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 SEPTEMBER 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 October 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)

                                                                                     September 30,     December 31,
                                                                                              2001             2000
                                                                                    --------------  ---------------
                                       ASSETS                                         (Unaudited)
Current assets:
   Cash and cash equivalents                                                        $       212.1   $         23.4
   Receivables:
      Trade, net                                                                            145.5            188.7
      Other                                                                                 157.5            247.3
   Inventories                                                                              333.1            396.2
   Prepaid expenses and other current assets                                                148.8            162.7
                                                                                    --------------  ---------------
      Total current assets                                                                  997.0          1,018.3

Investments in and advances to unconsolidated affiliates                                     59.1             77.8
Property, plant, and equipment - net                                                      1,228.5          1,176.1
Deferred income taxes                                                                       383.4            452.3
Other assets                                                                                700.9            622.9
                                                                                    --------------  ---------------
      Total                                                                         $     3,368.9   $      3,347.4
                                                                                    ==============  ===============

                         LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                                                 $       166.2   $        236.8
   Accrued interest                                                                          24.3             37.5
   Accrued salaries, wages, and related expenses                                             89.3            110.3
   Accrued postretirement medical benefit obligation - current portion                       58.0             58.0
   Other accrued liabilities                                                                256.9            287.2
   Payable to affiliates                                                                     59.3             80.0
   Long-term debt - current portion                                                         206.4             31.6
                                                                                    --------------  ---------------
      Total current liabilities                                                             860.4            841.4

Long-term liabilities                                                                       805.3            703.9
Accrued postretirement medical benefit obligation                                           649.2            656.9
Long-term debt                                                                              698.7            957.8
Minority interests                                                                          115.3            100.4
Commitments and contingencies
Stockholders' equity:
   Preference stock                                                                            .7               .7
   Common stock                                                                              15.4             15.4
   Additional capital                                                                     2,402.8          2,300.8
   Accumulated deficit                                                                      (63.8)          (188.1)
   Accumulated other comprehensive income (loss)                                             25.8             (1.8)
   Less:  Note receivable from parent                                                    (2,140.9)        (2,040.0)
                                                                                    --------------  ---------------
      Total stockholders' equity                                                            240.0             87.0
                                                                                    --------------  ---------------
        Total                                                                       $     3,368.9   $      3,347.4
                                                                                    ==============  ===============
   The accompanying notes to interim consolidated financial statements are an
                       integral part of these statements.

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




                                                                       Quarter Ended          Nine Months Ended
                                                                       September 30,            September 30,
                                                                  -----------------------   --------------------
                                                                         2001        2000        2001       2000
                                                                  -----------------------   --------------------
Net sales                                                         $    430.3    $  545.2    $1,357.4   $1,673.7
                                                                  -----------------------   --------------------
Costs and expenses:
   Cost of products sold                                               397.3       469.7     1,260.6    1,429.9
   Depreciation and amortization                                        23.1        19.8        66.6       59.0
   Selling, administrative, research and development, and general       24.5        25.2        77.1       77.3
   Labor settlement charge                                                -         38.5           -       38.5
   Non-recurring operating items                                        21.3       (10.9)     (198.9)     (22.5)
                                                                  -----------------------   --------------------
        Total costs and expenses                                       466.2       542.3     1,205.4    1,582.2
                                                                  -----------------------   --------------------

Operating income (loss)                                                (35.9)        2.9       152.0       91.5

Other income (expense):
   Interest expense                                                    (27.2)      (27.0)      (82.2)     (83.6)
   Gain on sale of interest in QAL                                     163.6           -       163.6          -
   Other - net                                                          16.3        (5.0)      (28.1)      (1.4)
                                                                  -----------------------   --------------------

Income (loss) before income taxes and minority interests               116.8       (29.1)      205.3        6.5

(Provision) benefit for income taxes                                   (49.4)       11.2       (83.9)      (2.5)

Minority interests                                                       1.2         1.2         3.0        2.5
                                                                  -----------------------   --------------------
Net income (loss)                                                 $     68.6    $  (16.7)   $  124.4   $    6.5
                                                                  =======================   ====================

   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 Nine Months Ended September 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                                   -         -          -          6.5           -             -      6.5
   Interest on note receivable to
      parent                                   -         -        95.0          -            -          (95.0)       -
   Contributions for LTIP shares               -         -          .6          -            -             -       .6
   Stock redemption                          (.8)        -          -           -            -             -      (.8)
   Dividends                                   -         -          -          (.3)          -             -      (.3)
                                       ---------- --------- ----------  ----------- ------------- ------------ -------
BALANCE, SEPTEMBER 30, 2000            $      .7  $   15.4  $  2,268.6  $   (198.9) $       (1.2) $  (2,007.9) $ 76.7
                                       ========== ========= ==========  =========== ============= ============ =======

                  For the Nine Months Ended September 30, 2001

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

   Net income                               -           -          -     124.4            -             -    124.4
   Cumulative effect of accounting
      change, net of income tax
      provision of $.5                      -           -          -         -            1.8           -      1.8
   Unrealized net gain on derivative
      instruments arising during the
      period, net of income tax
      provision of $16.8 (including
      unrealized net gain of $36.2,
      net of tax, for the quarter
      ended September 30, 2001)             -           -          -         -           28.8           -     28.8
   Less reclassification adjustment
      for net realized gain on
      derivative instruments
      included in net income,
      net of income tax provision
      of $1.0 (including realized
      net gain of $.3, net of tax,
      for the quarter ended September
      30, 2001)                             -           -          -         -           (3.0)          -     (3.0)

   Comprehensive income                     -           -          -         -            -             -    152.0

   Interest on note receivable to
      parent                                -           -      100.9         -            -        (100.9)        -
   Contributions for LTIP shares
      and restricted stock accretion        -           -        1.1         -            -             -      1.1
   Dividends                                -           -          -       (.1)           -             -      (.1)
                                    ----------  ---------  ---------  ---------  ------------   ---------- --------
BALANCE, SEPTEMBER 30,
   2001                             $       .7  $    15.4  $ 2,402.8  $  (63.8)  $       25.8   $(2,140.9) $ 240.0
                                    ==========  =========  =========  =========  ============   ========== ========

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


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


                                                                                                Nine Months Ended
                                                                                                  September 30,
                                                                                              ---------------------
                                                                                                    2001       2000
                                                                                              ---------------------
Cash flows from operating activities:
   Net income                                                                                 $   124.4   $    6.5
   Adjustments to reconcile net income to net cash provided (used) by operating activities:
      Depreciation and amortization (including deferred financing costs of $4.3 and $3.3)          70.9       62.3
      Non-cash restructuring and impairment charges                                                20.7       17.4
      Gains - sale of QAL interest and real estate (2001); real estate (2000)                    (169.3)     (39.0)
      Equity in (income) loss of unconsolidated affiliates, net of distributions                    5.4       17.2
      Minority interests                                                                           (3.0)      (2.5)
      Decrease (increase) in trade and other receivables                                          135.6     (110.1)
      Decrease in inventories                                                                      50.2      103.8
      Decrease in prepaid expenses and other current assets                                        10.1       21.6
      (Decrease) in accounts payable (associated with operating activities) and
        accrued interest                                                                          (56.1)     (29.1)
      (Decrease) increase in payable to affiliates and other accrued liabilities                   (9.6)      29.1
      Increase (decrease) in accrued and deferred income taxes                                     41.3       (8.7)
      Net cash impact of changes in long-term assets and liabilities                               18.7      (27.2)
      Other                                                                                         6.4       12.8
                                                                                              ---------------------
        Net cash provided by operating activities                                                 245.7       54.1
                                                                                              ---------------------
Cash flows from investing activities:
   Capital expenditures (including $70.6 and $159.0 related to Gramercy facility)                (120.1)    (196.5)
   (Decrease) increase in accounts payable - Gramercy-related capital expenditures                (29.9)      42.9
   Gramercy-related property damage insurance recoveries                                              -       73.0
   Net proceeds from disposition of QAL interest, real estate and other                           170.1       67.8
                                                                                              ---------------------
        Net cash provided (used) by investing activities                                           20.1      (12.8)
                                                                                              ---------------------
Cash flows from financing activities:
   Repayments under revolving credit facility, net                                                (30.4)     (10.4)
   Repayments of other debt                                                                       (41.2)      (2.9)
   Preference stock dividends paid                                                                    -        (.3)
   Redemption of minority interests' preference stock                                              (5.5)      (2.4)
                                                                                              ---------------------
        Net cash used by financing activities                                                     (77.1)     (16.0)
                                                                                              ---------------------
Net increase in cash and cash equivalents during the period                                       188.7       25.3
Cash and cash equivalents at beginning of period                                                   23.4       21.2
                                                                                              ---------------------
Cash and cash equivalents at end of period                                                    $   212.1   $   46.5
                                                                                              =====================
Supplemental disclosure of cash flow information:
   Interest paid, net of capitalized interest of $3.3 and $3.7                                $    91.1   $   93.2
   Income taxes paid                                                                               41.6        9.6


   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 Kaiser'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 nine-month periods ended September 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 $177.4 (remaining principal amount outstanding as of
October 31, 2001) of its 9 7/8% Senior Notes due February 2002 (the "9 7/8%
Senior Notes") and $400.0 of 12 3/4% Senior Subordinated Notes due February 2003
(the "12 3/4% Senior Subordinated Notes"). The Company's credit agreement, as
amended (the "Credit Agreement"), will expire December 15, 2001 unless it is
extended, replaced or renewed. As of October 31, 2001, the Company had
approximately $190.0 of cash and cash equivalents. See Note 5 for a discussion
of the Company's plans with respect to such near-term debt maturities.

Cash Flow, Other than Near-Term Debt Maturities. The Company's ability to make
payments on, retire or 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 negatively affected by the
restart of the Gramercy facility, until it reaches its full production level and
full efficiency, and net payments for asbestos-related liabilities. For a
discussion of these matters, see Notes 2 and 7.

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 operations and
working capital and other commitments (before considering near-term debt
maturities), including interest and expected tax payments, the funding of
pension, post-retirement medical and net asbestos-related liabilities, capital
spending and other previously accrued obligations, may cause near-term cash
flows to be negative. The Company expects its cash flow in mid-2002 to improve
substantially over expected near-term cash flows 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, such changes are subject to prevailing market and
economic conditions and, as such, no assurances can be given in this regard.

Possible Year-End Financial Statement Item. The assets of the Company sponsored
pension plans, like numerous other companies' plans, are, to a substantial
degree, invested in the capital markets and managed by a third party. Given the
year-to-date performance of the stock market, it is likely that, barring a
material improvement in the stock market during the fourth quarter of 2001, the
Company will be required to reflect a significant additional minimum pension
liability in its year-end financial statements as a result of a decline in the
value of the assets held by the Company's pension plans. Minimum pension
liability adjustments are non-cash adjustments that are reflected as an increase
in pension liability and an offsetting charge to stockholders' equity (net of
income tax) through comprehensive income (rather than net income). The ultimate
amount of such additional adjustment cannot be determined until year-end 2001.
However, based on stock market performance through September 30, 2001, the
Company estimates that such amount could be in the $25.0 to $50.0 range. The
Company also anticipates that the decline in the value of the pension plans'
assets will unfavorably impact pension costs reflected in its 2002 operating
results. However, absent a decision by the Company to increase its contributions
to the pension plans as a result of the recent asset performance, such asset
performance is not expected to have a material impact on the Company's near-term
liquidity as pension funding requirements generally allow for such impacts to be
spread over multiple years. Increases in post-2002 pension funding requirements
could occur, however, if capital market performance in future periods does not
more closely approximate the long-term rate of return assumed by the Company,
and the amount of such increases could be material.

Restricted Common Stock. During June and July 2001, the Company completed an
exchange with certain employees who held stock options to purchase Kaiser's
common stock whereby a total of approximately 3,617,000 options were exchanged
(on a fair value basis) for approximately 1,086,000 restricted shares of
Kaiser's common stock. The fair value of the restricted shares issued is being
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 nine 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.

Future Accounting Requirements. The Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 143, Accounting For Asset
Retirement Obligations ("SFAS No. 143"), in 2001. SFAS No. 143 must be adopted
by the Company effective January 1, 2003. The Company does not expect the
adoption of SFAS No. 143 to have a material effect on its financial statements.

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. Construction at
the facility was substantially completed during the third quarter of 2001. The
plant operated at approximately 78% of its newly-rated estimated annual capacity
of 1,250,000 tons during the third quarter of 2001. Subsequent to September 30,
2001, the plant has regularly operated at a rate equal to or greater than 90% of
its newly- rated estimated capacity. Based on current estimates, the facility is
expected to reach its full operating rate and full efficiency by the end of 2001
or early 2002.

During the quarter and nine-month periods ended September 30, 2001, abnormal
Gramercy-related start-up costs totaled approximately $13.9 and $54.9,
respectively. These abnormal costs resulted 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 of September 30, 2001, the Company had collected $304.5 of insurance
recoveries related to the property damage, business interruption and clean-up
and site preparation aspects of 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: (a) received an additional $35.0 during the third quarter of 2001
related to losses/costs incurred prior to June 30, 2001; and (b) will receive an
agreed allocation from any recoveries that may result from joint actions against
certain third parties. As a result of the settlement, the Company recognized
$15.2 of additional insurance benefit (as a reduction of Bauxite and alumina
business unit's cost of products sold) in the second quarter of 2001. In October
2001, settlements were reached in certain (but not all) of the joint actions by
the Company and its insurers. Under the terms of the joint action agreement, as
well as the prior agreement between the Company and its insurers, the Company
will receive an additional approximately $30.0, during the fourth quarter of
2001, in respect of its share of third quarter 2001 and prior period costs from
the Gramercy incident. Accordingly, the Company recorded $21.4 of additional
insurance benefit (as a reduction of Bauxite and alumina business unit's cost of
products sold) during the third quarter of 2001 after deducting offsetting costs
and receivable amounts. Additional recoveries may result from the remaining
joint actions. However, the Company cannot predict the likelihood or timing of
any such incremental recoveries.

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:

                                                                                 September 30,    December 31,
                                                                                          2001            2000
                                                                                ------------------------------
Finished fabricated aluminum products                                           $        47.3   $         54.6
Primary aluminum and work in process                                                     87.5            126.9
Bauxite and alumina                                                                      93.2             88.6
Operating supplies and repair and maintenance parts                                     105.1            126.1
                                                                                ------------------------------
      Total                                                                     $       333.1   $        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.

Inventories at September 30, 2001, have been reduced by (a) a $5.6 charge (in
Other non-recurring operating items - see Note 10) to write-down certain excess
operating supplies and repair and maintenance parts that will be sold, rather
than used in production, as part of the Company's performance improvement
initiative to generate one-time cash and (b) $5.0 LIFO inventory charges (in
cost of products sold) as reductions of inventory volumes were in inventory
layers with higher costs than current market prices. Additional LIFO charges in
future periods are possible.

4.    PACIFIC NORTHWEST POWER SALES AND OPERATING LEVEL

Power Sales. 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 and
recorded net pre-tax gains of approximately $222.7. The gains were net of
approximately $33.0 of employee-related expenses and other fixed or incremental
costs associated with the continuing curtailment of its Northwest smelters.
During the third quarter of 2001, the Company sold the remaining Northwest power
that it had under contract resulting in net pre-tax gains of approximately $6.5
which have been recorded in Other non-recurring operating items (see Note 10).
Approximately $321.0 of power proceeds were received during the first nine
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 sales of power
(approximately $26.5) will be received during the fourth quarter of 2001.

Future Power Supply and its Impact on Future Operating Rate. During October
2000, the Company signed a new power contract with the Bonneville Power
Administration ("BPA") under which the BPA, starting October 1, 2001, is to
provide the Company's operations in the State of Washington with approximately
290 megawatts of power through September 2006. The contract will provide the
Company with sufficient power to fully operate the Company's Trentwood facility
(which requires up to an approximate 40 megawatts) as well as approximately 40%
of the combined capacity of the Company's Mead and Tacoma aluminum smelting
operations. The BPA has announced that it currently intends to set rates under
the 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 is approximately 46% higher than power costs under the prior 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 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 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. During October 2001, the Company and the BPA
reached an agreement whereby: (a) the Company retained its rights to restart its
smelter operations at any time; (b) the Company would not be obligated to pay
for potential take-or-pay obligations in the first year of the contract; and (c)
in return for the foregoing, the Company granted the BPA certain limited power
interruption rights in the first year of the contract if the Company is
operating its Northwest smelters. The BPA and the Company separately agreed that
capital spending in respect of the Gramercy refinery was consistent with the
contractual provisions of the prior contract with respect to the use of power
sale proceeds.

Subject to the limited interruption rights granted to the BPA (described above),
the Company has sufficient power under contract, and retains the ability, to
restart up to 40% (4.75 potlines) of its Northwest smelting capacity. Were the
Company to want to restart additional capacity (in excess of 4.75 potlines), it
would have to purchase additional power from the BPA or other suppliers. For the
Company to make such a decision, it would have to be able to purchase such power
at a reasonable price in relation to current and expected market conditions for
a sufficient term to justify its restart costs. Given recent primary aluminum
prices and the forward price of power in the Northwest, it is unlikely that the
Company would operate more than a portion of its Northwest smelting capacity in
the near future. Were the Company to restart all or a portion of its Northwest
smelting 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
long-term primary aluminum prices. 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 September
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 a rate up to 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
the smelters at an operating rate of up to 40% have been accrued through
December 31, 2001, as the Company does not currently expect to restart the
Northwest smelters prior to that date given recent prices for primary aluminum.
If the Company does not restart and begin operating the smelters at an operating
rate of up to 40% beginning January 2002, 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 October 2001, the expiration
date of the Credit Agreement was extended from November 2, 2001 to December 15,
2001. The extension provides the Company with additional flexibility while it
continues its ongoing work on a longer-term solution for near-term debt
maturities.

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 September 30, 2001, $184.8 (of which $95.4 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 nine months of 2001 was approximately 10.0% per
annum. As of October 31, 2001, there were no revolving credit borrowings
outstanding under the Credit Agreement. At October 31, 2001, outstanding letters
of credit were approximately $28.4.

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 December 2001, the Company will have to have a
demonstrable way to retire the maturity of the remaining amount of 9 7/8% Senior
Notes ($177.4 principal amount as of October 31, 2001). For the Credit Agreement
to be extended past February 2003, both the 9 7/8% 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) together
with other cash resources to retire the 9 7/8% Senior Notes. As of September 30,
2001, the Company had purchased $18.8 of the 9 7/8% Senior Notes. The net gain
from the purchase of the notes was less than $.1 and has been included in Other
income (expense). As of October 31, 2001, the Company had purchased $47.6 of the
9 7/8% Senior Notes at a modest net gain. As of October 31, 2001, the Company
had approval from the Credit Agreement lenders to spend up to an aggregate of
$100.0 to purchase the 9 7/8% 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. The Company expects to provide additional information with
respect to its plan to deal with its near-term maturities before the expiration
of the Credit Agreement term. While the Company believes it will be successful
in addressing its near-term debt maturities and overall capital structure, no
assurances in this regard can be given. While the Company continues to consider
potential asset transactions (beyond the September 2001 sale of 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 connection with the above-mentioned extension of the Credit Agreement, the
Company has agreed to hold half (approximately $79.5) of the proceeds received
from the sale of an 8.3% interest in Queensland Alumina Limited ("QAL") (see
Note 9) in a separate bank account until the earlier of (1) lender approval, (2)
December 15, 2001, or (3) renewal or further extension of the Credit Agreement.

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
quarter and nine-month periods ended September 30, 2001, the Company's ongoing
assessment process resulted in the Company recording charges of $1.0 and $9.0,
respectively, to increase its environmental accrual. Additionally, the Company's
environmental accruals were increased during the nine-month period ended
September 30, 2001 by approximately $6.0 in connection with the purchase of
certain property. At September 30, 2001, the balance of the Company's accruals
for these and other matters, which are primarily included in Long-term
liabilities, totaled $58.7. 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 nine months ended September 30, 2001 and the year ended December 31,
2000.


                                                                           Nine Months            Year Ended
                                                                              Ended              December 31,
                                                                       September 30, 2001            2000
                                                                     ---------------------   ---------------------
Number of claims at beginning of period                                           110,800                 100,000
Claims received                                                                    27,300                  30,600
Claims settled or dismissed                                                       (25,700)                (19,800)
                                                                     ---------------------   ---------------------
Number of claims at end of period                                                 112,400                 110,800
                                                                     =====================   =====================
Number of claims at end of period (included above)
      covered by agreements under which the Company
      expects to settle over an extended period                                    72,900                  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. During
October 2001, the court ruled favorably on a number of issues. The rulings did
not result in any change to the Company's estimates of its current or future
asbestos-related insurance recoveries. Additional issues may be heard by the
court from time to time. Given the significance of expected asbestos-related
payments in 2001 and 2002 based on settlement agreements in place at September
30, 2001, the receipt of timely and appropriate reimbursements from such
insurers is critical to the Company's liquidity.

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


                                                                                 September 30,        December
                                                                                     2001             31, 2000
                                                                                ---------------   ----------------
Liability (current portion of $130.0 in both periods)                           $        633.1    $          492.4
Receivable (included in Other assets)(1)                                                 501.1               406.3
                                                                                ---------------   ----------------
                                                                                $        132.0    $           86.1
                                                                                ===============   ================

(1)   The asbestos-related receivable was determined on the same basis as the
      asbestos-related cost accrual. As of September 30, 2001 and December 31,
      2000, $25.6 and $36.9, respectively, of the receivable amounts relate to
      costs paid by the Company. 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 any such
      additional asbestos-related liabilities will not ultimately exceed the
      Company's aggregate insurance coverage.


                                                                                 Nine Months
                                                                                    Ended              Inception
                                                                             September 30, 2001         To Date
                                                                            ---------------------  ----------------
Payments made, including related legal costs..............................  $               86.9   $         307.4
Insurance recoveries......................................................                  77.3             208.6
                                                                            ---------------------  ----------------
                                                                            $                9.6   $          98.8
                                                                            =====================  ================

                                                                                As of September 30, 2001
                                                                -------------------------------------------------------
                                                                   2001 and              2003 to
                                                                     2002                 2005              Thereafter
                                                                ----------------      --------------      -------------
Expected annual payment amounts, before
   considering insurance recoveries...........................  $125.0 - $150.0       $50.0 - $75.0           $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 $53.3 (included in Other income (expense) - see Note 10) in the nine-
month period ended September 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 concluded in September 2001. Legal briefs must still be filed by all
parties. A decision is not expected until sometime after the first quarter of
2002. 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 material derivative hedging positions at September 30, 2001:

                                                                                  Estimated %
                                                                Notional           of Annual           Carrying/
                                                                Amount of       Sales/Purchases         Market
                Commodity                       Period          Contracts           Hedged               Value
- ---------------------------------------   -----------------   ---------------  ----------------    ----------------
Aluminum (in tons*) -
   Option contracts and swaps               10/01 to 12/01           115,000          94%          $          15.0
   Option contracts and swaps                    2002                333,000          68%                     54.7
   Option contracts                              2003                 90,000          17%                     15.3

Energy -
   Natural gas (in MMBtus per day):
         Option contracts and swaps          10/01 to 3/02            23,000          57%                     (2.8)
   Fuel Oil (in barrels per month):
         Option contracts and swaps         10/01 to 12/01           150,000          65%                       .6
Australian dollars (average A$ per
   month) -
   Forwards and option contracts            10/01 to 12/01           A$ 11.4         100%                      (.3)
   Option contracts                          2002 to 2005           A$   7.5          70%                      3.6

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 (see Note 1).

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

During late 1999 and early 2000, the Company contracted with a counterparty to
receive certain fixed prices on 4,000 tons of primary aluminum per month over a
three year period commencing October 2001, unless market prices declined below a
stipulated "floor" price, in which case the fixed price sales portion of the
transactions terminate. These transactions do not qualify for treatment as a
"hedge" under previous or current accounting guidelines. During September 2001,
as a result of prevailing primary aluminum prices, approximately 40% of the
volumes attributable to periods after December 2001 terminated. The
mark-to-market impacts of the terminated and continuing portions of these
transactions, together with the $6.8 discussed above, are recorded in Other
income (expense) in the Company's statements of consolidated income (loss) (see
Note 10). In October 2001, the Company reached an agreement with the
counterparty terminating the transaction. This will result in the recognition of
approximately $3.0 of mark-to-market income during the fourth quarter of 2001.

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

9.    SALE OF 8.3% INTEREST IN QAL

In September 2001, the Company sold an approximate 8.3% interest in QAL and
recorded a pre-tax gain of approximately $163.6 (included in Other
income/(expense) in the accompanying condensed consolidated statements of income
(loss)). The total value of the transaction was 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. As a result of the transaction, the Company now owns 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 of QAL's
production for the first eight months of 2001 and for the year 2000 was
approximately 668,000 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 nine months of 2001 and for the year 2000 would
have been reduced by approximately 196,000 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.  NON-RECURRING ITEMS

Non-Recurring Operating Items. The income (loss) impact associated with
non-recurring operating items for the quarter and nine-month periods ended
September 30, 2001 and 2000, was as follows (the business segment to which the
item is applicable is indicated):


                                                                       Quarter Ended          Nine Months Ended
                                                                       September 30,            September 30,
                                                                  ------------------------  ----------------------
                                                                        2001         2000        2001        2000
                                                                  ------------------------  ----------------------
Net gains from power sales (Primary Aluminum) (Note 4)            $     6.5   $     40.5    $  229.2    $   56.3
Restructuring charges -
   Bauxite & Alumina                                               (7.9)          -         (9.9)          -
   Primary Aluminum                                                    (5.4)        (3.1)       (5.4)       (3.1)
   Flat-Rolled Products                                               (10.7)          -        (10.7)          -
   Corporate                                                            (.5)        (2.0)       (1.0)       (5.5)
Contractual labor costs related to smelter curtailment (Primary
   Aluminum) (Note 4)                                                  (3.3)          -         (3.3)          -
Incremental maintenance spending (Bauxite & Alumina)                  -        (11.5)          -       (11.5)
Impairment charge associated with product line exit -
   Flat-Rolled Products                                                   -         (9.0)          -        (9.0)
   Engineered Products                                                    -         (4.0)          -        (4.7)
                                                                  ----------  ------------  ---------   ----------
                                                                  $   (21.3)  $     10.9    $  198.9    $   22.5
                                                                  ==========  ============  =========   ==========

In May 2001, the Company announced that it had launched a performance
improvement initiative (the "program") designed to increase operating cash flow,
generate benefits and improve the Company's financial flexibility. During the
third quarter of 2001, these initiatives resulted in restructuring charges
totaling $14.1 for employee benefit and related costs for a group of
approximately 125 salaried job eliminations. As of September 30, 2001,
approximately half of the positions had been eliminated. It is anticipated that
the remaining job eliminations will occur during the fourth quarter of 2001 or
the first quarter of 2002. Approximately $4.0 of the costs are cash costs to be
incurred over the next several quarters. The balance are benefit costs that will
be funded over longer periods. The program also resulted in a third quarter 2001
inventory charge of $5.6 (see Note 3). In addition, third party costs of $7.3
(of which $4.8 was recorded in the third quarter) were incurred in connection
with the program. Additional cash and non-cash charges may be required in the
future as the program continues. Such additional charges could be material.

As of September 30, 2001, substantially all of the previous job eliminations
associated with the 2000 Primary aluminum and Corporate segments' efficiency
initiatives have occurred.

See Note 6 of Notes to Consolidated Financial Statements in the Company's Form
10-K for the year ended December 31, 2000 for discussions of incremental
maintenance spending and impairment charges associated with line exits in 2000.

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


                                                                  Quarter Ended              Nine Months Ended
                                                                  September 30,                September 30,
                                                           ---------------------------  ---------------------------
                                                                    2001          2000          2001           2000
                                                           -------------  ------------  ------------   ------------
Mark-to-market gains (Note 8)                              $       13.9   $        .9   $      32.3    $       9.6
Asbestos-related charges (Note 7)                                   -           (43.0)        (53.3)         (43.0)
Gains on sale of real estate                                        5.7          22.0           5.7           22.0
Adjustment to environmental liabilities                            (1.0)           -           (9.0)            -
MetalSpectrum investment write-off                                  -              -           (2.8)            -
Lease obligation adjustment                                         -            17.0            -            17.0
                                                           -------------  ------------  ------------   ------------
       Special items, net                                          18.6          (3.1)        (27.1)           5.6
All other, net                                                     (2.3)         (1.9)         (1.0)          (7.0)
                                                           -------------  ------------  ------------   ------------
                                                           $       16.3   $      (5.0)  $     (28.1)   $      (1.4)
                                                           =============  ============  ============   ============

As part of its ongoing initiatives to generate cash benefits, the Company sold
certain non-operating real estate during the third quarter of 2001 for net
proceeds totaling approximately $6.7, resulting in a gain of $5.7.

During the quarter and nine-month periods ended September 30, 2001, the Company
recorded adjustments to environmental liabilities of $1.0 and $9.0,
respectively, as a result of its ongoing assessment of the estimated costs
reasonably expected to be incurred to remediate non-operating properties. 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. MetalSpectrum
ceased operations and was dissolved during the second quarter of 2001.

See Note 1 of Notes to Consolidated Financial Statements in the Company's Form
10-K for the year ended December 31, 2000, for discussions of gains on sale of
real estate and the lease obligation adjustment in 2000.

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 nine-month
periods ended September 30, 2001 and 2000 is as follows:


                                                                     Quarter Ended          Nine Months Ended
                                                                     September 30,            September 30,
                                                                -----------------------  -----------------------
                                                                       2001        2000         2001        2000
                                                                ------------------------------------------------
Net Sales:
   Bauxite and Alumina: (1)
       Net sales to unaffiliated customers                      $    132.0   $   108.3   $    402.3   $   338.1
       Intersegment sales                                              9.1        29.0         55.0       115.3
                                                                -----------  ----------  -----------  ----------
                                                                     141.1       137.3        457.3       453.4
                                                                -----------  ----------  -----------  ----------
     Primary Aluminum:(2)
       Net sales to unaffiliated customers                            83.0       156.7        282.1       430.0
       Intersegment sales                                               .5        56.5          3.8       196.1
                                                                -----------  ----------  -----------  ----------
                                                                      83.5       213.2        285.9       626.1
                                                                -----------  ----------  -----------  ----------
     Flat-Rolled Products                                             75.5       118.5        248.3       401.8
     Engineered Products                                             101.4       137.8        337.9       450.2
     Commodities Marketing                                             9.5        (3.2)         5.9       (23.4)
     Minority Interests                                               28.9        27.1         80.9        77.0
     Eliminations                                                     (9.6)      (85.5)       (58.8)     (311.4)
                                                                -----------  ----------  -----------  ----------
                                                                $    430.3   $   545.2   $   1,357.4  $ 1,673.7
                                                                ===========  ==========  ===========  ==========
Operating income (loss):
     Bauxite and Alumina (3)                                    $       .4   $     9.3   $    (12.4)  $    53.0
     Primary Aluminum                                                  (.3)       25.9          8.1        90.6
     Flat-Rolled Products                                               .2         5.6          6.5        15.9
     Engineered Products                                                -          7.3          5.1        33.2
     Commodities Marketing                                             3.2        (7.6)        (5.8)      (42.0)
     Eliminations                                                      (.4)        4.1          5.1         1.2
     Corporate and Other                                             (17.7)      (14.1)       (53.5)      (44.4)
     Labor Settlement Charge(4)                                         -        (38.5)          -        (38.5)
     Other Non-Recurring Operating Items (Note 10)                   (21.3)       10.9        198.9        22.5
                                                                -----------  ----------  -----------  ----------
                                                                $    (35.9)  $     2.9   $    152.0   $    91.5
                                                                ===========  ==========  ===========  ==========
Depreciation and amortization:
     Bauxite and Alumina (3)                                    $      9.6   $     6.1   $     27.2   $    18.1
     Primary Aluminum                                                  5.3         6.2         16.3        18.6
     Flat-Rolled Products                                              4.9         4.1         12.9        12.3
     Engineered Products                                               3.0         3.0          9.3         8.6
     Corporate and Other                                                .3          .4           .9         1.4
                                                                -----------  ----------  -----------  ----------
                                                                $     23.1   $    19.8   $     66.6   $    59.0
                                                                ===========  ==========  ===========  ==========

(1)  Net sales for the quarter and nine-month periods ended September 30, 2001,
     included approximately 25,000 tons and 91,100 tons, respectively, of
     alumina purchased from third parties. Net sales for the quarter and
     nine-month periods ended September 30, 2000, included approximately 50,000
     tons and 249,000 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 nine-month periods
     ended September 30, 2001, the Primary aluminum business unit purchased
     approximately 2,300 tons and 27,300 tons, respectively, of primary aluminum
     from third parties to meet existing third party commitments.
(3)  During the quarter and nine-month periods ended September 30, 2001,
     approximately $13.9 and $54.9, respectively, of abnormal Gramercy start-up
     costs were incurred. Operating income (loss) for the quarter and nine-month
     periods ended September 30, 2001, also included additional accrued business
     interruption recoveries related to the Gramercy facility of $21.4 and
     $36.6, respectively, based on a July 2001 agreement with the Company's
     insurers. Depreciation was suspended for the Gramercy facility during the
     first nine 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.
(4)  The allocation of the 2000 labor settlement charge to the Company's
     business units was as follows: Bauxite and alumina - $2.1, Primary aluminum
     - $15.9, Flat-rolled products - $18.2 and Engineered products - $2.3.

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 9 7/8% 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
                               SEPTEMBER 30, 2001


                                                         SUBSIDIARY          OTHER      ELIMINATING
                                            COMPANY      GUARANTORS      SUBSIDIARIES     ENTRIES     CONSOLIDATED
                                        -------------- ---------------  -------------- ------------- -------------
ASSETS
Current assets                          $       719.5  $         88.7   $       188.8  $        -    $       997.0
Investments in subsidiaries                   2,733.1           156.9             -        (2,890.0)           -
Intercompany advances receivable
     (payable)                               (2,472.4)          800.0         1,672.4           -              -
Investments in and advances to
     unconsolidated affiliates                   17.6            17.5            24.0           -             59.1
Property and equipment, net                     814.9            23.7           389.9           -          1,228.5
Deferred income taxes                           372.4            (1.1)           12.1           -            383.4
Other assets                                    679.5             (.1)           21.5           -            700.9
                                        -------------- ---------------  -------------- ------------- -------------
                                        $     2,864.6  $      1,085.6   $     2,308.7  $   (2,890.0) $     3,368.9
                                        ============== ===============  ============== ============= =============


LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities                     $       563.5  $        172.1   $       124.8  $        -    $       860.4
Other long-term liabilities                   1,384.4            30.5            39.6           -          1,454.5
Long-term debt                                  676.7            -               22.0           -            698.7
Minority interests                                -              -               19.0          96.3          115.3
Stockholders' equity                            240.0           883.0         2,103.3      (2,986.3)         240.0
                                        -------------- ---------------  -------------- ------------- -------------
                                        $     2,864.6  $      1,085.6   $     2,308.7  $   (2,890.0) $     3,368.9
                                        ============== ===============  ============== ============= =============


                     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)                                   (2,329.9)          706.3         1,623.6             -              -
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                               441.3            (1.2)           12.2             -            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 SEPTEMBER 30, 2001


                                                             SUBSIDIARY         OTHER         ELIMINATING
                                               COMPANY       GUARANTORS     SUBSIDIARIES        ENTRIES     CONSOLIDATED
                                          ---------------  --------------- --------------   -------------  -------------
Net sales                                 $         328.6  $        126.0  $        256.9   $      (281.2) $       430.3
Costs and expenses:
     Operating costs and expenses                   355.4           126.2           244.5          (281.2)         444.9
     Other non-recurring operating items             19.1            -                2.2             -             21.3
                                          ---------------  --------------- --------------   -------------  -------------
Operating income (loss)                             (45.9)            (.2)           10.2             -            (35.9)
Interest expense                                    (26.9)           -                (.3)            -            (27.2)
Other income (expense), net                          (2.7)          166.8            15.8             -            179.9
Benefit (provision) for income taxes                 30.6           (69.0)          (11.0)            -            (49.4)
Minority interests                                   -                1.3             (.1)            -              1.2
Equity in income of subsidiaries                    113.5            -               -             (113.5)           -
                                          ---------------  --------------- --------------   -------------  -------------
Net income (loss)                         $          68.6  $         98.9  $         14.6   $      (113.5) $        68.6
                                          ===============  =============== ==============   =============  =============


               CONDENSED CONSOLIDATING STATEMENTS OF INCOME (LOSS)
                    FOR THE QUARTER ENDED SEPTEMBER 30, 2000


                                                             SUBSIDIARY         OTHER         ELIMINATING
                                               COMPANY       GUARANTORS     SUBSIDIARIES        ENTRIES     CONSOLIDATED
                                          ---------------  --------------- --------------   -------------  -------------
Net sales                                 $         427.6  $        166.3  $        272.6   $      (321.3) $       545.2
Costs and expenses:
     Operating costs and expenses                   421.5           137.1           277.4          (321.3)         514.7
     Other non-recurring operating items             27.6            -               -                -             27.6
                                          ---------------  --------------- --------------   -------------  -------------
Operating income (loss)                             (21.5)           29.2            (4.8)            -              2.9
Interest expense                                    (26.1)           -                (.9)            -            (27.0)
Other income (expense), net                         (25.8)           18.8             2.0             -             (5.0)
Benefit (provision) for income taxes                 27.8           (18.2)            1.6             -             11.2
Minority interests                                   -                1.4             (.2)            -              1.2
Equity in income (loss) of subsidiaries              28.9            -               -              (28.9)           -
                                          ---------------  --------------- --------------   -------------  -------------
Net income (loss)                         $         (16.7) $         31.2  $         (2.3)  $       (28.9) $       (16.7)
                                          ===============  =============== ==============   =============  =============


               CONDENSED CONSOLIDATING STATEMENTS OF INCOME (LOSS)
                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001


                                                             SUBSIDIARY         OTHER         ELIMINATING
                                               COMPANY       GUARANTORS     SUBSIDIARIES        ENTRIES     CONSOLIDATED
                                          ---------------  --------------- --------------   -------------  -------------
Net sales                                 $       1,050.3  $        419.5  $        821.7   $      (934.1) $     1,357.4
Costs and expenses:
     Operating costs and expenses                 1,162.1           393.6           782.7          (934.1)       1,404.3
     Other non-recurring operating items           (201.1)           -                2.2             -           (198.9)
                                          ---------------  --------------- --------------   -------------  -------------

Operating income                                     89.3            25.9            36.8             -            152.0
Interest expense                                    (80.3)           -               (1.9)            -            (82.2)
Other income (expense), net                         (70.6)          188.4            17.7             -            135.5
Benefit (provision) for income taxes                 25.2           (87.6)          (21.5)            -            (83.9)
Minority interests                                   -                3.9             (.9)            -              3.0
Equity in income of subsidiaries                    160.8            -               -             (160.8)           -
                                          ---------------  --------------- --------------   -------------  -------------
Net income                                $         124.4  $        130.6  $         30.2   $      (160.8) $       124.4
                                          ===============  =============== ==============   =============  =============

               CONDENSED CONSOLIDATING STATEMENTS OF INCOME (LOSS)
                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000


                                                             SUBSIDIARY         OTHER         ELIMINATING
                                               COMPANY       GUARANTORS     SUBSIDIARIES        ENTRIES     CONSOLIDATED
                                          ---------------  --------------- --------------   -------------  -------------
Net sales                                 $       1,335.6  $        464.5  $      1,013.0   $    (1,139.4) $     1,673.7
Costs and expenses:
     Operating costs and expenses                 1,318.1           406.9           980.6        (1,139.4)       1,566.2
     Other non-recurring operating items             16.0            -               -                -             16.0
                                          ---------------  --------------- --------------   -------------  -------------

Operating income                                      1.5            57.6            32.4             -             91.5
Interest expense                                    (80.8)           -               (2.8)            -            (83.6)
Other income (expense), net                         (50.5)           41.7             7.4             -             (1.4)
Benefit (provision) for income taxes                 49.5           (37.9)          (14.1)            -             (2.5)
Minority interests                                   -                3.9            (1.4)            -              2.5
Equity in income of subsidiaries                     86.8            -               -              (86.8)           -
                                          ---------------  --------------- --------------   -------------  -------------
Net income                                $           6.5  $         65.3  $         21.5   $       (86.8) $         6.5
                                          ===============  =============== ==============   =============  =============

                CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001


                                                             SUBSIDIARY         OTHER         ELIMINATING
                                               COMPANY       GUARANTORS     SUBSIDIARIES        ENTRIES     CONSOLIDATED
                                          ---------------  --------------- --------------   -------------  -------------
Net cash provided (used) by:
     Operating activities                 $         379.3  $       (122.1) $        (11.5)  $         -    $       245.7
     Investing activities                          (120.7)          146.6            (5.8)            -             20.1
     Financing activities                           (55.0)           -              (22.1)            -            (77.1)
Intercompany activity                               (14.7)          (24.5)           39.2             -              -
                                          ---------------  --------------- --------------   -------------  -------------

Net increase in cash and cash
     equivalents during the period                  188.9            -                (.2)            -            188.7
Cash and cash equivalents at
     beginning of period                             22.4            -                1.0             -             23.4
                                          ---------------  --------------- --------------   -------------  -------------
Cash and cash equivalents at
     end of period                        $         211.3  $         -     $           .8   $         -    $       212.1
                                          ===============  =============== ==============   =============  =============


                CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000


                                                             SUBSIDIARY         OTHER         ELIMINATING
                                               COMPANY       GUARANTORS     SUBSIDIARIES        ENTRIES     CONSOLIDATED
                                          ---------------  --------------- --------------   -------------  -------------
Net cash provided (used) by:
     Operating activities                 $          63.5  $        (11.9) $          2.5   $         -    $        54.1
     Investing activities                            (6.2)            2.7            (9.3)            -            (12.8)
     Financing activities                           (13.3)           -               (2.7)            -            (16.0)
Intercompany activity                               (18.7)            9.2             9.5             -              -
                                          ---------------  --------------- --------------   -------------  -------------
Net increase in cash and
     cash equivalents during the period              25.3            -               -                -             25.3
Cash and cash equivalents at
     beginning of period                             18.4            -                2.8             -             21.2
                                          ---------------  --------------- --------------   -------------  -------------
Cash and cash equivalents at
     end of period                        $          43.7  $         -     $          2.8   $         -    $        46.5
                                          ===============  =============== ==============   =============  =============

Notes to Condensed Consolidating Financial Information

Income Taxes - Consolidated income tax for the quarter and nine-month periods
ended September 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
$(5.1) and $(14.2) for the quarters ended September 30, 2001 and 2000,
respectively, and $(17.4) and $(28.1) for the nine-month periods ended September
30, 2001 and 2000, respectively. Such amounts for the Subsidiary Guarantors
totaled $5.2 and $16.5 for the quarters ended September 30, 2001 and 2000,
respectively, and $19.4 and $32.3 for the nine-month periods ended September 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 Fourth
Quarter 2001 Trends as Compared to Actual Third 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 $177.4 million (remaining principal amount outstanding as
of October 31, 2001) of its 9 7/8% Senior Notes due February 2002 (the "9 7/8%
Senior Notes") and $400.0 of 12 3/4% Senior Subordinated Notes due February 2003
(the "12 3/4% Senior Subordinated Notes"). The Company's credit agreement, as
amended (the "Credit Agreement"), will expire December 15, 2001 unless it is
extended, replaced or renewed. As of October 31, 2001, the Company had
approximately $190.0 million of cash and cash equivalents. See Note 5 of Notes
to Interim Consolidated Financial Statements for a discussion of the Company's
plans with respect to such near-term debt maturities.

Cash Flow, Other than Near-Term Debt Maturities. The Company's ability to make
payments on, retire or 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 negatively affected by
the restart of the Gramercy facility, until it reaches its full production level
and full efficiency, 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. The Company intends to provide additional information with
respect to its plan to deal with its near-term maturities before the expiration
of the Credit Agreement term. 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. While the Company
continues to consider potential asset transactions (beyond the September 2001
sale of an 8.3% interest in Queensland Alumina Limited ("QAL") - see 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.

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 operations and
working capital and other commitments (before considering near-term debt
maturities), including interest and expected tax payments, the funding of
pension, post-retirement medical and net asbestos-related liabilities, capital
spending and other previously accrued obligations, may cause near-term cash
flows to be negative. The Company expects its cash flow in mid-2002 to improve
substantially over expected near-term cash flows 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, such changes are subject to prevailing market and
economic conditions and, as such, no assurances can be given in this regard.

Possible Year-End Financial Statement Item. The assets of the Company sponsored
pension plans, like numerous other companies' plans, are, to a substantial
degree, invested in the capital markets and managed by a third party. Given the
year-to-date performance of the stock market, it is likely that, barring a
material improvement in the stock market during the fourth quarter of 2001, the
Company will be required to reflect a significant additional minimum pension
liability in its year-end financial statements as a result of a decline in the
value of the assets held by the Company's pension plans. Minimum pension
liability adjustments are non-cash adjustments that are reflected as an increase
in pension liability and an offsetting charge to stockholders' equity (net of
income tax) through comprehensive income (rather than net income). The ultimate
amount of such additional adjustment cannot be determined until year-end 2001.
However, based on stock market performance through September 30, 2001, the
Company estimates that such amount could be in the $25.0 million to $50.0
million range. The Company also anticipates that the decline in the value of the
pension plans' assets will unfavorably impact pension costs reflected in its
2002 operating results. However, absent a decision by the Company to increase
its contributions to the pension plans as a result of the recent asset
performance, such asset performance is not expected to have a material impact on
the Company's near-term liquidity as pension funding requirements generally
allow for such impacts to be spread over multiple years. Increases in post-2002
pension funding requirements could occur, however, if capital market performance
in future periods does not more closely approximate the long-term rate of return
assumed by the Company, and the amount of such increases could be material.

Sale of 8.3% Interest in QAL. In September 2001, the Company sold an approximate
8.3% interest in QAL and recorded a pre-tax gain of approximately $163.6 million
(included in Other income/(expense) in the Condensed Consolidated Statements of
Income (Loss)). As a result of the transaction, the Company now owns a 20%
interest in QAL. See Note 9 of Notes to Interim Consolidated Financial
Statements for additional discussion of the September 2001 sale.

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. Construction of the facility was substantially
completed during the third quarter of 2001. The plant operated at approximately
78% of its newly-rated estimated capacity of 1,250,000 tons during the third
quarter of 2001. Subsequent to September 30, 2001, the plant has regularly
operated at a rate equal to or greater than 90% of its newly-rated capacity.
Based on current estimates, the facility is expected to reach its full operating
rate and full efficiency by the end of 2001 or early 2002.

See Note 2 of Notes to Interim Consolidated Financial Statements for additional
discussion of the incident at the Gramercy facility and the financial statement
impact of Gramercy-related insurance recoveries.

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 nine months
of 2001, the Company kept its Northwest smelters curtailed and sold the
remaining power available that it had under contract through September 2001. The
Company has the right to purchase power under a contract with the Bonneville
Power Administration ("BPA") that provides 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) will be
approximately 46% higher than power costs under the prior contract. The Company
cannot predict what rates will be charged in future periods. There are terms of
the contract which are less favorable than the prior BPA contract, including the
fact that the Company is not entitled to receive any profits from its limited
remarketing rights under the contract.

Given recent primary aluminum prices and the forward price of power in the
Northwest, it is unlikely that the Company would operate more than a portion of
its Northwest smelting capacity in the near future. 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 long-term
primary aluminum prices. 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 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
through December 31, 2001. However, additional accruals may be required
depending on when the USWA workers are recalled and when the smelting operations
are restarted. Such amounts could be material.

See Note 4 of Notes to Interim Consolidated Financial Statements for additional
information on the power sales, the 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 assuming similar market conditions
to those experienced at the time the program was initiated. 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 September 2001 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.

In connection with the program, the Company recorded charges of $27.0 million
(see Note 10 of Notes to Interim Consolidated Financial Statements). Additional
cash and non-cash charges may be required in the future as the program
continues. Such additional 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 nine-month periods ended September 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            Nine Months Ended
                                                                     September 30,              September 30,
                                                               -------------------------  -------------------------
                                                                       2001         2000           2001        2000
                                                               ----------------------------------------------------
Shipments: (000 tons)
     Alumina (1)
       Third Party                                                   680.2        484.0        2,009.1     1,460.4
       Intersegment                                                   51.2        149.8          286.0       584.1
                                                               ------------  -----------  ------------- -----------
           Total Alumina                                             731.4        633.8        2,295.1     2,044.5
                                                               ------------  -----------  ------------- -----------
     Primary Aluminum(2)
       Third Party                                                    59.7         96.3          186.4       261.8
       Intersegment                                                     .3         34.0            2.3       119.4
                                                               ------------  -----------  ------------- -----------
           Total Primary Aluminum                                     60.0        130.3          188.7       381.2
                                                               ------------  -----------  ------------- -----------
     Flat-Rolled Products                                             17.0         34.9           59.8       125.7
                                                               ------------  -----------  ------------- -----------
     Engineered Products                                              28.0         40.3           92.2       131.9
                                                               ------------  -----------  ------------- -----------
Average Realized Third Party Sales Price:
     Alumina (per ton)                                         $       183   $      207   $        189  $      211
     Primary Aluminum (per pound)                              $       .63   $      .74   $        .69  $      .75
Net Sales:
     Bauxite and Alumina (1)
       Third Party (includes net sales of bauxite)             $     132.0   $    108.3   $      402.3  $    338.1
       Intersegment                                                    9.1         29.0           55.0       115.3
                                                               ------------  -----------  ------------- -----------
           Total Bauxite and Alumina                                 141.1        137.3          457.3       453.4
                                                               ------------  -----------  ------------- -----------
     Primary Aluminum(2)
       Third Party                                                    83.0        156.7          282.1       430.0
       Intersegment                                                     .5         56.5            3.8       196.1
                                                               ------------  -----------  ------------- -----------
           Total Primary Aluminum                                     83.5        213.2          285.9       626.1
                                                               ------------  -----------  ------------- -----------
     Flat-Rolled Products                                             75.5        118.5          248.3       401.8
     Engineered Products                                             101.4        137.8          337.9       450.2
     Commodities Marketing                                             9.5         (3.2)           5.9       (23.4)
     Minority Interests                                               28.9         27.1           80.9        77.0
     Eliminations                                                     (9.6)       (85.5)        (58.8)      (311.4)
                                                               ------------  -----------  ------------- -----------
           Total Net Sales                                     $     430.3   $    545.2   $    1,357.4  $  1,673.7
                                                               ============  ===========  ============= ===========


Operating Income (Loss):
     Bauxite and Alumina (3)                                   $        .4   $      9.3   $      (12.4) $     53.0
     Primary Aluminum                                                  (.3)        25.9            8.1        90.6
     Flat-Rolled Products                                               .2          5.6            6.5        15.9
     Engineered Products                                                -           7.3            5.1        33.2
     Commodities Marketing                                             3.2         (7.6)          (5.8)      (42.0)
     Eliminations                                                      (.4)         4.1            5.1         1.2
     Corporate and Other                                             (17.7)       (14.1)         (53.5)      (44.4)
     Labor Settlement Charge(4)                                         -         (38.5)           -         (38.5)
     Other Non-Recurring Operating Items (Note 10)                   (21.3)        10.9          198.9        22.5
                                                               ------------  -----------  ------------- -----------
           Total Operating Income (Loss)                       $     (35.9)  $      2.9   $      152.0  $     91.5
                                                               ============  ===========  ============= ===========
Net Income (Loss)                                              $      68.6   $    (16.7)  $      124.4  $      6.5
                                                               ============  ===========  ============= ===========
Capital Expenditures                                           $      33.3   $    110.7   $      120.1  $    196.5
                                                               ============  ===========  ============= ===========

(1)  Net sales for the quarter and nine-month periods ended September 30, 2001,
     included approximately 25,000 tons and 91,100 tons, respectively, of
     alumina purchased from third parties. Net sales for the quarter and
     nine-month periods ended September 30, 2000, included approximately 50,000
     tons and 249,000 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 nine-month periods
     ended September 30, 2001, the Primary aluminum business unit purchased
     approximately 2,300 tons and 27,300 tons, respectively, of primary aluminum
     from third parties to meet existing third party requirements.
(3)  During the quarter and nine-month periods ended September 30, 2001,
     approximately $13.9 and $54.9, respectively, of abnormal Gramercy start-up
     costs were incurred. Operating income (loss) for the quarter and nine-month
     periods ended September 30, 2001, also included additional accrued business
     interruption recoveries related to the Gramercy facility of $21.4 and
     $36.6, respectively, based on a July 2001 agreement with the Company's
     insurers. Depreciation was suspended for the Gramercy facility during the
     first nine 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.
(4)  The allocation of the 2000 labor settlement charge to the Company's
     business units was as follows: Bauxite and alumina - $2.1, Primary aluminum
     - $15.9, Flat-rolled products - $18.2 and Engineered products - $2.3.

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 nine months ended September 30, 2000, the Average Midwest United
States transaction price ("AMT price") per pound of primary aluminum was $.76
per pound. During the nine months ended September 30, 2001, the average AMT
price was $.71 per pound. The average AMT price for primary aluminum for the
week ended October 26, 2001 was $.62 per pound.

QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2001, COMPARED TO QUARTER AND NINE
MONTHS ENDED SEPTEMBER 30, 2000

SUMMARY
The Company reported net income of $68.6 million for the third quarter of 2001,
compared to a net loss of $16.7 million for the same period of 2000. For the
nine months ended September 30, 2001, the Company reported net income of $124.4
million compared to net income of $6.5 million for the nine-month period ended
September 30, 2000. However, results for the quarter and nine-month periods
ended September 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                Nine Months Ended
                                                               September 30,                  September 30,
                                                      ------------------------------  ----------------------------
                                                                     2001       2000            2001          2000
                                                      -------------------  ---------  --------------   -----------
Gain on sale of QAL interest (pre-tax $163.6 in 2001) $             95.8   $      -   $        95.8    $       -
Non-recurring operating (charges) income, net (pre-tax
     $(21.3) and $198.9 in 2001; $10.9 and $22.5 in                (13.0)       6.7           121.3          13.7
     2000)
Other (expense) income-special items, net (pre-tax
     $18.6 and $(27.1) in 2001; $(3.1) and $5.6 in
     2000)                                                          11.4       (1.9)          (16.5)          3.4
Abnormal Gramercy start-up costs (pre-tax $13.9 and                                                            -
     $54.9 in 2001)                                                 (8.5)         -           (33.5)
Additional Gramercy business interruption recoveries
     (pre-tax $21.4 and $36.6 in 2001)                              13.1          -            22.3
Excess overhead and other fixed costs associated with
     curtailed Northwest smelting operations (pre-tax
     $4.5 and $15.0 in 2001)                                        (2.8)         -            (9.1)           -
LIFO inventory adjustment (pre-tax $5.0 in 2001)                    (3.1)         -            (3.1)           -
Labor settlement charge (pre-tax $38.5 in 2000)                   -           (23.5)            -           (23.5)
                                                      -------------------  ---------  --------------   -----------
                                                      $             92.9   $  (18.7)  $       177.2    $     (6.4)
                                                      ===================  =========  ==============   ===========

Net sales in the third quarter of 2001 totaled $430.3 million compared to $545.2
million in the third quarter of 2000. Net sales for the nine-month period ended
September 30, 2001, totaled $1,357.4 million compared to $1,673.7 million for
the nine-month period ended September 30, 2000.

Bauxite and Alumina. Third party net sales of alumina increased 22% for the
quarter ended September 30, 2001, as compared to the same period in 2000. A 41%
increase in third party shipments was partially offset by a 12% decrease in
third party average realized prices. The increase in quarter-over-quarter
shipments resulted primarily from (1) higher third party sales due to the
curtailment of the Company's Washington smelters, (2) the restart of production
at the Gramercy refinery in December 2000 and (3) the timing of shipments. 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 September 30, 2001
decreased 69% as compared to the same period in 2000 as the result of a 66%
decrease in intersegment shipments and an 8% decrease in intersegment average
realized prices. The decrease in shipments was primarily due to the potline
curtailments at the Company's Washington smelters. The decrease in the
intersegment average realized prices is the result of a decrease in primary
aluminum prices from period to period as intersegment transfers are made on the
basis of primary aluminum market prices on a lagged basis of one month.

Net sales for the quarters ended September 30, 2001 and 2000 included
approximately 25,000 tons and 50,000 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 nine-month period ended September 30, 2001, third party net sales of
alumina were 19% higher than the comparable period in 2000 as a 38% increase in
third party shipments was partially offset by a 10% decrease in third party
average realized prices. The increase in third party shipments and decrease in
average realized prices during the first nine months of 2001 as compared to 2000
was attributable to the same volume and price factors discussed above.

Intersegment net sales for the nine-month period ended September 30, 2001,
decreased 52% as compared to the same period in 2000. The decrease was due to a
51% decrease in the intersegment shipments and a 3% decrease in intersegment
average realized prices. The decreases in intersegment shipments and
intersegment average realized prices were attributable to the same volume and
price factors discussed above.

Net sales for the nine-month periods ended September 30, 2001 and 2000 included
approximately 91,100 tons and 249,000 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
nine-month periods ended September 30, 2001, were down from the comparable
periods in 2000. Increased 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 nine-month periods ended September 30, 2001 of approximately $13.9
million and $54.9 million, respectively, less than satisfactory bauxite mining
cost performance at KJBC and a LIFO inventory charge of $2.0 million. These
charges were offset in part in the quarter and nine-month periods by $21.4
million and $36.6 million, respectively, of additional insurance benefits
related to the Gramercy incident.

Segment operating income for the quarter and nine-month periods ended September
30, 2001, discussed above, exclude non-recurring costs of $7.9 million and $9.9
million, respectively, incurred in connection with the Company's performance
improvement program. Segment operating income for both the quarter and
nine-month periods ended September 30, 2000, exclude labor settlement charges of
$2.1 million and incremental maintenance spending of $11.5 million.

Primary Aluminum. Third party net sales of primary aluminum decreased 47% for
the third quarter of 2001 as compared to the same period in 2000 as a result of
a 38% decrease in third party shipments and a 15% decrease in average 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 September 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 nine-month period ended September 30, 2001, third party sales of primary
aluminum decreased approximately 34% from the comparable period in 2000,
reflecting a 29% decrease in third party shipments and an 8% 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 nine months 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
nine-month periods ended September 30, 2001, decreased significantly versus 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 $30.0 million
during the quarter and nine-month periods ended September 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. Year-to-date 2001 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 nine-month periods ended
September 30, 2001, discussed above, exclude non-recurring net power sale gains
of $6.5 million and $229.2 million, respectively. These gains were offset in
both periods by costs of $5.4 million incurred in connection with the Company's
performance improvement program and contractual labor costs related to the
Northwest smelter curtailment of $3.3 million. Segment operating income for the
quarter and nine-month periods ended September 30, 2000, exclude net power sale
gains of $40.5 million and $56.3 million, respectively. These gains were offset
in both periods by labor settlement charges of $15.9 million and costs related
to staff reduction initiatives of $3.1 million.

Flat-Rolled Products. Net sales of flat-rolled products decreased approximately
36% during the third quarter 2001 as compared to 2000 as a 51% decrease in
shipments was only partially offset by a 31% 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 reduced can lid and tab stock shipments, due to weak market demand.
These decreases were modestly offset by firm aerospace demand. The increase in
average realized prices primarily reflects the change in product mix from the
can body stock to heat-treat products, particularly aerospace heat-treat (which
have a higher price and operating margin as compared to other products).

For the nine-month period ended September 30, 2001, net sales of flat-rolled
products decreased by approximately 38% as compared to the same period in 2000
as a 52% decrease in shipments was offset by a 30% 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 (excluding non-recurring items) for the quarter and
nine-month periods ended September 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 increases in prices described above. Operating
results were also adversely impacted by increased operating costs, mainly due to
product mix, a LIFO inventory charge of $2.0 million and higher metal sourcing
costs.

Segment operating income for both the quarter and nine-month periods ended
September 30, 2001, discussed above, exclude non-recurring costs of $10.7
million incurred in connection with the Company's performance improvement
program. Segment operating income for both the quarter and nine-month periods
ended September 30, 2000, exclude labor settlement charges of $18.2 million and
an impairment charge associated with product line exit of $9.0 million.

Engineered Products. Net sales of engineered products decreased by approximately
26% during the third quarter 2001 as compared to 2000, as a 30% decrease in
product shipments was offset by a 6% 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 nine-month period ended September 30, 2001, net sales of engineered
products decreased by approximately 25% as a 30% decrease in product shipments
was offset by a 7% increase in average realized prices. The decrease in
shipments and increase in sales prices is attributable to the same factors
listed above.

Segment operating income (excluding non-recurring items) for the quarter and
nine-month periods ended September 30, 2001, decreased as compared to the
comparable periods in 2000 primarily due to the price and volume factors
described above. The segment's operating results were also adversely impacted by
a LIFO inventory charge of $1.0 million and because cost reductions lagged
volume decline.

Segment operating income for the quarter ended September 30, 2000, discussed
above, excludes non-recurring labor settlement charges of $2.3 million and an
impairment charge associated with product line exit of $4.0 million. In addition
to these items, segment operating income for the nine-month period ended
September 30, 2000 excluded a $.7 million severance-related charge (reflected in
the second quarter of 2000) with respect to the same product line exit.

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 income for the quarter and nine-month periods ended September
30, 2001 increased compared to the comparable periods in 2000. This is primarily
the result of 2001 hedging positions having higher minimum prices than the
positions in 2000, combined with the fact that 2000 market prices were higher
than those experienced in 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 nine-month periods ended September 30,
2001, as compared to the comparable periods in 2000 was primarily due to higher
medical and pension cost accruals for active and retired employees.

Corporate operating results for the quarter and nine-month periods ended
September 30, 2001, discussed above, exclude costs of $.5 million and $1.0
million, respectively, incurred in connection with the Company's performance
improvement program. Corporate operating results for the quarter and nine-month
periods ended September 30, 2000, exclude costs related to staff reduction and
efficiency initiatives of $2.0 million and $5.5 million, respectively.

POSSIBLE FOURTH QUARTER 2001 TRENDS AS COMPARED TO ACTUAL THIRD 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. Increased
Gramercy volumes, factored into the business unit's routine quarterly
fluctuations in the timing of cargo vessel departures, will largely offset the
impact of the QAL transaction. 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 fourth quarter, although the Company's hedging program will
offset a substantial portion of the impact. Costs are expected to be favorable
as Gramercy's operating rate approaches 100%.

Primary Aluminum. Shipment volumes are likely to be flat, reflecting stable
operating rates. Price realizations are reflective of commodity pricing as
determined by LME and Midwest markets. The Company's hedging program will offset
a substantial portion of the recent weakness in market prices. Costs are
expected to be favorable as a result of a reduction in excess overhead in the
Pacific Northwest.

Flat-Rolled Products. Shipment volumes may be down due to indications of slowing
aerospace orders combined with seasonality and continued weakness in general
engineering and lid and tab stock. Average price realizations may be flat/down
as a result of possible lower aerospace shipments. Costs are likely to be
favorable due to reductions in overhead costs.

Engineered Products. Shipment volumes are likely to be down, reflecting
continued weakness in all markets, combined with seasonality. Average price
realizations are likely to be flat due to a relatively stable product mix. Costs
are expected to be favorable as the unit flexes costs to match lower operating
levels.

Corporate. Corporate expenses are likely to be flat/favorable as the Company
proceeds with implementation of corporate efficiency initiatives.

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 September 30, 2001, the Company had cash and cash
equivalents of $212.1 million as compared to $23.4 million of cash and cash
equivalents at December 31, 2000. At September 30, 2001, excluding the cash and
cash equivalents and the $206.2 million of maturities with respect to the 9 7/8%
Senior Notes, the Company had working capital of $130.7 million, compared with
working capital of $153.5 million at December 31, 2000. In addition to normal
operating changes, the decrease in working capital primarily resulted from:

- -    a decrease in other receivables primarily due to receipt of previously
     accrued power sales (see Note 4 of Notes to Interim Consolidated Financial
     Statements) and the collection of Gramercy-related insurance recoveries
     (see Note 2 of Notes to Interim Consolidated Financial Statements).

- -    a decrease in the current portion of long-term debt due to 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, offset by employee benefits and other costs accrued in the third
     quarter of 2001 in connection with the Company's performance improvement
     program.

Investing Activities. Capital expenditures during the nine months ended
September 30, 2001, were $120.1 million, including $70.6 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 related to 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 third quarter of 2001, there were no
borrowings under the Credit Agreement. During the first six months 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 six months of 2001 was approximately
$23.8 million. Outstanding letters of credit at September 30, 2001, were
approximately $29.6 million. The Credit Agreement significantly restricts the
Company's ability to pay any dividends on its common stock.

In October 2001, the expiration date of the Credit Agreement was extended from
November 2, 2001 to December 15, 2001. The extension provides the Company with
additional flexibility while it continues its ongoing work on a longer-term
solution for near-term debt maturities. 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 December 2001,
the Company will have to have a demonstrable way to retire the maturity of the
remaining amount of 9 7/8% Senior Notes ($177.4 million principal amount as of
October 31, 2001). For the Credit Agreement to be extended past February 2003,
both the 9 7/8% 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 a portion
of the availability under the Credit Agreement (or any extension, replacement or
renewal thereof) together with other cash resources to retire the 9 7/8% Senior
Notes. As of October 31, 2001, the Company had purchased $47.6 million of the 9
7/8% Senior Notes at a modest gain. As of October 31, 2001, the Company had
approval from the Credit Agreement lenders to spend up to an aggregate of $100.0
million to purchase the 9 7/8% 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. The Company expects to provide additional information with
respect to its plan to deal with its near-term maturities before the expiration
of the Credit Agreement term. While the Company continues to consider potential
asset transactions (beyond the September 2001 sale of 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 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 until full production
volume and efficiency is restored. 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 nine months ended September 30, 2001, the Company paid $86.9 million
of asbestos-related settlement and defense costs and received insurance
reimbursement of $77.3 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. During
October 2001, the court ruled favorably on a number of issues. The rulings did
not result in any change to the Company's estimates of its current and future
asbestos-related insurance recoveries. Additional issues may be heard by the
court from time to time. Given the significance of expected asbestos-related
payments in 2001 and 2002 based on settlement agreements in place at September
30, 2001, the receipt of timely and appropriate reimbursements from such
insurers is critical to the Company's liquidity.

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 operations and
working capital and other commitments (before considering near-term debt
maturities), including interest and expected tax payments, the funding of
pension, post-retirement medical and net asbestos-related liabilities, capital
spending and other previously accrued obligations, may cause near-term cash
flows to be negative. The Company expects its cash flow in mid-2002 to improve
substantially over expected near-term cash flows 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, such changes are subject to prevailing market and
economic conditions and, as such, no assurances can be given in this regard.

Management believes that the Company's existing cash resources, together with
cash flows from operations, 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 September 30, 2001, the Company's total consolidated
indebtedness was $905.1 million. 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.

The hypothetical amounts and impacts discussed below are versus what the
Company's results would have been without the derivative or fixed price customer
contracts. It should be noted however, that, since the hedging positions and
fixed price customer contracts lock-in a specific price, a range of prices or
specific rates, increases or decreases in earnings attributable to the Company's
hedging positions, fixed price customer contracts or hedging instruments would
be significantly offset by a corresponding decrease or increase in the proceeds
to be realized on the underlying physical transactions or in the value of the
hedged commitments.

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 September 2001 London Metal Exchange ("LME") cash price for
primary aluminum of approximately $.61 per pound, the Company estimates that it
would realize approximately $61.0 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 September 2001 price would result in a net
aggregate pre-tax reduction in operating income of approximately $38.0 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 September 2001 price level would result in an aggregate pre-tax
increase in operating income of approximately $192.0 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.

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 September 30, 2001, LME cash price of $.60 per pound would, depending on the
shape of the forward curve, result in additional aggregate mark-to-market
impacts of between $5.0 - $20.0 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 September 30, 2001, the Company had received margin advances of
$42.7 million. Increases in primary aluminum prices subsequent to September 30,
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 September 30, 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 20.0%-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 $1.0 - $2.0 million (decrease) increase in the Company's annual
pre-tax operating income.

Based on the September 30, 2001 US$ to A$ exchange rate of $.49, the Company's
foreign currency hedges would result in a net aggregate pre-tax reduction of
operating income of approximately $9.7 million for the remainder of 2001 and for
the period 2002 through 2005. The Company estimates that a hypothetical 10%
decrease in the A$ exchange rate would result in the Company recognizing a net
aggregate pre-tax reduction of operating income of approximately $10.4 million
for the remainder of 2001 and for the period 2002 through 2005 from the
Company's foreign currency hedging positions. Conversely, the Company estimates
that a hypothetical 10% increase in the A$ exchange rate (from $.49) would
result in the Company realizing a net pre-tax aggregate reduction of operating
income of approximately $8.7 million during the remainder of 2001 and for the
period 2002 through 2005.

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. Based on an average September 2001 price (per mcf) of approximately
$2.53, the Company expects to realize a pre-tax reduction of operating income of
approximately $5.0 million for the period from October 2001 through March 2002
associated with these hedging positions. The Company estimates that a
hypothetical $1.00 decrease from an average September 2001 price would result in
the Company recognizing a net aggregate pre-tax reduction of operating income of
$8.0 million. Conversely, the Company estimates that a hypothetical $1.00
increase from the average September 2001 price would result in the Company
realizing a net pre-tax aggregate reduction of operating income of approximately
$2.0 million during the same period.

Based on the average September 2001 fuel oil price (per barrel) of approximately
$19.79, the Company estimates the hedges would result in a net aggregate pre-tax
increase to its operating income of approximately $1.3 million in the fourth
quarter of 2001.

                           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 material
legal proceedings with respect to the Company and Part II, Item 3. "LEGAL
PROCEEDINGS" in the Company's Form 10-Q for the quarterly period ended March 31,
2001, for information related to certain legal proceedings with respect to the
Company's Mead, Washington aluminum smelter.

ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

     (a)     Exhibits.

             *10.1   Twenty-Second Amendment to Credit Agreement, dated as of
                     October 16, 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.

             *10.2   Twenty-Third Amendment to Credit Agreement, dated as of
                     October 24, 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.

     (b)  Reports on Form 8-K.

     No Report on Form 8-K was filed by the Company during the quarter ended
September 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:   November 14, 2001

EX-10

                  TWENTY-SECOND AMENDMENT TO CREDIT AGREEMENT


                  THIS TWENTY-SECOND AMENDMENT TO CREDIT AGREEMENT (this
"Amendment"), dated as of October 16, 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, the Twentieth Amendment to Credit Agreement dated as of
January 26, 2001, and the Twenty-First Amendment to Credit Agreement and Consent
dated as of July 18, 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 "November 2, 2001" each time it appears in the
definitions of "Revolving Commitment Termination Date" and "Stated Maturity
Date" contained therein and substituting a reference to "December 15, 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 "November 2, 2001" contained in clause (b)(iii)
thereof and substituting a reference to "December 15, 2001" therefor.

                  1.3 Amendments to Article IX: Covenants

                  Section 9.1.13 of the Credit Agreement is hereby amended by
deleting the reference to "November 2, 2001" contained therein and substituting
a reference to "December 15, 2001" therefor.

                  1.4 Amendment to Signature Pages.

                  The Credit Agreement is hereby amended to delete ABN AMRO Bank
N.V. as a Lender thereunder. The Percentages set forth opposite the Lenders'
names on the signature pages of the Credit Agreement are hereby amended to read
as follows:

                  "Bank of America, N.A.                               41.538%
                  Congress Financial Corporation (Western)             27.768%
                  La Salle Bank National Association                    5.666%
                  The CIT Group/Business Credit, Inc.                   7.333%
                  Transamerica Business Capital Corporation             7.362%
                  Heller Financial, Inc.                               10.333%"

                  Section 2. 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-Second 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 (whose
                  pro rata shares are shown in Section 1.5 of this Amendment),
                  a fee in the amount of $250,000.

                  Section 3. 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-Second 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 4. 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 5. Miscellaneous.

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

                           (1)  On and after the Twenty-Second 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/ Grant Weiss                     By:  /S/ Richard J. Holston
Name Printed:  Grant Weiss               Name Printed:  Richard J. Holston
Its:  VP                                 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 ASSOCIATION
(formerly La Salle National Bank)


By: /S/ Bruce Denby
Name Printed:  Bruce Denby
Its:  Sr. 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

                   TWENTY-THIRD AMENDMENT TO CREDIT AGREEMENT


                  THIS TWENTY-THIRD AMENDMENT TO CREDIT AGREEMENT (this
"Amendment"), dated as of October 24, 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, the Twentieth Amendment to Credit Agreement, dated as of
January 26, 2001, the Twenty-First Amendment to Credit Agreement and Consent,
dated as of July 18, 2001, and the Twenty-Second Amendment to Credit Agreement,
dated as of October 16, 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 Amendments to Article IX: Covenants

                  A.       Section 9.2.6(b)(iv) of the Credit Agreement is
                  hereby amended to read in its entirety as follows:

                           "(iv) redeem, purchase, or defease any Subordinated
                  Debt, any New Subordinated Debt, any Senior Debt, any New
                  Senior Debt, any Additional New Senior Debt, the PIK Note or
                  any Equity Proceeds Note; provided, however, that,
                  notwithstanding the provisions of Section 9.2.6(b)(ii), the
                  Company and its Subsidiaries may, at the Company's discretion,
                  purchase, redeem or defease Senior Notes from time to time
                  during the period from January 26, 2001 through December 31,
                  2001; provided that (A) the Company and its Subsidiaries may
                  not purchase, redeem or defease any Senior Note for a price
                  greater than its principal amount plus the accrued interest
                  thereon to the date of purchase, redemption or defeasance; (B)
                  the aggregate amount paid by the Company and its Subsidiaries
                  during such period as the price for all such purchases,
                  redemptions and defeasances of Senior Notes may not exceed
                  $100,000,000 (exclusive of accrued interest payable on the
                  aggregate principal amount of any such Senior Notes purchased,
                  redeemed or defeased); (C) Senior Notes that are acquired by
                  the Company or its Subsidiaries may, at the Company's
                  election, either be retired and cancelled, or pledged to the
                  Agent as part of the Collateral; and (D) the Company and its
                  Subsidiaries may not transfer Senior Notes purchased, redeemed
                  or defeased pursuant to this Section 9.2.6(b)(iv), except that
                  the Company's Subsidiaries may transfer Senior Notes to the
                  Company, and the Company and its Subsidiaries may pledge
                  Senior Notes to the Agent as part of the Collateral.

                  Section 2. 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-Third 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 Required Lenders (or notice of the approval of this
Amendment by the Required 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;

                           (5)  For the pro rata benefit of the Lenders, a fee
                  in the amount of $250,000; and

                           (6)  For the pro rata benefit of the Lenders, a fee
                  in the amount of $250,000 less any fees that have already been
                  paid pursuant to Section 9.2.6(b)(iv) of the Credit Agreement,
                  as amended by Section 1(1.1)(B) of the Twentieth Amendment to
                  Credit Agreement, dated as of January 26, 2001.

                  Section 3. 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-Third 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 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 4. 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 5. Miscellaneous.

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

                           (1) On and after the Twenty-Third 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/ Grant Weiss                     By:  /S/ Richard J. Holston
Name Printed: Grant Weiss                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 ASSOCIATION
(formerly La Salle National Bank)


By:  /S/ Douglas C. Colletti
Name Printed:  Douglas C. Colletti
Its:  1st VP


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