10-Q

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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-Q


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

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001

                          Commission file number 1-3605




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




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


             5847 SAN FELIPE, SUITE 2600, HOUSTON, TEXAS 77057-3268
               (Address of principal executive offices) (Zip Code)


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



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

     At July 31, 2001, the registrant had 46,171,365 shares of Common Stock
outstanding.


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         KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

                         PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                           CONSOLIDATED BALANCE SHEETS
                            (In millions of dollars)

                                                                                          June 30,     December 31,
                                                                                              2001             2000
                                                                                    -------------------------------
                                       ASSETS                                         (Unaudited)
Current assets:
   Cash and cash equivalents                                                        $        65.6   $         23.4
   Receivables:
      Trade, net                                                                            168.3            188.7
      Other                                                                                 180.4            247.3
   Inventories                                                                              373.6            396.2
   Prepaid expenses and other current assets                                                122.1            162.7
                                                                                    -------------------------------
      Total current assets                                                                  910.0          1,018.3

Investments in and advances to unconsolidated affiliates                                     74.2             77.8
Property, plant, and equipment - net                                                      1,219.1          1,176.1
Deferred income taxes                                                                       444.4            452.3
Other assets                                                                                699.5            622.9
                                                                                    -------------------------------

      Total                                                                         $     3,347.2   $      3,347.4
                                                                                    ===============================

                         LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                                                 $       188.9   $        236.8
   Accrued interest                                                                          37.1             37.5
   Accrued salaries, wages, and related expenses                                             84.9            110.3
   Accrued postretirement medical benefit obligation - current portion                       58.0             58.0
   Other accrued liabilities                                                                213.5            287.2
   Payable to affiliates                                                                     75.9             80.0
   Long-term debt - current portion                                                         224.5             31.6
                                                                                    -------------------------------
      Total current liabilities                                                             882.8            841.4

Long-term liabilities                                                                       870.2            703.9
Accrued postretirement medical benefit obligation                                           647.6            656.9
Long-term debt                                                                              698.8            957.8
Minority interests                                                                          113.2            100.4
Commitments and contingencies
Stockholders' equity:
   Preference stock                                                                            .7               .7
   Common stock                                                                              15.4             15.4
   Additional capital                                                                     2,367.9          2,300.8
   Accumulated deficit                                                                     (132.4)          (188.1)
   Accumulated other comprehensive income (loss)                                            (10.1)            (1.8)
   Less:  Note receivable from parent                                                    (2,106.9)        (2,040.0)
                                                                                    -------------------------------
      Total stockholders' equity                                                            134.6             87.0
                                                                                    -------------------------------
        Total                                                                       $     3,347.2   $      3,347.4
                                                                                    ===============================

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

         KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

                        STATEMENTS OF CONSOLIDATED INCOME (LOSS)
                                   (Unaudited)
                 (In millions of dollars, except share amounts)



                                                                       Quarter Ended          Six Months Ended
                                                                         June 30,                 June 30,
                                                                  ----------------------    -------------------
                                                                       2001        2000        2001       2000
                                                                  ----------------------    -------------------
Net sales                                                         $    446.8    $  552.8    $  927.1   $1,128.5
                                                                  ----------------------    -------------------

Costs and expenses:
   Cost of products sold                                               418.8       469.5       863.3      960.2
   Depreciation and amortization                                        22.2        19.6        43.5       39.2
   Selling, administrative, research and development, and general       25.4        25.8        52.6       52.1
   Other non-recurring operating items                                   8.0       (13.6)     (220.2)     (11.6)
                                                                  ----------------------    -------------------
        Total costs and expenses                                       474.4       501.3       739.2    1,039.9
                                                                  ----------------------    -------------------

Operating income (loss)                                                (27.6)       51.5       187.9       88.6

Other income (expense):
   Interest expense                                                    (27.1)      (28.2)      (55.0)     (56.6)
   Other - net                                                         (51.7)       (6.5)      (44.4)       3.6
                                                                  ----------------------    -------------------

Income (loss) before income taxes and minority interests              (106.4)       16.8        88.5       35.6

Benefit (provision) for income taxes                                    41.5        (6.4)      (34.5)     (13.7)

Minority interests                                                        .8          .8         1.8        1.3
                                                                  ----------------------    -------------------

Net income (loss)                                                 $    (64.1)   $   11.2    $   55.8   $   23.2
                                                                  ======================    ===================


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


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

                     For the Six Months Ended June 30, 2000


                                                                                       Accumulated       Note
                                                                               Accu-         Other Receivable
                                        Preference     Common  Additional    mulated Comprehensive       From
                                             Stock      Stock     Capital    Deficit Income (Loss)     Parent    Total
                                       -------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999             $      1.5  $    15.4  $  2,173.0  $  (205.1) $       (1.2) $(1,912.9)  $ 70.7
   Net income/Comprehensive
      income                                   -           -          -        23.2           -            -     23.2
   Interest on note receivable to
      parent                                   -           -        63.3          -           -        (63.3)        -
   Contributions for LTIP shares               -           -          .4          -           -            -       .4
   Stock redemption                           (.7)         -          -           -           -            -      (.7)
                                       ----------  ---------  ----------  ---------  ------------  ---------   -------
BALANCE, JUNE 30, 2000                 $       .8  $    15.4  $  2,236.7  $  (181.9) $       (1.2) $(1,976.2)  $ 93.6
                                       ==========  =========  ==========  =========  ============  =========   =======

                     For the Six Months Ended June 30, 2001


                                                                                   Accumulated        Note
                                                                          Accu-          Other  Receivable
                                     Preference     Common Additional   mulated  Comprehensive        From
                                          Stock      Stock    Capital   Deficit  Income (Loss)      Parent    Total
                                    -------------------------------------------------------------------------------
BALANCE, DECEMBER 31,               $       .7  $    15.4  $ 2,300.8  $ (188.1)  $       (1.8)  $(2,040.0) $  87.0
2000

   Net income                               -           -          -      55.8            -             -     55.8
   Cumulative effect of accounting
      change, net of income tax
      provision of $.5                      -           -          -         -            1.8           -      1.8
   Unrealized losses on derivative
      instruments arising during the
      period, net of income tax
      benefit of $4.4 (including
      $4.2 for the quarter ended
      June 30, 2001)                        -           -          -         -           (7.5)          -     (7.5)
   Less reclassification adjustment
      for net realized gains on
      derivative instruments included
      in net income, net of income
      tax provision of $.9 (including
      realized net losses of $8.8
      for the quarter ended
      June 30, 2001)                        -           -          -         -           (2.6)          -     (2.6)
                                                                                                            -------
   Comprehensive income                     -           -          -         -            -             -     47.5

   Interest on note receivable to
      parent                                -           -       66.9         -            -         (66.9)        -
   Contributions for LTIP shares            -           -         .2         -            -             -       .2
   Dividends                                -           -          -       (.1)           -             -      (.1)


                                    ----------  ---------  ---------  --------   ------------   ---------  --------
BALANCE, JUNE 30, 2001              $       .7  $    15.4  $ 2,367.9  $ (132.4)  $      (10.1)  $(2,106.9) $ 134.6
                                    ==========  =========  =========  ========   ============   =========  ========


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


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


                                                                                               Six Months Ended
                                                                                                   June 30,
                                                                                              -------------------
                                                                                                  2001       2000
                                                                                              -------------------
Cash flows from operating activities:
   Net income                                                                                 $  55.8   $   23.2
   Adjustments to reconcile net income to net cash (used) provided by operating activities:
      Depreciation and amortization (including deferred financing costs of $3.2 and $2.2)        46.7       42.1
      Equity in loss of unconsolidated affiliates, net of distributions                            .4        7.9
      Minority interests                                                                         (1.8)      (1.3)
      Decrease (increase) in trade and other receivables                                         87.3     (104.4)
      Decrease in inventories                                                                    22.6       66.5
      (Increase) decrease in prepaid expenses and other current assets                           (4.5)      30.4
      Decrease in accounts payable (associated with operating activities) and
        accrued interest                                                                        (24.8)     (12.1)
      Decrease in payable to affiliates and other accrued liabilities                           (42.4)     (10.1)
      Increase in accrued and deferred income taxes                                               4.2        4.7
      Net cash provided (used) by long-term assets and liabilities                               61.2      (48.9)
      Other                                                                                       2.5          -
                                                                                              -------------------
        Net cash provided (used) by operating activities                                        207.2       (2.0)
                                                                                              -------------------
Cash flows from investing activities:
   Capital expenditures (including $61.8 and $54.9 related to Gramercy facility)                (86.8)     (85.8)
   (Decrease) increase in accounts payable - Gramercy-related capital expenditures              (23.5)      23.9
   Gramercy-related property damage recoveries                                                       -      24.0
   Net proceeds from disposition of property and investments and other                            4.4       17.1
                                                                                              -------------------
        Net cash used by investing activities                                                  (105.9)     (20.8)
                                                                                              -------------------
Cash flows from financing activities:
   (Repayments) borrowings under revolving credit facility, net                                 (30.4)      27.2
   Repayments of long-term debt                                                                 (23.2)      (2.9)
   Preference stock dividends paid                                                               (5.5)       (.3)
   Redemption of minority interests' preference stock                                                -      (2.5)
                                                                                              -------------------
        Net cash (used) provided by financing activities                                        (59.1)      21.5
                                                                                              -------------------
Net increase (decrease) in cash and cash equivalents during the period                           42.2       (1.3)
Cash and cash equivalents at beginning of period                                                 23.4       21.2
                                                                                              -------------------
Cash and cash equivalents at end of period                                                    $  65.6   $   19.9
                                                                                              ===================
Supplemental disclosure of cash flow information:
   Interest paid, net of capitalized interest of $2.8 and $1.4                                $  52.2   $   54.5
   Income taxes paid                                                                             29.5        7.6


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


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

1.   GENERAL

Kaiser Aluminum & Chemical Corporation (the "Company") is the principal
operating subsidiary of Kaiser Aluminum Corporation ("Kaiser"). Kaiser is a
subsidiary of MAXXAM Inc. ("MAXXAM"). MAXXAM and one of its wholly owned
subsidiaries together own approximately 62% of the Company's Common Stock with
the remaining approximately 38% publicly held.

The foregoing unaudited interim consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the rules and regulations of the Securities and
Exchange Commission. Accordingly, these financial statements do not include all
of the disclosures required by generally accepted accounting principles for
complete financial statements. These unaudited interim consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements for the year ended December 31, 2000. In the opinion of management,
the unaudited interim consolidated financial statements furnished herein include
all adjustments, all of which are of a normal recurring nature, necessary for a
fair statement of the results for the interim periods presented.

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

Operating results for the quarter and six-month periods ended June 30, 2001, are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2001.

Liquidity.
Near-Term Debt Maturities. The Company has significant near-term debt maturities
including $224.2 of 97/8% Senior Notes due February 2002 (the "97/8% Senior
Notes") and $400.0 of 12 3/4% Senior Subordinated Notes due February 2003 (the
"12 3/4% Senior Subordinated Notes"). Also, the Company's credit agreement, as
amended (the "Credit Agreement"), will expire November 2, 2001 unless it is
extended, replaced or renewed. See Note 5 for a discussion of the Company's
plans with respect to near-term debt maturities.

Cash Flow, Other than Near-Term Debt Maturities. Company's ability to make
payments on and refinance its debt depends on its ability to generate cash in
the future. In addition to being impacted by normal operating items, the
Company's near-term liquidity and cash flows will be affected by the remaining
proceeds to be received from power sales, the expected third quarter 2001 sale
of a portion of the Company's interest in Queensland Alumina Limited ("QAL"),
the restart of the Gramercy facility and net payments for asbestos-related
liabilities. For a discussion of these matters, see Notes 2, 4, 7 and 9.

Absent an improvement in the markets in which the Company operates or faster
than expected improvement in the operating performance of the Gramercy refinery
(as a result of its completion) and other facilities (as a result of the
Company's performance improvement initiative), the Company's cash flows during
the balance of 2001 (before considering the pending third quarter 2001 sale of a
portion of the Company's interest in QAL and near-term debt maturities) may
fully utilize the cash balance reported at June 30, 2001 in order to satisfy
interest and expected tax payments, the funding of pension, post-retirement
medical and net asbestos-related liabilities, capital spending and other
previously accrued obligations. The Company expects its cash flow in 2002 to
improve substantially over the run rate expected to be experienced during the
last six months of 2001 as a result of the Gramercy alumina refinery reaching
its full operating rate and full efficiency, operating improvements resulting
from the Company's performance improvement initiative and as certain of its
other previously accrued, non-recurring, near-term obligations are satisfied.
However, no assurances can be given in this regard.

Restricted Common Stock. During June 2001, the Company completed an exchange
with certain employees who held stock options to purchase Kaiser's common stock
whereby a total of approximately 3,538,000 options were exchanged (on a fair
value basis) for approximately 1,056,000 restricted shares of Kaiser's common
stock. The fair value of the restricted shares issued will be amortized to
expense over the three-year period during which the restrictions lapse.

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

Pre-2001 Accounting. Accounting guidelines in place through December 31, 2000,
provided that any interim fluctuations in option prices prior to the settlement
date were deferred until the settlement date of the underlying hedged
transaction, at which time they were recorded in net sales or cost of products
sold (as applicable) together with the related premium cost. No accounting
recognition was accorded to interim fluctuations in prices of forward sales
contracts. Hedge (deferral) accounting would have been terminated (resulting in
the applicable derivative positions being marked-to-market) if the level of
underlying physical transactions ever fell below the net exposure hedged. This
did not occur in 2000.

Current Accounting. Effective January 1, 2001, the Company began reporting
derivative activities pursuant to Statement of Financial Accounting Standards
("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities.
SFAS No. 133 requires companies to recognize all derivative instruments as
assets or liabilities in the balance sheet and to measure those instruments at
fair value by "marking-to-market" all of their hedging positions at each
period-end (see Note 8). This contrasts with pre-2001 accounting principles,
which generally only required certain "non-qualifying" hedging positions to be
marked-to-market. Changes in the market value of the Company's open hedging
positions resulting from the mark-to-market process represent unrealized gains
or losses. Such unrealized gains or losses will fluctuate, based on prevailing
market prices at each subsequent balance sheet date, until the transaction date
occurs. Under SFAS No. 133, these changes are recorded as an increase or
reduction in stockholders' equity through either other comprehensive income or
net income, depending on the facts and circumstances with respect to the hedge
and its documentation. To the extent that changes in market values of the
Company's hedging positions are initially recorded in other comprehensive
income, such changes reverse out of other comprehensive income (offset by any
fluctuations in other "open" positions) and are recorded in net income (included
in net sales or cost of products sold, as applicable) when the subsequent
physical transactions occur. Additionally, under SFAS No. 133, if the level of
physical transactions ever falls below the net exposure hedged, "hedge"
accounting must be terminated for such "excess" hedges. In such an instance, the
mark-to-market changes on such excess hedges would be recorded in the income
statement rather than in other comprehensive income. This did not occur in the
first six months of 2001.

Differences between comprehensive income and net income, which have historically
been small, may become significant in future periods as a result of SFAS No.
133. In general, SFAS No. 133 will result in material fluctuations in
comprehensive income and stockholders' equity in periods of price volatility,
despite the fact that the Company's cash flow and earnings will be "fixed" to
the extent hedged. This result is contrary to the intent of the Company's
hedging program, which is to "lock-in" a price (or range of prices) for products
sold/used so that earnings and cash flows are subject to reduced risk of
volatility.

SFAS No. 133 requires that, as of the date of the initial adoption, the
difference between the market value of derivative instruments recorded on the
Company's consolidated balance sheet and the previous carrying amount of those
derivatives be reported in net income or other comprehensive income, as
appropriate, as the cumulative effect of a change in accounting principle. Based
on authoritative accounting literature issued during the first quarter of 2001,
it was determined that all of the cumulative impact of adopting SFAS No. 133
should be recorded in other comprehensive income. Based on the applicable prices
and exchange rates in effect at the adoption date, a pre-tax charge of
approximately $1.3 is expected to be reclassified from accumulated other
comprehensive income to net income during 2001.

2.   INCIDENT AT GRAMERCY FACILITY

Initial production at the Company's Gramercy, Louisiana alumina refinery, which
had been curtailed since July 1999 as a result of an explosion in the digestion
area of the plant, commenced during the middle of December 2000. During the
second quarter of 2001, the plant operated at approximately 60% of its
newly-rated estimated annual capacity of 1,250,000 tons. Based on current
estimates, construction at the facility is expected to be completed during the
third quarter of 2001 and the facility is expected to reach its full operating
rate and full efficiency by the end of 2001 or early 2002.

As of June 30, 2001, the Company had collected $269.5 of estimated insurance
recoveries related to the property damage, business interruption and clean-up
and site preparation aspects of the Gramercy incident ($.9 of which was
collected in the second quarter of 2001). During July 2001, the Company and its
insurers reached a global settlement agreement in respect of all of the
Company's business interruption and property damage claims under which the
Company will receive: (1) an additional $35.0 during the third quarter of 2001
related to losses/costs incurred prior to June 30, 2001; and (2) an agreed
allocation from any recoveries that may result from joint actions against
certain third parties. The Company cannot predict the likelihood or timing of
any such incremental recoveries. Since the minimum expected recoveries of $304.5
exceeded the Company's previous accrual of $289.3, the Company recognized $15.2
of additional insurance benefit (as a reduction of Bauxite and alumina business
unit's cost of products sold) during the quarter ended June 30, 2001.

During the quarter and six-month periods ended June 30, 2001, abnormal
Gramercy-related start-up costs totaled approximately $22.0 and $41.0,
respectively. These abnormal costs result from operating the plant in an interim
mode pending the completion of construction. The Company's future operating
results will continue to be adversely affected until the Gramercy plant is
operating at its intended production rate and at full efficiency. As discussed
above, the Company currently anticipates that the Gramercy facility will reach
its full production rate and full efficiency by the end of 2001 or early 2002.

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

See Note 2 of Notes to Consolidated Financial Statements in the Company's Form
10-K for the year ended December 31, 2000 for additional information regarding
the Gramercy incident.

3.   INVENTORIES

     The classification of inventories is as follows:

                                                                                      June 30,    December 31,
                                                                                          2001            2000
                                                                                ------------------------------
Finished fabricated aluminum products                                           $         49.4  $         54.6
Primary aluminum and work in process                                                     115.7           126.9
Bauxite and alumina                                                                       95.5            88.6
Operating supplies and repair and maintenance parts                                      113.0           126.1
                                                                                ------------------------------
     Total                                                                      $        373.6  $        396.2
                                                                                ==============================


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

4.   PACIFIC NORTHWEST POWER SALES AND OPERATING LEVEL

Power Sales. During the first quarter of 2001, the Company, in a series of
transactions, sold a substantial majority of the remaining power available for
its Northwest smelters that it had under contract through September 2001 and
recorded net pre-tax gains of approximately $228.2. The gains were net of
approximately $25.0 of employee-related expenses and other fixed or incremental
costs associated with the continuing curtailment of its Northwest smelters.

During the second quarter of 2001, the Company sold a portion of the remaining
Northwest power that it had under contract for gross proceeds of approximately
$2.5. These proceeds were offset by certain curtailment and other costs of
approximately $8.0. The resulting net gains have been recorded in Other
non-recurring operating items (see Note 10). Approximately $298.0 of power
proceeds were received during the first six months of 2001 ($88.0 related to
2000 power sales and the balance related to 2001 power sales). The balance of
the power proceeds from prior sales of power (approximately $45.0) will be
received periodically through October 2001. In addition, the Company expects to
receive between $3.0 and $7.0 with respect to the remaining third quarter 2001
power that it had under contract and which the Company agreed to sell at
prevailing third quarter power prices.

Future Power Supply and its Impact on Future Operating Rate. During October
2000, the Company signed a new power contract with the Bonneville Power
Administration ("BPA") under which the BPA will provide the Company's operations
in the State of Washington with power during the period from October 2001
through September 2006. The contract will provide the Company with sufficient
power to fully operate the Company's Trentwood facility as well as approximately
40% of the combined capacity of the Company's Mead and Tacoma aluminum smelting
operations. The new BPA contract also includes a take-or-pay requirement and
clauses under which the Company's power allocation could be curtailed, or its
costs increased, in certain instances. Under the new contract, the
Company can only remarket its power allocation to reduce or eliminate
take-or-pay requirements. The Company is not entitled to receive any profits
from any such remarketing efforts. The Company has a short period of time after
the Federal Energy Regulatory Commission ("FERC") affirms the power rate
submitted by the BPA during which it can exercise its right to terminate the
contract. The FERC's affirmation could occur as soon as August 2001.

The BPA has announced that it currently intends to set rates under the new
contract in six month increments. The rate for the initial period (from October
1, 2001 through March 31, 2002) was announced by the BPA in June 2001 and will
be approximately 46% higher than power costs under the existing contract. The
Company cannot predict what rates will be charged in future periods. Such rates
will be dependent on such factors as the availability of and demand for
electrical power, which are largely dependent on weather, the price for
alternative fuels, particularly natural gas, as well as general and regional
economic and ecological factors. The Company has made proposals to the BPA under
which the Company would continue to fully curtail its Northwest smelters through
March 2002 or longer in return for compensation commensurate with the Company's
costs and lost profit opportunities. Although discussions in this regard
continue, such proposals have, to date, been rejected by the BPA. In addition,
in public statements, the BPA has from time to time publicly asserted that the
Company may be in violation of certain aspects of the October 2001 contract
(governing the use of proceeds from power sales) and that the BPA may decrement
the Company's power supply. The Company believes that such claims are without
merit. While uncertainties are inherent in matters such as this, the Company
believes that, absent a negotiated settlement, the BPA is obligated to, and will,
deliver the contractual amount of power stipulated in the Company's contract.

Absent an acceptable negotiated payment from the BPA, the Company retains the
ability to restart up to 40% (4.75 potlines) of its Northwest smelting capacity
on or after October 1, 2001. Were the Company to restart all or a portion of
such capacity, it would take between three to six months to reach the full
operating rate for such operations, depending upon the number of lines
restarted. Even after achieving the full operating rate, operating only a
portion of the Northwest capacity would result in production/cost inefficiencies
such that operating results would, at best be breakeven to modestly negative at
recent market conditions. However, operating at such a reduced rate could,
depending on prevailing economics, result in improved cash flows as opposed to
remaining curtailed and incurring the Company's fixed and continuing labor and
other costs. This is because the Company is contractually liable for certain
severance, supplemental unemployment benefits and early retirement benefits for
laid-off workers under the Company's contract with the United Steelworkers of
America ("USWA") during periods of curtailment. As of June 30, 2001, all such
contractual compensation costs have been accrued for all USWA workers in excess
of those expected to be required to run the Northwest smelters at the above
stated 40% smelter operating rate. These costs are expected to be incurred
periodically through September 2002. Costs associated with the USWA workers that
the Company estimates would be required to operate at the 40% smelter operating
rate have been accrued through September 2001 (the period through which the
Company has sold power). If the Company does not restart and begin operating at
the 40% smelter operating rate beginning October 2001, it could become liable
for additional supplemental unemployment benefits for these workers.
Additionally, if such workers are not recalled prior to early 2003, the Company
could become liable for additional early retirement costs. Such costs could be
significant and would adversely impact the Company's operating results and
liquidity.

5.   DEBT

Current Maturities and Liquidity. The Company has a Credit Agreement, which
provides a secured, revolving line of credit. In July 2001, the expiration date
of the Credit Agreement was extended from August 15, 2001 to November 2, 2001.
The Company sought the extension in order to gain additional flexibility in
advance of the February 2002 maturity date of its 97/8% Senior Notes as more
fully discussed below. In connection with the above-mentioned extension of the
Credit Agreement, the Company agreed to hold half of the proceeds to be received
from the sale of an 8.3% interest in QAL in a separate bank account until the
earlier of (1) lender approval, (2) November 2, 2001, or (3) renewal or further
extension of the Credit Agreement.

The Company is able to utilize the Credit Agreement by means of revolving credit
advances or letters of credit (up to $125.0) in an aggregate amount equal to the
lesser of $300.0 or a borrowing base relating to eligible accounts receivable
and eligible inventory. At June 30, 2001, $190.9 (of which $80.6 could have been
used for letters of credit) was available to the Company under the Credit
Agreement and no amounts were outstanding under the revolving credit facility.
Interest on any outstanding amounts bear a spread (which varies based on the
results of a financial test) over either a base rate or LIBOR, at the Company's
option. The Company typically chooses base rate based borrowings for shorter
term Credit Agreement uses and LIBOR based loans for more extended Credit
Agreement uses. The average interest rate on loans outstanding under the Credit
Agreement during the first six months of 2001 was approximately 10.0% per annum.
As of July 31, 2001, there were no revolving credit borrowings outstanding under
the Credit Agreement. At July 31, 2001, outstanding letters of credit were
approximately $32.2.

The Company intends to extend, replace or renew the Credit Agreement prior to
its expiration. However, in order for the Credit Agreement to be extended, on a
short-term basis, beyond November 2001, the Company will have to have a
demonstrable way to mitigate the maturity of the $225.0 of 97/8% Senior Notes.
For the Credit Agreement to be extended past February 2003, both the 97/8%
Senior Notes and the $400.0 of 12 3/4% Senior Subordinated Notes will have to be
retired and/or refinanced. It is possible that the Company may use a portion of
the availability under the Credit Agreement (or any extension, replacement or
renewal thereof) to augment other cash resources in the mitigation of the 97/8%
Senior Notes. As of June 30, 2001, the Company had approval from the Credit
Agreement lenders to purchase up to $50.0 of the 97/8% Senior Notes. As of June
30, 2001, the Company has purchased approximately $.8 of 97/8% Senior Notes.

As previously announced, the Company is working with financial advisors to
review its options for addressing its near- term debt maturities and its overall
capital structure. While the Company continues to consider potential asset
transactions (beyond the recently announced agreement to sell an 8.3% interest
in QAL - see Note 9), the Company intends to pursue only those transactions that
would create long-term value through strategic positioning and/or the generation
of acceptable levels of earnings or cash. The Company cannot predict if any
such transactions will materialize. While the Company believes it will be
successful in addressing its near-term debt maturities and overall capital
structure, as the Company's operating and non-recurring cash flows are subject
to inherent uncertainties, no assurances in this regard can be given.

Alpart CARIFA Loans. During the first quarter of 2001, Alumina Partners of
Jamaica ("Alpart"; of which the Company owns 65%) redeemed $34.0 principal
amount of the Caribbean Basin Projects Financing Authority loans. The Company
and its partner in Alpart both funded their respective share of the redemption.
The redemption had a modest beneficial effect on the unused availability
remaining under the Credit Agreement as the additional Credit Agreement
borrowings of $22.1 required for the Company's share of the redemption were more
than offset by a reduction in the amount of letters of credit outstanding that
supported the loan.

6.   CUMULATIVE PREFERENCE STOCK

In connection with the settlement of the labor dispute with the USWA, during
March 2001, the Company redeemed all of its outstanding Cumulative (1985 Series
A) Preference Stock and Cumulative (1985 Series B) Preference Stock ($17.5 at
December 31, 2000). The net cash impact of the redemption on the Company was
only approximately $5.5 because approximately $12.0 of the redemption amount had
previously been funded into redemption funds.

7.   CONTINGENCIES

Environmental Contingencies. The Company is subject to a number of environmental
laws, to fines or penalties assessed for alleged breaches of such environmental
laws, and to claims and litigation based upon such laws. 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. During the
second quarter of 2001, the Company's ongoing assessment process resulted in the
Company recording an $8.0 charge to increase its environmental accrual.
Additionally, the Company's environmental accruals were increased during the
second quarter of 2001 by approximately $6.0 in connection with the purchase of
certain property. At June 30, 2001, the balance of the Company's accruals for
these and other matters, which are primarily included in Long-term liabilities,
totaled $58.4. These environmental accruals represent the Company's estimate of
costs reasonably expected to be incurred based on presently enacted laws and
regulations, currently available facts, existing technology, and the Company's
assessment of the likely remediation actions to be taken. The Company expects
that these remediation actions will be taken over the next several years and
estimates that annual expenditures to be charged to these environmental accruals
will be approximately $4.0 to $13.0 for the years 2001 through 2005 and an
aggregate of approximately $24.0 thereafter.

As additional facts are developed and definitive remediation plans and necessary
regulatory approvals for implementation of remediation are established or
alternative technologies are developed, changes in these and other factors may
result in actual costs exceeding the current environmental accruals. The Company
believes that it is reasonably possible that costs associated with these
environmental matters may exceed current accruals by amounts that could range,
in the aggregate, up to an estimated $20.0. As the resolution of these matters
is subject to further regulatory review and approval, no specific assurance can
be given as to when the factors upon which a substantial portion of this
estimate is based can be expected to be resolved. However, the Company is
currently working to resolve certain of these matters.

The Company believes that it has insurance coverage available to recover certain
incurred and future environmental costs and is actively pursuing claims in this
regard. No assurances can be given that the Company will be successful in its
attempts to recover incurred or future costs from insurers or that the amount of
recoveries received will ultimately be adequate to cover costs incurred.

While uncertainties are inherent in the final outcome of these environmental
matters, and it is presently impossible to determine the actual costs that
ultimately may be incurred, management currently believes that the resolution of
such uncertainties should not have a material adverse effect on the Company's
consolidated financial position, results of operations, or liquidity.

Asbestos Contingencies. The Company is a defendant in a number of lawsuits, some
of which involve claims of multiple persons, in which the plaintiffs allege that
certain of their injuries were caused by, among other things, exposure to
asbestos during, and as a result of, their employment or association with the
Company or exposure to products containing asbestos produced or sold by the
Company. The lawsuits generally relate to products the Company has not sold for
more than 20 years.

The following table presents the changes in the number of such claims pending
for the six months ended June 30, 2001 and the year ended December 31, 2000.


                                                                               Six Months         Year Ended
                                                                                  Ended          December 31,
                                                                              June 30, 2001          2000
                                                                            ----------------------------------
Number of claims at beginning of period                                              110,800           100,000
Claims received                                                                       17,000            30,600
Claims settled or dismissed                                                          (19,800)          (19,800)
                                                                            ----------------     -------------
Number of claims at end of period                                                    108,000           110,800
                                                                            ================     =============
Numberof claims at end of period (included above) covered by
      agreements under which the Company expects to settle over an
      extended period                                                                 66,200            66,900
                                                                            ================     =============

The Company maintains a liability for estimated asbestos-related costs for
claims filed to date and an estimate of claims to be filed over a 10 year period
(i.e., through the comparable period in 2011). The Company's estimate is based
on the Company's view, at each balance sheet date, of the current and an
anticipated number of asbestos-related claims, the timing and amounts of
asbestos-related payments, the status of ongoing litigation and settlement
initiatives, and the advice of Wharton Levin Ehrmantraut Klein & Nash, P.A.,
with respect to the current state of the law related to asbestos claims.
However, there are inherent uncertainties involved in estimating
asbestos-related costs and the Company's actual costs could exceed the Company's
estimates due to changes in facts and circumstances after the date of each
estimate. Further, while the Company does not presently believe there is a
reasonable basis for estimating asbestos-related costs beyond 2011 and,
accordingly, no accrual has been recorded for any costs which may be incurred
beyond 2011, the Company expects that such costs are likely to continue beyond
2011, and that such costs could be substantial.

The Company believes that it has insurance coverage available to recover a
substantial portion of its asbestos-related costs. Although the Company has
settled asbestos-related coverage matters with certain of its insurance
carriers, other carriers have not yet agreed to settlements and disputes with
certain carriers exist. The timing and amount of future recoveries from these
and other insurance carriers will depend on the pace of claims review and
processing by such carriers and on the resolution of any disputes regarding
coverage under such policies. The Company believes that substantial recoveries
from the insurance carriers are probable. The Company reached this conclusion
after considering its prior insurance-related recoveries in respect of
asbestos-related claims, existing insurance policies, and the advice of Heller
Ehrman White & McAuliffe LLP with respect to applicable insurance coverage
law relating to the terms and conditions of those policies. During 2000, the
Company filed suit against a group of its insurers, after negotiations with
certain of the insurers regarding an agreement covering both reimbursement
amounts and the timing of reimbursement payments were unsuccessful. The
litigation is intended, among other things, to: (1) ensure that the insurers
provide the Company with timely and appropriate reimbursements for
asbestos-related settlements and related legal costs incurred; and (2) to
resolve certain issues between the parties with respect to how specific
provisions of the applicable insurance policies are to be applied. Given the
significance of expected asbestos-related payments in 2001 and 2002 based on
settlement agreements in place at June 30, 2001, the receipt of timely and
appropriate reimbursements from such insurers is critical to the Company's
liquidity. The court is expected to try certain aspects of the case in late 2001
and the remaining issues in 2002. The Company is continuing to receive cash
reimbursements from the insurers.

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


                                                                                   June 30,           December
                                                                                     2001             31, 2000
                                                                                --------------    ----------------

Liability (current portion of $130.0 in both periods)                           $        650.4    $          492.4
Receivable (included in Other assets)(1)                                                 504.7               406.3
                                                                                --------------    ----------------
                                                                                $        145.7    $           86.1
                                                                                ==============    ================


(1)   The asbestos-related receivable was determined on the same basis as the
      asbestos-related cost accrual. As of June 30, 2001 and December 31, 2000,
      $16.3 and $36.9, respectively, of the receivable amounts relate to costs
      paid. The remaining receivable amounts relate to costs that are expected
      to be paid by the Company in the future. No assurances can be given that
      the Company will be able to project similar recovery percentages for
      additional asbestos-related liabilities recognized in future periods or
      that the amounts related to incremental asbestos-related liabilities will
      not ultimately exceed the Company's aggregate insurance coverage.


                                                                                   Six Months          Inception
                                                                                      Ended             To Date
                                                                                  June 30, 2001
                                                                                ----------------   ---------------

Payments made, including related legal costs.................................   $           59.2   $         280.4
Insurance recoveries.........................................................               65.0             196.3
                                                                                ----------------   ---------------
                                                                                $           (5.8)  $          84.1
                                                                                ================   ===============


                                                                                   As of June 30, 2001
                                                                ------------------------------------------------------
                                                                   2001 and              2003 to
                                                                     2002                 2005              Thereafter
                                                                ---------------       -------------         ----------
Expected annual payment amounts, before
   considering insurance recoveries...........................  $125.0 - $150.0       $40.0 - $60.0           $290.0

Management continues to monitor claims activity, the status of lawsuits
(including settlement initiatives), legislative developments, and costs incurred
in order to ascertain whether an adjustment to the existing accruals should be
made to the extent that historical experience may differ significantly from the
Company's underlying assumptions. This process resulted in the Company recording
charges of $45.8 and $53.3 (included in Other income (expense) - see Note 10) in
the quarter and six-month periods ended June 30, 2001, respectively, for
asbestos-related claims, net of expected insurance recoveries, based on recent
cost and other trends experienced by the Company and other companies. While
uncertainties are inherent in the final outcome of these asbestos matters and it
is presently impossible to determine the actual costs that ultimately may be
incurred and insurance recoveries that will be received, management currently
believes that, based on the factors discussed in the preceding paragraphs, the
resolution of asbestos-related uncertainties and the incurrence of
asbestos-related costs net of related insurance recoveries should not have a
material adverse effect on the Company's consolidated financial position or
liquidity. However, as the Company's estimates are periodically re-evaluated,
additional charges may be necessary and such charges could be material to the
results of the period in which they are recorded.

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

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

See Note 13 of Notes to Consolidated Financial Statements in the Company's Form
10-K for the year ended December 31, 2000.

8.   DERIVATIVE FINANCIAL INSTRUMENTS AND RELATED HEDGING PROGRAMS

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

As the Company's hedging activities are generally designed to lock-in a
specified price or range of prices, realized gains or losses on the derivative
contracts utilized in these hedging activities (except the impact of those
contracts discussed below which have been marked-to-market) will generally
offset at least a portion of any losses or gains, respectively, on the
transactions being hedged. See Note 1 for a discussion of the effects of the new
accounting requirements under SFAS No. 133, which is being used for reporting
results beginning with the first quarter of 2001. The following table summarizes
the Company's derivative hedging positions at June 30, 2001:


                                                                                  Estimated %
                                                                Notional           of Annual           Carrying/
                                                                Amount of       Sales/Purchases         Market
                Commodity                       Period          Contracts           Hedged               Value
- -------------------------------------      ---------------     -------------    ---------------    ---------------
Aluminum (in tons*) -
   Option contracts                          7/01 to 12/01           181,000        90%(1)         $           8.0
   Option contracts                              2002                319,000        61%(1)                    21.0
   Option contracts                              2003                 90,000        16%(1)                     6.6

Natural gas (in MMBtus per day) -
   Option contracts and swaps                7/01 to 8/01             33,500        93%(2)                     (.9)
   Option contracts and swaps                11/01 to 3/02            10,000         25%                       (.2)

Australian dollars (average A$ per
   month) -
   Forwards and option contracts             7/01 to 12/01           A$ 17.4        75%(1)                    (2.3)
   Option contracts                          2002 to 2005           A$   7.5        56%(1)                     5.5

(1)   Had the expected sale of the 8.3% interest in QAL (see Note 9) been
      effective as of June 30, 2001: (a) the estimated percentages of annual
      sales of aluminum hedged for the remainder of 2001 and for 2002 and 2003,
      would have been 93%, 66% and 17%, respectively; and (b) the estimated
      percentages of annual purchases of Australian dollars hedged for the
      remainder of 2001 and for the period 2002 to 2005 would have been 96%
      and 77%, respectively.


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


(2)   During July 2001, the Company added natural gas hedging positions for
      approximately 90% of its requirements for September 2001 and October 2001.
      In addition, the Company also added fuel oil hedges for approximately 65%
      of its requirements for the period August 2001 through December 2001.

During the first quarter of 2001, market value changes in derivative hedging
positions included in the above table resulted in benefits to earnings (included
in Other income (expense)) of $6.8 (see Note 10). Based on new accounting
literature released in April 2001, starting in the second quarter of 2001, the
income statement impact of mark-to-market changes was essentially eliminated as
unrealized gains or losses resulting from changes in the value of these hedges
are now recorded in other comprehensive income.

During late 1999 and early 2000, the Company also entered into a series of
transactions with a counterparty that provided the Company with a premium over
the forward market prices at the date of these transactions for 2,000 tons of
primary aluminum per month during the period January 2000 through June 2001. The
Company also contracted with the counterparty to receive certain fixed prices
(also above the forward market prices at the date of these transactions) on
4,000 tons of primary aluminum per month over a three year period commencing
October 2001, unless market prices during certain periods decline below a
stipulated "floor" price, in which case the fixed price sales portion of the
transactions terminate. The price at which the October 2001 and after
transactions terminate is well below current market prices. These transactions
do not qualify for treatment as a "hedge" under previous or current accounting
guidelines. Accordingly, the mark-to-market impacts of these transactions due to
fluctuations in primary aluminum prices are recorded in other income (expense)
in the Company's statements of consolidated income. For the quarter and
six-month periods ended June 30, 2001, the Company recorded pre-tax
mark-to-market gains of $3.1 and $11.6, respectively, in Other income (expense)
associated with these transactions (see Note 10). For the quarter and six-month
periods ended June 30, 2000, the Company recorded pre-tax mark-to-market gains
(losses) of $(6.0) and $8.4, respectively, in Other income (expense) associated
with these transactions (see Note 10).

As of June 30, 2001, the Company had sold forward virtually all of the alumina
available to it in excess of its projected internal smelting requirements for
the balance of 2001 and for 2002 and 2003 at prices indexed to future prices of
primary aluminum.

9.   EXPECTED THIRD QUARTER 2001 SALE OF 8.3% INTEREST IN QAL

In June 2001, the Company entered into an agreement to sell an approximate 8.3%
interest in QAL. The total value of the transaction is approximately $189.0,
consisting of a cash payment of approximately $159.0 plus the purchaser's
assumption of approximately $30.0 of off-balance sheet QAL indebtedness
currently guaranteed by the Company. The Company expects the transaction to
close in the third quarter of 2001 and to result in a favorable, one-time,
after- tax net income impact of at least $75.0. Following the completion of the
transaction, the Company will own a 20% interest in QAL.

QAL, which is located in Queensland, Australia, owns one of the largest and most
competitive alumina refineries in the world. The Company's share (28.3%) of
QAL's production for the first six months of 2001 and for the year 2000 was
approximately 494,000 tons and 1,064,000 tons, respectively. Had the sale of the
QAL interest been effective as of the beginning of 2000, the Company's share of
QAL's production for the first six months of 2001 and for the year 2000 would
have been reduced by approximately 145,000 tons and 312,000 tons, respectively.
Historically, the Company has sold about half of its share of QAL's production
to third parties and has used the remainder to supply its Northwest smelters,
which are temporarily curtailed (see Note 4). The reduction in the Company's
alumina supply associated with this transaction is expected to be substantially
offset by the expected return of its Gramercy alumina refinery to full
operations by the end of 2001 or early 2002 at a higher capacity and, as
recently announced, by planned increases in capacity at its Alpart alumina
refinery in Jamaica. The QAL transaction is not expected to have an adverse
impact on the Company's ability to satisfy existing third-party alumina customer
contracts.

10.  OTHER NON-RECURRING ITEMS

Non-Recurring Operating Items. The income (loss) impact associated with
non-recurring operating items for the quarter and six-month periods ended June
30, 2001 and 2000, was as follows:

                                                                       Quarter Ended          Six Months Ended
                                                                         June 30,                 June 30,
                                                                  -----------------------   ---------------------
                                                                        2001         2000        2001        2000
                                                                  -----------------------   ---------------------
Net gains (losses) on power sales (Primary Aluminum segment)
     (Note 4)                                                     $    (5.5)  $     15.8    $  222.7    $   15.8
Restructuring initiatives -
     Corporate segment                                                  (.5)        (1.5)        (.5)       (3.5)
     Bauxite & Alumina segment                                     (2.0)          -         (2.0)          -
Impairment charge associated with product line exit
     (Engineered Products segment)                                        -          (.7)          -         (.7)
                                                                  ----------  -----------   ---------   ---------
                                                                  $    (8.0)  $     13.6    $  220.2    $   11.6
                                                                  ==========  ===========   =========   =========

The restructuring charges recorded by the Company's Corporate and Bauxite and
alumina segments in 2001 represent third party costs incurred in connection with
its performance improvement initiative (as discussed below).

The prior year restructuring charges were part of the Primary aluminum and
Corporate segments' ongoing efficiency initiatives. During 2000, these
initiatives resulted in restructuring charges totaling $8.6 for employee benefit
and other costs for approximately 50 job eliminations at the Company's Tacoma
facility and approximately 50 employee eliminations due to the consolidation or
elimination of certain corporate staff functions. As of June 30, 2001, the total
remaining liability associated with these restructuring efforts was $.4 as the
vast majority of the previously accrued job eliminations have occurred. It is
anticipated that all such remaining costs will be incurred during 2001.

The $.7 impairment charge recorded by the Company's Engineered products segment
in the second quarter of 2000 represents a severance-related charge resulting
from a product line exit.

In May 2001, the Company announced that it had launched a performance
improvement initiative (the "program") designed to increase operating cash flow,
generate cash from inventory reduction and improve the Company's financial
flexibility. The Company has not yet determined the size or timing of any cash
or non-cash charges that may be required in connection with the program. Such
charges could be material. Additionally, as the Company's fabricated products
business units address their cost structures in light of recent product
transitions and reduced demand, additional charges could be required and such
amounts could also be material.

Other Income (Expense). Amounts included in other income (expense), other than
interest expense, for the quarter and six-month periods ended June 30, 2001 and
2000, included the following pre-tax gains (losses):


                                                                  Quarter Ended              Six Months Ended
                                                                    June 30,                     June 30,
                                                           ---------------------------  ---------------------------
                                                                    2001          2000          2001           2000
                                                           -------------  ------------  ------------   ------------
Mark-to-market gains (losses) (Note 8)                     $        3.1   $      (6.0)  $      18.4    $       8.4
Asbestos-related charges (Note 7)                                 (45.8)           -          (53.3)            -
Adjustment to environmental liabilities                            (8.0)           -           (8.0)            -
MetalSpectrum investment write-off                                 (2.8)           -           (2.8)            -
All other, net                                                      1.8           (.5)          1.3           (4.8)
                                                           -------------  ------------  ------------   ------------
                                                           $      (51.7)  $      (6.5)  $     (44.4)   $       3.6
                                                           =============  ============  ============   ============

The adjustment to environmental liabilities of $8.0 resulted from the Company's
ongoing assessment of the estimated costs reasonably expected to be incurred to
remediate non-operating properties based on current facts and circumstances. See
Note 7 for additional information regarding environmental contingencies.

In June 2001, the Company wrote-off its investment of $2.8 in MetalSpectrum LLC,
a start-up, e-commerce entity in which the Company was a partner. During the
second quarter of 2001, MetalSpectrum ceased operations and was dissolved.

11.  INTERIM OPERATING SEGMENT INFORMATION

The Company uses a portion of its bauxite, alumina and primary aluminum
production for additional processing at its downstream facilities. Transfers
between business units are made at estimated market prices. The accounting
policies of the segments are the same as those described in Note 1 of Notes to
Consolidated Financial Statements in the Company's Form 10-K for the year ended
December 31, 2000. Business unit results are evaluated internally by management
before any allocation of corporate overhead and without any charge for income
taxes or interest expense. See Note 15 of Notes to Consolidated Financial
Statements in the Company's Form 10-K for the year ended December 31, 2000.

Financial information by operating segment for the quarter and six-month periods
ended June 30, 2001 and 2000 is as follows:


                                                                     Quarter Ended          Six Months Ended
                                                                       June 30,                 June 30,
                                                                -----------------------  -----------------------
                                                                       2001        2000         2001        2000
                                                                ------------------------------------------------
Net Sales:
     Bauxite and Alumina: (1)
       Net sales to unaffiliated customers                      $    132.7   $   122.2   $    270.3   $   229.8
       Intersegment sales                                              9.9        29.5         45.9        86.3
                                                                ----------   ----------  ----------   ----------
                                                                     142.6       151.7        316.2       316.1
                                                                ----------   ----------  ----------   ----------
     Primary Aluminum:(2)
       Net sales to unaffiliated customers                            96.1       135.3        199.1       273.3
       Intersegment sales                                               .8        57.5          3.3       139.6
                                                                ----------   ----------  ----------   ----------
                                                                      96.9       192.8        202.4       412.9
                                                                ----------   ----------  ----------   ----------
     Flat-Rolled Products                                             76.9       125.4        172.8       283.3
     Engineered Products                                             115.9       148.7        236.5       312.4
     Commodities Marketing                                            (1.0)       (4.1)        (3.6)      (20.2)
     Minority Interests                                               26.2        25.3         52.0        49.9
     Eliminations                                                    (10.7)      (87.0)       (49.2)     (225.9)
                                                                ----------   ----------  ----------   ----------
                                                                $    446.8   $   552.8   $    927.1   $ 1,128.5
                                                                ==========   ==========  ==========   ==========
Operating income (loss):
     Bauxite and Alumina (3)                                    $     (6.0)  $    16.2   $    (12.8)  $    43.7
     Primary Aluminum                                                  3.9        22.7          8.4        64.7
     Flat-Rolled Products                                              3.1         7.2          6.3        10.3
     Engineered Products                                               2.4        12.6          5.1        25.9
     Commodities Marketing                                            (7.0)       (6.8)        (9.0)      (34.4)
     Eliminations                                                      1.7         1.2          5.5        (2.9)
     Corporate and Other                                             (17.7)      (15.2)       (35.8)      (30.3)
     Other Non-Recurring Operating Items (Note 10)                    (8.0)       13.6        220.2        11.6
                                                                ----------   ----------  ----------   ----------
                                                                $    (27.6)  $    51.5   $    187.9   $    88.6
                                                                ==========   ==========  ==========   ==========
Depreciation and amortization:
     Bauxite and Alumina (3)                                    $      9.1   $     6.0   $     17.6   $    12.0
     Primary Aluminum                                                  5.7         6.2         11.0        12.4
     Flat-Rolled Products                                              3.9         4.1          8.0         8.2
     Engineered Products                                               3.2         3.5          6.3         6.3
     Corporate and Other                                                .3          .5           .6         1.0
                                                                ----------   ----------  ----------   ----------
                                                                $     22.2   $    20.3   $     43.5   $    39.9
                                                                ==========   ==========  ==========   ==========


(1)  Net sales for the quarter and six-month periods ended June 30, 2001,
     included approximately 26,400 tons and 66,100 tons, respectively, of
     alumina purchased from third parties. Net sales for the quarter and
     six-month periods ended June 30, 2000, included approximately 83,000 tons
     and 199,000 tons, respectively, of alumina purchased from third parties.
(2)  Beginning in the first quarter of 2001, as a result of the continuing
     curtailment of the Company's Northwest smelters, the Flat-rolled products
     business unit began purchasing its own primary aluminum rather than relying
     on the Primary aluminum business unit to supply its aluminum requirements
     through production or third party purchases. The Engineered products
     business unit was already responsible for purchasing the majority of its
     primary aluminum requirements. During the quarter and six-month periods
     ended June 30, 2001, the Primary aluminum business unit purchased
     approximately 6,600 tons and 23,800 tons, respectively, of primary aluminum
     from third parties to meet existing third party commitments.
(3)  During the quarter and six-month periods ended June 30, 2001, approximately
     $22.0 and $41.0, respectively, of abnormal Gramercy start-up costs were
     incurred. Operating income (loss) for both the quarter and six-month
     periods ended June 30, 2001, also included additional accrued business
     interruption recoveries related to the Gramercy facility of $15.2 based on
     a recent agreement with the Company's insurers. Depreciation was suspended
     for the Gramercy facility during the first six months of 2000 as a result
     of the July 1999 incident. Depreciation expense for the Gramercy facility
     for the first six months of 1999 was $6.0. See Note 2 for additional
     information.

12.    SUPPLEMENTAL GUARANTOR INFORMATION

Certain domestic, wholly-owned (direct or indirect) subsidiaries of the Company
(hereinafter collectively referred to as the Subsidiary Guarantors) have
provided, joint and several, guarantees of the 97/8% Senior Notes, the 107/8%
Senior Notes, due 2006 and the 12 3/4% Senior Subordinated Notes (the "Notes").
Such guarantees are full and unconditional. See Note 16 of Notes to Consolidated
Financial Statements in the Company's Form 10-K for the year ended December 31,
2000 for a more complete discussion regarding the Subsidiary Guarantors and
their operations.

The accompanying financial information presents consolidating balance sheets,
statements of income and statements of cash flows showing separately the
Company, Subsidiary Guarantors, other subsidiaries and eliminating entries. All
of the accompanying financial information only includes the balances and results
of Kaiser Transaction Corp. through December 29, 2000, the date of its
liquidation. Certain reclassifications have been made to the December 31, 2000
consolidating balance sheets to conform to the current presentation.

                     CONDENSED CONSOLIDATING BALANCE SHEETS
                                  JUNE 30, 2001


                                                         SUBSIDIARY          OTHER      ELIMINATING
                                            COMPANY      GUARANTORS      SUBSIDIARIES     ENTRIES     CONSOLIDATED
                                        -------------  --------------   -------------  ------------  -------------
ASSETS
Current assets                          $       613.7  $         88.8   $       207.5  $        -    $       910.0
Investments in subsidiaries                   2,620.9           152.1             -        (2,773.0)           -
Intercompany advances receivable
     (payable)                               (2,348.8)          718.7         1,630.1           -              -
Investments in and advances to
     unconsolidated affiliates                   20.2            30.0            24.0           -             74.2
Property and equipment, net                     811.8            24.1           383.2           -          1,219.1
Deferred income taxes                           449.9           (12.1)            6.6           -            444.4
Other assets                                    678.0            -               21.5           -            699.5
                                        -------------  --------------   -------------  ------------  -------------
                                        $     2,845.7  $      1,001.6   $     2,272.9  $   (2,773.0) $     3,347.2
                                        =============  ==============   =============  ============  =============


LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities                     $       587.3  $        188.0   $       107.5  $        -    $       882.8
Other long-term liabilities                   1,447.1            30.5            40.2           -          1,517.8
Long-term debt                                  676.7            -               22.1           -            698.8
Minority interests                                -              -               18.8          94.4          113.2
Stockholders' equity                            134.6           783.1         2,084.3      (2,867.4)         134.6
                                        -------------  --------------   -------------  ------------  -------------
                                        $     2,845.7  $      1,001.6   $     2,272.9  $   (2,773.0) $     3,347.2
                                        =============  ==============   =============  ============  =============



                     CONDENSED CONSOLIDATING BALANCE SHEETS
                                DECEMBER 31, 2000


                                                             SUBSIDIARY         OTHER         ELIMINATING
                                               COMPANY       GUARANTORS     SUBSIDIARIES        ENTRIES     CONSOLIDATED
                                          ---------------  --------------  --------------   -------------  -------------
ASSETS
Current assets                            $         677.8  $         69.3  $        271.2   $         -    $     1,018.3
Investments in subsidiaries                       2,583.8           153.1            -           (2,736.9)           -
Intercompany advances receivable
     (payable)                                   (2,338.3)          705.7         1,632.6             -              -
Investments in and advances to
     unconsolidated affiliates                       21.8            32.1            23.9             -             77.8
Property and equipment, net                         767.4            24.5           384.2             -          1,176.1
Deferred income taxes                               449.7             (.6)            3.2             -            452.3
Other assets                                        600.2            -               22.7             -            622.9
                                          ---------------  --------------  --------------   -------------  -------------
                                          $       2,762.4  $        984.1  $      2,337.8   $    (2,736.9) $     3,347.4
                                          ===============  ==============  ==============   =============  =============

LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities                       $         492.3  $        199.4  $        149.7   $         -    $       841.4
Other long-term liabilities                       1,281.4            36.6            42.8             -          1,360.8
Long-term debt                                      901.7           -                56.1             -            957.8
Minority interests                                   -               -               18.0            82.4          100.4
Stockholders' equity                                 87.0           748.1         2,071.2        (2,819.3)          87.0
                                          ---------------  --------------  --------------   -------------  -------------
                                          $       2,762.4  $        984.1  $      2,337.8   $    (2,736.9) $     3,347.4
                                          ===============  ==============  ==============   =============  =============

               CONDENSED CONSOLIDATING STATEMENTS OF INCOME (LOSS)
                       FOR THE QUARTER ENDED JUNE 30, 2001


                                                             SUBSIDIARY         OTHER         ELIMINATING
                                               COMPANY       GUARANTORS     SUBSIDIARIES        ENTRIES     CONSOLIDATED
                                          ---------------  --------------  --------------   -------------  -------------
Net sales                                 $         331.4  $        153.7  $        297.3   $      (335.6) $       446.8
Costs and expenses:
     Operating costs and expenses                   379.6           140.2           282.2          (335.6)         466.4
     Other non-recurring operating items              8.0            -               -                -              8.0
                                          ---------------  --------------  --------------   -------------  -------------
Operating income (loss)                             (56.2)           13.5            15.1             -            (27.6)
Interest expense                                    (26.8)            (.3)           -                -            (27.1)
Other income (expense), net                         (54.5)            3.1             (.3)            -            (51.7)
Benefit (provision) for income taxes                 53.6            (6.3)           (5.8)            -             41.5
Minority interests                                   -                1.3             (.5)            -               .8
Equity in income of subsidiaries                     19.8            -               -              (19.8)           -
                                          ---------------  --------------  --------------   -------------  -------------
Net income (loss)                         $         (64.1) $         11.3  $          8.5   $       (19.8) $       (64.1)
                                          ===============  ==============  ==============   =============  =============


                  CONDENSED CONSOLIDATING STATEMENTS OF INCOME
                       FOR THE QUARTER ENDED JUNE 30, 2000


                                                             SUBSIDIARY         OTHER         ELIMINATING
                                               COMPANY       GUARANTORS     SUBSIDIARIES        ENTRIES     CONSOLIDATED
                                          ---------------  --------------  --------------   -------------  -------------
Net sales                                 $         397.4  $        150.3  $        327.4   $      (322.3) $       552.8
Costs and expenses:
     Operating costs and expenses                   379.2           139.8           318.2          (322.3)         514.9
     Other non-recurring operating items            (13.6)           -               -                -            (13.6)
                                          ---------------  --------------  --------------   -------------  -------------
Operating income                                     31.8            10.5             9.2             -             51.5
Interest expense                                    (27.2)            (.9)            (.1)            -            (28.2)
Other income (expense), net                         (17.6)            8.5             2.6             -             (6.5)
Benefit (provision) for income taxes                  4.8            (6.9)           (4.3)            -             (6.4)
Minority interests                                   -                1.3             (.5)            -               .8
Equity in loss of subsidiaries                       19.4            -               -              (19.4)           -
                                          ---------------  --------------  --------------   -------------  -------------
Net income                                $          11.2  $         12.5  $          6.9   $       (19.4) $        11.2
                                          ===============  ==============  ==============   =============  =============


                  CONDENSED CONSOLIDATING STATEMENTS OF INCOME
                     FOR THE SIX MONTHS ENDED JUNE 30, 2001


                                                             SUBSIDIARY         OTHER         ELIMINATING
                                               COMPANY       GUARANTORS     SUBSIDIARIES        ENTRIES     CONSOLIDATED
                                          ---------------  --------------  --------------   -------------  -------------
Net sales                                 $         721.6  $        293.5  $        564.7   $      (652.7) $       927.1
Costs and expenses:
     Operating costs and expenses                   806.6           267.5           538.0          (652.7)         959.4
     Other non-recurring operating items           (220.2)           -               -                -           (220.2)
                                          ---------------  --------------  --------------   -------------  -------------
Operating income                                    135.2            26.0            26.7             -            187.9
Interest expense                                    (53.3)           (1.7)           -                -            (55.0)
Other income (expense), net                         (68.0)           23.4              .2             -            (44.4)
Provision for income taxes                           (5.4)          (18.6)          (10.5)            -            (34.5)
Minority interests                                   -                2.6             (.8)            -              1.8
Equity in income of subsidiaries                     47.3            -               -              (47.3)           -
                                          ---------------  --------------  --------------   -------------  -------------
Net income                                $          55.8  $         31.7  $         15.6   $       (47.3) $        55.8
                                          ===============  ==============  ==============   =============  =============

                  CONDENSED CONSOLIDATING STATEMENTS OF INCOME
                     FOR THE SIX MONTHS ENDED JUNE 30, 2000


                                                             SUBSIDIARY         OTHER         ELIMINATING
                                               COMPANY       GUARANTORS     SUBSIDIARIES        ENTRIES     CONSOLIDATED
                                          ---------------  --------------  --------------   -------------  -------------
Net sales                                 $         908.1  $        298.2  $        740.4   $      (818.2) $     1,128.5
Costs and expenses:
     Operating costs and expenses                   896.7           269.9           703.1          (818.2)       1,051.5
     Other non-recurring operating items            (11.6)           -               -                -            (11.6)
                                          ---------------  --------------  --------------   -------------  -------------
Operating income                                     23.0            28.3            37.3             -             88.6
Interest expense                                    (54.7)           (1.8)            (.1)            -            (56.6)
Other income (expense), net                         (24.7)           24.8             3.5             -              3.6
Benefit (provision) for income taxes                 21.7           (19.8)          (15.6)            -            (13.7)
Minority interests                                   -                2.6            (1.3)            -              1.3
Equity in loss of subsidiaries                       57.9            -               -              (57.9)           -
                                          ---------------  --------------  --------------   -------------  -------------
Net income                                $          23.2  $         34.1  $         23.8   $       (57.9) $        23.2
                                          ===============  ==============  ==============   =============  =============


                CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
                     FOR THE SIX MONTHS ENDED JUNE 30, 2001


                                                             SUBSIDIARY         OTHER         ELIMINATING
                                               COMPANY       GUARANTORS     SUBSIDIARIES        ENTRIES     CONSOLIDATED
                                          ---------------  --------------  --------------   -------------  -------------
Net cash provided (used) by:
     Operating activities                 $         169.4  $         33.9  $          3.9   $         -    $       207.2
     Investing activities                           (95.8)            (.4)           (9.7)            -           (105.9)
     Financing activities                           (37.0)          (22.1)           -                -            (59.1)
Intercompany activity                                 3.8           (11.4)            7.6             -              -
                                          ---------------  --------------  --------------   -------------  -------------
Net increase in cash and cash
     equivalents during the period                   40.4            -                1.8             -             42.2
Cash and cash equivalents at
     beginning of period                             22.4            -                1.0             -             23.4
                                          ---------------  --------------  --------------   -------------  -------------
Cash and cash equivalents at
     end of period                        $          62.8  $         -     $          2.8   $         -    $        65.6
                                          ===============  ==============  ==============   =============  =============



                CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
                     FOR THE SIX MONTHS ENDED JUNE 30, 2000


                                                             SUBSIDIARY         OTHER         ELIMINATING
                                               COMPANY       GUARANTORS     SUBSIDIARIES        ENTRIES     CONSOLIDATED
                                          ---------------  --------------  --------------   -------------  -------------
Net cash provided (used) by:
     Operating activities                 $           1.1  $         (9.7) $          6.6   $         -    $        (2.0)
     Investing activities                           (17.8)            3.0            (6.0)            -            (20.8)
     Financing activities                            24.2            (2.6)            (.1)            -             21.5
Intercompany activity                               (10.6)            9.3             1.3             -              -
                                          ---------------  --------------  --------------   -------------  -------------
Net (decrease) increase in cash and
     cash equivalents during the period              (3.1)           -                1.8             -             (1.3)
Cash and cash equivalents at
     beginning of period                             18.4            -                2.8             -             21.2
                                          ---------------  --------------  --------------   -------------  -------------
Cash and cash equivalents at
     end of period                        $          15.3  $         -     $          4.6   $         -    $        19.9
                                          ===============  ==============  ==============   =============  =============


Notes to Condensed Consolidating Financial Information

Income Taxes - Consolidated income tax for the quarter and six-month periods
ended June 30, 2001 and 2000 has been allocated based on the income before
income taxes of the Company, Subsidiary Guarantors and other subsidiaries.

Foreign Currency - The functional currency of the Company and its subsidiaries
is the United States Dollar, and accordingly, pre-tax translation gains (losses)
are included in the Company's and Subsidiary Guarantors' operating income (loss)
and other income (expense), net balances. Such amounts for the Company totaled
$2.6 and $(3.6) for the quarters ended June 30, 2001 and 2000, respectively, and
$(12.3) and $(13.9) for the six-month periods ended June 30, 2001 and 2000,
respectively. Such amounts for the Subsidiary Guarantors totaled $(3.4) and $4.2
for the quarters ended June 30, 2001 and 2000, respectively, and $14.0 and $15.8
for the six-month periods ended June 30, 2001 and 2000, respectively.

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

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

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

This section contains statements which constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
These statements appear in a number of places in this section (see, for example,
"Recent Events and Developments," "Results of Operations," "Possible Third
Quarter 2001 Trends as Compared to Actual Second Quarter 2001 Results," and
"Liquidity and Capital Resources"). Such statements can be identified by the use
of forward-looking terminology such as "believes," "expects," "may,"
"estimates," "will," "should," "plans" or "anticipates" or the negative thereof
or other variations thereon or comparable terminology, or by discussions of
strategy. Readers are cautioned that any such forward-looking statements are not
guarantees of future performance and involve significant risks and
uncertainties, and that actual results may vary materially from those in the
forward-looking statements as a result of various factors. These factors include
the effectiveness of management's strategies and decisions, general economic and
business conditions, developments in technology, new or modified statutory or
regulatory requirements, and changing prices and market conditions. This section
and Part I, Item 1. "Business - Factors Affecting Future Performance" in the
Company's Annual Report on Form 10-K for the year ended December 31, 2000, each
identify other factors that could cause actual results to vary. No assurance can
be given that these are all of the factors that could cause actual results to
vary materially from the forward-looking statements.

RECENT EVENTS AND DEVELOPMENTS

Liquidity.
Near-Term Debt Maturities. The Company has significant near-term debt maturities
including $224.4 of 97/8% Senior Notes due February 2002 (the "97/8% Senior
Notes") and $400.0 of 12 3/4% Senior Subordinated Notes due February 2003 (the
"12 3/4% Senior Subordinated Notes"). Also, the Company's credit agreement, as
amended (the "Credit Agreement"), will expire November 2, 2001 unless it is
extended, replaced or renewed. See Note 5 of Notes to Interim Consolidated
Financial Statements for a discussion of the Company's plans with respect to
near-term debt maturities.

Cash Flow, Other than Near-Term Debt Maturities. The Company's ability to make
payments on and refinance its debt depends on its ability to generate cash in
the future. In addition to being impacted by normal operating items, the
Company's near-term liquidity and cash flows will also be affected by the
remaining proceeds to be received from power sales, the expected third quarter
2001 sale of a portion of the Company's interest in Queensland Alumina Limited
("QAL"), the restart of the Gramercy facility and net payments for
asbestos-related liabilities. See "Liquidity and Capital Resources -- Financing
Activities and Liquidity" for a discussion of these matters.

As previously announced, the Company is working with financial advisors to
review its options for addressing its near- term debt maturities and its overall
capital structure. While the Company continues to consider potential asset
transactions (beyond the recently announced agreement to sell an 8.3% interest
in QAL - see Expected Third Quarter 2001 Sale of 8.3% Interest in QAL below),
the Company intends to pursue only those transactions that would create
long-term value through strategic positioning and/or the generation of
acceptable levels of earnings or cash. The Company cannot predict if any such
transactions will materialize. While the Company believes it will be successful
in addressing its near-term debt maturities and overall capital structure, as
the Company's operating and non-recurring cash flows are subject to inherent
uncertainties, no assurances in this regard can be given.

Absent an improvement in the markets in which the Company operates or faster
than expected improvement in the operating performance of the Gramercy refinery
(as a result of its completion) and other facilities (as a result of the
Company's performance improvement initiative), the Company's cash flows during
the balance of 2001 (before considering the pending third quarter 2001 sale of a
portion of the Company's interest in QAL and near-term debt maturities) may
fully utilize the cash balance reported at June 30, 2001 in order to satisfy
interest and expected tax payments, the funding of pension, post-retirement
medical and net asbestos-related liabilities, capital spending and other
previously accrued obligations. The Company expects its cash flow in 2002 to
improve substantially over the run rate expected to be experienced during the
last six months of 2001 as a result of the Gramercy alumina refinery reaching
its full operating rate and full efficiency, operating improvements resulting
from the Company's performance improvement initiative and as certain of its
other previously accrued, non-recurring, near-term obligations are satisfied.
However, no assurances can be given in this regard.

Expected Third Quarter 2001 Sale of 8.3% Interest in QAL. In June 2001, the
Company entered into an agreement to sell an approximate 8.3% interest in QAL.
The total value of the transaction is approximately $189.0 million, consisting
of a cash payment of approximately $159.0 million plus the purchaser's
assumption of approximately $30.0 million of off-balance sheet QAL indebtedness
currently guaranteed by the Company. The Company expects the transaction to
close in the third quarter of 2001 and to result in a favorable, one-time,
after-tax net income impact of at least $75.0 million. Following the completion
of the transaction, the Company will own a 20% interest in QAL. See Note 9 of
Notes to Interim Consolidated Financial Statements for additional discussion of
the sale of a portion of the Company's interest in QAL.

Incident at Gramercy Facility. Initial production at the Company's Gramercy,
Louisiana, alumina refinery, which had been curtailed since July 1999 as a
result of an explosion in the digestion area of the plant, commenced during the
middle of December 2000. During the second quarter of 2001, the plant operated
at approximately 60% of its newly- rated estimated capacity of 1,250,000 tons.
Based on current estimates, construction at the facility is expected to be
completed during the third quarter of 2001 and the facility is expected to reach
its full operating rate and full efficiency by the end of 2001 or early 2002.

Through June 30, 2001, the Company had collected $269.5 million of estimated
insurance recoveries related to the Gramercy incident. During July 2001, the
Company and its insurers reached a global settlement agreement in respect of all
of the Company's business interruption and property damage claims under which
the Company will receive an additional $35.0 million during the third quarter of
2001 related to losses/costs incurred prior to June 30, 2001, as well as the
right to certain contingent payments. Since the minimum expected recoveries of
$304.5 million exceeded the Company's cumulative insurance accrual of $289.3
million, the Company recognized $15.2 million of additional insurance benefit
(as a reduction of Bauxite and alumina business unit's cost of products sold)
during the quarter ended June 30, 2001.

See Note 2 of Notes to Interim Consolidated Financial Statements for additional
discussion of the incident at the Gramercy facility.

Labor Matters. Although the United Steelworkers of America ("USWA") dispute has
been settled and the workers have returned to the facilities, two allegations of
unfair labor practices ("ULPs") in connection with the USWA strike and
subsequent lock-out by the Company remain to be resolved. The Company believes
that the remaining charges made against the Company by the USWA are without
merit. See Note 7 of Notes to Interim Consolidated Financial Statements for
additional discussion on the ULP charges.

Pacific Northwest Power Sales and Operating Level. During the first six months
of 2001, the Company, in a series of transactions, sold a substantial majority
of the remaining power available for its Northwest smelters that it had under
contract through September 2001. As a result of such power sales, the Northwest
smelters are expected to remain curtailed at least through that date.

The Company has the right to purchase power under a separate contract with the
Bonneville Power Administration ("BPA") that would, starting October 1, 2001,
provide sufficient power to operate the Company's Trentwood facility as well as
approximately 40% of the capacity of its Northwest aluminum smelting operations.
The rate for power for the initial period of the contract (from October 1, 2001
through March 31, 2002) was announced by the BPA in June 2001 and will be
approximately 46% higher than power costs under the existing contract. The
Company cannot predict what rates will be charged in future periods. Such rates
will be dependent on such factors as the availability of and demand for
electrical power, which are largely dependent on weather, the price for
alternative fuels, particularly natural gas, as well as general and regional
economic and ecological factors. There are other terms of the new BPA contract
which are also less favorable than the current BPA contract, including the fact
that the Company is not entitled to receive any profits from its limited
remarketing rights under the new BPA contract. The Company has a short period of
time after the Federal Energy Regulatory Commission affirms BPA's rates during
which it can exercise its right to terminate the contract.

The Company is liable for certain severance, supplemental unemployment and early
retirement benefits for the USWA workers at the curtailed smelters. A
substantial portion of such costs have been accrued as of June 30, 2001.
However, additional accruals may be required depending on when the USWA workers
are recalled and when the smelting operations are restarted.

See Note 4 of Notes to Interim Consolidated Financial Statements for additional
information on the power sales, the new BPA contract and additional detail
regarding accrued liabilities with respect to the USWA workers.

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

In May 2001, the Company announced that it had launched a performance
improvement initiative (the "program") designed to increase operating cash flow,
generate cash from inventory reduction and improve the Company's financial
flexibility. The program aims to generate a sustainable annual operating EBITDA
(operating income plus depreciation) run rate of approximately $225.0 million to
$235.0 million by the first quarter of 2003. This represents a substantial
improvement compared to the Company's adjusted first quarter 2001 annualized
operating EBITDA run rate of approximately $135.0 million.

The program aims to achieve the following five specific objectives:

   -  Significant and systemic reductions in unit production costs through the
      expanded use of lean manufacturing initiatives at Company-managed
      facilities. The Company expects to see the biggest incremental
      improvements at the 65%-owned Alumina Partners of Jamaica ("Alpart")
      alumina refinery in Jamaica and the 90%-owned Volta Aluminium Company
      Limited ("Valco") primary aluminum smelter in Ghana;

   -  Additional efficiencies at the Gramercy facility that are incremental to
      those efficiencies already included in the Company's adjusted first
      quarter 2001 annual operating cash flow run rate;

   -  Increased production at the Alpart alumina refinery through improved
      efficiency and de-bottlenecking. Alpart's production is expected to reach
      an annualized run rate of more than 1.7 million tons by the end of 2002 or
      early 2003, up from the facility's current annual rated capacity of 1.45
      million tons. As a result, the Company's share of Alpart's annual
      production would increase by more than 160,000 tons. This would
      substantially offset the impact of the pending sale of an 8.3% interest in
      QAL on alumina available to the Company for internal use or third party
      sales;

   -  A sustained reduction in annualized overhead-related expenses or related
      cash outflows at the Corporate office and in the commodities businesses
      through redesign of work and consolidation of functions primarily in the
      Corporate office; and

   -  A one-time cash benefit from reduction in inventories, primarily at the
      Company's majority-owned, non-U.S. commodity operations, and through
      disposition of non-operating properties and equipment.

The Company has not yet determined the size or timing of any cash or non-cash
charges that may be required in connection with the program. Such charges could
be material.

See Management's Discussion and Analysis of Financial Condition and Results of
Operations - Overview, Strategic Initiatives in the Company's Annual Report on
Form 10-K for the year ended December 31, 2000, for additional information
regarding strategic initiatives.

RESULTS OF OPERATIONS

As an integrated aluminum producer, the Company uses a portion of its bauxite,
alumina, and primary aluminum production for additional processing at certain of
its downstream facilities. Intersegment transfers are valued at estimated market
prices. The following table provides selected operational and financial
information on a consolidated basis with respect to the Company for the quarter
and six-month periods ended June 30, 2001 and 2000. The following data should be
read in conjunction with the Company's interim consolidated financial statements
and the notes thereto, contained elsewhere herein. See Note 15 of Notes to
Consolidated Financial Statements in the Company's Form 10-K for the year ended
December 31, 2000, for further information regarding segments.

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

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


                                                                     Quarter Ended            Six Months Ended
                                                                       June 30,                   June 30,
                                                               -------------------------  -------------------------
                                                                       2001         2000           2001        2000
                                                               -------------------------  -------------------------
Shipments: (000 tons)
     Alumina (1)
       Third Party                                                   664.9        538.9        1,328.9       976.4
       Intersegment                                                   51.9        156.7          234.8       434.3
                                                               -----------   ----------   ------------  ----------
           Total Alumina                                             716.8        695.6        1,563.7     1,410.7
                                                               -----------   ----------   ------------  ----------
     Primary Aluminum(2)
       Third Party                                                    62.8         86.1          126.7       165.5
       Intersegment                                                     .5         37.5            2.0        85.4
                                                               -----------   ----------   ------------  ----------
           Total Primary Aluminum                                     63.3        123.6          128.7       250.9
                                                               -----------   ----------   ------------  ----------
     Flat-Rolled Products                                             17.8         39.0           42.8        90.8
                                                               -----------   ----------   ------------  ----------
     Engineered Products                                              31.3         44.3           64.2        91.6
                                                               -----------   ----------   ------------  ----------
Average Realized Third Party Sales Price:
     Alumina (per ton)                                         $       190   $      208   $        192  $      213
     Primary Aluminum (per pound)                              $       .69   $      .71   $        .71  $      .75
Net Sales:
     Bauxite and Alumina (1)
       Third Party (includes net sales of bauxite)             $     132.7   $    122.2   $      270.3  $    229.8
       Intersegment                                                    9.9         29.5           45.9        86.3
                                                               -----------   ----------   ------------  ----------
           Total Bauxite & Alumina                               142.6        151.7          316.2       316.1

     Primary Aluminum(2)
       Third Party                                                    96.1        135.3          199.1       273.3
       Intersegment                                                     .8         57.5            3.3       139.6
                                                               -----------   ----------   ------------  ----------
           Total Primary Aluminum                                     96.9        192.8          202.4       412.9
                                                               -----------   ----------   ------------  ----------
     Flat-Rolled Products                                             76.9        125.4          172.8       283.3
     Engineered Products                                             115.9        148.7          236.5       312.4
     Commodities Marketing                                            (1.0)        (4.1)          (3.6)      (20.2)
     Minority Interests                                               26.2         25.3           52.0        49.9
     Eliminations                                                    (10.7)       (87.0)         (49.2)     (225.9)
                                                               -----------   ----------   ------------  ----------
           Total Net Sales                                     $     446.8   $    552.8   $      927.1  $  1,128.5
                                                               ===========   ==========   ============  ==========

Operating Income (Loss):
     Bauxite & Alumina (3)                                 $      (6.0)  $     16.2   $      (12.8) $     43.7
     Primary Aluminum                                                  3.9         22.7            8.4        64.7
     Flat-Rolled Products                                              3.1          7.2            6.3        10.3
     Engineered Products                                               2.4         12.6            5.1        25.9
     Commodities Marketing                                            (7.0)        (6.8)          (9.0)      (34.4)
     Eliminations                                                      1.7          1.2            5.5        (2.9)
     Corporate and Other                                             (17.7)       (15.2)         (35.8)      (30.3)
     Other Non-Recurring Operating Items (Note 10)                    (8.0)        13.6          220.2        11.6
                                                               -----------   ----------   ------------  ----------
           Total Operating Income (Loss)                       $     (27.6)  $     51.5   $      187.9  $     88.6
                                                               ===========   ==========   ============  ==========
Net Income (Loss)                                              $     (64.1)  $     11.2   $       55.8  $     23.2
                                                               ===========   ==========   ============  ==========
Capital Expenditures                                           $      42.8   $     69.1   $       86.8  $     85.8
                                                               ===========   ==========   ============  ==========


(1)  Net sales for the quarter and six-month periods ended June 30, 2001,
     included approximately 26,400 tons and 66,100 tons, respectively, of
     alumina purchased from third parties. Net sales for the quarter and
     six-month periods ended June 30, 2000, included approximately 83,000 tons
     and 199,000 tons, respectively, of alumina purchased from third parties.
(2)  Beginning in the first quarter of 2001, as a result of the continuing
     curtailment of the Company's Northwest smelters, the Flat-rolled products
     business unit began purchasing its own primary aluminum rather than relying
     on the Primary aluminum business unit to supply its aluminum requirements
     through production or third party purchases. The Engineered products
     business unit was already responsible for purchasing the majority of its
     primary aluminum requirements. During the quarter and six-month periods
     ended June 30, 2001, the Primary aluminum business unit purchased
     approximately 6,600 tons and 23,800 tons, respectively, of primary aluminum
     from third parties to meet existing third party requirements.
(3)  During the quarter and six-month periods ended June 30, 2001, approximately
     $22.0 and $41.0, respectively, of abnormal Gramercy start-up costs were
     incurred. Operating income (loss) for both the quarter and six-month
     periods ended June 30, 2001, also included additional accrued business
     interruption recoveries related to the Gramercy facility of $15.2 based on
     a recent agreement with the Company's insurers. Depreciation was suspended
     for the Gramercy facility during the first six months of 2000 as a result
     of the July 1999 incident. Depreciation expense for the Gramercy facility
     for the first six months of 1999 was $6.0. See Note 2 of Notes to Interim
     Consolidated Financial Statements for additional information.

OVERVIEW
The Company's operating results are sensitive to changes in prices of alumina,
primary aluminum, and fabricated aluminum products, and also depend to a
significant degree on the volume and mix of all products sold and on the
Company's hedging strategies. Primary aluminum prices have historically been
subject to significant cyclical price fluctuations. See Notes 1 and 8 of Notes
to Interim Consolidated Financial Statements for a discussion of the Company's
hedging activities.

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

During the six months ended June 30, 2000, the Average Midwest United States
transaction price ("AMT price") per pound of primary aluminum was $.75 per
pound. During the six months ended June 30, 2001, the average AMT price was $.73
per pound. The average AMT price for primary aluminum for the week ended July
27, 2001 was $.67 per pound.

QUARTER AND SIX MONTHS ENDED JUNE 30, 2001, COMPARED TO QUARTER AND SIX MONTHS
ENDED JUNE 30, 2000

SUMMARY
The Company reported a net loss of $64.1 million for the second quarter of 2001,
compared to a net income of $11.2 million for the same period of 2000. For the
six months ended June 30, 2001, the Company reported net income of $55.8 million
compared to net income of $23.2 million for the six-month period ended June 30,
2000. However, results for the quarter and six-month periods ended June 30, 2001
and 2000 included material special items as summarized below (in millions of
dollars):


                                                            Material Special Gains (Losses), Net of Income Tax Effect
                                                            ---------------------------------------------------------
                                                                   Quarter Ended             Six Months Ended
                                                                     June 30,                    June 30,
                                                            --------------------------  -----------------------------
                                                                     2001         2000          2001          2000
                                                            -------------  -----------  -----------    --------------
Net gains (losses) from power sales (pre-tax $(5.5) and
     $222.7 in 2001; $15.8 in 2000)                         $       (3.4)  $      9.6   $     135.8    $      9.6
Excess overhead and other fixed costs associated with
     curtailed Northwest smelting operations (pre-tax $4.5
     and $10.5 in 2001)                                             (2.8)          -           (6.4)           -
Mark-to-market gains (losses) (pre-tax $3.1 and $18.4
     in 2001; $(6.0) and $8.4 in 2000)                               1.9         (3.7)         11.2           5.1
Asbestos-related charges (pre-tax $45.8 and $53.3 in 2001)         (27.9)          -          (32.5)           -
Adjustment to environmental liabilities (pre-tax $8.0 in
     2001)                                                          (4.9)                      (4.9)
MetalSpectrum investment write-off (pre-tax $2.8 in 2001)           (1.7)                      (1.7)
Additional Gramercy business interruption recoveries
     (pre-tax $15.2 in 2001)                                         9.3                        9.3
Abnormal Gramercy start-up costs (pre-tax $22.0 and                                                            -
     $41.0 in 2001)                                                (13.4)          -          (25.0)
Other non-recurring operating charges (pre-tax $2.5 in
     2001; $2.2 and $4.2 in 2000)                                   (1.5)        (1.3)         (1.5)         (2.5)
                                                            -------------  -----------  ------------   -----------
                                                            $      (44.4)  $      4.6   $      84.3    $     12.2
                                                            =============  ===========  ============   ===========

Net sales in the second quarter of 2001 totaled $446.8 million compared to
$552.8 million in the second quarter of 2000. Net sales for the six-month period
ended June 30, 2001, totaled $927.1 million compared to $1,128.5 million for the
six-month period ended June 30, 2000.

Bauxite and Alumina. Third party net sales of alumina increased 9% for the
quarter ended June 30, 2001, as compared to the same period in 2000. A 23%
increase in third party shipments was partially offset by a 9% decrease in third
party average realized prices. The increase in quarter-over-quarter shipments
resulted primarily from the timing of shipments as well as the restart of
production at the Gramercy refinery in December 2000. The decrease in average
realized prices was due to a decrease in primary aluminum market prices to which
the Company's third-party alumina sales contracts are linked.

Intersegment net sales of alumina for the quarter ended June 30, 2001 decreased
66% as compared to the same period in 2000 primarily as the result of a 67%
decrease in intersegment shipments. The decrease in shipments was primarily due
to the potline curtailments at the Company's Washington smelters.

Net sales for the quarters ended June 30, 2001 and 2000 included approximately
26,400 tons and 83,000 tons, respectively, of alumina purchased from third
parties to satisfy third party sales and transfers to the Company's Primary
aluminum business unit.

For the six-month period ended June 30, 2001, third party net sales of alumina
were 18% higher than the comparable period in 2000 as a 36% increase in third
party shipments was partially offset by an 10% decrease in third party average
realized prices. The increase in third party shipments and decrease in average
realized prices during the first six months of 2001 as compared to 2000 was
attributable to the same volume and price factors discussed above.

Intersegment net sales for the six-month period ended June 30, 2001, decreased
47% as compared to the same period in 2000. The decrease was primarily due to a
46% decrease in the intersegment shipments. The decrease in intersegment
shipments was attributable to the same volume factor discussed above.

Net sales for the six month periods ended June 30, 2001 and 2000 included
approximately 66,100 tons and 199,000 tons, respectively, of alumina purchased
from third-parties to satisfy third party sales and transfers to the Primary
aluminum business unit.

Segment operating results (excluding non-recurring items) for the quarter and
six-month periods ended June 30, 2001 decreased significantly compared to the
comparable periods in 2000. Increase in net shipments only partially offset
the decrease in the average realized sales prices. Additionally, operating
income for 2001 was adversely affected by abnormal Gramercy related start-up
costs during the quarter and six-month periods ended June 30, 2001 of
approximately $22.0 million and $41.0 million, respectively, non-recurring
operating issues at the Alpart alumina refinery and higher energy prices, offset
in part in both periods by a $15.2 million additional insurance benefit
resulting from an agreement between the Company and its insurers related to the
Gramercy incident. As discussed more fully in Note 2 of Notes to Interim
Consolidated Financial Statements, abnormal Gramercy-related costs in 2000 were
offset by estimated business interruption insurance recoveries.

Segment operating income for the quarter and six-month periods, discussed above,
exclude costs of $2.0 million incurred in connection with the Company's
performance improvement initiative program, which amounts are included in other
non-recurring operating items (see Note 10 of Notes to Interim Consolidated
Financial Statements).

Primary Aluminum. Third party net sales of primary aluminum decreased 29% for
the second quarter of 2001 as compared to the same period in 2000 as a result of
a 27% decrease in third party shipments and a 3% decrease in third party
averaged realized prices. The decrease in shipments was primarily due to the
curtailment of the Washington smelters during the last half of 2000. The
decrease in the average realized prices was primarily due to the decrease in
primary aluminum market prices.

Intersegment net sales of primary aluminum for the quarter ended June 30, 2001
decreased significantly compared to the same period in 2000 primarily as a
result of a substantial decrease in intersegment shipments. This change resulted
primarily from a change in the Company's methodology for handling aluminum
supply logistics for the Flat-rolled products business unit as a result of the
continuing curtailment of the Company's Northwest smelters. Beginning in the
first quarter of 2001, the Flat-rolled products business unit began purchasing
its own primary aluminum rather than relying on the Primary aluminum business
unit to supply its aluminum requirements through production or third party
purchases. The Engineered products business unit was already responsible for
purchasing the majority of its primary aluminum requirements.

For the six-month period ended June 30, 2001, third party sales of primary
aluminum decreased approximately 27% from the comparable period in 2000,
reflecting a 23% decrease in third party shipments and a 5% decrease in third-
party average realized prices. The decreases in year-to-date 2001 shipments and
prices compared to 2000 were attributable to the same factors described above.
Intersegment net sales for the first half of 2001 decreased significantly
compared to the same period in 2000. This decrease was attributable to the same
factors described above.

Segment operating income (excluding non-recurring items) for the quarter and
six-month periods ended June 30, 2001, was down from the comparable periods in
2000. The primary reasons for the decreases were the decreases in the average
realized prices and shipments discussed above as well as overhead and other
fixed costs associated with the curtailed Northwest smelting operations, which
totaled approximately $9.0 million and $21.0 million during the quarter and
six-month periods ended June 30, 2001. The Company believes that approximately
half of such costs incurred are "excess" to the run rate that can be achieved
during a prolonged curtailment period. Management is in the process of
determining the appropriate actions to minimize the excess outflows associated
with the curtailed operations. Period over period results were also unfavorably
impacted by higher energy costs at the 49%-owned Anglesey Aluminium Limited
("Anglesey") aluminum smelter, resulting from a new power contract entered into
by Anglesey at the end of the first quarter of 2000.

Segment operating income for the quarter and the six-month periods ended June
30, 2001, discussed above, excludes non-recurring net power sales gains (losses)
of $(5.5) million and $222.7 million, respectively.

Flat-Rolled Products. Net sales of flat-rolled products decreased approximately
39% during the second quarter 2001 as compared to 2000 as a 54% decrease in
shipments was partially offset by a 34% increase in average realized prices. The
decrease in shipments was primarily due to reduced shipments of can body stock
as a part of the planned exit from this product line. Current period shipments
were also adversely affected by reduced general engineering heat- treat products
and can lid and tab stock, due to weak market demand. These decreases were
modestly offset by strong aerospace demand. The increase in average realized
prices primarily reflects the change in product mix from the can body stock to
heat-treat products (which have a higher price and operating margin as compared
to other products).

For the six-month period ended June 30, 2001, net sales of flat-rolled products
decreased by approximately 39% as compared to the same period in 2000 as a 53%
decrease in shipments was offset by an 29% increase in average realized prices.
The decline in year-to-date 2001 shipments and increase in average realized
prices were primarily attributable to the same factors described above.

Segment operating income for the quarter and six-month periods ended June 30,
2001, was down from the comparable periods in 2000. The primary reasons for the
decreases were the decreases in shipments offset in part by the increase in
prices described above. Operating results were also adversely impacted by a less
than favorable cost performance associated with the product mix changes
discussed above. Higher period over period natural gas prices were only
partially offset by modest benefits from power load shedding by the business
unit.

Engineered Products. Net sales of engineered products decreased by approximately
22% during the second quarter 2001 as compared to 2000, as a 29% decrease in
product shipments was offset by a 11% increase in average realized prices. The
decrease in product shipments was the result of reduced transportation and
electrical product shipments due to weak market demand. The increase in average
realized prices reflects a shift in product mix to higher value- added products.

For the six-month period ended June 30, 2001, net sales of engineered products
decreased by approximately 24% as a 30% decrease in product shipments was offset
by an 8% increase in average realized prices. The decrease in shipments and
increase in sales prices is attributable to the same factors listed above.

The decreases in segment operating income for the quarter and six-month periods
ended June 30, 2001, as compared to the comparable periods in 2000 were
primarily attributable to the price and volume factors described above. The
segment's operating results were also adversely impacted by higher period over
period energy prices and because the business unit was unable to reduce costs to
match the market related volume declines.

Commodities Marketing. Net sales for this segment represent net settlements with
third-party brokers for maturing derivative positions. Operating income
represents the combined effect of such net settlements, any net premium costs
associated with maturing options, as well as net results of internal hedging
activities with the Company's fabricated products segments. The minimum (and
maximum) price of the hedges in any given period is primarily the result of the
timing of the execution of the hedging contracts.

Segment operating loss for the quarter ended June 30, 2001 was essentially flat
as compared to the comparable period in 2000. While the second quarter of 2001
hedging positions had a higher minimum price than the hedging positions in the
second quarter of 2000, market prices in both periods were above both periods'
minimum price. Segment operating loss for the six-month period ended June 30,
2001 decreased as compared to the same period in 2000. This is primarily the
result of first quarter 2001 hedging positions having higher minimum prices than
the positions in the first quarter of 2000, combined with the fact that first
quarter 2000 market prices were higher than those experienced in the first
quarter of 2001.

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

Corporate and Other. Corporate operating expenses (excluding non-recurring
items) represent corporate general and administrative expenses which are not
allocated to the Company's business segments. The increase in corporate
operating expenses in the quarter and six-month periods ended June 30, 2001, as
compared to the comparable periods in 2000 was primarily due to increased
pension cost accruals for active and retired employees.

Corporate operating results for the quarter and six-month periods ended June 30,
2001, exclude costs of $.5 million in connection with the Company's performance
improvement initiative program and for the quarter and six-month periods ended
June 30, 2000, exclude costs related to staff reduction and efficiency
initiatives of $1.5 million and $3.5 million, respectively, which amounts are
included in other non-recurring operating items (see Note 10 of Notes to Interim
Consolidated Financial Statements).

POSSIBLE THIRD QUARTER 2001 TRENDS AS COMPARED TO ACTUAL SECOND QUARTER
2001 RESULTS

This section contains statements that constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. The
Company cautions that such forward-looking statements are not guarantees of
future results and involve significant risks and uncertainties, and that actual
results may vary materially from those expressed or implied in the
forward-looking statements as a result of various factors. The Company is under
no obligation to update these forward-looking statements to reflect future
events or circumstances.

Bauxite and Alumina. Total shipment volumes are expected to be flat. Third-party
price realizations are contractually linked to LME aluminum prices generally on
a one-to-three month lag. As a result, recent weakness in LME prices would tend
to dampen alumina price realizations in the third quarter. Operating costs are
expected to be better but will largely be determined by the speed at which
Gramercy completes its transition from its interim operating mode to its
anticipated operating mode. A planned maintenance outage at Alpart is expected
to be somewhat offset by improved energy prices at all three alumina refineries.

Primary Aluminum. Shipment volumes are expected to be down modestly, reflecting
curtailment of aluminum rod production at the Tacoma, Washington, smelter. Price
realizations are reflective of commodity pricing as determined by LME and
Midwest markets. The Company's realizations also typically reflect some product
premiums. Costs are expected to be flat.

Commodity Marketing. As the primary component of this segment is the Company's
metal hedging activities, the segment's results will vary depending on
prevailing primary aluminum prices. The hedging impacts in this segment will
tend to offset certain of the price impacts experienced in the Bauxite and
Alumina and Primary Aluminum segments. For a discussion of the possible impacts
of price changes on the Company's derivative instruments, see "Item 3.
Qualitative and Quantitative Disclosures About Market Risk."

Flat-Rolled Products. Shipment volumes are expected to be affected by the
prospect of continued weakness in general engineering and lid and tab stock;
offset somewhat by the prospect of continued firm demand in the aerospace
market. Average price realizations are expected to be flat, reflecting a product
mix reasonably similar to that of the second quarter. Costs are expected to be
flat/favorable as the facility adjusts its costs in response to the mix shift.
As the Company addresses these issues, non-recurring restructuring charges are
possible and such amounts could be material.

Engineered Products. Shipment volumes are expected to be flat/down, reflecting
continued weakness in ground transportation markets as well as seasonality.
Average price realizations are expected to be flat due to relatively stable mix.
Costs are expected to be flat/favorable due to moderation in energy prices as
well as improved variable cost performance.

Corporate. Corporate expenses are expected to remain flat/favorable as the
Company continues to seek reductions in overhead expenses.

LIQUIDITY AND CAPITAL RESOURCES

See Note 8 of Notes to Consolidated Financial Statements in the Company's Form
10-K for the year ended December 31, 2000, for a listing of the Company's
indebtedness and information concerning certain restrictive debt covenants.

Operating Activities. At June 30, 2001, the Company had working capital of $27.2
million, compared with working capital of $176.9 million at December 31, 2000.
The decrease in working capital primarily resulted from:

- -    an increase in the current portion of long-term debt due to the
     reclassification of the $224.2 million principal amount of the 97/8% Senior
     Notes to current liabilities offset by the Company's repayment of $30.4
     million of outstanding borrowings under its Credit Agreement.

- -    a decrease in accrued salaries, wages and related expenses resulting
     primarily from the payment of previously accrued employee-related
     compensation applicable to job reductions as a part of the September 2000
     labor settlement or associated with workers at the curtailed Northwest
     smelters.

- -    a decrease in other receivables primarily due to receipt of previously
     accrued power sales (reflecting the difference between the $88.0 million
     receivable at year-end 2000, which was collected in the first quarter of
     2001, and the $45.0 million receivable at June 30, 2001, reflecting amounts
     related to 2001 power sales that will be collected periodically through
     October 2001).

Investing Activities. Capital expenditures during the six months ended June 30,
2001, were $86.8 million, including $61.8 million for the rebuilding of the
Gramercy facility. The remainder of the year-to-date 2001 capital expenditures
were incurred to improve production efficiency and reduce operating costs at the
Company's other facilities. Total consolidated capital expenditures, excluding
capital expenditures in 2001 to finish rebuilding the Gramercy facility, are
expected to be between $80.0 and $95.0 million per annum in each of 2001 and
2002 (of which approximately 15% is expected to be funded by the Company's
minority partners in certain foreign joint ventures).

Management continues to evaluate numerous projects all of which would require
substantial capital, both in the United States and overseas. The level of
capital expenditures may be adjusted from time to time depending on the
Company's price outlook for primary aluminum and other products, the Company's
ability to assure future cash flows through hedging or other means, the
Company's financial position and other factors.

Financing Activities and Liquidity: Short-Term. The Company uses its Credit
Agreement to provide short-term liquidity requirements and for letters of credit
to support operations. During the second quarter of 2001, there were no
month-end borrowings outstanding under the Credit Agreement. The average amount
of borrowings outstanding under the Credit Agreement during the second quarter
of 2001 was less than $1.0 million. During the first quarter of 2001, month-end
borrowing amounts outstanding under the Credit Agreement were as high as
approximately $94.0 million, which occurred in February 2001, primarily as a
result of costs incurred and capital spending related to the Gramercy rebuild,
net of insurance reimbursements. The average amount of borrowings outstanding
under the Credit Agreement during the first quarter of 2001 was approximately
$47.5 million. Outstanding letters of credit at June 30, 2001, were
approximately $44.4 million. The Credit Agreement significantly restricts the
Company's ability to pay any dividends on its common stock.

In July 2001, the expiration date of the Credit Agreement was extended from
August 15, 2001 to November 2, 2001. The Company sought the extension in order
to gain additional flexibility in advance of the February 2002 maturity date of
its 97/8% Senior Notes. The Company intends to extend, replace or renew the
Credit Agreement prior to its expiration. However, in order for the Credit
Agreement to be extended, on a short-term basis, beyond November 2001, the
Company will have to have a demonstrable way to mitigate the maturity of the
$225.0 million of 97/8% Senior Notes. For the Credit Agreement to be extended
past February 2003, both the 97/8% Senior Notes and the $400.0 million of 12
3/4% Senior Subordinated Notes, due February 2003, will have to be retired
and/or refinanced.

The Company currently expects limited, if any, borrowings for the balance of the
Credit Agreement term, except it is possible that the Company may use
availability under the Credit Agreement (or any extension, replacement or
renewal thereof) to augment other cash resources to mitigate the maturity of the
97/8% Senior Notes. As of June 30, 2001, the Company had approval from the
Credit Agreement lenders to purchase up to $50.0 million of the 97/8% Senior
Notes. As of June 30, 2001, the Company had purchased approximately $.8 million
of 97/8% Senior Notes.

As previously announced, the Company is working with financial advisors to
review its options for addressing its near- term debt maturities and its overall
capital structure. While the Company continues to consider potential asset
transactions (beyond the recently announced agreement to sell an 8.3% interest
in QAL), the Company intends to pursue only those transactions that would create
long-term value through strategic positioning and/or the generation of
acceptable levels of earnings or cash. The Company cannot predict if any such
transactions will materialize.

In addition to being impacted by normal operating items, the Company's near-term
liquidity and cash flow will be affected by remaining net proceeds from power
sales (see Note 4 of Notes to Interim Consolidated Financial Statements), the
expected third quarter 2001 sale of a portion of the Company's interest in QAL
(see Note 9 of Notes to Interim Consolidated Financial Statements), the restart
of the Gramercy facility and the amount of net payments for asbestos-related
liabilities.

The Company will continue to incur abnormal start-up costs and capital spending
until all construction activity at the Gramercy facility is completed and full
production volume and efficiency is restored. The amount of abnormal costs
incurred during the balance of 2001 will depend upon the speed at which the
Gramercy facility transitions from its interim operating mode and the extent to
which any unanticipated start-up issues may occur. The Company expects the
Gramercy facility to reach its full production rate and full efficiency by the
end of 2001 or early 2002.

During the six months ended June 30, 2001, the Company paid $59.2 million of
asbestos-related settlement and defense costs and received insurance
reimbursement of $65.0 million for asbestos-related matters. The Company's 2001
and 2002 cash payments, prior to insurance recoveries, for asbestos-related
costs are estimated to be between $125.0 million and $150.0 million per year.
The Company believes that it will continue to recover a substantial portion of
asbestos payments from insurance. However, insurance reimbursements have
historically lagged the Company's payments. Delays in receiving future insurance
repayments would have an adverse impact on the Company's liquidity. During 2000,
the Company filed suit against a group of its insurers, after negotiations with
certain of the insurers regarding an agreement covering both reimbursement
amounts and the timing of reimbursement payments were unsuccessful. The
litigation is intended, among other things, to: (1) ensure that the insurers
provide the Company with timely and appropriate reimbursements for
asbestos-related settlements and related legal costs incurred; and (2) to
resolve certain issues between the parties with respect to how specific
provisions of the applicable insurance policies are to be applied. Given the
significance of expected asbestos-related payments in 2001 and 2002 based on
settlement agreements in place at June 30, 2001, the receipt of timely and
appropriate reimbursements from such insurers is critical to the Company's
liquidity. The court is expected to try certain aspects of the case in late 2001
and the remaining issues in 2002. The Company is continuing to receive cash
reimbursements from the insurers.

Absent an improvement in the markets in which the Company operates or faster
than expected improvement in operating performance of the Gramercy refinery (as
a result of its completion) and other facilities (as a result of the Company's
performance improvement initiative), the Company's cash flows during the balance
of 2001 (before considering the pending third quarter 2001 sale of a portion of
the Company's interest in QAL and near-term debt maturities) may fully utilize
the cash balance reported at June 30, 2001 in order to satisfy interest and
expected tax payments, the funding of pension, post-retirement medical and net
asbestos-related liabilities, capital spending and other previously accrued
obligations. The Company expects its cash flow in 2002 to improve substantially
over the run rate expected to be experienced during the last six months of 2001
as a result of the Gramercy alumina refinery reaching its full operating rate
and full efficiency, operating improvements resulting from the Company's
performance improvement initiative and as certain of its other previously
accrued, non-recurring, near-term obligations are satisfied. However, no
assurances can be given in this regard.

Management believes that the Company's existing cash resources, together with
cash flows from operations, power sales and the sale of the 8.3% interest in
QAL, as well as borrowings under the Credit Agreement (which the Company intends
to extend, replace or renew as discussed above), will be sufficient to satisfy
its working capital, debt maturities and capital expenditure requirements for
the next year. However, no assurance can be given that existing and anticipated
cash sources will be sufficient to meet the Company's short-term liquidity
requirements or that additional sources of cash will not be required.

Long-Term. As of June 30, 2001, the Company's total consolidated indebtedness
was $923.3 million. There were no revolving credit borrowings outstanding under
the Credit Agreement. The Company's ability to make payments on and to refinance
its debt on a long-term basis depends on its ability to generate cash in the
future. This, to a certain extent, is subject to general economic, financial,
competitive, legislative, regulatory and other factors beyond the Company's
control. With respect to long-term liquidity, management believes that operating
cash flow, together with the ability to obtain both short and long-term
financing, should provide sufficient funds to meet the Company's working
capital, financing and capital expenditure requirements. However, no assurance
can be given that the Company will be able to refinance its debt on acceptable
terms.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

This section contains forward-looking statements that involve risk and
uncertainties. Actual results could differ materially from those projected in
these forward-looking statements.

The Company's operating results are sensitive to changes in the prices of
alumina, primary aluminum, and fabricated aluminum products, and also depend to
a significant degree upon the volume and mix of all products sold. As discussed
more fully in Notes 1 and 8 of Notes to Interim Consolidated Financial
Statements, the Company utilizes hedging transactions to lock-in a specified
price or range of prices for certain products which it sells or consumes in its
production process and to mitigate the Company's exposure to changes in foreign
currency exchange rates. The following sets forth the impact on future earnings
of adverse market changes related to the Company's hedging positions with
respect to commodity, foreign exchange and energy contracts described more fully
in Note 8 of Notes to Interim Consolidated Financial Statements.

Alumina and Primary Aluminum. Alumina and primary aluminum production in excess
of internal requirements is sold in domestic and international markets, exposing
the Company to commodity price opportunities and risks. The Company's hedging
transactions are intended to provide price risk management in respect of the net
exposure of earnings resulting from (i) anticipated sales of alumina, primary
aluminum and fabricated aluminum products, less (ii) expected purchases of
certain items, such as aluminum scrap, rolling ingot, and bauxite, whose prices
fluctuate with the price of primary aluminum. On average, before consideration
of hedging activities, any fixed price contracts with fabricated aluminum
products customers, variations in production and shipment levels, and timing
issues related to price changes, the Company estimates that each $.01 increase
(decrease) in the market price per price-equivalent pound of primary aluminum
increases (decreases) the Company's annual pre-tax earnings by approximately
$10.0 - $15.0 million, based on recent fluctuations in operating levels.

Based on the average July 2001 London Metal Exchange ("LME") cash price for
primary aluminum of approximately $.64 per pound, the Company estimates that it
would realize approximately $19.0 million of net aggregate pre-tax benefits from
its hedging positions and fixed price customer contracts during the remainder of
2001 and the period 2002 through 2003. The Company estimates that a hypothetical
$.10 increase from the above stated July 2001 price would result in a net
aggregate pre-tax reduction in operating income of approximately $46.0 million
being realized during the remainder of 2001 and the period 2002 through 2003
from the Company's hedging positions and fixed price customer contracts.
Conversely, the Company estimates that a hypothetical $.10 decrease from the
above stated July 2001 price level would result in an aggregate pre-tax increase
in operating income of approximately $159.0 million being realized during the
remainder of 2001 and the period 2002 through 2003 from the Company's hedging
positions and fixed price customer contracts. Both of the foregoing hypothetical
amounts are versus what the Company's results would have been without the
derivative commodity contracts and fixed price customer contracts discussed
above. It should be noted, however, that, since the hedging positions and fixed
price customer contracts lock-in a specified price or range of prices, increases
or decreases in earnings attributable to the Company's hedging positions or
fixed price customer contracts are significantly offset by a decrease or
increase in the proceeds to be realized on the underlying physical transactions.

As stated in Note 8 of Notes to Interim Consolidated Financial Statements, the
Company has certain hedging positions which do not qualify for treatment as a
"hedge" under current accounting guidelines and thus must be marked-to- market
each period. Fluctuations in forward market prices for primary aluminum would
likely result in additional earnings volatility as a result of these positions.
The Company estimates that a hypothetical $.10 change in spot market prices from
the July 31, 2001, LME cash price of $.63 per pound would, depending on the
shape of the forward curve, result in additional aggregate mark-to-market
impacts of between $10.0 - $30.0 million during any period through 2003.

In addition to having an impact on the Company's earnings, a hypothetical
$.10-per-pound change in primary aluminum prices would also impact the Company's
cash flows and liquidity through changes in possible margin advance
requirements. At July 31, 2001, the Company had received margin advances of
$20.7 million. Increases in primary aluminum prices subsequent to July 31, 2001,
could result in the Company having to refund and, depending on the amount of the
increase, make margin advances and such amounts could be significant. If primary
aluminum prices increased by $.10 per pound (from the July 31, 2001 price) by
December 31, 2001 and the forward curve were as described above, it is estimated
that the Company could be required to pay in the range of $40.0 to $60.0 million
in respect of both refunds of margin advances from brokers and to make margin
advances to the brokers. Management considers credit risk related to possible
failure of the counterparties to perform their obligations pursuant to the
derivative contracts to be minimal.

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

Based on the July 31, 2001 US$ to A$ exchange rate of $.51, the Company's
foreign currency hedges would result in a net aggregate pre-tax reduction of
operating income of approximately $10.0 million for the remainder of 2001 and
for the period 2002 through 2005. The Company estimates that a hypothetical 10%
decrease in the A$ exchange rate would result in the Company recognizing a net
aggregate pre-tax reduction of operating income of approximately $12.0 million
for the remainder of 2001 and for the period 2002 through 2005 from the
Company's foreign currency hedging positions. Conversely, the Company estimates
that a hypothetical 10% increase in the A$ exchange rate (from $.51) would
result in the Company realizing a net pre-tax aggregate reduction of operating
income of approximately $5.0 million during the remainder of 2001 and for the
period 2002 through 2005. These hypothetical impacts are versus what the
Company's results would have been without the Company's derivative foreign
currency contracts. It should be noted, however, that, since the hedging
positions lock-in specified rates, increases or decreases in earnings
attributable to currency hedging instruments would be substantially offset by a
corresponding decrease or increase in the value of the hedged commitments.

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

The Company from time to time in the ordinary course of business enters into
hedging transactions with major suppliers of energy and energy related financial
instruments. As of July 31, 2001, the Company held option and swap contracts
hedging for a majority of its August 2001 to October 2001 natural gas
requirements and a portion of its November 2001 to March 2002 natural gas
requirements. Based on an average July 2001 settlement price (per mcf) of
approximately $3.17, the Company expects to realize a pre-tax reduction of
operating income of approximately $1.2 million for the period from August 2001
through March 2002 associated with these hedging positions. The Company
estimates that a hypothetical $1.00 decrease in the average July 2001
settlement price would result in the Company recognizing a net aggregate pre-tax
reduction of operating income of $3.3 million for the period from August 2001
through March 2002 associated with these hedging positions. Conversely, the
Company estimates that a hypothetical $1.00 increase in the average July 2001
settlement price would result in the Company realizing a net pre-tax aggregate
increase of operating income of approximately $1.6 million for the period August
2001 through March 2002. These hypothetical impacts are versus what the
Company's results would have been without the Company's derivative natural gas
contracts. It should be noted, however, that, since the hedging positions
lock-in specified rates, increases or decreases in earnings attributable to
currency hedging instruments would be substantially offset by a corresponding
decrease or increase in the value of the hedged commitments.

As of July 31, 2001, the Company also held option and swap contracts hedging a
majority of its August 2001 through December 2001 fuel oil requirements. Based
on the average July 2001 settlement price (per barrel) of approximately $17.38,
the Company estimates the hedges would not have a material net aggregate pre-tax
impact on its operating income.


                           PART II - OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

Reference is made to Part I, Item 3. "LEGAL PROCEEDINGS" in the Company's Form
10-K for the year ended December 31, 2000 for information concerning other
material legal proceedings with respect to the Company.

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

On May 22, 2001, the sole common stockholder of the Company elected by unanimous
written consent the following directors of the Company: Robert J. Cruikshank,
James T. Hackett, George T. Haymaker, Jr., Charles E. Hurwitz, Ezra G. Levin,
Raymond J. Milchovich, and James D. Woods.

ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

     (a)     Exhibits.

     *4.1    Twenty-First Amendment to Credit Agreement and Consent, dated as of
             July 18, 2001, amending the Credit Agreement, dated as of February
             15, 1994, as amended, among Kaiser Aluminum & Chemical Corporation,
             Kaiser Aluminum Corporation, the financial institutions party
             thereto, and Bank of America, N.A. (successor to BankAmerica
             Business Credit, Inc.), as Agent.

     *10.1   Form of Non-Employee Director Stock Option Grant for options issued
             commencing January 1, 2001 under the 1997 Kaiser Omnibus Stock
             Incentive Plan.

     *10.2   Form of Stock Option Grant for options issued commencing January 1,
             2001 under the 1997 Kaiser Omnibus Stock Incentive Plan.

     *10.3   Form of Restricted Stock Agreement for restricted shares issued
             commencing January 1, 2001 under the 1997 Kaiser Omnibus Stock
             Incentive Plan.

     (b)     Reports on Form 8-K.

     No Report on Form 8-K was filed by the Company during the quarter ended
June 30, 2001.














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

*  Filed herewith

                                    SIGNATURE

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


                               KAISER ALUMINUM & CHEMICAL CORPORATION


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



                               KAISER ALUMINUM & CHEMICAL CORPORATION


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




Dated:   August 13, 2001

EX-4

                                                                     Exhibit 4.1

             TWENTY-FIRST AMENDMENT TO CREDIT AGREEMENT AND CONSENT


                  THIS TWENTY-FIRST AMENDMENT TO CREDIT AGREEMENT AND CONSENT
(this "Amendment"), dated as of July 18, 2001 is by and between KAISER ALUMINUM
& CHEMICAL CORPORATION, a Delaware corporation (the "Company"), KAISER
ALUMINUM CORPORATION, a Delaware corporation (the "Parent Guarantor"), the
various financial institutions that are or may from time to time become parties
to the Credit Agreement referred to below (collectively, the "Lenders" and,
individually, a "Lender"), and Bank of America, N.A. (successor to BankAmerica
Business Credit, Inc., a Delaware corporation), as agent (in such capacity,
together with its successors and assigns in such capacity, the "Agent") for the
Lenders. Capitalized terms used, but not defined, herein shall have the meanings
given to such terms in the Credit Agreement, as amended hereby.

                              W I T N E S S E T H:

                  WHEREAS, the Company, the Parent Guarantor, the Lenders and
the Agent are parties to the Credit Agreement, dated as of February 15, 1994, as
amended by the First Amendment to Credit Agreement, dated as of July 21, 1994,
the Second Amendment to Credit Agreement, dated as of March 10, 1995, the Third
Amendment to Credit Agreement and Acknowledgement, dated as of July 20, 1995,
the Fourth Amendment to Credit Agreement, dated as of October 17, 1995, the
Fifth Amendment to Credit Agreement, dated as of December 11, 1995, the Sixth
Amendment to Credit Agreement, dated as of October 1, 1996, the Seventh
Amendment to Credit Agreement, dated as of December 17, 1996, the Eighth
Amendment to Credit Agreement, dated as of February 24, 1997, the Ninth
Amendment to Credit Agreement and Acknowledgment, dated as of April 21, 1997,
the Tenth Amendment to Credit Agreement and Assignment, dated as of June 25,
1997, the Eleventh Amendment to Credit Agreement and Limited Waivers, dated as
of October 20, 1997, the Twelfth Amendment to Credit Agreement, dated as of
January 13, 1998, the Thirteenth Amendment to Credit Agreement, dated as of July
20, 1998, the Fourteenth Amendment to Credit Agreement, dated as of December 11,
1998, the Fifteenth Amendment to Credit Agreement, dated as of February 23,
1999, the Sixteenth Amendment to Credit Agreement, dated as of March 26, 1999,
the Seventeenth Amendment to Credit Agreement, dated as of September 24, 1999,
the Eighteenth Amendment to Credit Agreement, dated as of February 11, 2000, the
Nineteenth Amendment to Credit Agreement and Limited Waiver, dated as of
December 27, 2000, and the Twentieth Amendment to Credit Agreement dated as of
January 26, 2001 (the "Credit Agreement"); and

                  WHEREAS, the parties hereto have agreed to amend the Credit
Agreement as herein provided;

                  NOW, THEREFORE, the parties hereto agree as follows:

        Section 1.        Amendments to Credit Agreement.

        1.1      Amendment to Article I: Definitions and Accounting Terms

        Section 1.1 of the Credit Agreement is hereby amended by
deleting the reference to "August 15, 2001" each time it appears in the
definitions of "Revolving Commitment Termination Date" and "Stated Maturity
Date" contained therein and substituting a reference to "November 2, 2001"
therefor.

        1.2      Amendment to Article V: Letters of Credit

        Section 5.1 of the Credit Agreement is hereby amended by
deleting the reference to "August 15, 2001" contained in clause (b)(iii)
thereof and substituting a reference to "November 2, 2001" therefor.

        1.3      Amendments to Article IX: Covenants

        Section 9.1 of the Credit Agreement is hereby amended by
adding the following as new Section 9.1.13 thereof:

        "SECTION 9.1.13. SALE PROCEEDS ACCOUNT. The Company shall, on
the date of receipt of the cash proceeds from the sale of the 8.2778%
interest in QAL permitted by the Twenty-First Amendment to Credit Agreement
and Consent dated as of July 18, 2001 (the "Twenty-First Amendment"), deposit
50% of such cash proceeds in Account No. 876636 maintained by the Company
with Bank of America pursuant to a control agreement in form and substance
satisfactory to the Agent, which agreement shall (i) confirm the Agent's
security interest in such account, (ii) provide for the investment of amounts
in such account in cash and Cash Equivalent Investments as directed from time
to time by the Company, and (iii) provide that the Company shall have no
right to withdraw funds from such account until the earliest of (A) receipt
of the consent of all Lenders to such withdrawal, (B) November 2, 2001, or
(C) the renewal or refinancing of this Agreement; provided, however, that the
extension of the Revolving Commitment Termination Date and the Stated
Maturity Date effected by the Twenty-First Amendment shall not constitute
such a renewal or refinancing."

        1.4      Amendment to Article X. Defaults

        Section 10.1.3 of the Credit Agreement is hereby amended by adding
   the phrase "9.1.13," prior to the phrase "9.2.4," contained therein.

        Section 2.       Consent

        The Company has informed the Agent and the Lenders that the
Company and KAAC intend to sell an 8.2778% interest in QAL for a purchase
price of approximately $189,000,000, consisting of approximately $159,000,000
of cash and the assumption of approximately $30,000,000 of off-balance sheet
Indebtedness. At the request of the Company, the Lenders hereby consent to
such sale notwithstanding the provisions of Section 9.2.11 of the Credit
Agreement.

        Section 3.        Conditions to Effectiveness

        This Amendment shall become effective as of the date hereof
only when the following conditions shall have been satisfied and notice thereof
shall have been given by the Agent to the Parent Guarantor, the Company and each
Lender (the date of satisfaction of such conditions and the giving of such
notice being referred to herein as the "Twenty-First Amendment Effective Date"):

                A. The Agent shall have received for each Lender counterparts
hereof duly executed on behalf of the Parent Guarantor, the Company, the Agent
and the Lenders (or notice of the approval of this Amendment by the Lenders
satisfactory to the Agent shall have been received by the Agent).

                B. The Agent shall have received:

                        (1)  Resolutions of the Board of Directors or of the
                  Executive Committee of the Board of Directors of the Company
                  and the Parent Guarantor approving and authorizing the
                  execution, delivery and performance of this Amendment,
                  certified by their respective corporate secretaries or
                  assistant secretaries as being in full force and effect
                  without modification or amendment as of the date of execution
                  hereof by the Company or the Parent Guarantor, as the case
                  may be;

                        (2)  A signature and incumbency certificate of the
                  officers of the Company and the Parent Guarantor executing
                  this Amendment;

                        (3)  For each Lender, an opinion, addressed to the Agent
                  and each Lender, from Kramer Levin Naftalis & Frankel LLP, in
                  form and substance satisfactory to the Agent;

                        (4)  Such other information, approvals, opinions,
                  documents or instruments as the Agent may reasonably request;
                  and

                        (5)  For the pro rata benefit of the Lenders, a fee in
                  the amount of $100,000.

                Section 4.        Company's Representations and Warranties.

                In order to induce the Lenders and the Agent to enter into
this Amendment and to amend the Credit Agreement in the manner provided herein,
the Parent Guarantor and the Company represent and warrant to each Lender and
the Agent that, as of the Twenty-First Amendment Effective Date, after giving
effect to the effectiveness of this Amendment, the following statements are true
and correct in all material respects:

                        A. Authorization of Agreements. The execution and
delivery of this Amendment by the Company and the Parent Guarantor and the
performance of the Credit Agreement as amended by this Amendment (the "Amended
Agreement") by the Company and the Parent Guarantor are within such Obligor's
corporate powers and have been duly authorized by all necessary corporate action
on the part of the Company and the Parent Guarantor, as the case may be.

                        B. No Conflict.  The execution and delivery by the
Company and the Parent Guarantor of this Amendment and the performance by the
Company and the Parent Guarantor of the Amended Agreement do not:

                                (1) contravene such Obligor's Organic Documents;

                                (2) contravene the Senior Indenture, the New
                  Senior Indenture, the Additional New Senior Indenture, or the
                  Subordinated Indenture or contravene any other contractual
                  restriction where such a contravention has a reasonable
                  possibility of having a Materially Adverse Effect or
                  contravene any law or governmental regulation or court decree
                  or order binding on or affecting such Obligor or any of its
                  Subsidiaries; or

                                (3) result in, or require the creation or
                  imposition of, any Lien on any of such Obligor's properties or
                  any of the properties of any Subsidiary of such Obligor, other
                  than pursuant to the Loan Documents.

                        C.  Binding Obligation.  This Amendment has been duly
executed and delivered by the Company and the Parent Guarantor and this
Amendment and the Amended Agreement constitute the legal, valid and binding
obligations of the Company and the Parent Guarantor, enforceable against the
Company and the Parent Guarantor in accordance with their respective terms,
except as may be limited by bankruptcy, insolvency, reorganization, moratorium
or similar laws relating to or limiting creditors' rights generally and by
general principles of equity.

                        D.  Governmental Approval, Regulation, etc.  No
authorization or approval or other action by, and no notice to or filing with,
any governmental authority or regulatory body or any other Person is required
for the due execution, delivery or performance of this Amendment by the Company
or the Parent Guarantor.

                        E.  Incorporation of Representations and Warranties from
Credit Agreement.  Each of the statements set forth in Section 7.2.1 of
the Credit Agreement is true and correct.

                Section 5.        Acknowledgement and Consent.

                The Company is a party to the Company Collateral Documents, in
each case as amended through the date hereof, pursuant to which the Company has
created Liens in favor of the Agent on certain Collateral to secure the
Obligations. The Parent Guarantor is a party to the Parent Collateral Documents,
in each case as amended through the date hereof, pursuant to which the Parent
Guarantor has created Liens in favor of the Agent on certain Collateral and
pledged certain Collateral to the Agent to secure the Obligations of the Parent
Guarantor. Certain Subsidiaries of the Company are parties to the Subsidiary
Guaranty and/or one or more of the Subsidiary Collateral Documents, in each case
as amended through the date hereof, pursuant to which such Subsidiaries have (i)
guarantied the Obligations and/or (ii) created Liens in favor of the Agent on
certain Collateral. The Company, the Parent Guarantor and such Subsidiaries are
collectively referred to herein as the "Credit Support Parties", and the Company
Collateral Documents, the Parent Collateral Documents, the Subsidiary Guaranty
and the Subsidiary Collateral Documents are collectively referred to herein as
the "Credit Support Documents".

                Each Credit Support Party hereby acknowledges that it has
reviewed the terms and provisions of the Credit Agreement as amended by this
Amendment and consents to the amendment of the Credit Agreement effected as of
the date hereof pursuant to this Amendment.

                Each Credit Support Party acknowledges and agrees that any of
the Credit Support Documents to which it is a party or otherwise bound shall
continue in full force and effect. Each Credit Support Party hereby confirms
that each Credit Support Document to which it is a party or otherwise bound and
all Collateral encumbered thereby will continue to guaranty or secure, as the
case may be, the payment and performance of all obligations guaranteed or
secured thereby, as the case may be.

                Each Credit Support Party (other than the Company and the
Parent Guarantor) acknowledges and agrees that (i) notwithstanding the
conditions to effectiveness set forth in this Amendment, such Credit Support
Party is not required by the terms of the Credit Agreement or any other Loan
Document to consent to the amendments to the Credit Agreement effected pursuant
to this Amendment and (ii) nothing in the Credit Agreement, this Amendment or
any other Loan Document shall be deemed to require the consent of such Credit
Support Party to any future amendments to the Credit Agreement.

                Section 6.        Miscellaneous.

                        A. Reference to and Effect on the Credit Agreement and
the Other Loan Documents.

                                (1)   On and after the Twenty-First Amendment
                  Effective Date, each reference in the Credit Agreement to
                  "this Agreement", "hereunder," "hereof," "herein" or words of
                  like import referring to the Credit Agreement, and each
                  reference in the other Loan Documents to the "Credit
                  Agreement," "thereunder," "thereof" or words of like import
                  referring to the Credit Agreement shall mean and be a
                  reference to the Amended Agreement.

                                (2)   Except as specifically amended by this
                  Amendment, the Credit Agreement and the other Loan Documents
                  shall remain in full force and effect and are hereby ratified
                  and confirmed.

                        B. Applicable Law.  THIS AMENDMENT SHALL BE DEEMED TO BE
A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW
YORK, WITHOUT GIVING EFFECT TO SUCH LAWS RELATING TO CONFLICTS OF LAWS.

                        C. Headings.  The various headings of this Amendment are
inserted for convenience only and shall not affect the meaning or interpretation
of this Amendment or any provision hereof.

                        D. Counterparts.  This Amendment may be executed by the
parties hereto in several counterparts and by the different parties on separate
counterparts, each of which shall be deemed to be an original and all of which
shall constitute together but one and the same instrument; signature pages may
be detached from multiple separate counterparts and attached to a single
counterpart so that all signature pages are physically attached to the same
document.

                        E. Severability.  Any provision of this Amendment which
is prohibited or unenforceable in any jurisdiction shall, as to such provision
and such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this Amendment
or affecting the validity or enforceability of such provisions in any other
jurisdiction.

                  IN WITNESS WHEREOF, this Amendment has been duly executed and
delivered as of the day and year first above written.

KAISER ALUMINUM CORPORATION                 KAISER ALUMINUM & CHEMICAL
                                            CORPORATION


By:  /S/ DAVID A. CHEADLE                   By:  /S/ DAVID A. CHEADLE
Name Printed:  David A. Cheadle             Name Printed:  David A. Cheadle
Its:  Assistant Treasurer                   Its:  Assistant Treasurer



BANK OF AMERICA, N.A. (successor to         BANK OF AMERICA, N.A. (successor to
BankAmerica Business Credit, Inc.),         BankAmerica Business Credit, Inc.)
as Agent

By:  /S/ MICHAEL J. JASAITIS                By:  /S/ MICHAEL J. JASAITIS
Name: Michael J. Jasaitis                   Name: Michael J. Jasaitis
Its: Vice President                         Its: Vice President


THE CIT GROUP/BUSINESS                      HELLER FINANCIAL, INC.
CREDIT, INC.


By:  /S/ NEAL T. LEGAN                      By:  /S/ RICHARD J. HOLSTON
Name Printed:  Neal T. Legan                Name Printed:  Richard J. Holston
Its:  Vice President                        Its:  Assistant Vice President


CONGRESS FINANCIAL CORPORATION              TRANSAMERICA BUSINESS CAPITAL
(WESTERN)                                   CORPORATION


By:  /S/ GARY D. CASSIANNI                  By:  /S/ ARI KAPLAN
Name Printed:  Gary D. Cassianni            Name Printed:  Ari Kaplan
Its:   Vice President                       Its:  Vice President


LA SALLE BANK NATIONAL                      ABN AMRO BANK N.V.
ASSOCIATION (formerly known as
La Salle National Bank)                     By:  /S/ JEFFREY DODD
                                            Name Printed:  Jeffrey Dodd
                                            Its:  Group Vice President
By:  /S/ DOUGLAS C. COLLETTI
Name Printed:  Douglas C. Colletti          By: /S/ L. DAVID WRIGHT
Its:  First V.P.                            Name Printed:  L. David Wright
                                            Its:  Senior Vice President


ACKNOWLEDGED AND AGREED TO:

AKRON HOLDING CORPORATION                   KAISER ALUMINUM & CHEMICAL
                                            INVESTMENT, INC.

By:  /S/ DAVID A. CHEADLE                   By:  /S/ DAVID A. CHEADLE
Name Printed:  David A. Cheadle             Name Printed:  David A. Cheadle
Its:  Assistant Treasurer                   Its:  Assistant Treasurer

KAISER ALUMINUM PROPERTIES,                 KAISER ALUMINUM TECHNICAL
INC.                                        SERVICES, INC.

By:  /S/ DAVID A. CHEADLE                   By:  /S/ DAVID A. CHEADLE
Name Printed:  David A. Cheadle             Name Printed:  David A. Cheadle
Its:  Assistant Treasurer                   Its:  Assistant Treasurer

OXNARD FORGE DIE COMPANY, INC.              KAISER ALUMINIUM
INTERNATIONAL, INC.

By:  /S/ DAVID A. CHEADLE                   By:  /S/ DAVID A. CHEADLE
Name Printed:  David A. Cheadle             Name Printed:  David A. Cheadle
Its:  Assistant Treasurer                   Its:  Assistant Treasurer

KAISER ALUMINA AUSTRALIA                    KAISER FINANCE CORPORATION
CORPORATION

By:  /S/ DAVID A. CHEADLE                   By:  /S/ DAVID A. CHEADLE
Name Printed:  David A. Cheadle             Name Printed:  David A. Cheadle
Its:  Assistant Treasurer                   Its:  Assistant Treasurer

ALPART JAMAICA INC.                         KAISER JAMAICA CORPORATION

By:  /S/ DAVID A. CHEADLE                   By:  /S/ DAVID A. CHEADLE
Name Printed:  David A. Cheadle             Name Printed:  David A. Cheadle
Its:  Assistant Treasurer                   Its:  Assistant Treasurer

KAISER BAUXITE COMPANY                      KAISER EXPORT COMPANY

By:  /S/ DAVID A. CHEADLE                   By:  /S/ DAVID A. CHEADLE
Name Printed:  David A. Cheadle             Name Printed:  David A. Cheadle
Its:  Assistant Treasurer                   Its:  Assistant Treasurer

KAISER MICROMILL HOLDINGS, LLC              KAISER SIERRA MICROMILLS, LLC

By:  /S/ DAVID A. CHEADLE                   By:  /S/ DAVID A. CHEADLE
Name Printed:  David A. Cheadle             Name Printed: David A. Cheadle
Its:  Assistant Treasurer                   its: Assistant Treasurer

KAISER TEXAS SIERRA MICROMILLS,             KAISER TEXAS MICROMILL
LLC                                         HOLDINGS, LLC

By:  /S/ DAVID A. CHEADLE                   By:  /S/ DAVID A. CHEADLE
Name Printed:  David A. Cheadle             Name Printed:  David A. Cheadle
Its:  Assistant Treasurer                   Its:  Assistant Treasurer

KAISER BELLWOOD CORPORATION

By:  /S/ DAVID A. CHEADLE
Name Printed:  David A. Cheadle
Its:  Assistant Treasurer

EX-10

                                                                    Exhibit 10.1

                Form of Non-Employee Director Stock Option Grant
                (for options issued commencing January 1, 2001)

                              NON-EMPLOYEE DIRECTOR
                               STOCK OPTION GRANT
                             PURSUANT TO THE KAISER
                        1997 OMNIBUS STOCK INCENTIVE PLAN


         1) GRANT OF STOCK OPTION. Kaiser Aluminum Corporation ("KAC") and
Kaiser Aluminum & Chemical Corporation ("KACC"), both Delaware corporations
(collectively, the "Company"), hereby evidence that the Company has granted to
___________________ ("Optionee") the right, privilege and option as herein set
forth (the "Stock Option") to purchase ______ shares of common stock, $.01 par
value per share, of KAC (as more fully defined in Attachment I - "Definitions
Applicable to Certain Terms", which is incorporated herein and made a part
hereof, the "Option Shares") in accordance with the terms of this document (this
"Stock Option Grant").

         The Stock Option is granted pursuant to the Kaiser 1997 Omnibus Stock
Incentive Plan (the "Plan") and is subject to the provisions of the Plan, a copy
of which has been furnished to Optionee and which is hereby incorporated in and
made a part of this Stock Option Grant, as well as to the provisions of this
Stock Option Grant. By acceptance of the Stock Option, Optionee agrees to be
bound by all of the terms, provisions, conditions and limitations of the Plan
and this Stock Option Grant.

         All capitalized terms used herein shall have the meanings provided in
the Plan document unless otherwise specifically provided in this Stock Option
Grant, including Attachment I. The Stock Option is a Nonqualified Stock Option
under the Plan and is not intended to qualify as an "incentive stock option"
within the meaning of Section 422 of the Code.

         All Option Shares, when issued to Optionee upon the exercise of this
Stock Option, shall be fully paid and nonassessable.

         2) OPTION TERM. Subject to earlier termination as provided herein, or
in the Plan, the Stock Option shall expire on ____________ ("Expiration Date").
The period during which the Stock Option is in effect shall be referred to as
the "Option Period".

         3) OPTION EXERCISE PRICE. The exercise price per Option Share (the
"Option Price") at which Optionee may purchase such Option Shares subject to the
Stock Option shall be $______ per Option Share. Such Option Price shall be
subject to adjustment as provided in the Plan and this Stock Option Grant. The
Company shall notify Optionee within thirty (30) days of any change in the
Option Price.

         4) VESTING. The Stock Option may be exercised during the Option Period
only to the extent it has become a "Vested Option." Subject to the terms of
Paragraph 6 below, the Stock Option shall become a Vested Option ______________.

         5) METHOD OF EXERCISE. To exercise the Stock Option, Optionee shall
deliver written notice to the Company stating the number of Option Shares with
respect to which the Stock Option is being exercised together with payment for
such Option Shares. Payment shall be made (i) in cash or its equivalent, (ii) by
tendering previously acquired Shares having an aggregate Fair Market Value (as
defined in the Plan) at the time of exercise equal to the total Option Price
(provided that the Shares which are tendered must have been held by Optionee for
at least six months prior to their tender to satisfy the Option Price) or (iii)
by a combination of (i) and (ii).

         The Stock Option may be exercised by Optionee or, in the case of death,
by the executor or administrator of Optionee's estate, or the person or persons
to whom Optionee's rights under the Stock Option shall pass by will or by the
applicable laws of descent and distribution, or in the case of Disability (as
defined in the Plan), by Optionee's personal representative.

         6) TERMINATION OF DIRECTORSHIP. Termination of Optionee as a member of
the Boards of Directors of KAC and KACC shall affect Optionee's rights under the
Stock Option as follows:

                  (a) Termination by Death. If Optionee's membership on the
         Boards of Directors of KAC and KACC is terminated as a result of the
         death of Optionee, the Stock Option shall be exercisable as to all
         Option Shares from date of death through and including the end of the
         Option Period.

                  (b) Termination as a Result of Disability. If Optionee's
         membership on the Boards of Directors of KAC and KACC is terminated as
         a result of the Disability of Optionee, the Stock Option shall be
         exercisable as to all Option Shares from the date the Optionee
         terminates his membership on the Boards of Directors of KAC and KACC as
         a result of such Disability through and including the end of the Option
         Period.(1)

                  (c) Termination Other than by Death or Disability. If
         Optionee's membership on the Boards of Directors of KAC and KACC is
         terminated prior to the earlier of (i) ____________ or (ii) the ______
         annual meeting of sharehholders of KAC for any reason other than the
         death or Disability of Optionee, the Stock Option shall terminate and
         be of no further effect immediately upon Optionee's termination of
         membership on the Boards of Directors of KAC and KACC.(1)

         7) REORGANIZATIONS. The existence of the Stock Option shall not affect
in any way the right or power of the Company and its Subsidiaries (as defined in
Attachment I) or the issuers of Attributable Securities or its or their
stockholders to make or authorize any and all Distribution Events (as defined in
Attachment I) and any and all other adjustments or other changes in the capital
structure or business of the Company or its Subsidiaries or the issuers of
Attributable Securities (as defined in Attachment I), any and all issuances of
bonds, debentures, common stock, preferred or prior preference stock, warrants,
rights or other securities, whether or not affecting the Option Shares or the
rights thereof, any dissolution or liquidation of the Company or any Subsidiary,
any sale or other divestiture or transfer of all or any part of the assets or
business of the Company or any Subsidiary or any issuer of Attributable
Securities and any and all other corporate acts or proceedings, whether of a
similar character or otherwise.

         8) ADJUSTMENTS. If any one or more Distribution Events affects the
Shares such that an adjustment in the Stock Option is appropriate in order to
prevent dilution or enlargement of the rights of Optionee, the Board shall make
appropriate adjustment to the number and kind of Shares or securities issuable
in respect of the Stock Option and to the Option Price, or if deemed
appropriate, make provision for the payment of cash or other property in respect
of the Stock Option. In addition, the Board may make adjustments in the terms
and conditions of the Stock Option in recognition of unusual or nonrecurring
events affecting the Company or its financial statements or of changes in
applicable laws, regulations or accounting principles in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available to Optionee under this Stock Option Grant and the Plan.

         9) NO RIGHTS IN OPTION SHARES. Optionee shall have no rights as a
stockholder in respect of Option Shares until Optionee becomes the holder of
record of such Option Shares.

         10) OPTION SHARES RESERVED.  The Company shall at all times during
the Option Period reserve and keep available such number of Shares as will be
sufficient to satisfy the requirements of the Stock Option.

         11) NONTRANSFERABILITY OF STOCK OPTION. The Stock Option granted
pursuant to this Stock Option Grant is not transferable other than by will, the
laws of descent and distribution or by qualified domestic relations order. The
Stock Option will be exercisable during Optionee's lifetime only by Optionee or
by Optionee's guardian or legal representative. No right or benefit hereunder
shall in any manner be liable for or subject to any debts, contracts,
liabilities, or torts of Optionee.

         12) AMENDMENT AND TERMINATION. Except as permitted herein or by the
Plan, no amendment or termination of the Stock Option shall be made by the Board
at any time without the written consent of Optionee. No amendment of the Plan
will adversely affect the rights, privileges and options of Optionee under the
Stock Option without the written consent of Optionee.

         13) NO GUARANTEE OF DIRECTORSHIP. The Stock Option shall not confer
upon Optionee any right with respect to continuance as a member of the Board,
nor shall it interfere in any way with any right the Company would otherwise
have to terminate Optionee's membership on the Board or other service at any
time.

         14) WITHHOLDING OF TAXES. The Company shall have the right to deduct or
withhold, or require Optionee to remit to the Company, an amount sufficient to
satisfy all federal, state and local taxes, domestic or foreign, required by law
or regulation to be withheld with respect to any taxable event arising under
this Stock Option Grant or any exercise or other action or event hereunder.

         15) NO GUARANTEE OF TAX CONSEQUENCES. Neither the Company nor the Board
makes any commitment or guarantee that any federal or state tax treatment will
apply or be available to any person eligible for benefits under the Stock
Option.

         16) SEVERABILITY. In the event that any provision of the Stock Option
shall be held illegal, invalid, or unenforceable for any reason, such provision
shall be fully severable, but shall not affect the remaining provisions of the
Stock Option, and the Stock Option shall be construed and enforced as if the
illegal, invalid, or unenforceable provision had never been included herein.

         17) GOVERNING LAW. The Stock Option shall be construed in accordance
with the laws of the State of Texas to the extent federal law does not supersede
and preempt Texas law.


Executed effective as of the _____ day of ___________, ____.


                                             "COMPANY"

                                             KAISER ALUMINUM CORPORATION


                                             By:_______________________________
                                             Printed Name:_____________________
                                             Title:____________________________

                                             KAISER ALUMINUM & CHEMICAL
                                                CORPORATION

                                             By:_______________________________
                                             Printed Name:_____________________
                                             Title:____________________________

         Accepted effective as of the ____ day of ____________, ____.


                                             "OPTIONEE"


                                             By:_______________________________
                                             Printed Name:_____________________
                                             Title:____________________________



                                                                    ATTACHMENT I

                    NON-EMPLOYEE DIRECTOR STOCK OPTION GRANT

                     DEFINITIONS APPLICABLE TO CERTAIN TERMS


"ATTRIBUTABLE SECURITIES" - see the definition of "Option Share".

"DISTRIBUTION EVENTS" means any and all distributions, dividends,
recapitalizations, forward or reverse splits, reorganizations, mergers,
consolidations, spin-offs, combinations, repurchases, share exchanges or other
similar corporate transactions or events.

"MARKETABLE SECURITIES" means securities (a) of a class that is registered under
the Securities Exchange Act of 1934, as amended, (b) for which sales prices or
bid and asked prices are regularly quoted and (c) that, if issued and delivered
to Optionee upon exercise of the Stock Option, would not be subject to any
restriction on resale, other than any restriction arising from Optionee's being
an Affiliate or Insider (as defined in the Plan) of the issuer of such
Marketable Securities.

"OPTION SHARE" means (a) one Share as constituted on ____________ (an "Original
Share") and (b) in the event of any one or more successive Distribution Events,
all Marketable Securities ("Attributable Securities") into which or for which an
Original Share or any Attributable Securities may be converted or exchanged or
that a stockholder may have the right to receive in respect of such Original
Share or Attributable Securities.

"ORIGINAL SHARE" - see the definition of "Option Share".

"SHARE" means one share of common stock, par value $.01 per share, of KAC.

"SUBSIDIARY" - see Section 2.32 of the Plan. For avoidance of doubt, KACC shall
be considered a Subsidiary of KAC so long as KAC has a majority voting interest
in KACC, and KAC shall be considered to have a majority voting interest whether
it holds such interest directly or indirectly through one or more Subsidiaries.


- ----------------
(1)     For Stock Options granted to non-employee directors prior to June 1,
        2001, Paragraph 6 provides that if the Optionee's membership on the
        Board of Directors of KAC and KACC terminates for any reason other than
        death, the Stock Option continues to vest in accordance with Paragraph
        4 and all vested options shall be exercisable through the end of
        the Option Period.  For Stock Options issued after June 1, 2001,
        Paragraph 6 reads as shown above.

EX-10

                                                                    Exhibit 10.2

                      Form of Employee Stock Option Grant
                (for options issued commencing January 1, 2001)

                               STOCK OPTION GRANT
                             PURSUANT TO THE KAISER
                        1997 OMNIBUS STOCK INCENTIVE PLAN


         1. GRANT OF STOCK OPTION. Kaiser Aluminum Corporation ("KAC") and
Kaiser Aluminum & Chemical Corporation ("KACC"), both Delaware corporations
(collectively, the "Company"), hereby evidence that the Company has granted to
__________ ("Optionee") the right, privilege and option as herein set forth (the
"Stock Option") to purchase ______ shares of common stock, $.01 par value per
share, of KAC (as more fully defined in Attachment I - "Definitions Applicable
to Certain Terms", which is incorporated herein and made a part hereof, the
"Option Shares") in accordance with the terms of this document (this "Stock
Option Grant").

         The Stock Option is granted pursuant to the Kaiser 1997 Omnibus Stock
Incentive Plan (the "Plan") and is subject to the provisions of the Plan, a copy
of which has been furnished to Optionee and which is hereby incorporated in and
made a part of this Stock Option Grant, as well as to the provisions of this
Stock Option Grant. By acceptance of the Stock Option, Optionee agrees to be
bound by all of the terms, provisions, conditions and limitations of the Plan
and this Stock Option Grant.

         All capitalized terms used herein shall have the meanings provided in
the Plan document unless otherwise specifically provided in this Stock Option
Grant, including Attachment I. The Stock Option is a Nonqualified Stock Option
under the Plan and is not intended to qualify as an "incentive stock option"
within the meaning of Section 422 of the Code.

         All Option Shares, when issued to Optionee upon the exercise of this
Stock Option, shall be fully paid and nonassessable.

         2. OPTION TERM.  Subject to earlier termination as provided herein, or
in the Plan, the Stock Option shall expire on  ___________ ("Expiration  Date").
The period during which the Stock Option is in effect shall be referred to as
the "Option Period".

         3. OPTION EXERCISE PRICE. The exercise price per Option Share
(including any Attributable Securities, as defined in Attachment I) (the "Option
Price") at which Optionee may purchase such Option Shares subject to the Stock
Option shall be equal to the remainder of (i) $_____per Option Share minus (ii)
the amount per Option Share of Distributed Cash Value (as defined in Attachment
I) determined as of the date of exercise. Such Option Price shall also be
subject to adjustment as provided in the Plan and this Stock Option Grant. The
Company shall notify Optionee within thirty (30) days of each change in the
Option Price.

         4. VESTING.  The Stock Option may be exercised during the Option Period
only to the extent it has become a "Vested Option."  Subject to the terms of
Paragraphs 6 and 7 below, the Stock Option shall become a Vested Option
_______________________.

         5. METHOD OF EXERCISE. To exercise the Stock Option, Optionee shall
deliver written notice to the Company stating the number of Option Shares with
respect to which the Stock Option is being exercised together with payment for
such Option Shares. Payment shall be made (i) in cash or its equivalent, (ii) by
tendering previously acquired Shares having an aggregate Fair Market Value (as
defined in the Plan) at the time of exercise equal to the total Option Price
(provided that the Shares which are tendered must have been held by Optionee for
at least six months prior to their tender to satisfy the Option Price) or (iii)
by a combination of (i) and (ii).

         6. TERMINATION OF OPTIONEE'S EMPLOYMENT. Termination of Optionee's
employment as a regular full-time salaried employee of KAC, a Subsidiary (as
defined in Attachment I), or any branch, unit or division of KAC or any
Subsidiary ("Employment") shall affect Optionee's rights under the Stock Option
as follows:

                  (1) Termination by the Company for Cause. If Optionee's
         Employment is terminated by the Company for Cause, then (i) the Option
         Period shall terminate and (ii) Optionee's right to exercise the Stock
         Option shall terminate, in each case immediately upon Optionee's
         becoming subject to termination of Employment for Cause. Optionee shall
         be terminated for "Cause" if terminated as a result of Optionee's
         breach of Optionee's written employment or other engagement agreement
         (if any), or if the Board of Directors determines that Optionee is
         being terminated as a result of misconduct, dishonesty, disloyalty,
         disobedience or action that might reasonably be expected to injure KAC
         or any Subsidiary or their business interests or reputation.

                  (2) Termination by the Company Other than for Cause. If
         Optionee's Employment is terminated by the Company other than as a
         result of termination of Optionee's Employment for Cause, then (i) the
         Option Period shall terminate upon the earlier of the Expiration Date
         or one year from the date Employment is terminated, (ii) the Stock
         Option shall continue to vest in accordance with Paragraph 4 above
         through and including the end of such Option Period, and (iii) Vested
         Options shall be exercisable through and including the end of such
         Option Period.

                  (3) Termination by Death. If Optionee's Employment is
         terminated as a result of death, then (i) the Option Period shall
         terminate upon the earlier of the Expiration Date or three years from
         the date of death, and (ii) the Stock Option shall be exercisable as to
         all Option Shares from date of death through and including the end of
         such Option Period.(1)

                  (4) Termination by Retirement. If Optionee's Employment is
         terminated as a result of Optionee's retirement under any of the early
         or normal retirement provisions of the Kaiser Aluminum Salaried
         Employees Retirement Plan, then (i) the Option Period shall terminate
         upon the earlier of the Expiration Date or three years from the date of
         retirement, (ii) the Stock Option shall continue to vest in accordance
         with Paragraph 4 above through and including the end of such Option
         Period, and (iii) Vested Options shall continue to be exercisable
         through and including the end of such Option Period.

                  (5) Termination by Employee. If Optionee's Employment is
         terminated other than as a result of termination of Optionee's
         Employment by the Company, death or retirement, then (i) the Option
         Period shall terminate upon the earlier of the Expiration Date or three
         months from the date Employment is terminated, and (ii) the Stock
         Option shall be exercisable only to the extent it has become a Vested
         Option as of the date Employment is terminated.

         The Stock Option may be exercised by Optionee or, in the case of death,
by the executor or administrator of Optionee's estate, or the person or persons
to whom Optionee's rights under the Stock Option shall pass by will or by the
applicable laws of descent and distribution, or in the case of Disability, by
Optionee's personal representative.

         7. CHANGE OF CONTROL. If KAC experiences a Change in Control (as
defined in Attachment I), then (i) the Option Period shall terminate upon the
earlier of the Expiration Date or one year from the date of the Change in
Control, and (ii) the Stock Option shall immediately become a Vested Option,
exercisable as to all Option Shares through and including the end of such Option
Period.

         8. REORGANIZATIONS; REPURCHASE OF STOCK OPTION.

                  1. Freedom to Reorganize the Company and Subsidiaries. The
         existence of the Stock Option shall not affect in any way the right or
         power of the Company and its Subsidiaries or the issuers of
         Attributable Securities or its or their stockholders to make or
         authorize any and all Distribution Events (as defined in Attachment I)
         and any and all other adjustments, recapitalizations, reorganizations
         or other changes in the capital structure or business of the Company or
         its Subsidiaries or the issuers of Attributable Securities, any and all
         issuances of bonds, debentures, common stock, preferred or prior
         preference stock, warrants, rights or other securities, whether or not
         affecting the Option Shares or the rights thereof, any dissolution or
         liquidation of the Company or any Subsidiary, any sale or other
         divestiture or transfer of all or any part of the assets or business of
         the Company or any Subsidiary or any issuer of Attributable Securities
         and any and all other corporate acts or proceedings, whether of a
         similar character or otherwise (collectively, including any
         Distribution Events, collectively, "Reorganizations").

                  2. Spin-Offs. If the Board of Directors authorizes any
         Distribution Event or other Reorganization as a result of which holders
         of Shares become entitled, in their capacities as holders, to receive
         Marketable Securities (as defined in Attachment I), the Board of
         Directors shall, to the extent reasonably practicable, cause the
         Company to provide for or require: (i) that the issuer(s) of such
         Marketable Securities shall undertake to issue and deliver to Optionee,
         upon any subsequent exercise of the Stock Option, such Marketable
         Securities as Optionee would have received if Optionee had so exercised
         the Stock Option prior to such Distribution Event or other
         Reorganization and had participated therein (and in any and all
         subsequent Distribution Events or other Reorganizations) to the maximum
         extent allowed to holders of Shares (including any Attributable
         Securities) outstanding at the time of such Distribution Event or other
         Reorganization; (ii) that such Marketable Securities shall be so issued
         and delivered to Optionee pursuant to an effective registration
         statement under the Securities Act of 1933, as amended, or otherwise
         free of any restriction on resale thereof by Optionee, other than any
         restriction on resale arising from Optionee's being an Affiliate or
         Insider (as such terms are defined in the Plan) of such issuer; (iii)
         that such Marketable Securities shall be so issued and delivered
         without any agreement, condition, payment or other consideration being
         required of Optionee or the Company; (iv) that such issuer(s) shall at
         all times reserve for issuance a sufficient amount of such Marketable
         Securities to fulfill all obligations contemplated hereunder; and (v)
         that upon each such issuance, such Marketable Securities shall be duly
         authorized, validly issued, fully paid and nonassessable. The Company
         shall also provide for or require that: (x) in the event any such
         issuer shall fail or be unable to issue and deliver to Optionee any
         Marketable Securities as provided in the preceding sentence, such
         issuer shall be obligated, in lieu of issuing and delivering such
         Marketable Securities, to pay to Optionee in cash, immediately upon
         exercise of the Stock Option, the Market Value of such Marketable
         Securities determined as of the date of exercise of the Stock Option;
         and (y) in the event the Company is obligated to make a cash payment to
         Optionee pursuant to Paragraph 9(b), such issuer shall be obligated to
         reimburse the Company for a part of such payment proportionate to the
         Distributed Cash Value attributable to Attributable Securities of such
         issuer compared to the total amount of Distributed Cash Value.

                  3. Right to Repurchase Stock Option. Upon receipt of a notice
         of exercise, the Company shall have the right but not the obligation to
         repurchase, and thereby to satisfy all of the Company's obligations
         under, the Stock Option as to the number of Option Shares as to which
         the Stock Option is exercised by paying Optionee in cash an amount, net
         of any taxes required to be withheld, equal to the sum of (A) the
         product of (i) the number of Option Shares as to which the Stock Option
         is exercised multiplied by (ii) the amount, determined as of such date
         of exercise, equal to the remainder of (x) the Market Value of one
         Option Share minus (y) the Option Price plus (B) the amount of cash, if
         any, payable to Optionee pursuant to Paragraph 9(b).

         9. ADJUSTMENTS.

                  (a) In the event of any one or more Distribution Events or
         other Reorganizations affecting the Stock Option not already adjusted
         for under Paragraph 8, the Option Price and the number of Option Shares
         subject to the Stock Option shall be appropriately adjusted by the
         Board of Directors. In addition, the Board of Directors shall, as
         permitted by Section 3.2, Section 16.2 and other provisions of the
         Plan, construe and interpret the Plan and this Stock Option Grant and
         make all appropriate adjustments in order to prevent dilution or
         enlargement of the benefits or potential benefits intended to be made
         available to Optionee under this Stock Option Grant and the Plan.

                  (b) Without limitation to the foregoing, in the event that the
         amount of Distributed Cash Value as of any date of exercise of the
         Stock Option is equal to or greater than $ _________ per Option Share,
         the Option Price shall be deemed to be $.01 per Option Share and the
         Company, in addition to issuing Option Shares to Optionee, shall pay to
         Optionee in respect of each Option Share as to which the Stock Option
         is exercised an amount of cash equal to the remainder of (i) such
         amount of Distributed Cash Value per Option Share minus (ii) $________.

         10.      NO RIGHTS IN OPTION SHARES.  Optionee shall have no rights
as a stockholder in respect of Option Shares until such Optionee becomes the
holder of record of such Option Shares.

         11.      OPTION SHARES RESERVED.  The Company shall at all times during
the Option Period reserve and keep available such number of Shares as will be
sufficient to satisfy the requirements of this Stock Option.

         12.      NONTRANSFERABILITY OF STOCK OPTION. The Stock Option granted
pursuant to this Stock Option Grant is not transferable other than by will, the
laws of descent and distribution or by qualified domestic relations order. The
Stock Option will be exercisable during Optionee's lifetime only by Optionee or
by Optionee's guardian or legal representative. No right or benefit hereunder
shall in any manner be liable for or subject to any debts, contracts,
liabilities, or torts of Optionee.

         13.      AMENDMENT AND TERMINATION. No amendment or termination of the
Stock Option shall be made by the Board of Directors or the Committee (as
defined in the Plan) at any time without the written consent of Optionee. No
amendment of the Plan will adversely affect the rights, privileges and options
of Optionee under the Stock Option without the written consent of Optionee.

         14.      NO GUARANTEE OF EMPLOYMENT. The Stock Option shall not confer
upon Optionee any right with respect to continuance of Employment or other
service with the Company or any Subsidiary or Affiliate, nor shall it interfere
in any way with any right the Company or any Subsidiary or Affiliate would
otherwise have to terminate such Optionee's Employment or other service at any
time.

         15.      WITHHOLDING OF TAXES. The Company shall have the right to
deduct or withhold, or require Optionee to remit to the Company, an amount
sufficient to satisfy all federal, state and local taxes, domestic or foreign,
required by law or regulation to be withheld with respect to any taxable event
arising under this Stock Option Grant or any exercise or other action or event
hereunder.

         16.      NO GUARANTEE OF TAX CONSEQUENCES.  Neither the Company nor any
Subsidiary or Affiliate, nor the Board of Directors or any Committee, makes any
commitment or guarantee that any federal or state tax treatment will apply or be
available to any person eligible for benefits under the Stock Option.

         17.      SEVERABILITY. In the event that any provision of the Stock
Option shall be held illegal, invalid, or unenforceable for any reason, such
provision shall be fully severable, but shall not affect the remaining
provisions of the Stock Option, and the Stock Option shall be construed and
enforced as if the illegal, invalid, or unenforceable provision had never been
included herein.

         18.      GOVERNING LAW. The Stock Option shall be construed in
accordance with the laws of the State of Texas to the extent federal law does
not supersede and preempt Texas law.

Executed effective as of the ___ day of _______, ____.

                           "COMPANY"

                           KAISER ALUMINUM CORPORATION


                           By:_________________________________
                           Printed Name:_______________________
                           Title:______________________________



                           KAISER ALUMINUM & CHEMICAL CORPORATION


                           By:_________________________________
                           Printed Name:_______________________
                           Title:______________________________

         Accepted effective as of the ___ day of _______, ____.

                            "OPTIONEE"


                            ___________________________________
                            Printed Name:______________________
                            Title:_____________________________





                                                                    ATTACHMENT I

                               STOCK OPTION GRANT

                     DEFINITIONS APPLICABLE TO CERTAIN TERMS

"AFFILIATE" - see Section 2.1 of the Plan.

"ATTRIBUTABLE SECURITIES" - see the definition of "Option Share".

"CAUSE" - see Paragraph 6(1) of this Stock Option Grant.

"CHANGE IN CONTROL" means (a) the sale, lease, conveyance, or other disposition
of all or substantially all of KAC's or KACC's assets as an entirety or
substantially as an entirety to any person, entity, or group of persons acting
in concert other than in the ordinary course of business; (b) any transaction or
series of related transactions (as a result of a tender offer, merger,
consolidation or otherwise) that results in any person (as defined in Section
13(h)(8)(E) under the Securities Exchange Act of 1934) becoming the beneficial
owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934)
directly or indirectly, of more than 50% of the aggregate voting power of all
classes of common equity of KAC or KACC, except if such person is (i) a
Subsidiary of KAC, or (ii) an employee stock ownership plan for employees of KAC
or KACC, or (iii) a company formed to hold KAC's or KACC's common equity
securities and whose shareholders constituted, at the time such company became
such holding company, substantially all the shareholders of KAC or KACC,
respectively; or (c) a change in the composition of KAC's or KACC's Board of
Directors over a period of thirty-six (36) consecutive months or less such that
a majority of the then current Board members ceases to be comprised of
individuals who either (x) have been Board members continuously since the
beginning of such period, or (y) have been elected or nominated for election as
Board members during such period by at least a majority of the Board members
described in clause (x) who were still in office at the time such election or
nomination was approved by the Board.

"DISABILITY" - see Section 2.12 of the Plan.

"DISTRIBUTED CASH VALUE" means, as of any determination date, the aggregate
amount of cash (other than regular quarterly cash dividends, if any) plus the
aggregate value, as determined by the Board of Directors as of the date of
distribution, of all property (other than cash and Attributable Securities)
distributed or set aside for distribution to the holder of one Original Share
and all Attributable Securities, if any, during the period commencing
___________ and ending on the determination date.

"DISTRIBUTION EVENTS" means any and all distributions, dividends,
recapitalizations, forward or reverse splits, reorganizations, mergers,
consolidations, spin-offs, combinations, repurchases, share exchanges, or other
similar or substantially equivalent corporate transactions or events in which
the holder of a security becomes, as such, entitled to receive cash, securities
or other property in addition to or in exchange for or upon conversion of such
security.

"EMPLOYMENT" - see Paragraph 6 of this Stock Option Grant.

"INSIDER" - see Section 2.19 of the Plan.

"KAC" - see Paragraph 1 of this Stock Option Grant.

"KACC" - see Paragraph 1 of this Stock Option Grant.

"MARKET VALUE" means, as of any Trading Day, the average of the highest and
lowest sales prices as reported by the consolidated tape (or, if such prices are
not quoted, the average of the quoted closing bid and asked prices) on such
Trading Day for one Option Share (including, as applicable, the Market Values of
any Attributable Securities). In the event that sales prices or closing bid and
asked prices are not quoted on a particular Trading Day, the Market Value for
that Trading Day shall be deemed to be the Market Value for the immediately
preceding Trading Day. In the event that any Attributable Security shall cease
to be a Marketable Security, it shall thereupon be deemed to have no further
Market Value and shall be deemed instead to have, as of the date it ceases to be
a Marketable Security, such Distributed Cash Value as shall be determined by the
Board of Directors.

"MARKETABLE SECURITIES" means securities (a) of a class that is registered under
the Securities Exchange Act of 1934, as amended, (b) for which sales prices or
bid and asked prices are regularly quoted and (c) that, if issued and delivered
to Optionee upon exercise of the Stock Option, would not be subject to any
restriction on resale, other than any restriction arising from Optionee's being
an Affiliate or Insider (as such terms are defined in the Plan) of the issuer of
such Marketable Securities.

"OPTION PERIOD" - see Paragraph 2 of this Stock Option Grant.

"OPTION PRICE" - see Paragraph 3 of this Stock Option Grant.

"OPTION SHARE" means (a) one Share as constituted on ___________ (an "Original
Share") and (b) in the event of any one or more successive Distribution Events,
all Marketable Securities ("Attributable Securities") into which or for which an
Original Share or any Attributable Securities may be converted or exchanged or
that a stockholder may have the right to receive in respect of such Original
Share or Attributable Securities.

"OPTIONEE" - see Paragraph 1 of this Stock Option Grant.

"ORIGINAL SHARE" - see the definition of "Option Share".

"PLAN" - see Paragraph 1 of this Stock Option Grant.

"REORGANIZATION" - see Paragraph 8(1) of this Stock Option Grant.

"SHARE" means one share of common stock, par value $.01 per share, of KAC.

"STOCK OPTION" - see Paragraph 1 of this Stock Option Grant.

"SUBSIDIARY" - see Section 2.32 of the Plan. For avoidance of doubt, KACC shall
be considered a Subsidiary of KAC so long as KAC has a majority voting interest
in KACC, and KAC shall be considered to have a majority voting interest whether
it holds such interest directly or indirectly through one or more Subsidiaries.

"TRADING DAY" means as to an Option Share (including any Attributable
Securities) a day when the New York Stock Exchange (or other principal
securities exchange, including NASDAQ, on which such securities are traded) is
open.

- ---------------
(1)     For Stock Options granted to employee Optionees other than the Company's
        Chief Executive Officer and his direct reports, if the Optionee's
        Employment is terminated as a result of death, the Stock Option shall be
        exercisable only to the extent that it has become a Vested Option as of
        the date of death.  The Option Period for such Vested Options shall be
        the same as in Paragraph 6(2) above.

EX-10

                                                                    Exhibit 10.3

                       Form of Restricted Stock Agreement
           (for restricted shares issued commencing January 1, 2001)

                    KAISER 1997 OMNIBUS STOCK INCENTIVE PLAN

                           RESTRICTED STOCK AGREEMENT


                  RESTRICTED STOCK AGREEMENT (the "Agreement"), dated as of
_________, among Kaiser Aluminum Corporation, a Delaware corporation ("KAC"),
its subsidiary Kaiser Aluminum & Chemical Corporation, a Delaware
corporation ("KACC") (together, the "Company"), and ________________ (the
"Grantee").

                  The Company has determined that the objectives of the Kaiser
1997 Omnibus Stock Incentive Plan (the "Plan") will be furthered by the grant to
the Grantee of ________ shares of Common Stock of KAC ("Common Stock") subject
to the restrictions set out in this Agreement (the "Restricted Shares"),
effective on _________, ____ (the "Grant Date").

                  Notwithstanding any provision hereof, this Agreement shall
become effective only as, when and if the Grantee shall have executed and
delivered to the Company (i) this Agreement and (ii) the stock power referenced
below.

                  In connection with the grant of the Restricted Shares, the
Grantee has delivered to the Company herewith a stock power duly endorsed in
blank, which will be returned to the Grantee when the restrictions on the
Restricted Shares covered thereby have expired as provided in Section 2.

                  In consideration of the foregoing and of the mutual
undertakings set forth in this Agreement, the Company and the Grantee agree as
follows:

                  SECTION 1.  Issuance of Restricted Shares.

                  As soon as practicable after receipt from the Grantee of this
executed Agreement and signed stock power, the Company shall cause to be issued
under the Plan in the name of the Grantee a Restricted Share stock certificate,
representing _____________ shares of Common Stock. Such certificate shall remain
in the possession of the Company until the Restricted Shares represented thereby
are free of the restrictions set forth in Section 2. Upon the issuance of such
certificate, the Grantee shall have the rights of a stockholder with respect to
the Restricted Shares, including the right to vote such shares, subject to the
restrictions set forth in this Agreement and the Plan.

                  SECTION 2.  Restrictions.

                  2.1 Restricted Shares may not be sold, assigned, transferred,
pledged or otherwise encumbered or disposed of prior to the date provided for in
Section 2.2 or Section 2.3. These restrictions shall apply as well to any shares
of Common Stock or other securities of the Company which may be acquired by the
Grantee in respect of the Restricted Shares as a result of any stock split,
stock dividend, combination of shares or other change, or any exchange,
reclassification or conversion of securities.

                  2.2 The Grantee shall vest in the Restricted Shares and the
restrictions set forth in Section 2.1 shall expire in accordance with the
following schedule, (rounded, if necessary, to avoid fractional shares),
provided that the Grantee is then an employee of KAC, KACC, or of an Affiliate
or Subsidiary of KAC or KACC(1):


                                 "Vesting Date"
Percentage of Award







         As soon as practicable after each Vesting Date, the Company shall
deliver to the Grantee, subject to the provisions of Section 4, a stock
certificate representing the Restricted Shares which became free of restrictions
on such Vesting Date.

                  2.3 Notwithstanding any other provisions of this Agreement,
all restrictions on all of the Restricted Shares shall lapse on the earliest of
(a) the date the Grantee dies while an employee of the Company or a Subsidiary
or Affiliate of the Company, (b) the Grantee terminates employment with the
Company or a Subsidiary or Affiliate of the Company on account of Disability, or
(c) the occurrence of a Change in Control while the Grantee is an employee of
the Company or a Subsidiary or Affiliate of the Company. For this purpose,
"Change in Control" means (a) the sale, lease, conveyance, or other disposition
of all or substantially all of KAC's or KACC's assets as an entirety or
substantially as an entirety to any person, entity, or group of persons acting
in concert other than in the ordinary course of business; (b) any transaction or
series of related transactions (as a result of a tender offer, merger,
consolidation or otherwise) that results in any person (as defined in Section
13(h)(8)(E) under the Securities Exchange Act of 1934) becoming the beneficial
owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934)
directly or indirectly, of more than 50% of the aggregate voting power of all
classes of common equity of KAC or KACC, except if such person is (i) a
Subsidiary of KAC, or (ii) an employee stock ownership plan for employees of KAC
or KACC, or (iii) a company formed to hold KAC's or KACC's common equity
securities and whose shareholders constituted, at the time such company became
such holding company, substantially all the shareholders of KAC or KACC,
respectively; or (c) a change in the composition of KAC's or KACC's Board of
Directors over a period of thirty-six (36) consecutive months or less such that
a majority of the then current Board members ceases to be comprised of
individuals who either (x) have been Board members continuously since the
beginning of such period, or (y) have been elected or nominated for election as
Board members during such period by at least a majority of the Board members
described in clause (x) who were still in office at the time such election or
nomination was approved by the Board.(1)

                  2.4 Cash dividends that become payable on Restricted Shares
shall be paid to the Grantee, without regard as to whether the Restricted Shares
to which such dividends pertain are vested as of the dividend payment date.

                  SECTION 3.  Forfeiture.

                  Except as provided in Section 2, effective upon termination of
the Grantee's relationship with the Company as an employee of the Company or a
Subsidiary or Affiliate of the Company for any reason before the restrictions on
any Restricted Shares have expired, such Restricted Shares shall be forfeited
and the stock certificate(s) representing such Restricted Shares shall be
canceled, it being understood and agreed that Grantee shall not be entitled to
any payment whatsoever under this Agreement or provisions of the Plan relating
to this Agreement in connection with such cancellation and termination.(1)

                  SECTION 4.  Withholding Taxes.

                  4.1 Whenever a stock certificate representing Restricted
Shares that have vested in accordance with the terms hereof is to be delivered
to the Grantee pursuant to Section 2, the Company shall be entitled to require
as a condition of such delivery that the Grantee remit to the Company an amount
sufficient in the opinion of the Company to satisfy any federal, state and other
governmental tax withholding requirements related to the expiration of
restrictions on the shares represented by such certificate. The Company, upon
the request of the Grantee, shall withhold from delivery shares having a Fair
Market Value on the Vesting Date equal to the amount of tax to be withheld.
Fractional share amounts shall be settled in cash.

                  4.2 If the Grantee makes the election permitted under section
83(b) of the Internal Revenue Code of 1986, as amended (that is, an election to
include in gross income in the year of transfer the amounts specified in section
83(b)), he shall notify the Company of such election within 10 days of filing
notice of the election with the Internal Revenue Service and shall within the
same 10-day period remit to the Company an amount sufficient in the opinion of
the Company to satisfy any federal, state and other governmental tax withholding
requirements related to such inclusion in Grantee's income.

                  SECTION 5.  Nature of Payments.

                  The grant of the Restricted Shares hereunder constitutes a
special incentive payment and the parties agree that it shall not have the
effect of enhancing the amount of any other fees, compensation or benefits
provided to Grantee by the Company.

                  SECTION 6.  Plan Provisions to Prevail.

                  This Agreement is subject to all of the terms and provisions
of the Plan. Without limiting the generality of the foregoing, by entering into
this Agreement the Grantee agrees that no member of the Compensation Policy or
Section 162(m) Compensation Committees of the Boards of Directors of either KAC
or KACC and no member of either of the Boards shall be liable for any action or
determination made in good faith with respect to the Plan or any award
thereunder or this Agreement. In the event that there is any inconsistency
between the provisions of this Agreement and of the Plan, the provisions of the
Plan shall govern.

                  SECTION 7.  Miscellaneous.

                  7.1 Section Headings and Defined Terms. The Section headings
contained herein are for purposes of convenience only and are not intended to
define or limit the contents of the Sections. Unless otherwise indicated herein,
terms with initial capital letters shall have the meanings given such terms in
the Plan.

                  7.2 Notices. Any notice to be given to the Company hereunder
shall be in writing and shall be addressed to the Secretary of KACC at its
principal corporate address or at such other address as the Company may
hereafter designate to the Grantee by notice as provided in this Section 7.2.
Any notice to be given to the Grantee hereunder shall be addressed to the
Grantee at the address set forth beneath his signature hereto, or at such other
address as he may hereafter designate to the Company by notice as provided
herein. A notice hereunder shall be deemed to have been duly given when
personally delivered or mailed by registered or certified mail to the party
entitled to receive it.

                  7.3 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and the successors and
assigns of the Company and, to the extent consistent with Sections 2 and 3 of
this Agreement, the heirs and personal representatives of the Grantee.

                  7.4 Governing Law. This Agreement shall be interpreted,
construed and administered in accordance with the laws of the State of Texas as
they apply to contracts made, delivered and to be wholly performed in the State
of Texas.

                  IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date and year first above written.

                                     KAISER ALUMINUM CORPORATION


                                     By:_______________________________________
                                     Name:_____________________________________
                                     Title:____________________________________


                                     KAISER ALUMINUM & CHEMICAL
                                        CORPORATION


                                     By:_______________________________________
                                     Name:_____________________________________
                                     Title:____________________________________



                                     _________________________________, Grantee

                                     Print Name:_______________________________

                                     Address:__________________________________

                                     __________________________________________
                                     Social Security Number

- ---------------
(1)     For resricted shares issued in connection with the stock option
        exchange offer made to current employees and directors in April 2001,
        the provisions in Sections 2.2, 2.3 and 3 that are conditioned upon or
        triggered by the Grantee being or ceasing to be an employee of the
        Company or a Subsidiary or Affiliate of the Company are conditioned upon
        or triggered by the Grantee being or ceasing to be a director of KAC or
        KACC or an employee of the Company or a Subsidiary or Affiliate of the
        Company.