                        |       |       |       |  
|                                                                                                                             |                            | Total Operating Income |       | $     | 44.1  |   |       | $     | 15.1  | 
|                                                                                                                             |                            |                        |       |       |       |  
|Discontinued Operations                                                                                                      |                            | $                      | 7.3   |       |       | $ | 10.6  |      
|                                                                                                                             |                            |                        |       |       |       |  
|Loss from Cumulative Effect on Years Prior to 2005 of Adopting
    Accounting for Conditional Asset Retirement Obligation(6) |                            | $                      |      |       |       | $ | (4.7  | )    
|                                                                                                                             |                            |                        |       |       |       |  
|Net Income(3)                                                                                                                |                            | $                      | 38.5  |       |       | $ | 8.3   |      
|                                                                                                                             |                            |                        |       |       |       |  
|Capital Expenditures (excluding discontinued operations)                                                                     |                            | $                      | 10.6  |       |       | $ | 3.8   |      
|                                                                                                                             |                            |                        |       |       |       |  

53



---



##### 








|    |                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Average realized prices for the Companys Fabricated
    products business unit are subject to fluctuations due to
    changes in product mix as well as underlying primary aluminum
    prices and are not necessarily indicative of changes in
    underlying profitability. See Part I, Item 1.
    Business  Business Operations in the
    Companys Annual Report on
    Form 10-K for the
    year ended December 31, 2005.
|   
|(2) | Average realized prices for the Companys Primary aluminum
    business unit exclude hedging revenues.                                                                                                                                                                                                                                                                                                                               
|   
|(3) | As previously reported, the Company restated its operating
    results for the quarter ended March 31, 2005. See
    Note 5 of Notes to Interim Consolidated Financial
    Statements for information regarding the restatement.                                                                                                                                                                                                     
|   
|(4) | Includes non-cash
    mark-to-market gains
    (losses) totaling $4.2 million and $(2.0) million in
    the first quarters of 2006 and 2005, respectively, as more fully
    discussed in Note 12 of Notes to Interim Consolidated
    Financial Statements.                                                                                                                                                                         
|   
|(5) | See Note 13 of Notes to Interim Consolidated Financial
    Statements for a discussion of the components of Other operating
    charges and the business segment to which the items relate.                                                                                                                                                                                                                                          
|   
|(6) | See Note 4 of Notes to Interim Consolidated Financial
    Statements for a discussion of the changes in accounting for
    conditional asset retirement obligations.                                                                                                                                                                                                                                                                 

Overview










| |                                                                          
| | -------------------------------------------------------------------------
| | Quarter Ended March 31, 2006 Compared to Quarter
    Ended March 31, 2005

Summary.




Fabricated Aluminum Products.




54



---



##### 







Primary aluminum.






Corporate and Other.




55



---



##### 







Discontinued Operations.


Liquidity and Capital Resources


debtors-in


Operating Activities.








Investing Activities.


56



---



##### 







Financing Activities and Liquidity.




| |   |                                                                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Replaced the existing post-petition credit facility with a new
    $200.0 million DIP Facility and                                                                                                                                                                                                                                           
|
| |  | Included a commitment, upon the Debtors emergence from the
    Chapter 11 proceedings, for exit financing in the form of a
    $200.0 million revolving credit facility (the
    Revolving Credit Facility) and a fully drawn term
    loan (the Term Loan) of up to $50.0 million
    (collectively referred to as the Exit Financing).











57



---



##### 









New Accounting Pronouncements




Critical Accounting Policies






| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. The interim consolidated financial statements as of and
    for the quarter ended March 31, 2006, 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(SOP 90-7),
    and do not include possible impacts arising in respect of the
    Cases. The interim consolidated financial statements included
    elsewhere in this Report do not include certain 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. 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 cash flows. So long as the
    Company reasonably expects that such undiscounted future net
    cash flows for each asset will exceed the recorded value of the
    asset being evaluated, no impairment is required. However, if
    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

58



---



##### 



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| | As previously disclosed, while the Company had stated that it
    was considering the possibility of disposing of one or more of
    its commodities interests, the Company, through the third
    quarter of 2003, still considered all of its commodity assets as
    held for use, as no definite decisions had been made
    regarding the disposition of such assets. However, based on
    additional negotiations with prospective buyers and discussions
    with key constituents, the Company concluded that dispositions
    of its interests in its commodity facilities were possible and,
    therefore, that recoverability should be considered differently
    as of December 31, 2003 and subsequent periods. As a result
    of the change in status, the Company recorded impairment charges
    of approximately $33.0 million in the first quarter of 2004
    and $368.0 million in the fourth quarter of 2003.
|
| | 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, the rejection
    resulted in an approximate $75.0 million claim by the BPA
    which the Company has agreed, in principle, subject to pending
    Court approval, to settle for a pre-petition claim of
    $5.0 million.                                                                                                                                                                                                                                                                                                                                          
|
| | 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 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 substantially all pre-Filing
    Date claims will be paid at less than 100% of their face value
    and the equity interests of the Companys stockholders will
    be cancelled without consideration.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | Additionally, upon emergence from the Cases, the Company expects
    to apply fresh start accounting to its consolidated
    financial statements as required by
    SOP 90-7. Fresh
    start accounting is required if: (1) a debtors
    liabilities are determined to be in excess of its assets and
    (2) there will be a greater than 50% change in the equity
    ownership of the entity. As previously disclosed, the Company
    expects both such circumstances to apply. As such, upon
    emergence, the Company will adjust its balance sheet to equal
    the reorganization value as determined in its plan of
    reorganization and approved by the Court. Additionally, items
    such as accumulated depreciation, accumulated deficit and
    accumulated other comprehensive income (loss) will be reset to
    zero. The Company will allocate the reorganization value to its
    individual assets and liabilities based on their estimated fair
    value at the emergence date. Typically such items as current
    liabilities, accounts receivable, and cash will be reflected at
    values similar to those reported prior to emergence. Items such
    as inventory, property, plant and equipment, long-term assets
    and long-term liabilities are more likely to be significantly
    adjusted from amounts previously reported. Because fresh start
    accounting will be adopted at emergence, and because of the
    significance of liabilities subject to compromise (that will be
    relieved upon emergence), meaningful comparison between the
    current historical financial statements and the financial
    statements upon emergence may be difficult to make.
|
| | 2. The Companys judgments and estimates with respect
    to commitments and contingencies, in particular: (a) future
    personal injury 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

59



---



##### 



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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. Additionally,
    facts and circumstances in respect of a matter can change
    causing key assumptions that were used in previous assessments
    of a matter to change. It is possible that amounts at risk in
    respect of one matter may be traded off against
    amounts under negotiations in a separate matter. 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 assuming that there is no
    other amount which is more likely to occur.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| | During the period 2002-2005, the Company has had two potentially
    material contingent obligations that were/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 personal injury-related matters. Both of these
    matters are discussed in Note 11 of Notes to Interim
    Consolidated Financial Statements and it is important that you
    read this note.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| | As more fully discussed in Note 11 of Notes to Interim
    Consolidated Financial Statements, we accrued an amount in the
    fourth quarter of 2004 in respect of the USWA ULP matter. We did
    not accrue any amount prior to the fourth quarter of 2004 as we
    did not consider the loss to be probable. Our
    assessment had been that the possible range of loss in this
    matter was anywhere from zero to $250.0 million based on
    the proof of claims filed (and other information provided) by
    the National Labor Relations Board (NLRB) and USWA
    in connection with the Companys and Kaisers
    reorganization proceedings. While the Company continues to
    believe that the ULP charges were without merit, during January
    2004, the Company agreed to allow a claim in favor of the USWA
    in the amount of the $175.0 million as a compromise and in
    return for the USWA agreeing to substantially reduce and/or
    eliminate certain benefit payments as more fully discussed in
    Note 11 of Notes to Interim Consolidated Financial
    Statements. However, this settlement was not recorded at that
    time as it was still subject to Court approval. The settlement
    was ultimately approved by the Court in February 2005 and, as a
    result of the contingency being removed with respect to this
    item (which arose prior to the December 31, 2004 balance
    sheet date), a non-cash charge of $175.0 million was
    reflected in the Companys consolidated financial
    statements at December 31, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| | Also, as more fully discussed in Note 11 of Notes to
    Interim Consolidated Financial Statements, 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, or as a result of,
    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. The Company has also
    previously disclosed that certain other personal injury claims
    had been filed in respect of alleged pre-Filing Date exposure to
    silica and coal tar pitch volatiles. Due to the Cases, existing
    lawsuits in respect of all such personal injury claims are
    stayed and new lawsuits cannot be commenced against us or
    Kaiser. It is difficult to predict the number of claims that
    will ultimately be made against the Company or the settlement
    value of such claims. Our September 30, 2005, balance sheet
    includes a liability for estimated asbestos-related costs of
    $1,115.0 million, which represents the Companys
    estimate of the minimum end of a range of costs. The upper end
    of the Companys estimate of costs is approximately
    $2,400.0 million and the Company is aware that certain
    constituents have asserted that they believe that actual costs
    may exceed the top end of the Companys estimated range, by
    perhaps a material amount. As a part of any plan of
    reorganization it is possible that an estimation of the
    Companys entire asbestos-related liability may occur. Any
    such estimation will likely result from negotiations between the
    Company and key creditor constituencies or an estimation process
    overseen by the Court. It is possible that any resulting
    estimate of the Companys asbestos-related liability
    resulting from either process could exceed, perhaps
    significantly, the liability amounts reflected in the
    Companys consolidated financial statements.
|
| | We believe the Company has insurance coverage for a substantial
    portion of such asbestos-related costs. Accordingly, our
    March 31, 2006 balance sheet includes a long-term
    receivable for estimated                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

60



---



##### 



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | insurance recoveries of $963.7 million. We believe that
    recovery of this amount is probable and additional amounts may
    be recoverable in the future if additional liability is
    ultimately determined to exist. However, we cannot assure you
    that all such amounts will be collected. The timing and amount
    of future recoveries from the Companys insurance carriers
    will depend on the pendency of the Cases and on the resolution
    of disputes regarding coverage under the applicable insurance
    policies. Over the past several years, the Company has received
    a number of rulings in respect of insurance related litigation
    that it believes supports the amount reflected on the balance
    sheet. The trial court may hear additional issues from time to
    time. Further, depending on the amount of asbestos-related
    claims ultimately determined to exist, it is possible that the
    amount of such claims could exceed the amount of additional
    insurance recoveries available. Additionally, the Company
    continues to discuss terms for possible settlements with certain
    insurers that would establish payment obligations of the
    insurers to the personal injury trusts discussed more fully in
    Note 1 of Notes to Interim Consolidated Financial
    Statements. Given uncertainties about the timing of the
    insurance-related cash flows (as well as the related liability
    amounts) such amounts, as previously disclosed have been
    recorded in nominal terms. Settlement amounts may be different
    from the face amount of the policies, which are stated in
    nominal terms. Settlement amounts may be affected by, among
    other things, the present value of possible cash receipts versus
    the potential obligation of the insurers to pay over time, which
    could impact the amount of receivables recorded. An example of
    such possible settlements are the conditional settlements
    discussed in Note 11 of Notes to Interim Consolidated
    Financial Statements.
|
| | 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. However, under an agreed term sheet, all of the
    Companys personal injury-related obligations together with
    the benefits of its insurance policies and certain other
    consideration are to be transferred into one or more trusts at
    emergence.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | See Note 11 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | As more fully discussed in Note 10 of Notes to Interim
    Consolidated Financial Statements, it is possible that certain
    remaining defined benefit pension plans could be terminated. If
    this were to happen,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

61



---



##### 



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | additional settlement charges in the range of $6.0 million
    to $7.0 million could be recorded, despite the fact that
    any such terminations would not be expected to have any adverse
    cash consequences to the Company or Kaiser.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| | While the amounts involved with the new/remaining plans are
    substantially less than the amounts in respect of the terminated
    plans (and thus subject to a lesser amount of expected
    volatility in amounts) they are, nonetheless, subject to the
    same sorts of changes and any such changes could be material to
    continuing operations. See Note 10 of Notes to Interim
    Consolidated Financial Statements regarding the Companys
    pension and post-retirement obligations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | 4. The Companys judgments and estimates in respect to
    environmental commitments and contingencies.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | The Company and Kaiser are subject to a number of environmental
    laws and regulations, to fines or penalties assessed for alleged
    breaches of such laws and regulations, and to claims and
    litigation based upon such laws and regulations. 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | Examples of how environmental accruals could change is included
    in 2004 and 2003. See Note 11 of Notes to Consolidated
    Financial Statements in the Companys Annual Report of
    Form 10-K for the
    year ended December 31, 2005. 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| | 5. Companys judgments and estimates in respect of
    conditional asset retirement obligations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | Companies are required to estimate incremental costs for special
    handling, removal and disposal costs of materials that may or
    will give rise to conditional asset retirement obligations
    (CAROs) and then discount the expected costs back to
    the current year using a credit adjusted risk free rate. Under
    current accounting guidelines, liabilities and costs for CAROs
    must be recognized in a Companys financial statements even
    if it is unclear when or if the CARO may/will be triggered. If
    it is unclear when or if a CARO will be triggered, companies are
    required to use probability weighting for possible timing
    scenarios to determine the probability weighted amounts that
    should be recognized in the companys financial statements.
    As more fully discussed in Note 4 of Notes to Interim
    Consolidated Financial Statements, the Company has evaluated its
    exposures to CAROs and determined that it has CAROs at several
    of its fabricated products facilities. The vast majority of such
    CAROs consist of incremental costs that would be associated with
    the removal and disposal of asbestos (all of which is believed
    to be fully contained and encapsulated within walls, floors,
    ceilings or piping) of certain of the older plants if such
    plants were to undergo major renovation or be demolished. No
    plans currently exist for any such renovation or demolition of
    such facilities and the Companys current assessment is
    that the most probable scenarios are that no such CARO would be
    triggered for 20 or more years, if at all. Nonetheless,

62



---



##### 



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | the Company has recorded an estimated CARO liability of
    approximately $2.7 million at December 31, 2005 and
    such amount will increase substantially over time.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| | The estimation of CAROs is subject to a number of inherent
    uncertainties including: (a) the timing of when any such
    CARO may be incurred, (b) the ability to accurately
    identify all materials that may require special handling,
    treatment, etc. (c) the ability to reasonably estimate the
    total incremental special handling and other costs, (d) the
    ability to assess the relative probability of different
    scenarios which could give rise to a CARO, and (e) other
    factors outside a companys control including changes in
    regulations, costs, interest rates, etc. As such, actual costs
    and the timing of such costs may vary significantly from the
    estimates, judgments, and probable scenarios considered by the
    Company, which could, in turn, have a material impact on the
    Companys future financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| | 6. Income Tax Provisions in Interim Periods                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | In accordance with GAAP, financial statements for interim
    periods are to include an income tax provision based on the
    effective tax rate expected to be incurred in the current year.
    Accordingly, estimates and judgments must be made by the Company
    (by taxable jurisdiction) as to amount of income that may be
    generated, the availability of deductions and credits expected
    to be generated during the year and the availability of net
    operating loss carryforwards or other tax attributes to offset
    taxable income. Making such estimates and judgments is subject
    to inherent uncertainties as the Company cannot predict such
    factors as future market conditions, customer requirements, the
    cost for key inputs such as energy and primary aluminum, its
    overall operating efficiency and many other items. For purposes
    of preparing the March 31, 2006 unaudited financial
    statements, the Company has considered its actual operating
    results in the first quarter of 2006 as well as its forecasts
    for the balance of the year. Based on this and other available
    information, the Company currently forecasts that its effective
    tax rate for 2006 will be in the range of 16%. However, among
    other things, should (i) actual results for the balance of
    2006 vary from that in the first quarter of 2006 and the
    Companys forecasts due to one or more of the factors cited
    above or in Part I, Item 1A. Risk Factors in the
    Companys Annual Report on
    Form 10-K for the
    year ended December 31, 2005, (ii) income be
    distributed differently than expected among tax jurisdictions,
    (iii) one or more material events or transactions occur
    which were not contemplated, (iv) other uncontemplated
    transactions occur, or (v) certain expected deductions,
    credits or carryforwards not be available, it is possible that
    the effective tax rate for 2006 could vary materially from the
    16% rate used to prepare the March 31, 2006 interim
    consolidated financial statements included elsewhere herein.
    Further, because the Company cannot predict when or if the
    United States District Court will affirm or adopt the
    confirmation order in respect of the Kaiser Aluminum Amended
    Plan, the Company has not considered any impacts that its
    emergence could have on the effective tax rate for 2006.

Contractual Obligations and Commercial Commitments




|                                                  |  |       |     |                 |        |   |     |       |  |     |       |  |           |         |     |  |  |   |    | 
|------------------------------------------------- |  | ----- | --- | --------------- | ------ | - | --- | ----- |  | --- | ----- |  | --------- | ------- | --- |  |  | - | -- | 
|                                                  |  |       |     | 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 $.8(a) |  | $     | 2.3 |                 |        | $ | 1.1 |       |  | $   | 1.2   |  |           | $       |    |  |  | $ |   | 
|Operating leases                                  |  |       | 7.4 |                 |        |   | 2.6 |       |  |     | 3.1   |  |           |         | 1.6 |  |  |   | .1 | 
|                                                  |  |       |     |                 |        |   |     |       |  |     |       |  |           |         |    
|Total cash contractual obligations                |  | $     | 9.7 |                 |        | $ | 3.7 |       |  | $   | 4.3   |  |           | $       | 1.6 |  |  | $ | .1 | 
|                                                  |  |       |     |                 |        |   |     |       |  |     |       |  |           |         |    






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | See Note 8 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 $847.6 million, which amounts will be dealt
    with in connection with a plan of reorganization. See
    Notes 1 and 8 of Notes to Interim Consolidated Financial
    Statements for additional information about debt subject to
    compromise.

63



---



##### 























| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | An amount not to exceed $36.0 million and payable on
    emergence from the Chapter 11 proceedings so long as the
    Companys liquidity (i.e. cash plus borrowing availability)
    is at least $50.0 million after considering such payments.
    To the extent that less than the full $36.0 million is paid
    and the Companys interests in Anglesey are subsequently
    sold, a portion of such sales proceeds, in certain
    circumstances, will be used to pay the shortfall.
|
| |  | On an annual basis, 10% of the first $20.0 million of
    annual cash flow, as defined, plus 20% of annual cash flow, as
    defined, in excess of $20.0 million. Such annual payments
    will not exceed $20.0 million and will also be limited
    (with no carryover to future years) to the extent that the
    payments do not cause the Companys liquidity to be less
    than $50.0 million.                                                                                     
|
| |  | Advances of $3.1 million in June 2004 and $1.9 million
    per month thereafter until the Company emerges from the Cases.
    Any advances made pursuant to such agreement will constitute a
    credit toward the $36.0 million maximum contribution due
    upon emergence.                                                                                                                                                                                                             



64



---



##### 















65



---



##### 











|        |                                                               
|------- | --------------------------------------------------------------
|Item 3. | Quantitative and Qualitative Disclosures About Market
    Risk



Sensitivity


Primary Aluminum.




month-to




Foreign Currency.


66



---



##### 





Energy.






|        |                        
|------- | -----------------------
|Item 4. | Controls and Procedures



Evaluation of Disclosure Controls and Procedures.


10-K


Accounting for Derivative Instruments and
Hedging Activities


67



---



##### 











Changes in Internal Controls Over Financial Reporting.






68



---



##### 





PART II  OTHER INFORMATION




|        |                  
|------- | -----------------
|Item 1. | Legal Proceedings

10-K


Reorganization Proceedings




Other Environmental Matters




Asbestos and Certain Other Personal Injury Claims






Asbestos and Certain Other Personal Injury Claims


Hearing Loss Claims




69



---



##### 



Hearing Loss Claims




|         |              
|-------- | -------------
|Item 1A. | Risk Factors.

Risk Factors 10-K




|        |         
|------- | --------
|Item 5. | Exhibits

|        |     |             |  |                                                                                                                                                                                                                                                                                                             
|------- | --- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |     |            
|Number  |     | Description
|        |     |            
|        | 4   | .1          |  | Second Amendment to Secured Super-Priority Debtor-In-Possession
    Revolving Credit and Guaranty Agreement, dated April 26,
    2006 (incorporated by reference to Exhibit 4.1 to the
    Report on Form 8-K, dated April 26, 2006, filed by
    Kaiser Aluminum Corporation (KAC), File
    No. 1-9447).
|        | 4   | .2          |  | Amendment No. 2 to Commitment Letter, dated April 26,
    2006 (incorporated by reference to Exhibit 4.2 to the
    Report on Form 8-K, dated April 26, 2006, filed by
    KAC, File No. 1-9447).                                                                                                           
|        | 4   | .3          |  | Amendment No. 3 to Commitment Letter, dated April 26,
    2006 (incorporated by reference to Exhibit 4.3 to the
    Report on Form 8-K, dated April 26, 2006, filed by
    KAC, File No. 1-9447).                                                                                                           
|        | *31 | .1          |  | Certification of Jack A. Hockema pursuant to Section 302 of
    the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                              
|        | *31 | .2          |  | Certification of Daniel D. Maddox 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 Daniel D. Maddox pursuant to Section 906
    of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                             






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

70



---



##### 



SIGNATURES






| |                                       
| | --------------------------------------
| | Kaiser Aluminum & Chemical Corporation
|
| | /s/ Jack A. Hockema                   
| |                                       
| | Jack A. Hockema                       
| | President and Chief Executive Officer 
| | (Chief Executive Officer)             
|
| | /s/ Daniel D. Maddox                  
| |                                       
| | Daniel D. Maddox                      
| | Vice President and Controller         
| | (Principal Financial Officer)         



71



---



##### 



INDEX TO EXHIBITS


|        |     |             |  |                                                                                                                                                                                                                                                                         
|------- | --- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |     |            
|Number  |     | Description
|        |     |            
|        | 4   | .1          |  | Second Amendment to Secured Super-Priority Debtor-In-Possession
    Revolving Credit and Guaranty Agreement, dated April 26,
    2006 (incorporated by reference to Exhibit 4.1 to the
    Report on Form 8-K, dated April 26, 2006, filed by
    KAC, File No. 1-9447).
|        | 4   | .2          |  | Amendment No. 2 to Commitment Letter, dated April 26,
    2006 (incorporated by reference to Exhibit 4.2 to the
    Report on Form 8-K, dated April 26, 2006, filed by
    KAC, File No. 1-9447).                                                                       
|        | 4   | .3          |  | Amendment No. 3 to Commitment Letter, dated April 26,
    2006 (incorporated by reference to Exhibit 4.3 to the
    Report on Form 8-K, dated April 26, 2006, filed by
    KAC, File No. 1-9447).                                                                       
|        | *31 | .1          |  | Certification of Jack A. Hockema pursuant to Section 302 of
    the Sarbanes-Oxley Act of 2002                                                                                                                                                                          
|        | *31 | .2          |  | Certification of Daniel A. Maddox 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 Daniel A. Maddox pursuant to Section 906
    of the Sarbanes-Oxley Act of 2002                                                                                                                                                                         






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