<PAGE>   1
===============================================================================

                                   FORM 10-K
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

Annual Report Pursuant to Section 13 or 15(d) of the Securities 
  Exchange Act of 1934 
For the fiscal year ended December 31, 1996
Commission file number 1-9447

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

      DELAWARE                                         94-3030279
(State of Incorporation)                  (I.R.S. Employer Identification No.)

            5847 SAN FELIPE, SUITE 2600, HOUSTON, TEXAS 77057-3010
             (Address of principal executive offices) (Zip Code)

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

         Securities registered pursuant to Section 12(b) of the Act:

                                                    Name of each exchange
     Title of each class                             on which registered
     -------------------                             -------------------

  Common Stock, $.01 par value                      New York Stock Exchange

  8.25% PRIDES, Convertible Preferred Stock,        New York Stock Exchange
  $.05 par value



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, and (2) has been subject to such filing
requirements for the past 90 days. Yes  X   No
                                       ---     ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. ___


As of March 14, 1997, there were 71,651,349 shares of the Common Stock of the
registrant outstanding. Based upon New York Stock Exchange closing prices on
March 14, 1997, the aggregate market value of the registrant's Common Stock and
8.255% PRIDES held by non-affiliates was $368.8 million.


Certain portion of the registrant's annual report to shareholders for the
fiscal year ended December 31, 1996, are incorporated by reference into Parts I,
II, and IV of this Report on Form 10-K. Certain portions of the registrant's
definitive proxy statement to be filed not later than 120 days after the close
of the registrant's fiscal year are incorporated by reference into Part III of
this Report on Form 10-K.

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<PAGE>   2


                                      NOTE





Kaiser Aluminum Corporation's Report on Form 10-K filed with the Securities and
Exchange Commission includes all exhibits required to be filed with the Report.
Copies of this Report on Form 10-K, including only Exhibit 21 of the exhibits
listed on pages 23-26 of this Report, are available without charge upon written
request. The registrant will furnish copies of the other exhibits to this
Report on Form 10-K upon payment of a fee of 25 cents per page. Please contact
the office set forth below to request copies of this Report on Form 10-K and
for information as to the number of pages contained in each of the other
exhibits and to request copies of such exhibits:



                                               Corporate Secretary
                                               Kaiser Aluminum Corporation
                                               5847 San Felipe, Suite 2600
                                               Houston, Texas  77057-3010








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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
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                               TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                                  Page
                                                                                  ----

<S>                                                                                 <C>

PART I..........................................................................    1


     ITEM 1.      BUSINESS......................................................    1


     ITEM 2.      PROPERTIES....................................................   11


     ITEM 3.      LEGAL PROCEEDINGS.............................................   12


     ITEM 4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...........   15


PART II.........................................................................   15


     ITEM 5.      MARKET FOR REGISTRANT'S COMMON EQUITY AND
                     RELATED STOCKHOLDER MATTERS................................   15


     ITEM 6.      SELECTED FINANCIAL DATA.......................................   15


     ITEM 7.      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                     CONDITION AND RESULTS OF  OPERATIONS.......................   15


     ITEM 8.      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...................   15


     ITEM 9.      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                     ACCOUNTING AND FINANCIAL DISCLOSURE........................   15


PART III........................................................................   15


     ITEM 10.     DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............   15


     ITEM 11.     EXECUTIVE COMPENSATION........................................   15


     ITEM 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
                    AND MANAGEMENT..............................................   15


     ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................   15


PART IV.........................................................................   16


     ITEM 14.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
                    REPORTS ON FORM 8-K.........................................   16

SCHEDULE I        ..............................................................   17

SIGNATURES        ..............................................................   22

INDEX OF EXHIBITS...............................................................   23

EXHIBIT 21        SUBSIDIARIES..................................................   27
</TABLE>




                                      (ii)



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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
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PART I


ITEM 1.       BUSINESS

This Annual Report on Form 10-K 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 Report (see, for example, Item 1. "Business - Industry Overview;"
"Business - The Company - Profit Enhancement and Cost Reduction Initiative,"
"Production Operations," "-Competition," "-Research and Development," 
"-Business Development," and "Environmental Matters," and Item 3. "Legal
Proceedings"). Such statements can be identified by the use of forward-looking
terminology such as "believes," "expects," "may," "estimates," "will,"
"should," "plans" or "anticipates" or the negative thereof or other variations
thereon or comparable terminology, or by discussions of strategy. Readers are
cautioned that any such forward-looking statements are not guarantees of future
performance and involve significant risks and uncertainties, and that actual
results may vary materially from those in the forward-looking statements as a
result of various factors. These factors include the effectiveness of
management's strategies and decisions, general economic and business
conditions, developments in technology, new or modified statutory or regulatory
requirements and changing prices and market conditions. This Report and the
financial portion of the Company's 1996 Annual Report to Shareholders (see

Items 6 through 8 of this Report) identify other factors that could cause such
differences. 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.

INDUSTRY OVERVIEW

Primary aluminum is produced by the refining of bauxite into alumina and the
reduction of alumina into primary aluminum. Approximately two pounds of bauxite
are required to produce one pound of alumina, and approximately two pounds of
alumina are required to produce one pound of primary aluminum. Aluminum's
valuable physical properties include its light weight, corrosion resistance,
thermal and electrical conductivity, and high tensile strength.

Demand

The packaging, transportation and construction industries are the principal
consumers of aluminum in the United States, Japan, Germany, France, Italy, and
the United Kingdom. In the packaging industry, which accounted for an estimated
21% of aluminum consumption in 1996 in the previously referenced countries,
aluminum's recyclability and weight advantages have enabled it to gain market
share from steel and glass, primarily in the beverage container area. Nearly
all beer cans and soft drink cans manufactured for the United States market are
made of aluminum. Kaiser Aluminum Corporation ("KAC" or the "Company") believes
that growth in the packaging area is likely to continue through the 1990s due
to general population increase and to further penetration of the beverage
container market in emerging markets. The Company believes that growth in
demand for can sheet in the United States will follow the growth in population,
offset, in part, by the effects of the use of lighter gauge aluminum for can
sheet and by plastic container production.

In the transportation industry, which accounted for an estimated 30% of
aluminum consumption in the United States, Japan, Germany, France, Italy and
the United Kingdom in 1996, automotive manufacturers use aluminum instead of
steel, ductile iron, or copper for an increasing number of components,
including radiators, wheels, suspension components, and engines, in order to
meet more stringent environmental, safety, and fuel efficiency standards. The
Company believes that sales of aluminum to the transportation industry have
considerable growth potential due to projected increases in the use of aluminum
in automobiles. In addition, the Company believes that consumption of aluminum
in the construction industry will follow the cyclical growth pattern of that
industry, and will benefit from higher growth in Asian and Latin American
economies.

Supply

As of year-end 1996, estimated world aluminum capacity from 179 smelting
facilities was approximately 22.9 million tons* per year. World production of
primary aluminum for 1996 increased approximately 4.5% compared to 1995. Net
exports of aluminum from the former Sino Soviet bloc increased approximately
200% from 1990 levels to an estimated 1.9 million tons per year as

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

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ITEM 1.       BUSINESS (CONTINUED)

of year-end 1996. In addition, one smelter continued to increase production
following its start-up in 1995, and a number of producers restarted idled
capacity in late 1995 and early 1996. These exports, as well as new and
restared capacity, contributed to an increase in London Metal Exchange ("LME")
stocks of primary aluminum which peaked in October 1996 at 970,000 tons. At the
end of 1996, LME stocks of primary aluminum had declined 18,725 tons from this
peak level to 951,275 tons. See "Industry Trends."

Based upon information currently available, the Company believes that moderate
additions will be made during 1997-1999 to world alumina and primary aluminum
production capacity. The increases in alumina capacity during 1997-1999 are
expected to come from one new refinery, which began operations in 1996, and
incremental expansions of existing refineries. In addition, the Company
believes that there is currently an estimated 1.6 million tons of unutilized
world smelting capacity. The increases in world primary aluminum capacity
during 1997-1999 are expected to come from two new smelters which may begin
operations in 1997, two relocated smelters that are expected to resume
operations in 1998, and the remainder principally from incremental expansions
of existing smelters.

Industry Trends

Primary aluminum prices have historically been subject to significant cyclical
price fluctuations. During the first half of 1996, the average Midwest United
States transaction price ("AMT Price") for primary aluminum remained relatively
stable in the $.75 per pound range. However, during the second half of the year
the AMT Price fell, reaching a low of $.65 per pound for October 1996, before
recovering late in the year. During 1996, the AMT Price for primary aluminum
was approximately $.72 per pound, compared to $.86, $.72 and $.54 per pound in
1995, 1994 and 1993, respectively. The AMT Price for primary aluminum for the
week ended March 14, 1997, was approximately $.81 per pound.

The significant improvement in prices during 1994 and 1995 resulted from strong
growth in Western world consumption of aluminum and the curtailment of
production in response to lower prices in prior periods by many producers
worldwide. In 1995, production of primary aluminum increased and consumption of
aluminum continued to grow, but at a much lower rate than in 1994. In general,
the overall aluminum market was strongest in the first half of 1995. By the
second half of 1995, orders and shipments for certain products had softened and
the rate of decline in LME inventories had leveled off. By the end of 1995,
some small increases in LME inventories occurred, and prices of aluminum
weakened from first-half levels. This trend continued throughout most of 1996.
Net reported primary aluminum inventories increased by approximately 62,000
tons in 1996 based upon reports of the LME and the International Primary
Aluminium Institute ("IPAI"), following substantial declines of 764,000 and
1,153,000 tons in 1994 and 1995, respectively. However, since year-end 1996,
LME stocks of primary aluminum have continued to decline from their October
1996 peak level.

Increased production of primary aluminum due to restarts of certain previously
idled capacity, the continued increase in production of a smelter in South
Africa following its start-up in 1995, and the continued high level of exports
from the Commonwealth of Independent States ("CIS") contributed to increased
supplies of primary aluminum to the Western world in 1996. While the economies
of the major aluminum consuming regions - the United States, Japan, Western
Europe, and Asia - are, in the aggregate, performing relatively well, the
Company believes that the reduction of aluminum inventories by customers, as
prices have continued to decline, has mitigated the growth in primary aluminum
demand that normally accompanies growth in economic and industrial activity.

Western world demand for alumina, and the price of alumina, declined in 1994 in
response to the curtailment of Western world smelter production of primary
aluminum, partially offset by increased usage of Western world alumina by
smelters in the CIS and in the People's Republic of China ("PRC"). Increased
Western world production of primary aluminum, as well as continued imports of
Western world alumina by the CIS and the PRC, during 1995 resulted in higher
demand for Western world alumina and significantly stronger alumina pricing. In
1996, however, the alumina market softened, primarily as a result of increased
alumina production and decreased alumina exports to the CIS and the PRC,
resulting in lower alumina prices. However, increases in primary aluminum
production as well as reductions in alumina production during the second half
of 1996 resulted in stronger alumina pricing in late 1996.

United States shipments of domestic fabricated aluminum products in 1995 were
approximately at 1994 levels, although in 1995 demand for can sheet in the
United States softened relative to 1994. United States shipments of domestic
fabricated aluminum


                                       2


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ITEM 1.       BUSINESS (CONTINUED)

products in 1996 are estimated to be approximately at 1995 levels, although in
1996 demand for can sheet in the United States softened relative to 1995.

THE COMPANY

General

The Company is a subsidiary of MAXXAM Inc. ("MAXXAM"). The Company, through its
subsidiary, Kaiser Aluminum & Chemical Corporation ("KACC") operates in all
principal aspects of the aluminum industry - the mining of bauxite, the
refining of bauxite into alumina, the production of primary aluminum from
alumina, and the manufacture of fabricated (including semi- fabricated)
aluminum products. In addition to the production utilized by KACC in its
operations, KACC sells significant amounts of alumina and primary aluminum in
domestic and international markets. In 1996, KACC produced approximately
2,838,000 tons of alumina, of which approximately 73% was sold to third
parties, and produced approximately 473,200 tons of primary aluminum, of which
approximately 75% was sold to third parties. KACC is also a major domestic
supplier of fabricated aluminum products. In 1996, KACC shipped approximately
327,100 tons of fabricated aluminum products to third parties, which accounted
for approximately 5% of the total tonnage of United States domestic shipments.
A majority of KACC's fabricated products are sold to distributors or used by
customers as components in the manufacture and assembly of finished end-use
products. Note 10 of the Notes to Consolidated Financial Statements contained
in the Company's 1996 Annual Report to Shareholders (the "Annual Report") is
incorporated herein by reference.

The following table sets forth total shipments and intracompany transfers of
KACC's alumina, primary aluminum, and fabricated aluminum operations:



<TABLE>
<CAPTION>
                                              Year Ended December 31,
                                       ------------------------------------
                                        1996           1995          1994
                                       -------        -------       -------
                                              (in thousands of tons)
ALUMINA:
<S>                                    <C>            <C>           <C>    
  Shipments to Third Parties           2,073.7        2,040.1       2,086.7
  Intracompany Transfers                 912.4          800.6         820.9
PRIMARY ALUMINUM:
  Shipments to Third Parties             355.6          271.7         224.0
  Intracompany Transfers                 128.3          217.4         225.1
FABRICATED ALUMINUM PRODUCTS:
  Shipments to Third Parties             327.1          368.2         399.0
</TABLE>


Sensitivity to Prices and Hedging Programs

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 and on KACC's
hedging strategies. Primary aluminum prices have historically been subject to
significant cyclical price fluctuations. Alumina prices, as well as fabricated
aluminum product prices (which vary considerably among products), are
significantly influenced by changes in the price of primary aluminum and
generally lag behind primary aluminum prices for periods of up to three months.
From time to time in the ordinary course of business KACC enters into hedging
transactions to provide price risk management in respect of its net

                                       3


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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- --------------------------------------------------------------------------------



ITEM 1.       BUSINESS (CONTINUED)

exposure resulting from (i) anticipated sales of alumina, primary aluminum, and
fabricated aluminum products, less (ii) expected purchases of certain items,
such as aluminum scrap, rolling ingot, and bauxite, whose prices fluctuate with
the price of primary aluminum. Forward sales contracts are used by KACC to
effectively lock-in or fix the price that KACC will receive for its shipments.
KACC also uses option contracts (i) to establish a minimum price for its
product shipments, (ii) to establish a "collar" or range of price for its
anticipated sales, and/or (iii) to permit KACC to realize possible upside price
movements. See Notes 1 and 9 of the Notes to Consolidated Financial Statements
in the Annual Report.

Profit Enhancement and Cost Reduction Initiative

In October 1996, KACC established a goal of achieving significant cost
reduction and profit improvements by the end of 1997, with the full effect
planned to be realized in 1998 and beyond, measured against 1996 results. To
achieve this goal KACC plans reductions in production costs, decreases in
corporate general and administrative expenses, and enhancements to product mix
and volume throughput. There can be no assurance that the initiative will
result in the desired cost reductions and other profit improvements.

Production Operations

The Company's operations are conducted through KACC's decentralized business
units which compete throughout the aluminum industry.

     o        The alumina business unit, which mines bauxite and obtains
              additional bauxite tonnage under long-term contracts, produced
              approximately 7% of total produced alumina in 1996 as reported by
              the IPAI. During 1996, KACC's third party shipments of bauxite
              represented approximately 25% of bauxite mined. In addition,
              KACC's third party shipments of alumina represented approximately
              73% of alumina produced. KACC's share of total world alumina
              capacity as reported by the IPAI was approximately 6% in 1996.

     o        The primary aluminum products business unit operates two
              wholly-owned domestic smelters and two foreign smelters in which
              KACC holds significant ownership interests. During 1996, KACC's
              third party shipments of primary aluminum represented
              approximately 75% of its primary aluminum production. KACC's
              share of total world primary aluminum capacity as reported by the
              IPAI was approximately 2% in 1996.

     o        Fabricated aluminum products are manufactured by two business
              units - flat-rolled products and engineered products. The
              products include heat-treated products, body, lid, and tab stock
              for beverage containers, sheet and plate products, screw machine
              stock, redraw rod, forging stock, truck wheels and hubs, air bag
              canisters, engine manifolds, and other castings, forgings and
              extruded products, which are manufactured at plants located in
              principal marketing areas of the United States and Canada. The
              aluminum utilized in KACC's fabricated products operations is
              comprised of primary aluminum, obtained both internally and from
              third parties, and scrap metal purchased from third parties.



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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
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ITEM 1.       BUSINESS (CONTINUED)

Alumina

The following table lists KACC's bauxite mining and alumina refining facilities
as of December 31, 1996:



<TABLE>
<CAPTION>
                                                                                                     Annual
                                                                                                 Production              Total
                                                                                                   Capacity             Annual
                                                                               Company         Available to         Production
Activity                             Facility           Location             Ownership          the Company           Capacity
- -----------------                    ------------       ----------        ------------     ----------------   ----------------
                                                                                                     (tons)             (tons)

<S>                                  <C>                <C>                        <C>            <C>                <C>      
Bauxite Mining                       KJBC(1)            Jamaica                    49%            4,500,000          4,500,000
                                     Alpart(2)          Jamaica                    65%            2,275,000          3,500,000
                                                                                               ------------      -------------
                                                                                                  6,775,000          8,000,000
                                                                                               ============      =============
Alumina Refining                     Gramercy           Louisiana                 100%            1,050,000          1,050,000
                                     Alpart             Jamaica                    65%              942,500          1,450,000
                                     QAL                Australia                28.3%              973,500          3,440,000
                                                                                               ------------      -------------
                                                                                                  2,966,000          5,940,000
                                                                                               ============      =============
</TABLE>


- ------------
(1)  Although KACC owns 49% of Kaiser Jamaica Bauxite Company ("KJBC"), it has
     the right to receive all of such entity's output.
(2)  Alumina Partners of Jamaica ("Alpart") bauxite is refined into alumina at
     the Alpart refinery.

Bauxite mined in Jamaica by KJBC is refined into alumina at KACC's plant at
Gramercy, Louisiana, or is sold to third parties. In 1979, the Government of
Jamaica granted KACC a mining lease for the mining of bauxite sufficient to
supply KACC's then-existing Louisiana alumina refineries at their annual
capacities of 1,656,000 tons per year until January 31, 2020. Alumina from the
Gramercy plant is sold to third parties.

Alpart holds bauxite reserves and owns a 1,450,000 tons per year alumina plant
located in Jamaica. KACC owns a 65% interest in Alpart, and Hydro Aluminum a.s
("Hydro") owns the remaining 35% interest. KACC has management responsibility
for the facility on a fee basis. KACC and Hydro have agreed to be responsible
for their proportionate shares of Alpart's costs and expenses. The Government
of Jamaica has granted Alpart a mining lease and has entered into other
agreements with Alpart designed to assure that sufficient reserves of bauxite
will be available to Alpart to operate its refinery as it may be expanded to a
capacity of 2,000,000 tons per year through the year 2024.

KACC owns a 28.3% interest in Queensland Alumina Limited ("QAL"), which owns
the largest and one of the most efficient alumina refineries in the world,
located in Queensland, Australia. QAL refines bauxite into alumina, essentially
on a cost basis, for the account of its stockholders under long-term tolling
contracts. The stockholders, including KACC, purchase bauxite from another QAL
stockholder under long-term supply contracts. KACC has contracted with QAL to
take approximately 792,000 tons per year of capacity or pay standby charges.
KACC is unconditionally obligated to pay amounts calculated to service its
share ($94.4 million at December 31, 1996) of certain debt of QAL, as well as
other QAL costs and expenses, including bauxite shipping costs.

KACC's principal customers for bauxite and alumina consist of other aluminum
producers that purchase bauxite and reduction-grade alumina, trading
intermediaries who resell raw materials to end-users, and users of
chemical-grade alumina. All of KACC's third-party sales of bauxite in 1996 were
made to two customers, the largest of which accounted for approximately 79% of
such sales. KACC also sold alumina to 15 customers, the largest and top five of
which accounted for approximately 21% and 79% of such sales, respectively. See
"-Competition." The Company believes that among alumina producers KACC is the
world's second largest seller of alumina to third parties. KACC's strategy is
to sell a substantial portion of the bauxite and alumina available to it in
excess of its internal refining and smelting requirements under multi-year
sales contracts. See also "-Sensitivity to Prices and Hedging Programs."


                                       5


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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
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ITEM 1.       BUSINESS (CONTINUED)

Primary Aluminum Products

The following table lists KACC's primary aluminum smelting facilities as of
December 31, 1996:



<TABLE>
<CAPTION>
                                                                              Annual Rated            Total             1996
                                                                                  Capacity           Annual          Average
                                                              Company         Available to            Rated        Operating
Location                               Facility             Ownership          the Company         Capacity             Rate
- ----------------------                 ----------       -------------     ----------------      -----------      -----------
                                                                                    (tons)           (tons)
<S>                                    <C>                       <C>               <C>              <C>                 <C> 
Domestic
  Washington                           Mead                      100%              200,000          200,000             106%
  Washington                           Tacoma                    100%               73,000           73,000             100%
                                                                               -----------       ----------
     Subtotal                                                                      273,000          273,000
                                                                               -----------       ----------
International
  Ghana                                Valco                      90%              180,000          200,000              68%
  Wales, United Kingdom                Anglesey                   49%               55,000          112,000             118%
                                                                               -----------       ----------
     Subtotal                                                                      235,000          312,000
                                                                               -----------       ----------
       Total                                                                       508,000          585,000
                                                                               ===========       ==========
</TABLE>



KACC owns two smelters located at Mead and Tacoma, Washington, where alumina is
processed into primary aluminum. The Mead facility uses pre-bake technology and
produces primary aluminum. Approximately 53% of Mead's 1996 production was used
at KACC's Trentwood fabricating facility and the balance was sold to third
parties. The Tacoma facility uses Soderberg technology and produces primary
aluminum and high-grade, continuous-cast, redraw rod, which currently commands
a premium price in excess of the price of primary aluminum. Both smelters have
achieved significant production efficiencies through retrofit technology and a
variety of cost controls, leading to increases in production volume and
enhancing their ability to compete with newer smelters. KACC has also commenced
the modernization and expansion of the carbon baking furnace at its Mead
smelter at an estimated cost of approximately $52.0 million. The project is
expected to lower costs, enhance safety, and improve the environmental
performance of the facility, and is expected to be completed in late 1998.

Electric power represents an important production cost for KACC at its aluminum
smelters. In 1995, KACC successfully restructured electric power purchase
agreements for its facilities in the Pacific Northwest, which resulted in
significantly lower electric power costs in 1996 for the Mead and Tacoma,
Washington, smelters compared to 1995 electric power costs. KACC expects to
continue to benefit from these savings in electric power costs at these
facilities in 1997 and beyond. However, a number of lawsuits challenging the
restructuring have been filed and the effect, if any, of such lawsuits on
KACC's power purchase and transmission arrangements is not known at this time.

KACC manages, and owns a 90% interest in, the Volta Aluminium Company Limited
("Valco") aluminum smelter in Ghana. The Valco smelter uses pre-bake technology
and processes alumina supplied by KACC and the other participant into primary
aluminum under long-term tolling contracts which provide for proportionate
payments by the participants. KACC's share of the primary aluminum is sold to
third parties. Power for the Valco smelter is supplied under an agreement which
expires in 2017. The agreement indexes two-thirds of the price of the contract
quantity of power to the market price of primary aluminum. The agreement also
provides for a review and adjustment of the base power rate and the price index
every five years. The most recent review was completed in April 1994 for the
1994-1998 period. The Volta River Authority has allocated to Valco sufficient
electric power to operate at 80% of its annual rated capacity through December
31, 1997.

KACC owns a 49% interest in the Anglesey Aluminium Limited ("Anglesey")
aluminum smelter and port facility at Holyhead, Wales. The Anglesey smelter
uses pre-bake technology. KACC supplies 49% of Anglesey's alumina requirements
and purchases 49% of Anglesey's aluminum output. KACC sells its share of
Anglesey's output to third parties. Power for the Anglesey aluminum smelter is
supplied under an agreement which expires in 2001.

KACC has developed and installed proprietary retrofit and control technology in
all of its smelters, as well as at third party locations. This technology -
which includes the redesign of the cathodes and anodes that conduct electricity
through reduction cells, improved feed systems that add alumina to the cells,
and a computerized system that controls energy flow in the cells - has


                                       6


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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
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ITEM 1.       BUSINESS (CONTINUED)

significantly contributed to increased and more efficient production of primary
aluminum and enhances KACC's ability to compete more effectively with the
industry's newer smelters. KACC is actively engaged in efforts to license this
technology and sell technical and managerial assistance to other producers
worldwide, and may participate in joint ventures or similar business
partnerships which employ KACC's technical and managerial knowledge. See
"-Research and Development."

KACC's principal primary aluminum customers consist of large trading
intermediaries and metal brokers, who resell primary aluminum to fabricated
product manufacturers, and large and small international aluminum fabricators.
In 1996, KACC sold its primary aluminum production not utilized for internal
purposes to approximately 45 customers, the largest and top five of which
accounted for approximately 16% and 54% of such sales, respectively. See "-
Competition." Marketing and sales efforts are conducted by a small staff
located at the business unit's headquarters in Pleasanton, California, and by
senior executives of KACC who participate in the structuring of major sales
transactions. A majority of the business unit's sales are based upon long-term
relationships with metal merchants and end-users.

Fabricated Aluminum Products

KACC manufactures and markets fabricated aluminum products for the
transportation, packaging, construction, and consumer durables markets in the
United States and abroad. Sales in these markets are made directly and through
distributors to a large number of customers. KACC's fabricated products compete
with those of numerous domestic and foreign producers and with products made of
steel, copper, glass, plastic, and other materials. Product quality, price, and
availability are the principal competitive factors in the market for fabricated
aluminum products. KACC has focused its fabricated products operations on
selected products in which KACC has production expertise, high-quality
capability, and geographic and other competitive advantages.

Flat-Rolled Products - The flat-rolled products business unit, the largest of
KACC's fabricated products businesses, operates the Trentwood sheet and plate
mill at Spokane, Washington. In addition, KACC broke ground on its first
commercial Micromill(TM) facility, near Reno, Nevada. The Micromill(TM) process
is a proprietary, compact, high-speed process for continuous casting and 
rolling of a thin-strip aluminum sheet from molten metal. KACC expects the 
Nevada facility to be in a start-up mode in the first half of 1997, and 
anticipates beginning limited customer shipments from the facility by the 
second half of 1997. See "-Research and Development."

The Trentwood facility is KACC's largest fabricating plant and accounted for
approximately 63% of KACC's 1996 fabricated aluminum products shipments. The
business unit supplies the aerospace and general engineering markets (producing
heat-treat products), the beverage container market (producing body, lid, and
tab stock), and the specialty coil markets (producing automotive brazing sheet,
wheel, and tread products), both directly and through distributors.

KACC continues to implement changes to the process and product mix of its
Trentwood rolling mill in an effort to maximize its profitability and maintain
full utilization of the facility. KACC has approved an expansion of its
heat-treat capacity to approximately 60,000 tons from approximately 45,000 tons,
which will enable KACC to increase the range of its heat-treat products,
including wide heat-treated sheet for the aerospace market, enhance the quality
of its heat-treated products, and improve Trentwood's operating efficiency. The
project is estimated to cost approximately $45.0 million and to take
approximately two years to complete. Global sales of KACC's heat-treat products
have increased significantly over the last several years and are made primarily
to the aerospace and general engineering markets, which are experiencing growth
in demand. 

KACC's flat-rolled products are also sold to beverage container manufacturers
located in the western United States and in the Asian Pacific Rim countries
where the Trentwood plant's location provides KACC with a transportation
advantage. Quality of products for the beverage container industry, service,
and timeliness of delivery are the primary bases on which KACC competes. KACC
has made significant capital expenditures at Trentwood during the past several
years in rolling technology and process control to improve the metal integrity,
shape and gauge control of its products. The Company believes that such
improvements have enhanced the quality of KACC's products for the beverage
container industry and the capacity and efficiency of KACC's manufacturing
operations, and that KACC is one of the highest quality producers of aluminum
beverage can stock in the world.

In 1996, the business unit shipped products to approximately 150 customers in
the aerospace, transportation, and industrial ("ATI") markets, most of which
were distributors who sell to a variety of industrial end-users. The top five
customers in the ATI 


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ITEM 1.       BUSINESS (CONTINUED)

markets for flat-rolled products accounted for approximately 15% of the business
unit's revenue. In 1996, the flat-rolled products business unit had 42 domestic
and foreign can stock customers. The largest and top five of such customers
accounted for approximately 18% and 35%, respectively, of the business unit's
revenue. See "-Competition." The marketing staff for the flat-rolled products
business unit is located at the Trentwood facility and in Pleasanton,
California. Sales are made directly to end-use customers and distributors from
eight sales offices located throughout the United States. International
customers are served by sales offices in England and Japan and by independent
sales agents in Asia and Latin America.
        
Engineered Products - The engineered products business unit is headquartered in
Detroit, Michigan, and operates soft-alloy extrusion facilities in Los Angeles,
California; Santa Fe Springs, California; Sherman, Texas; and London, Ontario,
Canada; a cathodic protection business located in Tulsa, Oklahoma, that also
extrudes both aluminum and magnesium; rod and bar facilities in Newark, Ohio,
and Jackson, Tennessee, which produce screw machine stock, redraw rod, forging
stock, and billet; and a facility in Richland, Washington, which produces
seamless tubing in both hard and soft alloys for the automotive, other
transportation, export, recreation, agriculture, and other industrial markets.
Each of the soft-alloy extrusion facilities has fabricating capabilities and
provides finishing services. Major markets for extruded products are in the
transportation industry, to which the business unit provides extruded shapes
for automobiles, trucks, trailers, cabs, and shipping containers, and in the
distribution, durable goods, defense, building and construction, ordnance and
electrical markets. The sales and engineering office in Detroit, Michigan,
works with car makers and other customers, the Center for Technology (see "-
Research and Development"), and plant personnel to create new automotive
component designs and improve existing products.

The engineered products business unit also operates forging facilities at Erie,
Pennsylvania; Oxnard, California; and Greenwood, South Carolina; a machine shop
at Greenwood, South Carolina; and a casting facility in Canton, Ohio, and is
one of the largest producers of aluminum forgings in the United States and is a
major supplier of high-quality forged parts to customers in the automotive,
commercial vehicle and ordnance markets. The high strength-to-weight properties
of forged and cast aluminum make it particularly well-suited for automotive
applications. The business unit's casting facility manufactures aluminum engine
manifolds for the automobile, truck and marine markets.

In 1996, the engineered products business unit had 993 customers, the largest
and top five of which accounted for approximately 13% and 31%, respectively, of
the business unit's revenue. See "- Competition." Sales are made directly from
plants, as well as marketing locations across the United States.

In September 1996, KACC entered into a letter of intent with Accuride
Corporation ("Accuride"), a business unit of Phelps Dodge Corporation, to form
a joint-venture to design, manufacture and market aluminum wheels for the
commercial ground transportation industry. The formation of the joint venture,
subject to various conditions including third-party consents, is expected to
occur in the second quarter of 1997.

Competition

Aluminum competes in many markets with steel, copper, glass, plastic, and other
materials. In recent years, plastic containers have increased and glass
containers have decreased their respective shares of the soft drink sector of
the beverage container market. In the United States, beverage container
materials, including aluminum, face increased competition from plastics as
increased polyethylene terephthalate ("PET") container capacity is brought on
line by plastics manufacturers. Within the aluminum business, KACC competes
with both domestic and foreign producers of bauxite, alumina and primary
aluminum, and with domestic and foreign fabricators. Many of KACC's competitors
have greater financial resources than KACC. KACC's principal competitors in the
sale of alumina include Alcoa Alumina & Chemicals L.L.C., Billiton Marketing
and Trading BV, and Alcan Aluminium Limited. KACC competes with most aluminum
producers in the sale of primary aluminum.

Primary aluminum and, to some degree, alumina are commodities with generally
standard qualities, and competition in the sale of these commodities is based
primarily upon price, quality and availability. KACC also competes with a wide
range of domestic and international fabricators in the sale of fabricated
aluminum products. Competition in the sale of fabricated products is based upon
quality, availability, price and service, including delivery performance. KACC
concentrates its fabricating operations on selected products in which it has
production expertise, high-quality capability, and geographic and other
competitive advantages. The Company believes that, assuming the current
relationship between worldwide supply and demand for alumina and primary
aluminum does not change materially, the loss of any one of KACC's customers,
including intermediaries, would not have a material adverse effect on the
Company's financial condition or results of operations.




                                       8


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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
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ITEM 1.       BUSINESS (CONTINUED)

Research and Development

KACC conducts research and development activities principally at two facilities
- - the Center for Technology ("CFT") in Pleasanton, California, and the Primary
Aluminum Products Division Technology Center ("DTC") adjacent to the Mead
smelter in Washington. Net expenditures for company-sponsored research and
development activities were $20.5 million in 1996, $18.5 million in 1995, and
$16.7 million in 1994. KACC's research staff totaled 156 at December 31, 1996.
KACC estimates that research and development net expenditures will be
approximately $21.6 million in 1997.

CFT performs research and development across a range of aluminum process and
product technologies to support KACC's business units and new business
opportunities. It also selectively offers technical services to third parties.
Significant efforts are directed at product and process technology for the 
aircraft, automotive and can sheet markets and aluminum reduction cell models 
which are applied to improving cell designs and operating conditions. DTC 
maintains specialized laboratories and a miniature carbon plant where
experiments with new anode and cathode technology are performed. DTC supports
KACC's primary aluminum smelters, and concentrates on the development of
cost-effective technical innovations such as equipment and process improvements.

The largest and most notable single project being developed at CFT and the
Reno, Nevada, facility is a unique Micromill(TM) casting facility for the
production of can sheet from molten metal using a continuous cast process. The
capital and conversion costs of the Company's Micromill(TM) facilities are
expected to be significantly lower than conventional rolling mills. The use of
a Micromill(TM) facility is also expected to result in lower transportation
costs due to the ability to strategically locate a Micromill(TM) facility in
close proximity to a manufacturing facility. Micromill(TM) facilities are
expected to be particularly well suited to take advantage of the rapid growth in
demand for can sheet expected in emerging markets in Asia and Latin America
where there is limited indigenous supply. KACC believes that Micromill(TM)
facilities should also be capable of manufacturing other sheet products at
relatively low capital and operating costs. The Micromill(TM) facility
technology is based on a proprietary thin-strip, high-speed, continuous-belt
casting technique linked directly to hot and cold rolling mills. The major
advantage of the process is that the sheet is continuously manufactured from
molten metal, unlike the conventional process in which the metal is first cast
into large, solid ingots and subsequently rolled into sheet through a series of
highly capital-intensive steps. The first Micromill(TM) facility, which was
constructed in Nevada during 1996 as a demonstration and production facility,
achieved operational start-up in the fourth quarter of 1996. KACC expects that
the Nevada Micromill(TM) facility will be in a start-up mode for the first half
of 1997 and will be able to commence limited shipments to customers in the
second half of 1997. If KACC is successful in proving and commercializing its
Micromill(TM) technology, Micromill(TM) facilities could represent an important
source of future growth. There can be no assurance that KACC will be able to
successfully develop and commercialize the technology for use at full-scale
facilities. KACC is currently financing the capital cost of the construction of
the Nevada Micromill(TM) facility, estimated to be approximately $70.0 million,
from available general corporate resources.

KACC licenses its technology and sells technical and managerial assistance to
other producers worldwide. KACC's technology has been installed in alumina
refineries, aluminum smelters and rolling mills located in the United States,
Jamaica, Sweden, Germany, Russia, India, Australia, Korea, New Zealand, Ghana,
United Arab Emirates, and the United Kingdom. KACC has technical services
contracts with smelters in Wales, Africa, Europe, the Middle East, and India.
KACC's revenue from technology sales and technical assistance to third parties
was $3.6 million in 1996, $5.7 million in 1995, and $10.0 million in 1994.

Business Development

KACC is actively pursuing opportunities to grow in targeted areas of its
portfolio, by internal investment and by acquisition, both domestically and
internationally. KACC is pursuing opportunities to increase its participation in
emerging markets by using its technical expertise and capital to form joint
ventures or acquire equity in aluminum-related facilities in foreign countries
where it can apply its proprietary technology. KACC has created Kaiser Aluminum
International to identify growth opportunities in targeted emerging markets and
develop the needed country competence to complement KACC's product and process
competence in capitalizing on such opportunities. KACC has focused its efforts
on countries that are expected to be important suppliers of aluminum and/or
large customers for aluminum and alumina, including Venezuela - where the
Company is the Qualified Operator in one of five consortia seeking to
participate in the privatization of Venezuela's aluminum industry - the PRC,
technology has been installed by KACC at various third party locations
throughout the world and is an integral part of KACC's initiatives for
participating in new and existing smelting facilities. See "-Research and
Development."



                                       9


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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
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ITEM 1.       BUSINESS (CONTINUED)

In 1995, Kaiser Yellow River Investment Limited ("KYRIL"), a subsidiary of the
Company, entered into a Joint Venture Agreement and related agreements (the
"Joint Venture Agreements") with the Lanzhou Aluminum Smelters ("LAS") of the
China National Nonferrous Metals Industry Corporation relating to the formation
and operation of Yellow River Aluminum Industry Company Limited, a Sino-foreign
joint equity enterprise organized under PRC law (the "Joint Venture"). KYRIL
contributed $9.0 million to the capital of the Joint Venture in July 1995. The
parties to the Joint Venture are currently engaged in discussions concerning
the future of the Joint Venture. Governmental approval in the PRC will be
necessary in order to implement any arrangements agreed to by the parties, and
there can be no assurance such approvals will be obtained. At a meeting of the
Board of Directors of the Joint Venture held on January 16, 1997, LAS reported
that negotiations had begun with an investor which might be interested in
buying KYRIL's interest in the Joint Venture. In light of such report, the
directors adopted a resolution that, among other things, (i) contained an
agreement to continue until June 30, 1997, discussions concerning the future of
the Joint Venture, (ii) provided that KYRIL granted to LAS the right to seek a
buyer to purchase KYRIL's equity interest in the Joint Venture, and (iii)
provided that if a buyer to purchase KYRIL's equity interest in the Joint
Venture was not found by June 30, 1997, the Joint Venture would be terminated
and dissolved.

KACC, through its engineered products business unit, entered into contracts to
form two small joint ventures in the PRC. KACC indirectly acquired equity
interests of approximately 45% and 49%, respectively, in these two companies
which will manufacture aluminum extrusions, in exchange for the contribution to
those companies of certain used equipment, technology, services and cash. The
majority equity interests in the two companies are owned by affiliates of
Guizhou Guang Da Construction Company.

Employees

During 1996, KACC employed an average of 9,567 persons, compared with an
average of 9,546 employees in 1995, and 9,744 employees in 1994. At December
31, 1996, KACC's work force was 9,509, including a domestic work force of
5,925, of whom 3,974 were paid at an hourly rate. Most hourly paid domestic
employees are covered by collective bargaining agreements with various labor
unions. Approximately 75% of such employees are covered by a master agreement
(the "Labor Contract") with the United Steelworkers of America ("USWA") which
expires September 30, 1998. The Labor Contract covers KACC's plants in Spokane
(Trentwood and Mead) and Tacoma, Washington; Gramercy, Louisiana; and Newark,
Ohio.

The Labor Contract provides for base wages at all covered plants. In addition,
workers covered by the Labor Contract may receive quarterly or more frequent
bonus payments based on various indices of profitability, productivity,
efficiency, and other aspects of specific plant or departmental performance, as
well as, in certain cases, the price of alumina or primary aluminum. Pursuant
to the Labor Contract, base wage rates were raised effective January 2, 1995,
were raised again effective November 6, 1995, and will be raised an additional
amount effective November 3, 1997, and an amount in respect of the cost of
living adjustment under the previous master agreement will be phased into base
wages during the term of the Labor Contract. In the second quarter of 1995,
KACC acquired up to $2,000 of preference stock held in a stock plan for the
benefit of certain employees covered by the Labor Contract and in the first
half of 1998 will acquire up to an additional $4,000 of such preference stock
held in such plan for the benefit of substantially the same employees. In
addition, a profitability test was satisfied and, therefore, KACC acquired
during 1996 up to an additional $1,000 of such preference stock held in such
plan for the benefit of substantially the same employees. KACC made comparable
acquisitions of preference stock held for the benefit of certain salaried 
employees.

The contract covering Alpart's employees expired in April 1996, and contract
negotiations are ongoing.

Management considers KACC's employee relations to be satisfactory.

Environmental Matters

The Company and KACC are subject to a wide variety of international, federal,
state and local environmental laws and regulations (the "Environmental Laws").
The Environmental Laws regulate, among other things, air and water emissions
and discharges; the generation, storage, treatment, transportation, and
disposal of solid and hazardous waste; the release of hazardous or toxic
substances, pollutants and contaminants into the environment; and, in certain
instances, the environmental condition of industrial property prior to transfer
or sale. In addition, the Company and KACC are subject to various federal,
state, and local workplace health and safety laws and regulations ("Health
Laws").



                                       10


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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- --------------------------------------------------------------------------------

ITEM 1.       BUSINESS (CONTINUED)

From time to time, KACC is subject, with respect to its current and former
operations, to fines or penalties assessed for alleged breaches of the
Environmental and Health Laws and to claims and litigation brought by federal,
state or local agencies and by private parties seeking remedial or other
enforcement action under the Environmental and Health Laws or damages related
to alleged injuries to health or to the environment, including claims with
respect to certain waste disposal sites and the remediation of sites presently
or formerly operated by KACC. See "Legal Proceedings." KACC currently is
subject to a number of lawsuits under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended by the Superfund Amendments
and Reauthorization Act of 1986 ("CERCLA"). KACC, along with certain other
entities, has been named as a Potentially Responsible Party ("PRP") for
remedial costs at certain third-party sites listed on the National Priorities
List under CERCLA and, in certain instances, may be exposed to joint and
several liability for those costs or damages to natural resources. KACC's Mead,
Washington, facility has been listed on the National Priorities List under
CERCLA. By letter dated June 18, 1996, the Washington State Department of
Ecology advised KACC that there are several options for remediation at the Mead
facility that would be acceptable to the Department. KACC expects that one of
these remedial options will be agreed upon and incorporated into a Consent
Decree in 1997. In addition, in connection with certain of its asset sales,
KACC has agreed to indemnify the purchasers with respect to certain liabilities
(and associated expenses) resulting from acts or omissions arising prior to
such dispositions, including environmental liabilities.

Based on the Company's evaluation of these and other environmental matters, the
Company has established environmental accruals, primarily related to potential
solid waste disposal and soil and groundwater remediation matters. At December
31, 1996, the balance of such accruals, which are primarily included in
Long-term liabilities, was $33.3 million. 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 to
be performed. The Company expects remediation to occur over the next several
years and estimates that annual expenditures to be charged to these
environmental accruals will be approximately $3.0 to $9.0 million for the years
1997 through 2001 and an aggregate of approximately $6.0 million thereafter.
Cash expenditures of $8.8 million in 1996, $4.5 million in 1995, and $3.6
million in 1994 were charged to previously established accruals relating to
environmental costs. Approximately $9.3 million is expected to be charged to
such accruals in 1997.

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 $24.0 million
and that, subject to further regulatory review and approval, the factors upon
which a substantial portion of this estimate is based are expected to be
resolved over the next twelve months. 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, the Company
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. In addition to cash expenditures charged
to environmental accruals, environmental capital spending was $18.4 million in
1996, $9.2 million in 1995, and $11.9 million in 1994. Annual operating costs
for pollution control, not including corporate overhead or depreciation, were
approximately $30.1 million in 1996, $26.0 million in 1995, and $23.1 million in
1994. Legislative, regulatory and economic uncertainties make it difficult to
project future spending for these purposes. However, the Company currently
anticipates that in the 1997-1998 period, environmental capital spending will be
within the range of approximately $6.0 million to $16.0 million per year, and
operating costs for pollution control will be within the range of $30.0 million
to $31.0 million per year. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Environmental Contingencies" in
the Annual Report. The portion of Note 8 of the Notes to Consolidated Financial
Statements in the Annual Report under the heading "Environmental Contingencies"
is incorporated herein by reference.


I
TEM 2.       PROPERTIES

The locations and general character of the principal plants, mines, and other
materially important physical properties relating to KACC's operations are
described in "Business - The Company - Production Operations" and those
descriptions are incorporated herein by reference. KACC owns in fee or leases
all the real estate and facilities used in connection with its business. Plants
and equipment and other facilities are generally in good condition and suitable
for their intended uses, subject to changing environmental requirements.
Although KACC's domestic aluminum smelters and alumina facility were initially
designed early in KACC's history, they have been modified frequently over the
years to incorporate technological advances in order to improve 

                                       11


<PAGE>   15

KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- --------------------------------------------------------------------------------
ITEM 2. PROPERTIES (CONTINUED)

efficiency, increase capacity, and achieve energy savings. The Company believes 
that KACC's domestic plants are cost competitive on an international basis.
        
KACC's obligations under the Credit Agreement entered into on February 15,
1994, as amended (the "Credit Agreement"), are secured by, among other things,
mortgages on KACC's major domestic plants (other than the Gramercy alumina
refinery and Nevada Micromill(TM)). See "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Financing Activities and
Liquidity" in the Annual Report.


ITEM 3.       LEGAL PROCEEDINGS

This section contains statements which constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. See

Item 1, above, for cautionary information with respect to such forward-looking
statements.

Aberdeen Pesticide Dumps Site Matter

The Aberdeen Pesticide Dumps Site, listed on the Superfund National Priorities
List, is composed of five separate sites around the town of Aberdeen, North
Carolina (collectively, the "Sites"). The Sites are of concern to the United
States Environmental Protection Agency (the "EPA") because of their past use as
either pesticide formulation facilities or pesticide disposal areas from
approximately the mid-1930's through the late-1980's. The United States
originally filed a cost recovery complaint (as amended, the "Complaint") in the
United States District Court for the Middle District of North Carolina,
Rockingham Division, No. C-89-231-R, which, as amended, includes KACC and a
number of other defendants. The Complaint seeks reimbursement for past and
future response costs and a determination of liability of the defendants under
Section 107 of CERCLA.

In 1993 and 1994, the EPA issued unilateral Administrative Orders under Section
106(a) of CERCLA ordering the respondents, including KACC, to perform the soil
remedial design and remedial action and groundwater remediation for three of
the Sites. In addition to KACC, a number of other companies are also named as
respondents. KACC has entered into interim PRP Participation Agreements with
certain of the respondents (the "Group") to participate jointly in responding
to the Administrative Orders, to share costs incurred on an interim basis, and
to seek to reach a final allocation of costs through agreement or to allow such
final allocation and determination of liability to be made by the United States
District Court.

In March 1997, certain members of the Group, including KACC, entered into a
Settlement Agreement and Participation Agreement which allocates one hundred
percent of all costs incurred or to be incurred for work at each of the five
Sites. Negotiations with the United States Department of Justice ("DOJ") and 
the EPA concerning an acceptable consent decree to resolve the outstanding 
litigation in whole or in part commenced during the first quarter of 1997. 
Based on current estimates of future costs, the Company believes that its 
aggregate financial exposure at these Sites is less than $2.0 million.

United States of America v. Kaiser Aluminum & Chemical Corporation

In February 1989, a civil action was filed by the DOJ at the request of the EPA
against KACC in the United States District Court for the Eastern District of
Washington, Case No. C-89-106-CLQ. The complaint alleged that emissions from
certain stacks at KACC's Trentwood facility in Spokane, Washington,
intermittently violated the opacity standard contained in the Washington State
Implementation Plan ("SIP"), approved by the EPA under the federal Clean Air
Act. KACC and the EPA, without adjudication of any issue of fact or law, and
without any admission of the violations alleged in the underlying complaint,
have entered into a Consent Decree, which was approved by a Consent Order
entered by the United States District Court for the Eastern District of
Washington in January 1996. As approved, the Consent Decree settles the
underlying disputes and requires KACC to (i) pay a $.5 million civil penalty
(which penalty has been paid), (ii) complete a program of plant improvements
and operational changes that began in 1990 at its Trentwood facility, including
the installation of an emission control system to capture particulate emissions
from certain furnaces, and (iii) achieve and maintain furnace compliance with
the opacity standard in the Washington SIP. KACC anticipates that capital
expenditures for the environmental upgrade of the furnace operation at its
Trentwood facility, including the improvements and changes required by the
Consent Decree, will be approximately $20.0 million.



                                       12


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ITEM 3.       LEGAL PROCEEDINGS (CONTINUED)

Catellus Development Corporation v. Kaiser Aluminum & Chemical Corporation and
James L. Ferry & Son Inc.

In January 1991, the City of Richmond, et al. (the "Plaintiffs") filed a Second
Amended Complaint for Damages and Declaratory Relief against the United States,
Catellus Development Corporation ("Catellus") and other defendants
(collectively, the "Defendants") alleging, among other things, that the
Defendants caused or allowed hazardous substances, pollutants, contaminants,
debris and other solid wastes to be discharged, deposited, disposed of or
released on certain property located in Richmond, California (the "Property"),
formerly owned by Catellus and leased to KACC for the purpose of shipbuilding
activities conducted by KACC on behalf of the United States during World War
II. The Plaintiffs sought recovery of response costs and natural resource
damages under CERCLA. Certain of the Plaintiffs alleged that they had incurred
or expected to incur costs and damages of approximately $49.0 million. Catellus
subsequently filed a third party complaint (the "Third Party Complaint")
against KACC in the United States District Court for the Northern District of
California, Case No. C-89-2935 DLJ. Thereafter, the Plaintiffs filed a separate
complaint against KACC, Case No. C-92-4176. The Plaintiffs settled their CERCLA
and tort claims against the United States for $3.5 million plus thirty-five
percent (35%) of future response costs.

The trial involving this case commenced in March 1995. During the trial,
Plaintiffs settled their claims against Catellus in exchange for payment of
approximately $3.3 million. On December 7, 1995, the United States District
Court issued a final judgment on those claims concluding that KACC is liable
for various costs and interest, aggregating approximately $2.2 million, fifty
percent (50%) of future costs of cleaning up certain parts of the Property, and
certain fees and costs associated specifically with the claim by Catellus
against KACC. KACC paid the City of Richmond $1.8 million in partial
satisfaction of this judgment. In January 1996, Catellus filed a notice of
appeal with respect to its indemnity judgment against KACC. KACC has since
filed a notice of cross appeal as to the Court's decision adjudicating that
KACC is obligated to indemnify Catellus. On July 8, 1996, the Court issued an
order awarding Plaintiffs nominal costs, which amount has been paid. The order
also awarded Catellus de minimis costs. Catellus has filed a notice of appeal.
On August 12, 1996, the Court issued an order granting the Catellus motion for
attorneys' fees in the amount of approximately $.9 million. KACC and Catellus
have filed notices of appeal with respect to the attorneys' fees award.

Waste Inc. Superfund Site

On December 8, 1995, the EPA issued a unilateral Administrative Order for
Remedial Design and Remedial Action under CERCLA to KACC and thirty-one other
respondents for remedial design and action at the Waste Inc. Superfund Site at
Michigan City, Indiana. This site was operated as a landfill from 1965 to 1982.
KACC is alleged to have arranged for the disposal of waste from its
formerly-owned plant at Wanatah, Indiana, during the period from 1964 to 1972.
In May 1996, KACC entered into a Participation Agreement with thirteen of the
respondents to perform the work required under the Administrative Order, under
which KACC will pay 2.79% of the cost of remedial design and work at the Site.
Based on current cost estimates, KACC believes that its financial exposure for
remedial design and remedial action at this site is less than $.5 million.

Hammons v. Alcan Aluminum Corp. et al

On March 5, 1996, a class action complaint was filed against the Company, Alcan
Aluminum Corp., Aluminum Company of America, Alumax, Inc, Reynolds Metal
Company, and the Aluminum Association in the Superior Court of California for
the County of Los Angeles, Case No. BC145612. The complaint claims that the
defendants conspired, in violation of the California Cartwright Act (Bus. &
Prof. Code ss.16720 & 16750), in conjunction with a Memorandum of Understanding
("MOU") entered into in 1994 by representatives of Australia, Canada, the
European Union, Norway, the Russian Federation and the United States to
restrict the production of primary aluminum resulting in rises in prices for
primary aluminum and aluminum products. The complaint seeks certification of a
class consisting of persons who at any time between January 1, 1994, and the
date of the complaint purchased aluminum or aluminum products manufactured by
one or more of the defendants and estimates damages sustained by the class to
be $4.4 billion during the year 1994, before trebling. Plaintiff's counsel has
estimated damages to be $4.4 billion per year for each of the two years the MOU
was active, which when trebled equals $26.4 billion. On April 2, 1996, the case
was removed to the United States District Court for the Central District of
California. On July 11, 1996, the Court granted summary judgment in favor of
the Company and other defendants and dismissed the complaint as to all
defendants. On July 18, 1996, the plaintiff filed a notice of appeal to the
United States Court of Appeals for the Ninth Circuit.



                                       13


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KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- --------------------------------------------------------------------------------

ITEM 3.       LEGAL PROCEEDINGS (CONTINUED)

Matheson et al v. Kaiser Aluminum Corporation et al

On March 19, 1996, a lawsuit was filed against MAXXAM, the Company, and the
Company's directors challenging and seeking to enjoin a proposed
recapitalization of the Company (the "Proposed Recapitalization") and the April
10, 1996, special stockholders meeting at which the Proposed Recapitalization
was to be considered. The suit, which is entitled Matheson et al. v. Kaiser
Aluminum Corporation et al. (No. 14900) and was filed in the Delaware Court of
Chancery, alleges, among other things, breaches of fiduciary duties by certain
defendants and that the Proposed Recapitalization violates Delaware law and the
certificate of designations for the Company's 8.255% PRIDES, Convertible
Preferred Stock (the "PRIDES"). On April 8, 1996, the Delaware Court of
Chancery issued a ruling which preliminarily enjoined the Company from
implementing the Proposed Recapitalization. On April 19, 1996, the Delaware
Supreme Court granted the Company's motion to consider, on an expedited basis,
the Company's appeal of the preliminary injunction and on May 1, 1996, the
Company's stockholders approved the Proposed Recapitalization which was not
implemented at that time due to the pending appeal. On August 29, 1996, the
Delaware Supreme Court upheld the preliminary injunction and remanded the case
to the Court of Chancery. On September 24, 1996, the plaintiffs filed a motion
to make permanent the temporary injunction issued on April 8, 1996. On
September 27, 1996, the Board of Directors of the Company adopted a resolution
abandoning the Proposed Recapitalization. On October 2, 1996, the Company filed
a motion in the Delaware Court of Chancery to dismiss the shareholder
litigation relating to the Proposed Recapitalization on the ground of mootness
and filed a response to plaintiffs' motion for entry of a permanent injunction.
Thereafter, plaintiffs' attorneys filed their fee application, and briefing was
submitted by both sides on whether a permanent injunction was needed, and the
amount of the fee to which plaintiffs' attorneys were entitled. On March 18,
1997, plaintiffs withdrew their motion for a permanent injunction, leaving their
fee application as the only issue for the Court of Chancery to consider. After
oral argument on March 25, 1997, the Court of Chancery awarded plaintiffs'
attorneys fees and expenses in the total amount of $.8 million. It is 
anticipated that the Court of Chancery will sign an order, approved as to form 
by all parties, awarding such fees, dissolving the preliminary injunction, and
dismissing plaintiffs' case with prejudice. The decision to abandon the
Proposed Recapitalization does not preclude a recapitalization from being
proposed to the stockholders of the Company in the future.

Asbestos-related Litigation

KACC 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 KACC or exposure to products
containing asbestos produced or sold by KACC. The lawsuits generally relate to
products KACC has not manufactured for at least 15 years. For additional
information, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Asbestos Contingencies" in the Annual Report. The 
portion of Note 8 of the Notes to Consolidated Financial Statements in the 
Annual Report under the heading "Asbestos Contingencies" is incorporated 
herein by reference.

DOJ Proceedings

On August 24, 1994, the DOJ issued Civil Investigative Demand No. 11356 ("CID
No. 11356") requesting information from the Company regarding (i) its
production, capacity to produce, and sales of primary aluminum from January 1,
1991, to the date of the response; (ii) any actual or contemplated reduction in
its production of primary aluminum during that period; and (iii) any
communications with others regarding any actual, contemplated, possible or
desired reductions in primary aluminum production by the Company or any of its
competitors during that period. The Company's management believes that the
Company's actions have at all times been appropriate, and the Company has
submitted documents and interrogatory answers to the DOJ responding to CID No.
11356.

On March 27, 1995, the DOJ issued Civil Investigative Demand No. 12503 ("CID
No. 12503"), as part of an industry-wide investigation, requesting information
from KACC regarding (i) any actual or contemplated changes in its method of
pricing can sheet from January 1, 1994, through March 31, 1995, (ii) the
percentage of aluminum scrap and primary aluminum ingot used by KACC to produce
can sheet and the manner in which KACC's cost of acquiring aluminum scrap is
factored into its can sheet prices, and (iii) any communications with others
regarding any actual or contemplated changes in its method of pricing can sheet
from January 1, 1994, through March 31, 1995. Management believes that KACC's
actions have at all times been appropriate, and KACC has submitted documents
and interrogatory answers to the DOJ responding to CID No. 12503. KACC was
informed in November 1996 that the DOJ has officially closed its investigation
and has returned the documents submitted by KACC.



                                       14


<PAGE>   18



KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- --------------------------------------------------------------------------------

ITEM 3.       LEGAL PROCEEDINGS (CONTINUED)

Other Matters

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


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

No matter was submitted to a vote of security holders of the Company during the
fourth quarter of 1996.


PART II


ITEM 5.       MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
              MATTERS

The Company's Common Stock is traded on the New York Stock Exchange under the
symbol "KLU". The number of record holders of the Company's Common Stock at
March 14, 1997, was 160. Page 48 of the Annual Report, and the information in
Note 4 of the Notes to Consolidated Financial Statements under the heading
"Loan Covenants and Restrictions" at pages 29-30 of the Annual Report, are
incorporated herein by reference. The Company has not paid any dividends on its
Common Stock during the two most recent fiscal years.

The Credit Agreement (Exhibits 4.8 through 4.16 to this Report) contains
restrictions on the ability of the Company to pay dividends on or make
distributions on account of the Company's Common Stock, and the Credit
Agreement and the Indentures (Exhibits 4.1 through 4.7 to this Report) contain
restrictions on the ability of the Company's subsidiaries to transfer funds to
the Company in the form of cash dividends, loans or advances. Exhibits 4.1
through 4.16 to this Report, Note 4 of the Notes to Consolidated Financial
Statements at pages 29-30 of the Annual Report, and the information under the
headings "Financing Activities and Liquidity" and "Capital Structure" at pages
17-18 of the Annual Report, are incorporated herein by reference.


ITEM 6.       SELECTED FINANCIAL DATA

Selected financial data for the Company is incorporated herein by reference to
the table at page 3 of this Report, to the table at page 12 of the Annual
Report,to Note 1 of the Notes to Consolidated Financial Statements at pages
25-27 of the Annual Report, and to pages 46-47 of the Annual Report.


ITEM 7.       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
              RESULTS OF OPERATIONS

Pages 12-20 of the Annual Report are incorporated herein by reference.


ITEM 8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Pages 21-45 and page 48 of the Annual Report are incorporated herein by
reference.


ITEM 9.       CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
              FINANCIAL DISCLOSURE

None.


PART III

Information required under PART III (Items 10, 11, 12, and 13) has been omitted
from this Report since the Company intends to file with the Securities and
Exchange Commission, not later than 120 days after the close of its fiscal
year, a definitive proxy statement pursuant to Regulation 14A which involves
the election of directors.




                                       15


<PAGE>   19
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- --------------------------------------------------------------------------------



PART IV


ITEM 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)        INDEX TO FINANCIAL STATEMENTS AND SCHEDULES

           1.  Financial Statements

               The Consolidated Financial Statements of the Company, the
               Notes to Consolidated Financial Statements, the Report of
               Independent Public Accountants, and Quarterly Financial Data
               are included on pages 21-45 and 48 of the Annual Report.

           2.  Financial Statement Schedules.............................Page
               -----------------------------                             ----
               Report of Independent Public Accountants...................17

               Schedule I  - Condensed Balance Sheets - Parent Company,
                             Condensed Statements of Income - Parent 
                             Company, Condensed Statements of Cash 
                             Flows - Parent Company, and Notes to 
                             Condensed Financial Statements - 
                             Parent Company ...........................18-21

               All other schedules are inapplicable or the required
               information is included in the Consolidated Financial
               Statements or the Notes thereto.

           3.  Exhibits

               Reference is made to the Index of Exhibits immediately
               preceding the exhibits hereto (beginning on page 23), which
               index is incorporated herein by reference.

(b)        REPORTS ON FORM 8-K

           Three Reports on Form 8-K were filed by the Company during the
           last quarter of the period covered by this Report. One Report on
           Form 8-K, dated October 2, 1996, stated that the Board of
           Directors of the Company had adopted a resolution abandoning a
           proposed recapitalization of the Company, and contained
           information concerning an action entitled Matheson et al. v.
           Kaiser Aluminum Corporation et al. One Report on Form 8-K, dated
           October 10, 1996, stated that on October 7, 1996, KACC announced
           in a press release that it proposes to make a Rule 144A offering
           of $175 million principal amount of senior notes due 2006. One
           Report on Form 8-K, dated October 23, 1996, stated that on
           October 17, 1996, KACC announced in a press release that it had
           priced its Rule 144A offering of $175 million principal amount of
           10 7/8% Senior Notes due 2006 at 99.5% of their principal amount
           to yield 10.96% to maturity.

(c)        EXHIBITS

           Reference is made to the Index of Exhibits immediately preceding
           the exhibits hereto (beginning on page 23), which index is
           incorporated herein by reference.



                                      16

<PAGE>   20



KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- --------------------------------------------------------------------------------


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

We have audited in accordance with generally accepted auditing standards, the
financial statements included in Kaiser Aluminum Corporation and subsidiaries'
annual report to shareholders incorporated by reference in this Form 10-K, and
have issued our report thereon dated February 14, 1997. Our audit was made for
the purpose of forming an opinion on the basic financial statements taken as a
whole. Schedule I listed in the index at Item 14(a)2. above is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not a
required part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in our audit of the basic financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.



                                                    ARTHUR ANDERSEN LLP
Houston, Texas
February 14, 1997


                                       17


<PAGE>   21



KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- --------------------------------------------------------------------------------



                                   SCHEDULE I
                   CONDENSED BALANCE SHEETS - PARENT COMPANY

                 (In millions of dollars, except share amounts)



<TABLE>
<CAPTION>
                                                                                  December 31,
                                                                             --------------------
                                                                               1996        1995
                                                                             --------    --------

<S>                                                                          <C>                 
ASSETS
Current assets:
   Cash and cash equivalents                                                 $           $     .2
   Note receivable from KACC                                                      8.6        10.7
                                                                             --------    --------
      Total current assets                                                        8.6        10.9

Note receivable from KACC                                                                     8.6

Investment in KACC                                                            1,641.2     1,521.3
                                                                             --------    --------

      Total                                                                  $1,649.8    $1,540.8
                                                                             ========    ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities                                                          $    2.4    $    3.3

Intercompany note payable to KACC, including accrued interest                 1,578.1     1,479.8

Stockholders' equity:
   PRIDES Convertible, par value $.05, issued and outstanding, 8,673,850           .4          .4
   Common stock, par value $.01, authorized 100,000,000 shares: issued and
      outstanding 71,646,789 and 71,638,514 in 1996 and 1995                       .7          .7
   Additional capital                                                           531.1       530.3
   Accumulated deficit                                                         (460.1)     (459.9)
   Additional minimum pension liability                                          (2.8)      (13.8)
                                                                             --------    --------
        Total stockholders' equity                                               69.3        57.7
                                                                             --------    --------

        Total                                                                $1,649.8    $1,540.8
                                                                             ========    ========
</TABLE>



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



                                       18


<PAGE>   22



KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- --------------------------------------------------------------------------------




                                   SCHEDULE I
                CONDENSED STATEMENTS OF INCOME - PARENT COMPANY

                            (In millions of dollars)




<TABLE>
<CAPTION>
                                                December 31,
                                      -----------------------------
                                        1996       1995       1994
                                      -------    -------    -------
<S>                                   <C>        <C>        <C>
Equity in income (loss) of KACC       $ 108.7    $ 152.8    $ (20.4)

Administrative and general expenses      (2.2)       (.4)       (.3)

Interest expense                        (98.3)     (92.1)     (86.1)
                                      -------    -------    -------
Net income (loss)                     $   8.2    $  60.3    $(106.8)
                                      =======    =======    ======= 
</TABLE>




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


                                       19


<PAGE>   23



KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- --------------------------------------------------------------------------------



                                   SCHEDULE I
              CONDENSED STATEMENTS OF CASH FLOWS - PARENT COMPANY

                            (In millions of dollars)



<TABLE>
<CAPTION>
                                                                                  December 31,
                                                                        -----------------------------
                                                                         1996       1995       1994
                                                                        -------    -------    -------
<S>                                                                     <C>        <C>        <C>     
Cash flows from operating activities:
   Net income (loss)                                                    $   8.2    $  60.3    $(106.8)
   Adjustments to reconcile net income (loss) to net cash provided by
      (used for) operating activities:
        Equity in (income) loss of KACC                                  (108.7)    (152.8)      20.4
        Accrued interest on intercompany note payable to KACC              98.3       92.1       86.1
        Increase (decrease) in current liabilities                          (.9)        .2         .3
                                                                        -------    -------    -------
           Net cash used for operating activities                          (3.1)       (.2)
                                                                        -------    -------    -------


Cash flows from investing activities:
   Investment in KACC                                                       (.1)      (1.2)     (66.9)
                                                                        -------    -------    -------
           Net cash used for investing activities                           (.1)      (1.2)     (66.9)
                                                                        -------    -------    -------

Cash flows from financing activities:
   Dividends paid                                                         (10.5)     (20.8)     (14.8)
   Capital stock issued                                                      .1        1.2      100.1
   Intercompany note issued by KACC - net                                  13.4       15.5      (13.2)
                                                                        -------    -------    -------
           Net cash (used for) provided by financing activities             3.0       (4.1)      72.1
                                                                        -------    -------    -------

Net (decrease) increase in cash and cash equivalents during the year        (.2)      (5.5)       5.2
Cash and cash equivalents at beginning of year                               .2        5.7         .5
                                                                        -------    -------    -------
Cash and cash equivalents at end of year                                $          $    .2    $   5.7
                                                                        =======    =======    =======

Supplemental disclosure of non-cash investing activities:
   Non-cash investment in KACC                                                     $   9.9
</TABLE>




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

                                       20


<PAGE>   24



KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- --------------------------------------------------------------------------------



                                   SCHEDULE I
            NOTES TO CONDENSED FINANCIAL STATEMENTS - PARENT COMPANY


1. BASIS OF PRESENTATION

   Kaiser Aluminum Corporation (the "Company") is a holding company and
   conducts its operations through its wholly owned subsidiary, Kaiser
   Aluminum & Chemical Corporation ("KACC"), which is reported herein using
   the equity method of accounting. The accompanying, parent company
   condensed financial statements of the Company should be read in
   conjunction with the 1996 consolidated financial statements of Kaiser
   Aluminum Corporation and Subsidiary Companies ("Kaiser").


2. INTERCOMPANY NOTE PAYABLE

   The Intercompany Note to KACC, as amended, provides for a fixed interest
   rate of 6 5/8%. No interest or principal payments are due until December 31,
   2000, after which interest and principal will be payable over a 15-year term
   pursuant to a predetermined schedule.


3. RESTRICTED NET ASSETS

   The investment in KACC is substantially unavailable to the Company pursuant
   to the terms of certain debt instruments. The obligations of KACC in respect
   of the credit facilities under the Credit Agreement are guaranteed by the
   Company and substantially by all significant subsidiaries of KACC. See Note
   4 of the Notes to Kaiser's Consolidated Financial Statements.

                                       21


<PAGE>   25



KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- --------------------------------------------------------------------------------





                                   SIGNATURES


         Pursuant to the requirements of Section 13 or 15(d) 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.

                                    KAISER ALUMINUM CORPORATION

         Date:  March 27, 1997      By      George T. Haymaker, Jr.
                                      ------------------------------------------
                                            George T. Haymaker, Jr. 
                                             Chairman of the Board,
                                                President, and
                                            Chief Executive Officer

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

         Date:  March 27, 1997                George T. Haymaker, Jr.
                                      -----------------------------------------
                                              George T. Haymaker, Jr.
                                               Chairman of the Board,
                                                 President, and
                                              Chief Executive Officer
                                            (Principal Executive Officer)

         Date:  March 27, 1997                    John T. La Duc
                                      ------------------------------------------
                                                  John T. La Duc
                                      Vice President and Chief Financial Officer
                                            (Principal Financial Officer)

         Date:  March 27, 1997                    Arthur S. Donaldson
                                      ------------------------------------------
                                                 Arthur S. Donaldson
                                                    Controller
                                            (Principal Accounting Officer)

         Date:  March 27, 1997                  Robert J. Cruikshank
                                      ------------------------------------------
                                                Robert J. Cruikshank
                                                     Director

         Date:  March 27, 1997                    Charles E. Hurwitz
                                      ------------------------------------------
                                                  Charles E. Hurwitz
                                                      Director

         Date:  March 27, 1997                      Ezra G. Levin
                                      ------------------------------------------
                                                    Ezra G. Levin
                                                     Director

         Date:  March 27, 1997                      Robert Marcus
                                      ------------------------------------------
                                                    Robert Marcus
                                                      Director

         Date:  March 27, 1997                     Robert J. Petris             
                                      ------------------------------------------
                                                   Robert J. Petris
                                                      Director

                                       22


<PAGE>   26



KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- --------------------------------------------------------------------------------



                               INDEX OF EXHIBITS


<TABLE>
<CAPTION>
Exhibit
Number                                Description
- ------                                -----------

<S>      <C>                                                                  
3.1      Restated Certificate of Incorporation of Kaiser Aluminum Corporation
         (the "Company" or "KAC"), dated February 21, 1991 (incorporated by
         reference to Exhibit 3.1 to Amendment No. 2 to the Registration
         Statement on Form S-1, dated June 11, 1991, filed by KAC, Registration
         No. 33-37895).

3.2      Certificate of Retirement of KAC, dated October 24, 1995 (incorporated
         by reference to Exhibit 3.2 to the Report on Form 10-K for the period
         ended December 31, 1995, filed by KAC, File No. 1-9447).

*3.3     Amended and Restated By-laws of KAC, dated February 3, 1997.

4.1      Indenture, dated as of February 1, 1993, among Kaiser Aluminum &
         Chemical Corporation ("KACC"), as Issuer, Kaiser Alumina Australia
         Corporation, Alpart Jamaica Inc., and Kaiser Jamaica Corporation, as
         Subsidiary Guarantors, and The First National Bank of Boston, as
         Trustee, regarding KACC's 12 3/4% Senior Subordinated Notes Due 2003
         (incorporated by reference to Exhibit 4.1 to Form 10-K for the period
         ended December 31, 1992, filed by KACC, File No. 1-3605).

4.2      First Supplemental Indenture, dated as of May 1, 1993, to the
         Indenture, dated as of February 1, 1993 (incorporated by reference to

         Exhibit 4.2 to the Report on Form 10-Q for the quarterly period ended
         June 30, 1993, filed by KACC, File No. 1-3605).

4.3      Second Supplemental Indenture, dated as of February 1, 1996, to the
         Indenture, dated as of February 1, 1993 (incorporated by reference to

         Exhibit 4.3 to the Report on Form 10-K for the period ended December
         31, 1995, filed by KAC, File No. 1-9447).

4.4      Indenture, dated as of February 17, 1994, among KACC, as Issuer,
         Kaiser Alumina Australia Corporation, Alpart Jamaica Inc., Kaiser
         Jamaica Corporation, and Kaiser Finance Corporation, as Subsidiary
         Guarantors, and First Trust National Association, as Trustee,
         regarding KACC's 97/8% Senior Notes Due 2002 (incorporated by
         reference to Exhibit 4.3 to the Report on Form 10-K for the period
         ended December 31, 1993, filed by KAC, File No. 1-9447).

4.5      First Supplemental Indenture, dated as of February 1, 1996, to the
         Indenture, dated as of February 17, 1994 (incorporated by reference to

         Exhibit 4.5 to the Report on Form 10-K for the period ended December
         31, 1995, filed by KAC, File No. 1-9447).

4.6      Indenture, dated as of October 23, 1996, among KACC, as Issuer, Kaiser
         Alumina Australia Corporation, Alpart Jamaica Inc., Kaiser Jamaica
         Corporation, Kaiser Finance Corporation, Kaiser Micromill Holdings,
         LLC, Kaiser Sierra Micromills, LLC, Kaiser Texas Micromill Holdings,
         LLC and Kaiser Texas Sierra Micromills, LLC, as Subsidiary Guarantors,
         and First Trust National Association, as Trustee, regarding KACC's
         107/8% Senior Notes Due 2006 (incorporated by reference to Exhibit 4.2
         to the Report on Form 10-Q for the quarterly period ended September
         30, 1996, filed by KAC, File No. 1-9447).

4.7      Indenture, dated as of December 23, 1996, among KACC, as Issuer,
         Kaiser Alumina Australia Corporation, Alpart Jamaica Inc., Kaiser
         Jamaica Corporation, Kaiser Finance Corporation, Kaiser Micromill
         Holdings, LLC, Kaiser Sierra Micromills, LLC, Kaiser Texas Micromill
         Holdings, LLC, and Kaiser Texas Sierra Micromills, LLC, as Subsidiary
         Guarantors, and First Trust National Association, as Trustee,
         regarding the Company's 10 7/8% Series C Senior Notes due 2006
         (incorporated by reference to Exhibit 4.4 to the Registration
         Statement on Form S-4, dated January 2, 1997, filed by KACC,
         Registration No. 333-19143).

4.8      Credit Agreement, dated as of February 15, 1994, among KAC, KACC, the
         financial institutions a party thereto, and BankAmerica Business
         Credit, Inc., as Agent (incorporated by reference to Exhibit 4.4 to
         the Report on Form 10-K for the period ended December 31, 1993, filed
         by KAC, File No. 1-9447).
</TABLE>



                                       23


<PAGE>   27
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- --------------------------------------------------------------------------------




<TABLE>
<CAPTION>
Exhibit
Number                                Description
- ------                                -----------

<S>      <C>  
4.9      First Amendment to Credit Agreement, dated as of July 21, 1994,
         amending the Credit Agreement, dated as of February 15, 1994, among
         KAC, KACC, the financial institutions party thereto, and BankAmerica
         Business Credit, Inc., as Agent (incorporated by reference to Exhibit
         4.1 to the Report on Form 10-Q for the quarterly period ended June 30,
         1994, filed by KAC, File No. 1-9447).

4.10     Second Amendment to Credit Agreement, dated as of March 10, 1995,
         amending the Credit Agreement, dated as of February 15, 1994, as
         amended, among KAC, KACC, the financial institutions party thereto,
         and BankAmerica Business Credit, Inc., as Agent (incorporated by
         reference to Exhibit 4.6 to the Report on Form 10-K for the period
         ended December 31, 1994, filed by KAC, File No. 1-9447).

4.11     Third Amendment to Credit Agreement, dated as of July 20, 1995,
         amending the Credit Agreement, dated as of February 15, 1994, as
         amended, among KAC, KACC, the financial institutions a party thereto,
         and BankAmerica Business Credit, Inc., as Agent (incorporated by
         reference to Exhibit 4.1 to the Report on Form 10-Q for the quarterly
         period ended June 30, 1995, filed by KAC, File No. 1-9447).

4.12     Fourth Amendment to Credit Agreement, dated as of October 17, 1995,
         amending the Credit Agreement, dated as of February 15, 1994, as
         amended, among KAC, KACC, the financial institutions a party thereto,
         and BankAmerica Business Credit, Inc., as Agent (incorporated by
         reference to Exhibit 4.1 to the Report on Form 10-Q for the quarterly
         period ended September 30, 1995, filed by KAC, File No. 1-9447).

4.13     Fifth Amendment to Credit Agreement, dated as of December 11, 1995,
         amending the Credit Agreement, dated as of February 15, 1994, as
         amended, among KAC, KACC, the financial institutions a party thereto,
         and BankAmerica Business Credit, Inc., as Agent (incorporated by
         reference to Exhibit 4.11 to the Report on Form 10-K for the period
         ended December 31, 1995, filed by KAC, File No. 1-9447).

4.14     Sixth Amendment to Credit Agreement, dated as of October 1, 1996,
         amending the Credit Agreement, dated as of February 15, 1994, as
         amended, among KAC, KACC, the financial institutions a party thereto,
         and BankAmerica Business Credit, Inc., as Agent (incorporated by
         reference to Exhibit 4.1 to the Report on Form 10-Q for the quarterly
         period ended September 30, 1996, filed by KAC, File No. 1-9447).

4.15     Seventh Amendment to Credit Agreement, dated as of December 17, 1996,
         amending the Credit Agreement, dated as of February 15, 1994, as
         amended, among KAC, KACC, the financial institutions a party thereto,
         and BankAmerica Business Credit, Inc., as Agent (incorporated by
         reference to Exhibit 4.18 to the Registration Statement on Form S-4,
         dated January 2, 1997, filed by KACC, Registration No. 333-19143).

*4.16    Eighth Amendment to Credit Agreement, dated as of February 24, 1997,
         amending the Credit Agreement, dated as of February 15, 1994, as
         amended, among KACC, Kaiser, the financial institutions a party
         thereto, and BankAmerica Business Credit, Inc., as Agent.

4.17     Intercompany Note between KAC and KACC (incorporated by reference to

         Exhibit 10.11 to the Report on Form 10-K for the period ended
         December 31, 1996, filed by MAXXAM Inc. ("MAXXAM"), File No. 1-3924).

4.18     Confirmation of Amendment of Non-Negotiable Intercompany Note, dated
         as of October 6, 1993, between KAC and KACC (incorporated by reference
         to Exhibit 10.12 to the Report on Form 10-K for the period ended
         December 31, 1996, filed by MAXXAM, File No. 1-3924).

4.19     Certificate of Designations of 8.255% PRIDES, Convertible Preferred
         Stock of KAC, dated February 17, 1994 (incorporated by reference to

         Exhibit 4.21 to the Report on Form 10-K for the period ended December
         31, 1993, filed by KAC, File No. 1-9447).

4.20     Senior Subordinated Intercompany Note between KAC and KACC dated
         February 15, 1994 (incorporated by reference to Exhibit 4.22 to the
         Report on Form 10-K for the period ended December 31, 1993, filed by
         KAC, File No. 1-9447).
</TABLE>


                                       24


<PAGE>   28



KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- --------------------------------------------------------------------------------




<TABLE>
<CAPTION>
Exhibit
Number                                Description
- ------                                -----------

<S>      <C>                                                             
4.21     Senior Subordinated Intercompany Note between KAC and KACC dated March
         17, 1994 (incorporated by reference to Exhibit 4.23 to the Report on
         Form 10-K for the period ended December 31, 1993, filed by KAC, File
         No. 1-9447).

         KAC has not filed certain long-term debt instruments not being
         registered with the Securities and Exchange Commission where the total
         amount of indebtedness authorized under any such instrument does not
         exceed 10% of the total assets of KAC and its subsidiaries on a
         consolidated basis. KAC agrees and undertakes to furnish a copy of any
         such instrument to the Securities and Exchange Commission upon its
         request.

10.1     Form of indemnification agreement with officers and directors
         (incorporated by reference to Exhibit (10)(b) to the Registration
         Statement of KAC on Form S-4, File No. 33-12836).

10.2     Tax Allocation Agreement, dated as of December 21, 1989, between 
         MAXXAM and KACC (incorporated by reference to Exhibit 10.21 to 
         Amendment No. 6 to the Registration Statement on Form S-1, dated 
         December 14, 1989, filed by KACC, Registration No. 33-30645).

10.3     Tax Allocation Agreement, dated as of February 26, 1991, between 
         KAC and MAXXAM (incorporated by reference to Exhibit 10.23 to 
         Amendment No. 2 to the Registration Statement on Form S-1, dated 
         June 11, 1991, filed by KAC, Registration No. 33-37895).

10.4     Tax Allocation Agreement, dated as of June 30, 1993, between KACC and
         KAC (incorporated by reference to Exhibit 10.3 to the Report on Form
         10-Q for the quarterly period ended June 30, 1993, filed by KACC, File
         No. 1-3605).

10.5     Agreement, dated as of June 30, 1993, between KAC and MAXXAM
         (incorporated by reference to Exhibit 10.2 to the Report on Form 10-Q
         for the quarterly period ended June 30, 1993, filed by KACC, File No.
         1-3605).

                 Executive Compensation Plans and Arrangements
                       [Exhibits 10.6 - 10.16, inclusive]

10.6     KACC's Bonus Plan (incorporated by reference to Exhibit 10.25 to
         Amendment No. 6 to the Registration Statement on Form S-1, dated
         December 14, 1989, filed by KACC, Registration No. 33-30645).

10.7     Kaiser 1993 Omnibus Stock Incentive Plan (incorporated by reference to

         Exhibit 10.1 to the Report on Form 10-Q for the quarterly period ended
         June 30, 1993, filed by KACC, File No. 1-3605).

10.8     Kaiser 1995 Employee Incentive Compensation Program (incorporated by
         reference to Exhibit 10.1 to the Report on Form 10-Q for the quarterly
         period ended March 31, 1995, filed by KAC, File No. 1-9447).

10.9     Kaiser 1995 Executive Incentive Compensation Program (incorporated by
         reference to Exhibit 99 to the Proxy Statement, dated April 26, 1995,
         filed by KAC, File No. 1-9447).

10.10    Employment Agreement, dated April 1, 1993, among KAC, KACC, and George
         T. Haymaker, Jr. (incorporated by reference to Exhibit 10.2 to the
         Report on Form 10-Q for the quarterly period ended March 31, 1993,
         filed by KAC, File No. 1-9447).

10.11    First Amendment to Employment Agreement by and between KACC, KAC and
         George T. Haymaker, Jr. (incorporated by reference to Exhibit 10 to
         the Report on Form 10-Q for the quarterly period ended June 30, 1996,
         filed by KAC, File No. 1-9447).
</TABLE>







                                       25


<PAGE>   29



KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- --------------------------------------------------------------------------------




<TABLE>
<CAPTION>
Exhibit
Number                                Description
- ------                                -----------
<S>      <C>
10.12    Promissory Note, dated February 1, 1989, by Anthony R. Pierno and
         Beverly J. Pierno to MAXXAM (incorporated by reference to Exhibit
         10.30 to Form 10-K for the period ended December 31, 1988, filed by
         MAXXAM, File No. 1-3924).

10.13    Promissory Note, dated July 19, 1990, by Anthony R. Pierno to MAXXAM
         (incorporated by reference to Exhibit 10.31 to Form 10-K for the
         period ended December 31, 1990, filed by MAXXAM, File No. 1-3924).

10.14    Promissory Note, dated July 20, 1993, between MAXXAM and Byron L. Wade
         (incorporated by reference to Exhibit 10.59 to Form 10-K for the
         period ended December 31, 1993, filed by MAXXAM, File No. 1-3924).

10.15    Letter Agreement, dated January 1995, between KAC and Charles E.
         Hurwitz, granting Mr. Hurwitz stock options under the Kaiser 1993
         Omnibus Stock Incentive Plan (incorporated by reference to Exhibit
         10.17 to the Report on Form 10-K for the period ended December 31,
         1994, filed by KAC, File No. 1-9447).

10.16    Form of letter agreement with persons granted stock options under the
         Kaiser 1993 Omnibus Stock Incentive Plan to acquire shares of KAC
         common stock (incorporated by reference to Exhibit 10.18 to the Report
         on Form 10-K for the period ended December 31, 1994, filed by KAC,
         File No. 1-9447).

*11      Computation of Earnings Per Common and Common Equivalent Share

*13      The portions of KAC's Annual Report to shareholders for the year ended
         December 31, 1996, which are incorporated by reference into this
         Report.

*21      Significant Subsidiaries of KAC.

*23.1    Consent of Independent Public Accountants.

*23.2    Consent of Wharton Levin Ehrmantraut Klein & Nash, P.A.

*23.3    Consent of Thelen, Marrin, Johnson & Bridges LLP.

*27      Financial Data Schedule.


</TABLE>

- ----------

*        Filed herewith







                                       26


<PAGE>   30



KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- --------------------------------------------------------------------------------



                                                                     Exhibit 21


                                  SUBSIDIARIES
                                  ------------


Listed below are the principal subsidiaries of Kaiser Aluminum Corporation, the
jurisdiction of their incorporation or organization and the names under which
such subsidiaries do business. Certain subsidiaries are omitted which,
considered in the aggregate as a single subsidiary, would not constitute a
significant subsidiary.




<TABLE>
<CAPTION>
                                                                Place of
                                                                Incorporation
   Name                                                         or Organization
   ----                                                         ---------------
   <S>                                                          <C>
   Alpart Jamaica Inc. ...................................      Delaware
   Alumina Partners of Jamaica (partnership)..............      Delaware
   Anglesey Aluminium Limited.............................      United Kingdom
   Kaiser Alumina Australia Corporation...................      Delaware
   Kaiser Aluminium International, Inc....................      Delaware
   Kaiser Aluminum & Chemical Corporation.................      Delaware
   Kaiser Aluminum & Chemical of Canada Limited...........      Ontario
   Kaiser Bauxite Company.................................      Nevada
   Kaiser Finance Corporation ............................      Delaware
   Kaiser Jamaica Bauxite Company (partnership)...........      Jamaica
   Kaiser Jamaica Corporation.............................      Delaware
   Queensland Alumina Limited.............................      Queensland
   Volta Aluminium Company Limited........................      Ghana
</TABLE>




                                       27


<PAGE>   31



KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
- --------------------------------------------------------------------------------



<TABLE>
<S>                   <C>                                                  <C>
Domestic              California                                           Pennsylvania
Operations              Los Angeles (City of Commerce)                       Erie
(Partial List)            Engineered Products                                  Engineered Products
                        Los Angeles (Santa Fe Springs)                     South Carolina
                          Engineered Products Fabricating                    Greenwood
                        Oxnard                                                 Engineered Products
                          Engineered Products                                Greenwood
                        Pleasanton                                             Engineered Products Machine Shop
                         R&D at the Center for Technology,                 Tennessee
                          Administrative Offices                             Jackson
                      Florida                                                  Engineered Products
                        Mulberry                                           Texas
                          Sodium Silicofluoride, Potassium Silicofluoride    Houston
                      Louisiana                                                Kaiser Aluminum Corporation Headquarters
                        Baton Rouge                                          Sherman
                          Alumina, Environmental Offices                       Engineered Products
                        Gramercy                                           Washington
                          Alumina                                            Mead
                      Michigan                                                 Primary Aluminum,
                        Detroit (Southfield)                                   Division Technology Center
                          Automotive Product Development and Sales           Richland
                      Ohio                                                     Engineered Products
                        Canton                                               Tacoma
                          Engineered Products                                  Primary Aluminum
                        Newark                                               Trentwood
                          Engineered Products                                  Flat-Rolled Products
                      Oklahoma
                        Tulsa
                          Engineered Products
- -------------------------------------------------------------------------------------------
Worldwide             Australia                                            Japan
Operations              Queensland Alumina Limited (28.3% owned)             Furukawa Kaiser Forged Products Company
(Partial List)            Alumina                                            (47.5%)
                      Canada                                                   Sales Office
                        Kaiser Aluminum & Chemical of Canada Limited       Russia
                        (100%)                                               Kaiser Aluminium Russia, Inc. (100%)
                          Engineered Products                                  International Business Development
                      Ghana                                                Wales, United Kingdom
                      -----                                                ---------------------
                        Volta Aluminium Company Limited (90%)                Anglesey Aluminium Limited (49%)
                          Primary Aluminum                                     Primary Aluminum
                      Jamaica
                        Alumina Partners of Jamaica (65%)
                          Bauxite, Alumina
                        Kaiser Jamaica Bauxite Company (49%)
                          Bauxite
</TABLE>


                                       28





<PAGE>   1









                   AMENDED AND RESTATED BY-LAWS

                                OF

                   KAISER ALUMINUM CORPORATION
                                                      February 3, 1997

<PAGE>   2

                              INDEX

<TABLE>
<CAPTION>
                                                             Page
<S>             <C>                                            <C>
Article I - OFFICES
  SECTION  1.   Registered Office. . . . . . . . . . . . . . . .1
  SECTION  2.   Offices. . . . . . . . . . . . . . . . . . . . .1

Article II - MEETINGS OF STOCKHOLDERS
  SECTION  1.   Place  of  Meetings. . . . . . . . . . . . . . .1
  SECTION  2.   Annual Meetings. . . . . . . . . . . . . . . . .1
  SECTION  3.   Special Meetings . . . . . . . . . . . . . . . .3
  SECTION  4.   Adjourned Meetings, Notice . . . . . . . . . . .3
  SECTION  5.   Voting . . . . . . . . . . . . . . . . . . . . .4
  SECTION  6.   Quorum . . . . . . . . . . . . . . . . . . . . .4
  SECTION  7.   Proxies. . . . . . . . . . . . . . . . . . . . .4
  SECTION  8.   Inspectors . . . . . . . . . . . . . . . . . . .4
  SECTION  9.   Procedural Rules . . . . . . . . . . . . . . . .5

Article III - DIRECTORS
  SECTION  1.   Powers . . . . . . . . . . . . . . . . . . . . .5
  SECTION  2.   Number and Qualification of Directors. . . . . .5
  SECTION  3.   Election and Term of Office. . . . . . . . . . .5

  SECTION  4.   Vacancies. . . . . . . . . . . . . . . . . . . .5
  SECTION  5.   Place  of  Meeting . . . . . . . . . . . . . . .6
  SECTION  6.   Annual Meeting . . . . . . . . . . . . . . . . .6
  SECTION  7.   Other Regular Meetings . . . . . . . . . . . . .6
  SECTION  8.   Special Meetings . . . . . . . . . . . . . . . .6
  SECTION  9.   Quorum . . . . . . . . . . . . . . . . . . . . .6
  SECTION  10.  Adjournment. . . . . . . . . . . . . . . . . . .6
  SECTION  11.  Fees and Compensation. . . . . . . . . . . . . .7
  SECTION  12.  Directors' Action Without Meetings . . . . . . .7
  SECTION  13.  Meetings by Telecommunication. . . . . . . . . .7

Article IV - COMMITTEES
  SECTION  1.   Committees . . . . . . . . . . . . . . . . . . .7
  SECTION  2.   Committee  Rules . . . . . . . . . . . . . . . .7

Article V - OFFICERS
  SECTION  1.   Officers . . . . . . . . . . . . . . . . . . . .8
  SECTION  2.   Election . . . . . . . . . . . . . . . . . . . .8
  SECTION  3.   Removal and Resignation. . . . . . . . . . . . .8
  SECTION  4.   Vacancies. . . . . . . . . . . . . . . . . . . .8
  SECTION  5.   Chairman of the Board. . . . . . . . . . . . . .8
  SECTION  6.   Vice Chairman of the Board . . . . . . . . . . .8
</TABLE>


                                i

<PAGE>   3


<TABLE>
<S>             <C>                                             <C>
  SECTION  7.   Chief Executive
 Officer. . . . . . . . . . . . .9
  SECTION  8.   President. . . . . . . . . . . . . . . . . . . .9
  SECTION  9.   Executive Vice Presidents and Senior Vice
                Presidents . . . . . . . . . . . . . . . . . . .9
  SECTION  10.  Vice Presidents. . . . . . . . . . . . . . . . .9
  SECTION  11.  Secretary. . . . . . . . . . . . . . . . . . . .9
  SECTION  12.  Treasurer. . . . . . . . . . . . . . . . . . . 10
  SECTION  13.  Controller . . . . . . . . . . . . . . . . . . 10

Article VI - MISCELLANEOUS
  SECTION  1.   Record Dates . . . . . . . . . . . . . . . . . 10
  SECTION  2.   Waiver of Notice of Meetings of Stockholders,
                Directors and Committees . . . . . . . . . . . 10
  SECTION  3.   Certificates of Stock. . . . . . . . . . . . . 10
  SECTION  4.   Inspection of Stock Ledger . . . . . . . . . . 11
  SECTION  5.   Indemnification. . . . . . . . . . . . . . . . 11

Article VII - AMENDMENTS
  SECTION  1.   Adoption, Amendment or Repeal of By-laws . . . 12
</TABLE>







                                ii

<PAGE>   4



                      AMENDED AND RESTATED
                             BY-LAWS
                                OF
                   KAISER ALUMINUM CORPORATION
                     (A Delaware corporation)

                       Article I - OFFICES

  SECTION 1.    Registered Office.  The registered office of the
Corporation shall be located at Corporation Trust Center, 1209
Orange Street, Wilmington, Delaware.  The name of the
registered agent in charge thereof is The Corporation Trust
Company.

  SECTION 2.    Offices.   Offices may at any time be
established by the Board of Directors at any place or places,
within or without the State of Delaware.

              Article II - MEETINGS OF STOCKHOLDERS

  SECTION 1.    Place  of  Meetings.   All  meetings  of
Stockholders for the election of Directors shall be held at the
principal office of the Corporation or at such other place either
within or without the State of Delaware as shall be designated
from time to time by the Board of Directors and stated in the
notice of the meeting.  Meetings of the Stockholders for any
other purpose may be held at such place as shall be stated in the
notice of the meeting.

  SECTION 2.    Annual Meetings.   The Board of Directors acting by 
resolution may postpone and reschedule any previously scheduled 
annual meeting of Stockholders.

  Nominations of persons for election to the Board of
Directors of the Corporation and the proposal of business to be
considered by the Stockholders may be made at an annual meeting
of Stockholders (a) pursuant to the Corporation's notice of
meeting, (b) by or at the direction of the Board of Directors, or
(c) by any Stockholder of the Corporation who was a Stockholder
of record at the time of giving of notice provided for in this
By-law, who is entitled to vote at the meeting and who complied
with the notice procedures set forth in this By-law.

  For nominations for Directors or other business to be
properly brought before an annual meeting by a Stockholder
pursuant to clause (c) of the foregoing paragraph of this By-law,
the Stockholder must have given timely notice thereof in writing
to the Secretary of the Corporation.  To be timely, a
Stockholder's notice shall be delivered to the Secretary at the
principal executive offices of the Corporation not less than 60
days nor more than 90 days prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the
event that the date of the annual meeting is advanced by more
than 30 days or delayed by more than 60 days from such
anniversary date, notice by the Stockholder to be timely must be
so delivered not earlier than the 90th day prior to such annual
meeting and not later than the close of business on the later of
the 60th day prior to such annual meeting or the 10th day
following the day on which public announcement of the date of
such meeting is first made.  Such Stockholder's notice shall set
forth (a) as to each 


<PAGE>   5
person whom the Stockholder proposes to nominate for election or
reelection as a Director all information relating to such person that is
required to be disclosed in solicitation of proxies for election of
Directors, or is otherwise required, in each case pursuant to Regulation
14A under the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (including such person's written consent to being named in the
proxy statement as a nominee and to serving as a Director if elected);
(b) as to any other business that the Stockholder proposes to bring
before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at
the meeting and any material interest in such business of such
Stockholder and the beneficial owner, if any, on whose behalf the
nomination or proposal is made as well as  (i) the name and address of
such Stockholder, as they appear on the Corporation's books, and of such
beneficial owner, if applicable, and (ii) the class and number of shares
of the Corporation which are owned beneficially and of record by such
Stockholder and such beneficial owner, if applicable.

  Notwithstanding anything herein to the contrary, in the
event that the number of Directors to be elected to the Board of
Directors of the Corporation is increased and there is no public
announcement naming all of the nominees for Director or
specifying the size of the increased Board of Directors made by
the Corporation at least 70 days prior to the first anniversary
of the preceding year's annual meeting, a Stockholder's notice
required by this By-law shall also be considered timely, but only
with respect to nominees for any new positions created by such
increase, if it shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the
close of business on the 10th day following the day on which such
public announcement is first made by the Corporation.

  Only such persons who are nominated in accordance with the
procedures set forth in these By-laws shall be eligible to serve
as Directors and only such business shall be conducted at an
annual meeting of Stockholders as shall have been brought before
the meeting in accordance with the procedures set forth in this
By-law.  The chairman of the meeting shall have the power and
duty to determine whether any nomination or business proposed to
be brought before the meeting was made in accordance with the
procedures set forth in these By-laws and, if any proposed
nomination or business is not in compliance with these By-laws,
to declare that such defective proposal shall be disregarded.

  For purposes of this By-law, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News
Services, Associated Press or comparable national news service or
in a document publicly filed by the Corporation with the
Securities and Exchange Commission pursuant to Sections 13, 14 or
15(d) of the Exchange Act.

  Notwithstanding the foregoing provisions of this By-law, a
Stockholder shall also comply with all applicable requirements of
the Exchange Act and the rules and regulations thereunder with
respect to the matters set forth in this By-law.  Nothing in this
By-law shall be deemed to affect any rights of Stockholders to
request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.


                                2

<PAGE>   6

   SECTION 3.    Special Meetings.  Business transacted at all special meetings
shall be confined to the specific purpose or purposes of the persons authorized
to request such special meeting as set forth in this Section 3 and only such
purpose or purposes shall be set forth in the notice of such meeting.  The Board
of Directors acting by resolution may postpone and reschedule any previously
scheduled special meeting of Stockholders.

   Nominations of persons for election to the Board of Directors may be made at
a special meeting of Stockholders at which Directors are to be elected (a)
pursuant to the Corporation's notice of meeting (b) by or at the direction of
the Board of Directors or (c) by any Stockholder of the Corporation who is a
Stockholder of record at the time of giving of notice provided for in this
By-law, who shall be entitled to vote at the meeting and who complies with the
notice procedures set forth in this By-law.  Nominations by Stockholders of
persons for election to the Board of Directors may be made at such a special
meeting of Stockholders if the Stockholder's notice required by the third
paragraph of Section 2 of Article II of these By-laws shall be delivered to the
Secretary at the principal executive offices of the Corporation not earlier than
the 90th day prior to such special meeting and not later than the close of
business on the later of the 60th day prior to such special meeting or the 10th
day following the day on which public announcement is first made of the date of
the special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting.

   Only such persons who are nominated in accordance with the procedures set
forth in these By-laws shall be eligible to serve as Directors and only such
business shall be conducted at a special meeting of the Stockholders as shall
have been brought before the meeting in accordance with the procedures set forth
in this By-law.  The chairman of the meeting shall have the power and duty to
determine whether any nomination or  business proposed to be brought before the
meeting was made in accordance with the procedures set forth in this By-law, and
if any proposed nomination or business is not in compliance with this By-law, to
declare that such defective proposal shall be disregarded.

   Notwithstanding the foregoing provisions of  this By-law, a Stockholder shall
also comply with all applicable requirements of the Exchange Act and the rules
and regulations thereunder with respect to the matters set forth in this By-law.
Nothing in this By-law shall be deemed to affect any rights of Stockholders to
request inclusion of proposals in the Corporation's proxy statement pursuant to
Rule 14a-8 under the Exchange Act.

   SECTION 4.    Adjourned Meetings, Notice.  Any Stockholders' meeting, annual
or special, whether or not a quorum is present, may be adjourned from time to
time, to be reconvened at the same or some other place, by the vote of a
majority of the shares entitled to vote thereon, the holders of which are either
present in person or represented by proxy thereat.   At the adjourned meeting
the Corporation may transact any business which might have been transacted at
the original meeting, but in the absence of a quorum no other business may be
transacted at any such meeting.

   When  any  Stockholders'  meeting,  either  annual  or special, is adjourned
for thirty (30) days or more or if after the adjournment a new record date is
fixed for the adjourned meeting, notice 

                                3

<PAGE>   7
of the adjourned meeting shall be given as in the case of an original
meeting.  Save as aforesaid, it shall not be necessary to give any
notice of an adjournment or of the business to be transacted at an
adjourned meeting, if the time and place of the adjourned meeting are
announced at the meeting at which such adjournment is taken.

  SECTION 5.    Voting.   At all meetings of Stockholders,
every registered Stockholder entitled to vote shall have the
right to vote in person or by proxy the number of shares standing
in his own name on the stock records of the Corporation; provid-
ed, however, that at all elections of Directors each holder of
record of stock entitled to vote for the election of Directors
shall be entitled to one vote for each share of such stock held
by such Stockholder for each Director's position to be filled.
Cumulative voting for Directors shall not be permitted.  Voting
shall be conducted by ballot.

  SECTION 6.    Quorum.   Subject to any provisions of the
Certificate of Incorporation relating to a quorum at meetings at
which the holders of shares of stock of any class are entitled to
vote separately as a class, the presence in person or by proxy of
the holders of a majority of the shares entitled to vote at any
meeting shall constitute a quorum for the transaction of busi-
ness.  The Stockholders present at a duly called or held meeting
at which a quorum is present may continue to do business until
adjournment, notwithstanding the withdrawal of enough
Stockholders to leave less than a quorum.

  SECTION 7.    Proxies.    Every person entitled to vote at a
meeting of Stockholders shall have the right to do so either in
person or by an agent or agents authorized by a proxy furnished
in accordance with applicable law.  A Stockholder may revoke any
proxy which  is not  irrevocable by attending the meeting and
voting in person or by filing an instrument in writing revoking
the proxy or another duly executed proxy bearing a later date
with the Secretary of the Corporation.

  SECTION 8.    Inspectors.   Prior  to  any  meeting  of
Stockholders, the Board of  Directors  or the President  shall
appoint one or more inspectors to act at such meeting and make a
written report thereof and may designate one or more persons as
alternate inspectors to replace any inspector who fails to act.
If no inspector or alternate is able to act at the meeting of
Stockholders, the person presiding at the meeting shall appoint
one or more inspectors to act at the meeting.  Each inspector,
before entering upon the discharge of his or her duties, shall
take  and  sign an  oath  faithfully to  execute the  duties  of
inspector with strict impartiality and according to the best of
his or her ability.  The inspectors shall ascertain the number of
shares outstanding and the voting power of each, determine the
shares represented at the meeting and the validity of proxies and
ballots, count all votes and ballots, determine and retain for a
reasonable period a record of the disposition of any challenges
made to any determination by the inspectors and certify their
determination of the number of shares represented at the meeting
and their count of all votes and ballots.  The inspectors may
appoint or retain other persons to assist them in the performance
of their duties.  The date and time of the opening and closing of
the polls for each matter upon which the Stockholders will vote
at a meeting shall be announced at the meeting.  No ballot, proxy
or vote, nor any revocation thereof or change thereto, shall be
accepted by the inspectors after the closing of the polls.  The
inspectors shall determine the validity of proxies and ballots in
accordance with applicable law.


                                4

<PAGE>   8
  SECTION 9.    Procedural Rules.  The Board of Directors of the
Corporation shall be entitled to make such rules or regulations
for the conduct of meetings of Stockholders as it shall deem
necessary, appropriate or convenient.  Subject to such rules and
regulations of the Board of Directors, if any, the chairman of
the meeting shall have the right and authority to prescribe such
rules, regulations and procedures and to do all such acts as, in
the proper conduct of the meeting, including, without limitation,
establishing an agenda or order of business of the meeting, rules and
procedures for maintaining order at the meeting and the safety of those
present, limitations on participation in such meeting to Stockholders of
record of the Corporation and their duly authorized and constituted
proxies, and such other persons as the chairman of the meeting shall
permit, restrictions on entry to the meeting after the time fixed for
the commencement thereof, limitations on the time allotted to questions
or comment by participants and regulation of the opening and closing of
the polls for balloting determined by the Board of Directors or the
chairman of the meeting.  Meetings of Stockholders shall not be required
to be held in accordance with rules of parliamentary procedure.

                     Article III - DIRECTORS

  SECTION 1.    Powers.   Subject to the limitations of the
Certificate  of  Incorporation, the By-laws and the General
Corporation Law of the State of Delaware as to action to be
authorized or approved by the Stockholders, and subject to the
duties of Directors as prescribed by the By-laws, all corporate
powers shall be exercised by or under the authority of, and the
business and affairs of the Corporation shall be managed by or
under the direction of, the Board of Directors.

  SECTION 2.    Number and Qualification of Directors.  The
Board of Directors shall consist of not less than three (3) nor
more than ten (10) members.  The Board of Directors may, by
resolution, designate the number of members of the Board of
Directors. Directors need not be Stockholders.

  SECTION 3.    Election and Term of Office.   The Directors
shall be elected at each annual meeting of Stockholders, but if
any such annual meeting is not held, or the Directors are not
elected thereat, the Directors may be elected at any special
meeting of Stockholders held for that purpose. All Directors
shall hold office until their respective successors are elected
and qualified or until their earlier resignation or removal.

  SECTION 4.    Vacancies.   Vacancies and newly created
directorships in the Board of Directors may be filled by a
majority of the remaining Directors, though less than a quorum,
or by a sole remaining Director, and each Director so elected
shall hold office until his successor is elected at an annual or
a special meeting of the Stockholders.  Whenever the holders of
any class or classes of stock or series thereof are entitled to
elect one or more Directors by the provisions of the Certificate
of Incorporation, vacancies and newly created directorships of
such class or classes or series may be filled by a majority of
the Directors elected by such class or classes or series thereof
then in office, or by the sole remaining Director so elected.


                                5

<PAGE>   9

  A vacancy or vacancies shall be deemed to exist in case of the death,
resignation or removal of any Director.
        
The Stockholders may at any time elect Directors to fill any vacancy not filled
by the Directors.
        
  Any Director may resign at any time by giving written notice to the Board of
Directors, the Chief Executive Officer or the Secretary of the Corporation. 
Any such resignation shall take effect at the time of receipt of such notice or
at such later time specified therein; and, unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it effective. 
If any Director resigns, the Board of Directors shall have power to elect a
successor to take office at such time as the resignation shall become
effective.
        
  SECTION 5.    Place of Meeting.   Subject to the provisions of Section 13 of
this Article III, all meetings of the Board of Directors shall be held at the
principal office of the Corporation or at such other place in the United 
States designated at any time by the Board of Directors.
        
  SECTION 6.    Annual Meeting.  Immediately following each annual meeting of
Stockholders, the Board of Directors shall hold a regular meeting for the
purpose of organization, election of officers, and the transaction of other
business.  Notice of all such regular meetings shall not be required.
        
  SECTION 7.    Other Regular Meetings.   Other regular meetings of the Board of
Directors shall be held without call at such times as shall from time to time
be determined by the Board of Directors.  Notice of all such regular meetings
shall not be required.
        
  SECTION 8.    Special Meetings.  Special meetings of the Board of Directors,
for any purpose or purposes whatsoever, shall be called at any time only by the
Chairman of the Board or by any two (2) of the Directors.  Reasonable notice
thereof shall be given by the person or persons calling the meeting.
        
  SECTION 9.    Quorum.   At all meetings of the Board of Directors a majority 
of the entire Board of Directors shall be necessary and sufficient to
constitute a quorum for the transaction of business, except to fill vacancies
in the Board of Directors as herein before provided, and except to adjourn as
hereinafter provided.  Every act or decision done or made by a majority of the
Directors present at a meeting duly held at which a quorum is present shall be
regarded as the act of the Board of Directors.
        
  SECTION 10.   Adjournment.   A quorum of the Directors may adjourn any Board 
of Directors' meeting to meet again at a stated day and hour; provided,
however, that in the absence of a Quorum a majority of the  Directors present
at any Board of Directors' meeting, either regular or special, may adjourn from
time to time until the time fixed for the next regular meeting of the Board of
Directors.  Notice of the time and place of holding an adjourned meeting of a
Board of
        
                                6

<PAGE>   10
Directors' meeting, either regular or special, need not be given to absent
Directors if the time and place are fixed at the meeting adjourned.
        
  SECTION 11.   Fees and Compensation.   Directors shall receive such
compensation for their services and reimbursement for expenses as Directors as
shall be determined from time to time by resolution of the Board of Directors. 
Any Director may serve the Corporation in any other capacity as an Officer,
agent, employee or otherwise and receive compensation therefor.
        
  SECTION 12.   Directors' Action Without Meetings.   Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if a written consent thereto
is signed by all members of the Board of Directors or such committee as the
case may be, and such written consent is filed with the minutes of proceedings
of the Board of Directors or committee.
        
  SECTION 13.   Meetings  by  Telecommunication.   Any meeting, regular or
special, of the Board of Directors or of any committee thereof may be held by
conference telephone or similar communication equipment.  Participation in such
a meeting shall constitute presence in person at the meeting.
        
                           Article IV - COMMITTEES

  SECTION 1.    Committees.   The Board of Directors may, by resolution passed 
by a majority of the entire Board, designate one or more committees, each
committee to consist of one or more Directors.  The Board of Directors may
designate one or more Directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee.  In
the absence or disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified from voting,
whether or not such member or members constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in place
of any such absent or disqualified member.  Any such committee, to the extent
provided in the resolution of the Board of Directors, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, and may authorize
the seal of the Corporation to be affixed to all papers which may require it;
but no such committee shall have power or authority in reference to amending
the Certificate of Incorporation, adopting an agreement or merger or
consolidation, recommending to the Stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets, recommending
to the Stockholders dissolution of the Corporation or a revocation of
dissolution, or amending these By-laws.
        
  SECTION 2.    Committee  Rules.   Unless the Board  of Directors otherwise
provides, each committee designated by the Board of Directors may adopt, amend
and repeal rules for the conduct of its business.  Reasonable notice of each
committee meeting (other than regularly scheduled meetings) shall be furnished
to all members of the committee.  A majority of the entire authorized number of
members of such committee shall constitute a quorum for the transaction of
business, the vote of a majority of the members present at a meeting at the
time of such vote if a
        
                                7

<PAGE>   11

quorum is then present shall be the act of such committee, and in other
respects each committee shall conduct its business in the same manner as the
Board of Directors conducts its business pursuant to Article III of these
By-laws.
        
                       Article V - OFFICERS

  SECTION 1.    Officers.  The Officers of the Corporation shall be a Chief
Executive Officer, a President, a Secretary, a Treasurer and a Controller.  The
Board of Directors may also, at its discretion, choose from among its members a
Chairman of the Board and a Vice Chairman of the Board.  The Corporation may
also have at the discretion of the Board of Directors, one or more Executive
Vice Presidents, one or more Senior Vice Presidents, one or more Vice
Presidents, or one or more Assistant Secretaries, one or more Assistant
Treasurers and one or more Assistant Controllers.  One person may hold two or
more offices.
        
  SECTION 2.    Election.   The Officers of the Corporation shall be elected 
by the Board of Directors and each shall hold his office until he shall resign
or shall be removed or otherwise disqualified to serve, or his successor shall
be elected and qualified.
        
  SECTION 3.    Removal and Resignation.   Any Officer may be removed, either
with or without cause, by a majority of the Directors at the time in  office,
at any regular or special meeting of the Board of Directors, or, except in the
case of an Officer chosen by the Board, by the Chief Executive Officer.
        
  Any Officer may resign at any time by giving written notice to the Board of
Directors, the Chief Executive Officer or the Secretary of the Corporation. 
Any such resignation shall take effect at the time of receipt of such notice or
at any later time specified therein; and, unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it effective.
        
  SECTION 4.    Vacancies.   A vacancy in any office because of death,
resignation, removal, disqualification or any other cause, shall be filled in
the manner prescribed in the By-laws for regular appointments to such office.
        
  SECTION 5.    Chairman of the Board.   The Chairman of the Board, if any, 
shall preside at all meetings of the Board of Directors and of the Stockholders
at which he shall be present and exercise and perform such powers and duties as
generally pertain to his office as well as such powers and duties as may be
from time to time assigned to him by the Board of Directors or prescribed by
the By-laws.   If so designated by the Board of Directors, the Chairman of the
Board shall be the Chief Executive Officer.
        
  SECTION 6.    Vice Chairman of the Board.   In the absence of the Chairman of
the Board, the Vice Chairman of the Board, if any, shall preside at all
meetings of the Board of Directors and of the Stockholders at which he shall be
present.  The Vice Chairman of the Board shall exercise such powers and duties
as generally pertain to his office as well as such powers and duties as may be
from time to time assigned to him by the Board of Directors or prescribed by
the By-laws.
        

                                8

<PAGE>   12

  SECTION 7.    Chief Executive Officer.   Subject to such supervisory powers, 
if any, as may be given by the Board of Directors to the Chairman of the Board
or the Vice Chairman of the Board, if there be such Officers, the Chief
Executive Officer shall have such powers and duties as generally pertain to his
office as well as general supervision, direction and control of the business
and affairs of the Corporation.
        
  SECTION 8.    President.   If the Chairman of the Board has not been 
designated as the Chief Executive Officer, the President shall be the Chief
Executive Officer with the powers and duties set forth in Section 7 of this
Article V.  If the Chairman of the Board has been so designated, the President
shall have such powers and duties as generally pertain to his office as well as
such powers and duties as from time to time may be prescribed by the Board of
Directors, the Chief Executive Officer or the By-laws.
        
  In the absence of the Chairman of the Board and of the Vice Chairman of the
Board, the President shall preside at all meetings of the Board of Directors
and of the Stockholders at which he shall be present.
        
  SECTION 9.    Executive Vice Presidents and Senior Vice Presidents.  The
Executive Vice Presidents and Senior Vice Presidents, if  any, shall have such
powers and perform such duties as generally pertain to their respective offices
as well as such powers and duties as from time to time may be prescribed by the
Board of Directors, the Chief Executive Officer or the By-laws.
        
  SECTION 10.   Vice Presidents.   The Vice Presidents, if any, shall have 
such powers and duties as generally pertain to their respective offices as well
as such powers and duties as from time to time may be prescribed by the Board
of Directors, the Chief Executive Officer or the By-laws.
        
  SECTION 11.   Secretary.   The Secretary shall keep, or cause to be kept, a 
book of minutes at the principal office of the Corporation or such other place
as the Board of Directors may order, of all meetings of the Board of Directors
and any committee thereof and of the Stockholders, with the time and place of
holding, whether regular or special, and, if special, how authorized, the
notice thereof given, the names of those present at Board of Directors' and
committee meetings, the number of shares present or represented at
Stockholders' meetings and the proceedings thereof.
        
  The Secretary shall keep, or cause to be kept, at the principal office of the
Corporation and at the office of the Corporation is transfer agent, if a
transfer agent shall be appointed, a stock ledger, or a duplicate stock ledger,
showing the names of the Stockholders and their addresses; the number and
classes of shares held by each; the number and date of certificates issued for
the same, and the number and date of cancellation of every certificate
surrendered for cancellation.
        
  The Secretary shall give, or cause to be given, notice of all the meetings of
the Stockholders and of the Board of Directors required by the By-laws or by
law to be given, and he shall keep the seal of the Corporation in safe custody,
and shall have such powers and duties as generally pertain to his office as
well as such powers and duties as may be prescribed by the Board of Directors,
the Chief Executive Officer or the By-laws.
        

                                9

<PAGE>   13

  SECTION 12.   Treasurer.   The Treasurer shall keep or cause to be kept full
and accurate records of all receipts and disbursements in the books of the
Corporation and shall have the care and custody of all funds and securities of
the Corporation.
        
  The Treasurer shall deposit all moneys and other valuables in the name and to
the credit of the Corporation with such depositaries as may be designated by
the Board of Directors. He shall disburse the funds of the Corporation as may
be ordered by the Board of Directors, shall render to the Chief Executive
Officer, the President and Directors, whenever they request it, an account of
all of his transactions as Treasurer and shall have such powers and duties as
generally pertain to his office as well as such powers and duties as may be
prescribed by the Board of Directors, the Chief Executive Officer or the
By-laws.
        
  SECTION 13.   Controller.   The Controller shall be the chief accounting
officer of the Corporation.  He shall keep or cause to be kept all books of
accounts and accounting records of the Corporation and shall keep and maintain,
or cause to be kept and maintained, adequate and correct accounts of the
properties and business transactions of the Corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
surplus and shares.  The books of account shall at all times be open to
inspection by any Director.  He shall prepare or cause to be prepared
appropriate financial statements for the Corporation and shall have such powers
and duties as generally pertain to his office as well as such powers and duties
as may be prescribed by the Board of Directors, the Chief Executive Officer or
the By-laws.
        
                          Article VI - MISCELLANEOUS

  SECTION 1.    Record Dates.   The Board of Directors may fix in advance a date
as a record date for the determination of the Stockholders entitled to notice
of and to vote at any meeting of Stockholders, or entitled to receive payment
of any dividend, or the allotment of rights, or the date when any change or
conversion or exchange of capital stock shall go into effect, or the date for
any other lawful action, and in such case such Stockholders, and only such
Stockholders as shall be Stockholders of record on the date so fixed, shall be
entitled to such notice of, and to vote at, such meeting and any adjournment
thereof, or to receive payment of such dividend, or to receive such allotment
of rights, or to exercise such rights, or to take such other action, as the
case may be, notwithstanding any transfer of any stock on the books of the
Corporation after any such record date fixed as aforesaid.
        
  SECTION 2.    Waiver of Notice of Meetings of Stockholders, Directors and
Committees.  Whenever notice is required to be given by  law or under any
provision of the Certificate of Incorporation or these By-laws, a written
waiver thereof, signed by the person entitled to notice, whether before or
after the time stated therein, shall be deemed equivalent to notice.
        
  SECTION 3.    Certificates of Stock.   A certificate for shares of the capital
stock of the Corporation shall be issued to each Stockholder when any such
shares are fully paid up.  All such certificates shall be signed by or in the
name of the Corporation by the Chief Executive Officer or the President or a
Vice President and the Secretary or an Assistant Secretary.  Any or all of the
        
                                10

<PAGE>   14
signatures on the certificates may be a facsimile. In case any Officer who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such Officer before such certificate is issued, it may be
issued by the Corporation with the same effect as if such person were such
Officer at the date of issue.
        
  SECTION 4.    Inspection of Stock Ledger.   The Secretary shall prepare and
make, at least ten (10) days before every meeting of Stockholders, a complete
list of the Stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each Stockholder and the number
of shares registered in the name of each Stockholder.  Such list shall be upon
to the examination of any Stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified  in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held.  The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any Stockholder who is present.
        
  SECTION 5.    Indemnification.   The Corporation shall indemnify to the full
extent authorized by law, whether by statute, court decision or otherwise, and
to the extent permitted by the Certificate of Incorporation, any person made or
threatened to be made a party to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
person or such person's testator or intestate is or was a Director, Officer or
employee of the Corporation or serves or served at the request of the
Corporation any other enterprise as a director, officer or employee.
        
Subject to the Certificate of Incorporation, expenses incurred by a Director or
Officer of the Corporation in defending a civil or criminal action, suit or
proceeding shall be paid by the Corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such Director or Officer to repay such amount if it shall ultimately
be determined that he is not entitled to be indemnified by the Corporation. 
Such expenses incurred by other employees may be so paid upon such terms and
conditions, if any, as the Board of Directors deems appropriate.
        
  For purposes of this Section 5, the term "Corporation" shall include, in
addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed by the Corporation in a
consolidation or merger; the term "other enterprise" shall include  any
corporation, partnership, joint venture, trust or employee benefit plan;
service "at the request of the Corporation" shall include service as a
Director, Officer or employee of the Corporation which imposes duties on, or
involves service by, such Director, Officer or employee with respect to an
employee benefit plan, its participants or beneficiaries; any excise taxes
assessed on a person with respect to an employee benefit plan shall be deemed
to be indemnifiable expenses; and action by a person with respect to any
employee benefit plan which such person reasonably believes to be in the
interest of the participants and beneficiaries of such plan shall be deemed to
be action not opposed to the best interests of the Corporation.
        





                                11

<PAGE>   15
                     Article VII - AMENDMENTS

  SECTION 1.    Adoption, Amendment or Repeal of By-laws.
By-laws may be made, adopted, altered or repealed by the vote of
Stockholders entitled to exercise a majority of the voting power
of the Corporation.  Subject to the right of Stockholders to
make, adopt, amend or repeal By-laws, By-laws may be made,
adopted, altered or repealed, at any time, by the Board of
Directors.



<PAGE>   1
                                      E X E C U T I O N   C O P Y


               EIGHTH AMENDMENT TO CREDIT AGREEMENT

          THIS EIGHTH AMENDMENT TO CREDIT AGREEMENT (this
"Amendment"), dated as of February 24, 1997, 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 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 and the Seventh Amendment to Credit
Agreement dated as of December 17, 1996 (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.  Amendment to Credit Agreement.

          A.   Section 9.2.4 of the Credit Agreement is hereby
amended by amending clause (b) thereof to read in its entirety as
follows:

          "(b) Interest Coverage Ratio.  The Company shall not
permit the Interest Coverage Ratio (i) for the one Fiscal Quarter
period ending March 31, 1996 to be less than 1.1 to 1.0, (ii) for
the two Fiscal Quarter period ending June 30, 1996 to be less
than 1.2 to 1.0, (iii)

                                1

<PAGE>   2

for the three Fiscal Quarter period ending September 30, 1996 to be less
than 0.5 to 1.0, (iv) for the four Fiscal Quarter period ending December
31, 1996 to be less than 0.3 to 1.0, (v) for the one Fiscal Quarter
period ending June 30, 1997 to be less than 0.2 to 1.0, (vi) for the two
Fiscal Quarter period ending September 30, 1997 to be less than 0.4 to
1.0, (vii) for the three Fiscal Quarter period ending December 31, 1997
to be less than 0.6 to 1.0 and (viii) for the four Fiscal Quarter period
ending on the last day of each of the Fiscal Quarters set forth below to
be less than the correlative ratio indicated:

     Date                                          Ratio
     ----                                          -----
     First Fiscal Quarter of 1998                 0.8 to 1.0
     Second Fiscal Quarter of 1998                1.2 to 1.0
     Third Fiscal Quarter of 1998                 1.6 to 1.0
     Fourth Fiscal Quarter of 1998                2.0 to 1.0
          and each Fiscal Quarter thereafter"

     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 "Eighth 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 Company and the Parent Guarantor
approving and authorizing the execution, delivery and performance
of this Amendment, certified by its corporate secretary or an
assistant secretary 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, Nessen,
Kamin & Frankel, in form and substance satisfactory to the Agent;
and

                                2


<PAGE>   3

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

          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 Eighth 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 Indentures 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.

                                3


<PAGE>   4

          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

                                4

<PAGE>   5

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 Eighth 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 set forth herein, the
terms, provisions and conditions of 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.

                                5


<PAGE>   6


KAISER ALUMINUM CORPORATION                 KAISER ALUMINUM & CHEMICAL
                                              CORPORATION

By:                                         By:
   -----------------------------                 -----------------------------
Name Printed: Karen A. Twitchell            Name Printed: Karen A. Twitchell
Its: Treasurer                              Its: Treasurer

BANKAMERICA BUSINESS CREDIT,                BANKAMERICA BUSINESS CREDIT,
  INC., as Agent                              INC.

By:                                         By:
   -----------------------------                ------------------------------
Name: Michael J. Jasaitis                   Name: Michael J. Jasaitis
Its: Vice President                         Its: Vice President


BANK OF AMERICA NATIONAL TRUST              THE CIT GROUP/BUSINESS
  AND SAVINGS ASSOCIATION                      CREDIT, INC.

By:                                         By:
   -----------------------------                -----------------------------
Name Printed:                               Name Printed:
             -------------------                          -------------------
Its:                                        Its:
    ----------------------------                -----------------------------

CONGRESS FINANCIAL CORPORATION              HELLER FINANCIAL, INC.
   (WESTERN)

By:                                         By:
   -----------------------------               -----------------------------
Name Printed:                               Name Printed:
             -------------------                         -------------------
Its:                                        Its:
    ----------------------------                 ---------------------------

LA SALLE NATIONAL BANK                      NATIONAL WESTMINSTER BANK
                                              PLC

By:                                         By:
   -----------------------------                ---------------------------
Name Printed:                               Name Printed:
             -------------------                         ------------------
Its:                                        Its:
    ----------------------------                ---------------------------

                                   6

<PAGE>   7

TRANSAMERICA BUSINESS CREDIT             ABN AMRO BANK N.V.
   CORPORATION


By:                                         By:
   -----------------------------                ----------------------------
Name Printed:                               Name Printed:
             -------------------                          ------------------
Its:                                        Its:
    ----------------------------                 ---------------------------


                                            By:
                                                ----------------------------
                                            Name Printed:
                                                          ------------------
                                            Its:
                                                 ---------------------------

ACKNOWLEDGED AND AGREED TO:

AKRON HOLDING CORPORATION                   KAISER ALUMINUM & CHEMICAL
                                              INVESTMENT, INC.

By:                                         By:
   ------------------------------               -----------------------------
Name Printed: Karen A. Twitchell            Name Printed: Karen A. Twitchell
Its: Treasurer                              Its: Treasurer

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

By:                                         By:
   ------------------------------               -----------------------------
Name Printed: Karen A. Twitchell            Name Printed: Karen A. Twitchell
Its: Treasurer                              Its: Treasurer

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

By:                                         By:
   ------------------------------               -----------------------------
Name Printed: Karen A. Twitchell            Name Printed: Karen A. Twitchell
Its: Treasurer                              Its: Treasurer

KAISER ALUMINA AUSTRALIA                    KAISER FINANCE CORPORATION
  CORPORATION

By:                                         By:
   ------------------------------               -----------------------------
Name Printed: Karen A. Twitchell            Name Printed: Karen A. Twitchell
Its: Treasurer                              Its: Treasurer


                                   7


<PAGE>   8
ALPART JAMAICA INC.                         KAISER JAMAICA CORPORATION

By:                                         By:
   -------------------------------              -----------------------------
Name Printed: Karen A. Twitchell            Name Printed: Karen A. Twitchell
Its: Treasurer                              Its: Treasurer

KAISER BAUXITE COMPANY                      KAISER EXPORT COMPANY

By:                                         By:
   -------------------------------              -----------------------------
Name Printed: Karen A. Twitchell            Name Printed: Karen A. Twitchell
Its: Treasurer                              Its: Treasurer

KAISER MICROMILL HOLDINGS, LLC              KAISER SIERRA MICROMILLS, LLC

By:                                         By:
   -------------------------------              ------------------------------
Name Printed: Karen A. Twitchell            Name Printed: Karen A. Twitchell
Treasurer of Kaiser Aluminum                Its: Treasurer
& Chemical Corporation

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

By:                                         By:
   -------------------------------              ------------------------------
Name Printed: Karen A. Twitchell            Name Printed: Karen A. Twitchell
Its: Treasurer                              Its: Treasurer



                                   8




<PAGE>   1
                                                                      EXHIBIT 11

             KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
    COMPUTATION OF EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
              (In millions of dollars, except per share amounts)




<TABLE>
<CAPTION>
                                                                                             Year Ended December 31,
                                                                                       ------------------------------------
                                                                                         1996           1995         1994
                                                                                       --------      ---------     --------
<S>                                                                                    <C>           <C>           <C>      
Primary:
   Earnings:
      Income (loss) before extraordinary loss and cumulative effect of changes
        in accounting principles                                                       $    8.2      $    60.3     $ (101.4)
      Dividends on preferred stock:
        Series A Shares                                                                                   (9.1)       (12.6)
        PRIDES                                                                             (8.4)          (8.5)        (7.5)
                                                                                       --------      ---------     --------
      Income (loss) available to common shareholders before extraordinary loss             (0.2)          42.7       (121.5)
      Extraordinary loss - net                                                                                         (5.4)
                                                                                       --------      ---------     --------
      Net income (loss) available to common shareholders                               $    (.2)     $    42.7     $ (126.9)
                                                                                       ========      =========     ======== 

   Shares (000):
      Weighted average common shares outstanding                                         71,644         58,267       58,139
      Weighted average shares arising from redemption of Series A Shares                                 3,705
      Weighted average shares arising from conversion of PRIDES                                             29
      Assuming exercise of nonqualified stock options                                                      263
                                                                                       --------      ---------     --------
      Weighted average common and common equivalent shares                               71,644         62,264       58,139
                                                                                       ========      =========     ======== 

   Primary earnings (loss) per common and common equivalent share:
      Income (loss) before extraordinary loss and cumulative effect of changes
        in accounting principles                                                       $    .00      $     .69     $  (2.09)
      Extraordinary loss                                                                                               (.09)
                                                                                       --------      ---------     --------
      Net income (loss)                                                                $    .00      $     .69     $  (2.18)
                                                                                       ========      =========     ======== 

Fully diluted:(1)
   Earnings:
      Income
 before extraordinary loss                                                               $    60.3
      Dividends on PRIDES                                                                                 (8.5)

                                                                                                     ---------
      Net income available to common and common equivalent shareholders                              $    51.8
                                                                                                     =========

   Shares (000):
      Weighted average common shares outstanding                                                        58,267
      Additional shares arising from redemption of Series A Shares                                      13,127
      Additional shares arising from conversion of PRIDES                                                  151
      Assuming exercise of nonqualified stock options                                                      264
                                                                                                     ---------
      Weighted average common and common equivalent shares                                              71,809
                                                                                                     =========

                                                                                                     =========
Fully diluted earnings per common and common equivalent share                                        $     .72
                                                                                                     =========
</TABLE>



(1)   As a result of the redemption of the Series A Shares and conversion of
      181,700 shares of PRIDES during the 1995 period, fully diluted earnings
      per share are presented for such period, even though the result is
      antidilutive. For the 1996 and 1994 periods, common equivalent shares
      attributable to the preferred stock and non-qualified stock options were
      excluded from the calculation of weighted average shares because they
      were antidilutive.



<PAGE>   1

                                                                     EXHIBIT 13


TABLE OF CONTENTS


<TABLE>                                                        
<S>                                                                   <C>
Management's Discussion and Analysis of Financial                     
  Condition and Results of Operations                                 12
                                                                      
Report of Independent Public Accountants                              21
                                                                      
Consolidated Balance Sheets                                           22
                                                                      
Statements of Consolidated Income (Loss)                              23
                                                                      
Statements of Consolidated Cash Flows                                 24
                                                                      
Notes to Consolidated Financial Statements                            25
                                                                      
Five-Year Financial Data                                              46
                                                                      
Quarterly Financial Data (Unaudited)                                  48
</TABLE>


<PAGE>   2
Kaiser Aluminum Corporation and Subsidiary Companies

Management's Discussion and Analysis of Financial Condition and Results of
Operations

Kaiser Aluminum Corporation ("Kaiser" or the "Company"), through its wholly
owned subsidiary, Kaiser Aluminum & Chemical Corporation ("KACC"), operates in
two business segments: bauxite and alumina, and aluminum processing. 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 facilities. Intracompany shipments and sales are excluded from the
information set forth in the table below. The table below provides selected
operational and financial information on a consolidated basis with respect to
the Company for the years ended
 December 31, 1996, 1995, and 1994. The
following should be read in conjunction with the Company's consolidated
financial statements and the notes thereto, contained elsewhere herein.


<TABLE>
<CAPTION>
                                                                                        Year Ended December 31,
                                                                                 ---------------------------------
(In millions of dollars, except shipments and prices)                                1996         1995        1994
- ------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>          <C>         <C>
Shipments: (000 tons)(1)
   Alumina                                                                        2,073.7      2,040.1     2,086.7
   Aluminum products:
      Primary aluminum                                                              355.6        271.7       224.0
      Fabricated aluminum products                                                  327.1        368.2       399.0
                                                                                 --------     --------    --------
         Total aluminum products                                                    682.7        639.9       623.0
                                                                                 ========     ========    ========

Average realized sales price:
   Alumina (per ton)                                                             $    195     $    208    $    169
   Primary aluminum (per pound)                                                       .69          .81         .59

Net sales:
   Bauxite and alumina:
      Alumina                                                                    $  404.1     $  424.8    $  352.8
      Other(2)(3)                                                                   103.9         89.4        79.7
                                                                                 --------     --------    --------
         Total bauxite and alumina                                                  508.0        514.2       432.5
                                                                                 --------     --------    --------

   Aluminum processing:
      Primary aluminum                                                              538.3        488.0       292.0
      Fabricated aluminum products                                                1,130.4      1,218.6     1,043.0
      Other(3)                                                                       13.8         17.0        14.0
                                                                                 --------     --------    --------
         Total aluminum processing                                                1,682.5      1,723.6     1,349.0
                                                                                 --------     --------    --------
           Total net sales                                                       $2,190.5     $2,237.8    $1,781.5
                                                                                 ========     ========    ========

Operating income (loss):
   Bauxite and alumina                                                           $    1.1     $   54.0    $   19.8
   Aluminum processing                                                              156.5        238.9        (8.4)
   Corporate                                                                        (59.8)       (82.3)      (67.6)
                                                                                 --------     --------    --------
      Total operating income (loss)                                              $   97.8     $  210.6    $  (56.2)
                                                                                 ========     ========    ========
Net income (loss)(4)                                                             $    8.2     $   60.3    $ (106.8)
                                                                                 ========     ========    ========

Capital expenditures:
   Property, plant, and equipment                                                $  160.3     $   79.4    $   70.0
   Investments in unconsolidated affiliates                                           1.2          9.0
                                                                                 --------     --------    --------
      Total capital expenditures                                                 $  161.5     $   88.4    $   70.0
                                                                                 ========     ========    ========
</TABLE>



(1)   All references to tons refer to metric tons of 2,204.6 pounds.
(2)   Includes net sales of bauxite.
(3)   Includes the portion of net sales attributable to minority interests in
      consolidated subsidiaries.
(4)   Includes extraordinary loss on early extinguishment of debt of $5.4, net
      of tax benefit of $2.9, in 1994.



12 KAISER ALUMINUM CORPORATION 1996 ANNUAL REPORT

<PAGE>   3

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 "Overview,"
"Profit Enhancement and Cost Reduction Initiative," "Results of Operations,"
"Financial Condition and Liquidity," "Income Tax Matters" and "Recent
Accounting Pronouncements"). 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 the Company's Annual Report on Form 10-K each identify other
factors that could cause such differences. 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.

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 KACC's
hedging strategies. Primary aluminum prices have historically been subject to
significant cyclical price fluctuations. See Notes 1 and 9 of the Notes to
Consolidated Financial Statements for a discussion of KACC's hedging
activities.

During the first half of 1996, the Average Midwest United States transaction
price ("AMT Price") for primary aluminum remained relatively stable in the $.75
per pound range. However, during the second half of the year the AMT Price
fell, reaching a low of $.65 per pound for October 1996, before recovering late
in the year. During 1995, the AMT Price for primary aluminum was approximately
$.86 per pound compared to $.72 and $.54 per pound in 1994 and 1993,
respectively.  The AMT Price for primary aluminum for the week ended February
14, 1997, was approximately $.75 per pound.

The significant improvement in prices during 1994 and 1995 resulted from strong
growth in Western world consumption of aluminum and the curtailment of
production in response to lower prices in prior periods by many producers
worldwide. In 1995, production of primary aluminum increased and consumption of
aluminum continued to grow, but at a much lower rate than in 1994. In general,
the overall aluminum market was strongest in the first half of 1995. By the
second half of 1995, orders and shipments for certain products had softened and
the rate of decline in London Metal Exchange ("LME") inventories had leveled
off. By the end of 1995, some small increases in LME inventories occurred, and
prices of aluminum weakened from first-half levels. This trend continued
throughout most of 1996. Net reported primary aluminum inventories increased by
approximately 62,000 tons in 1996 based upon reports of the LME and the
International Primary Aluminium Institute ("IPAI"), following substantial
declines of 764,000 and 1,153,000 tons in 1994 and 1995, respectively.

Increased production of primary aluminum due to restarts of certain previously
idled capacity, the commissioning of a major new smelter in South Africa, and
the continued high level of exports from the Commonwealth of Independent States
("CIS") contributed to increased supplies of primary aluminum to the Western
world in 1996. While the economies of the major aluminum consuming regions--the
United States, Japan, Western Europe, and Asia--are, in the aggregate,
performing relatively well, the Company believes that the reduction of aluminum
inventories by customers, as prices have continued to decline, has mitigated
the growth in primary aluminum demand that normally accompanies growth in
economic and industrial activity.





                               KAISER ALUMINUM CORPORATION 1996 ANNUAL REPORT 13

<PAGE>   4
Kaiser Aluminum Corporation and Subsidiary Companies


Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)

PROFIT ENHANCEMENT AND COST REDUCTION INITIATIVE

The Company has set a goal of achieving significant cost reduction and other
profit improvements during 1997, with the full effect planned to be realized in
1998. The initiative is based on the Company's conclusion that the current
level of performance of its existing facilities and businesses will not achieve
the level of profits the Company considers satisfactory based upon historic
long-term average prices for primary aluminum and alumina. To achieve this
goal, the Company plans reductions in production costs, decreases in corporate
selling, general and administrative expenses, and enhancements to product mix.
There can be no assurance that the initiative will result in the desired cost
reduction and other profit improvements.

RESULTS OF OPERATIONS

1996 AS COMPARED TO 1995

Summary--For the year ended December 31, 1996, the Company's net income was
$8.2 million, or $.00 per common and common equivalent share, compared to net
income of $60.3 million, or $.69 per common and common equivalent share, in
1995. Net sales for 1996 were $2,190.5 million, compared to $2,237.8 million in
1995. Results for the year ended December 31, 1996, include an after tax
benefit of approximately $17.0 million resulting from settlements of certain
tax matters in December 1996. Excluding the impact of these non-recurring
items, the Company would have reported a net loss for the year ended December
31, 1996.

Results for the year ended December 31, 1996, reflect the substantial reduction
in market prices for primary aluminum more fully discussed above. Alumina
prices, which are significantly influenced by changes in primary aluminum
prices, also declined from period to period. The decrease in product prices
more than offset the positive impact of increases in shipments in several
segments of the Company's business, as more fully discussed below. Results for
1996 also include approximately $20.5 million in research and development
expenses and other costs related to the Company's new Micromill, as well as
additional expenses related to other strategic initiatives.

Results for 1995 include approximately $17.0 million of first quarter 1995
pre-tax expenses associated with an eight-day strike at five major U.S.
locations, a six-day strike at the Company's 65% owned Alumina Partners of
Jamaica ("Alpart") bauxite mining and alumina refinery in Jamaica, and a
four-day disruption of alumina production at Alpart caused by a boiler failure.

Bauxite and Alumina--Net segment sales for 1996 were basically unchanged from
1995 as a nominal decline in the average realized price of alumina was offset
by a modest increase in alumina shipments. The reduction in prices realized
reflects the substantial decline in primary aluminum prices experienced in 1996
discussed above.

Operating income for this segment of the Company's business declined
significantly from prior year periods as a result of reduced gross margins from
alumina sales resulting from the previously discussed price declines and
increased natural gas costs at the Company's Gramercy, Louisiana, alumina
refinery. Operating income for the year ended December 31, 1996, was also
unfavorably impacted by high operating costs associated with disruptions in the
power supply at the Company's Alpart alumina refinery, higher manufacturing
costs resulting from higher market prices for fuel and caustic soda, and a
temporary raw material quality problem experienced at the Company's Gramercy
facility during the second quarter of 1996.

Aluminum Processing--An increase in primary aluminum shipments in 1996 of 31%
more than offset a 15% decline in the average realized price for primary
aluminum from period to period. The increase in shipments during the year ended
December 31, 1996, was the result of increased shipments of primary aluminum to
third parties as a result of a decline in intracompany transfers.

Net sales of fabricated aluminum products were down 7% for the year ended
December 31, 1996, as compared to the prior year as a result of a decrease in
shipments (primarily related to can sheet activities) resulting from reduced





14 KAISER ALUMINUM CORPORATION 1996 ANNUAL REPORT

<PAGE>   5
growth in demand and the reduction of customer inventories. The impact of
reduced product shipments was to a limited degree offset by a 4% increase in
the average realized price from the sale of fabricated aluminum products,
resulting primarily from a shift in product mix to higher value added products.

Operating income for the aluminum processing segment for the year was also
impacted by approximately $5.6 million of scheduled non-recurring maintenance
costs at the Company's Trentwood, Washington, rolling mill facility in the
fourth quarter of 1996, offset by $11.5 million ($7.2 on an after-tax basis) of
reduced operating costs resulting from the non-cash settlement in December
1996 of certain tax matters.

Corporate--Corporate operating expenses represent corporate general and
administrative expenses which are not allocated to the Company's business
segments. A substantial portion of the 1996 reduction in operating losses of
the corporate segment as compared to 1995 is due to reduced incentive
compensation accruals resulting from the decline in earnings from the prior
year period. Reduced post employment benefit plan and pension plan costs also
contributed to the 1996 reduction.

1995 AS COMPARED TO 1994

Summary--The Company reported net income of $60.3 million or $.69 per common
and common equivalent share ($.72 on a fully diluted basis) in 1995, compared
with a net loss of $106.8 million or $2.18 per common and common equivalent
share in 1994. The principal reason for the improvement in 1995 compared to
1994 was the improvement in operating results previously described, partially
offset by other charges, principally related to the establishment of additional
litigation reserves.

Improved operating results in 1995 were partially offset by expenses related to
the Company's smelting joint venture in China, accelerated expenses for the
Company's Micromill technology, maintenance expenses as a result of an
electrical lightning strike at the Company's Trentwood, Washington, facility,
and a work slowdown at the Company's 49%-owned Kaiser Jamaica Bauxite Company
prior to the signing of a new labor contract. The combined impact of these
expenditures on the results for 1995 was approximately $6.0 million in the
aggregate (on a pre-tax basis). Operating results in 1995 were further impacted
by (i) an eight-day strike at five major domestic locations by the United
Steelworkers of America ("USWA"), (ii) a six-day strike by the National Workers
Union at Alpart, and (iii) a four-day disruption of alumina production at
Alpart caused by a boiler failure. The combined impact of these events on the
results for 1995 was approximately $17.0 million in the aggregate (on a pre-tax
basis), principally from lower production volume and other related costs.

Bauxite and Alumina--Net sales to third parties for the bauxite and alumina
segment were 19% higher in 1995 than in 1994. Revenue from alumina increased
20% in 1995 from 1994, due to higher average realized prices partially offset
by lower shipments. The remainder of the segment's sales revenues were from
sales of bauxite and the portion of sales of alumina attributable to the
minority interest at Alpart.

This segment's operating income was $54.0 million in 1995, compared with $19.8
million in 1994. The increase in operating income in 1995 compared with 1994
was principally due to higher revenue, partially offset by the effect of the
strike and boiler failure.

Aluminum Processing--Net sales to third parties for the aluminum processing
segment were 28% higher in 1995 than in 1994. The bulk of the segment's sales
represents Kaiser's primary aluminum and fabricated aluminum products, with the
remainder representing the portion of sales of primary aluminum attributable to
the minority interest in the Company's 90%-owned Volta Aluminium Company
Limited ("Valco") aluminum smelter in Ghana. Revenue from primary aluminum
increased 67% in 1995 from 1994, due primarily to higher average realized
prices and higher shipments. In 1995, the Company's average realized price from
sales of primary aluminum was approximately $.81 per pound, as compared to the
AMT Price of approximately $.86 per pound during the year. Average realized
prices in 1994 reflected the defensive hedging of primary aluminum prices in
respect of 1994 shipments,





                               KAISER ALUMINUM CORPORATION 1996 ANNUAL REPORT 15

<PAGE>   6
Kaiser Aluminum Corporation and Subsidiary Companies

Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)

which was initiated prior to the then-recent improvements in metal prices. The
higher shipments of primary aluminum in 1995 were due to increased production
at the Company's smelters in the Pacific Northwest and Valco, and reduced
intracompany consumption of primary metal at the Company's fabricated products
units. Shipments in 1994 reflected production curtailments at the Company's
smelters in the Pacific Northwest and Valco. Shipments of primary aluminum to
third parties were approximately 42% of total aluminum products shipments in
1995, compared with approximately 36% in 1994. Revenue from fabricated aluminum
products increased 17% in 1995 from 1994, due to higher average realized prices
partially offset by lower shipments for most of these products.

The increase in net sales for 1995 was partially offset by decreased shipments
caused by the strike by the USWA discussed above.

This segment's operating income was $238.9 million in 1995, compared with a
loss of $8.4 million in 1994. Improvement in operating results in 1995 compared
with 1994 was principally due to higher revenue, partially offset by the effect
of the strike by the USWA.

Corporate--Corporate operating expenses represent corporate general and
administrative expenses that were not allocated to segments.

LIQUIDITY AND CAPITAL RESOURCES

See Note 4 of the Notes to Consolidated Financial Statements for a listing of
the Company's indebtedness and information concerning certain restrictive debt
covenants.

OPERATING ACTIVITIES

Cash provided by operating activities was $21.9 million in 1996 as compared to
$118.7 million in 1995. In 1994, $22.1 million of cash was used by operating
activities. The reduction in cash generated by operating activities from 1995
to 1996 is primarily due to lower earnings resulting from the reduction in
prices realized by the Company from the sale of primary aluminum and alumina.
The improvement in cash flows from operating activities in 1995 compared with
1994 was primarily due to higher earnings resulting from increased product
prices and a refund of margin deposits of $50.5 million under certain hedging
contracts.

At December 31, 1996, the Company had working capital of $414.3 million,
compared with working capital of $331.7 million at December 31, 1995. The
increase in working capital was due primarily to an increase in Cash and cash
equivalents as a result of the debt offerings discussed below.

INVESTING ACTIVITIES

The Company's capital expenditures of $319.9 million during the three years
ended December 31, 1996 (of which $23.2 million was funded by the Company's
minority partners in certain foreign joint ventures) were made primarily to
construct new facilities, improve production efficiency, reduce operating
costs, and expand capacity at existing facilities. Total consolidated capital
expenditures were $161.5 million in 1996, compared with $88.4 million in 1995
and $70.0 million in 1994 (of which $7.4, $8.3, and $7.5 million were funded by
the minority partners in certain foreign joint ventures in 1996, 1995, and
1994, respectively). A substantial portion of the increase in capital
expenditures in 1996 over prior years levels is attributable to the development
and construction of the Company's proprietary Micromill technology for the
production of can sheet from molten metal. The first Micromill, which was
constructed in Nevada during 1996 as a demonstration and production facility,
achieved operational start-up by year-end 1996. The Company expects that the
Nevada Micromill will be in a start-up mode for the first half of 1997 and will
be able to commence limited product shipments to customers in the second half
of the year. Total consolidated capital expenditures are expected to be between
$70.0 and $140.0 million per annum in each of 1997 through 1999 (of which
approximately 7% 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 require substantial capital, both in the United States
and overseas.





16 KAISER ALUMINUM CORPORATION 1996 ANNUAL REPORT

<PAGE>   7
In 1995, Kaiser Yellow River Investment Limited ("KYRIL"), a subsidiary of the
Company, entered into a joint venture agreement and related agreements (the
"Joint Venture Agreements") with the Lanzhou Aluminum Smelters ("LAS") of the
China National Nonferrous Metals Industry Corporation relating to the formation
and operation of Yellow River Aluminum Industry Company Limited, a Sino-foreign
joint equity enterprise (the "Joint Venture") organized under the laws of the
People's Republic of China ("PRC"). KYRIL contributed $9.0 million to the
capital of the Joint Venture in July 1995. The parties to the Joint Venture are
currently engaged in discussions concerning the future of the Joint Venture.
Governmental approval in the PRC will be necessary in order to implement any
arrangements agreed to by the parties, and there can be no assurance such
approvals will be obtained. At a meeting of the board of directors of the Joint
Venture held on January 16, 1997, LAS reported that negotiations had begun with
an investor regarding the possible purchase of KYRIL's interest in the Joint
Venture. Based on such report, the Joint Venture directors adopted a resolution
that, among other things, (i) extended until June 30, 1997, discussions
concerning the future of the Joint Venture, (ii) provided that KYRIL grant to
LAS the right to seek a buyer to purchase KYRIL's equity interest in the Joint
Venture, and (iii) provided that if a buyer to purchase KYRIL's equity interest
in the Joint Venture was not found by June 30, 1997, the Joint Venture would be
terminated and dissolved.

FINANCING ACTIVITIES AND LIQUIDITY

On February 17, 1994, the Company and KACC entered into a five year credit
agreement (as amended, the "Credit Agreement") under which KACC is able to
borrow by means of revolving credit advances and letters of credit (up to
$125.0 million) in an aggregate amount equal to the lesser of $325.0 million or
a borrowing base relating to eligible accounts receivable plus eligible
inventory. As of February 14, 1997, $271.9 million (of which $71.9 million
could have been used for letters of credit) was available to KACC under the
Credit Agreement. The Credit Agreement is unconditionally guaranteed by the
Company and by certain significant subsidiaries of KACC. The Credit Agreement
requires KACC to maintain certain financial covenants and places restrictions
on the Company's and KACC's ability to, among other things, incur debt and
liens, make investments, pay dividends, undertake transactions with affiliates,
make capital expenditures, and enter into unrelated lines of business. The
Credit Agreement is secured by, among other things, (i) mortgages on KACC's
major domestic plants (excluding KACC's Gramercy alumina plant and Nevada
Micromill); (ii) subject to certain exceptions, liens on the accounts
receivable, inventory, equipment, domestic patents and trademarks, and
substantially all other personal property of KACC and certain of its
subsidiaries; (iii) a pledge of all the stock of KACC owned by Kaiser; and (iv)
pledges of all of the stock of a number of KACC's wholly owned domestic
subsidiaries, pledges of a portion of the stock of certain foreign
subsidiaries, and pledges of a portion of the stock of certain partially owned
foreign affiliates.

During the fourth quarter of 1996, KACC sold a total of $225.0 million
principal amount of two separate series of 10-7/8% Senior Notes due 2006 (the
"10-7/8% Notes") in separate transactions. A net premium of $.9 million was
realized from the issuance of the 10-7/8% Notes. The 10-7/8% Notes rank pari
passu in right and priority of payment with the indebtedness under the Credit
Agreement and KACC's 9-7/8% Senior Notes due 2002 (the "9-7/8% Notes") and are
guaranteed on a senior, unsecured basis by certain of KACC's subsidiaries.

The indentures governing the 9-7/8% Notes, the 10-7/8% Notes and KACC's 12-3/4%
Senior Subordinated Notes due 2003 (the "12-3/4% Notes") (collectively, the
"Indentures") restrict, among other things, KACC's ability to incur debt and
liens, make investments, undertake transactions with affiliates, and pay
dividends. Further, the Indentures provide that KACC must offer to purchase the
9-7/8% Notes, the 10-7/8% Notes and the 12-3/4% Notes, respectively, upon the
occurrence of a Change of Control (as defined therein), and the Credit
Agreement provides that the occurrence of a Change in Control (as defined
therein) shall constitute an Event of Default thereunder.

As of December 31, 1996, the Company's total consolidated indebtedness was
$961.9 million and $269.7 million of borrowing capacity was unused under the
revolving credit facility of the Credit Agreement. During the year ended
December 31, 1996, total borrowings and repayments under the revolving credit
facility of the Credit Agreement were $464.3 million and $477.4 million,
respectively. During the year ended December 31, 1995, total





                               KAISER ALUMINUM CORPORATION 1996 ANNUAL REPORT 17

<PAGE>   8
Kaiser Aluminum Corporation and Subsidiary Companies

Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)

borrowings and repayments under the revolving credit facility of the Credit
Agreement were $532.2 million and $525.8 million, respectively.

Management believes that the Company's existing cash resources, together with
cash flows from operations and borrowings under the Credit Agreement, will be
sufficient to satisfy its working capital and capital expenditure requirements
for the next year. With respect to long-term liquidity, management believes
that operating cash flows, together with the ability to obtain both short and
long-term financing, should provide sufficient funds to meet the Company's
working capital and capital expenditure requirements.

CAPITAL STRUCTURE

MAXXAM Inc. ("MAXXAM") and one of its wholly owned subsidiaries collectively
own approximately 62% of the Company's Common Stock, par value $.01 per share,
assuming the conversion of each outstanding share of the Company's 8.255%
PRIDES, Convertible Preferred Stock (the "PRIDES") into one share of the
Company's Common Stock. The remaining approximately 38% of the Company's Common
Stock is publicly held.

MAXXAM Group Holdings Inc. ("MGHI"), a wholly owned subsidiary of MAXXAM, has
pledged 27,938,250 shares of the Company's Common Stock beneficially owned by
it (the "Pledged Shares") as security for $225.7 million of debt securities of
one of its wholly owned subsidiaries. Additionally, MGHI has agreed to pledge
up to 16,055,000 of such Pledged Shares as security for $130.0 million of its
debt securities should the MAXXAM security pledge be released due to an early
retirement of the related debt (other than by a refinancing).

The Company has an effective "shelf" registration statement covering the
offering of up to 10,000,000 shares of the Company's Common Stock that are
owned by MAXXAM. Any such offering will only be made by means of a prospectus.
The Company will not receive any of the net proceeds from any transaction
initiated by MAXXAM pursuant to this registration statement.

The Company also has an effective shelf registration statement covering the
offering from time to time of up to $150.0 million of equity securities. Any
such offering will only be made by means of a prospectus.

On December 31, 1997, unless either previously redeemed by the Company or
converted at the option of the holder, each of the outstanding shares of PRIDES
will mandatorily convert into one share of the Company's Common Stock, subject
to adjustment in certain events.

The Credit Agreement does not permit the Company or KACC to pay any dividends
on their common stock. The declaration and payment of dividends by the Company
with respect to the outstanding PRIDES is expressly permitted by the terms of
the Credit Agreement to the extent the Company receives payments on certain
intercompany notes or certain other permitted distributions from KACC.

In February 1996, the Company filed a preliminary proxy statement relating to a
proposed recapitalization and a special meeting of stockholders to consider and
vote upon the proposal with the Securities and Exchange Commission ("SEC"). The
proposed recapitalization would have provided for two separate classes of
common stock with different voting rights, but was ultimately abandoned as a
result of an unfavorable court ruling in a suit that had challenged the
proposal.

See Note 7 of the Notes to Consolidated Financial Statements.

ENVIRONMENTAL CONTINGENCIES

The Company and KACC are subject to a number of environmental laws, to fines or
penalties assessed for alleged breaches of the environmental laws, and to
claims and litigation based upon such laws. KACC currently is subject to a
number of lawsuits under the Comprehensive Environmental Response, Compensation
and Liability Act of





18 KAISER ALUMINUM CORPORATION 1996 ANNUAL REPORT

<PAGE>   9
1980, as amended by the Superfund Amendments Reauthorization Act of 1986
("CERCLA"), and, along with certain other entities, has been named as a
potentially responsible party for remedial costs at certain third-party sites
listed on the National Priorities List under CERCLA.

Based on the Company's evaluation of these and other environmental matters, the
Company has established environmental accruals, primarily related to potential
solid waste disposal and soil and groundwater remediation matters. At December
31, 1996, the balance of such accruals, which are primarily included in
Long-term liabilities, was $33.3 million. 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 $3.0 to $9.0
million for the years 1997 through 2001 and an aggregate of approximately $6.0
million thereafter.

As additional facts are developed and definitive remediation plans and
necessary regulatory approvals for implementation of remediation are
established or alternative technologies are developed, changes in these and
other factors may result in actual costs exceeding the current environmental
accruals. 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 $24.0 million
and that, subject to further regulatory review and approval, the factors upon
which a substantial portion of this estimate is based are expected to be
resolved over the next twelve months.  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. See Note 8 of the Notes to Consolidated
Financial Statements for further description of these contingencies.

ASBESTOS CONTINGENCIES

KACC 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 KACC or exposure to products
containing asbestos produced or sold by KACC. The lawsuits generally relate to
products KACC has not manufactured for at least 15 years. At December 31, 1996,
the number of such claims pending was approximately 71,100, as compared with
59,700 at December 31, 1995. In 1996, approximately 21,100 of such claims were
received and 9,700 were settled or dismissed.

A substantial portion of the asbestos-related claims that were filed and served
on KACC during 1995 and 1996 were filed in Texas. KACC has been advised by its
counsel that, although there can be no assurance, the increase in pending
claims may have been attributable in part to tort reform legislation in Texas.
Although asbestos-related claims are currently exempt from certain aspects of
the Texas tort reform legislation, management has been advised that efforts to
remove the asbestos-related exemption in the tort reform legislation relating
to the doctrine of forum non conveniens, as well as other developments in the
legislative and legal environment in Texas, may be responsible for the
accelerated pace of new claims experienced in late 1995 and its continuance in
1996, albeit at a somewhat reduced rate.

Based on past experience and reasonably anticipated future activity the Company
has established an accrual for estimated asbestos-related costs for claims
filed and estimated to be filed through 2008. There are inherent uncertainties
involved in estimating asbestos-related costs, and the Company's actual costs
could exceed or be less than these estimates. The Company's accrual was
calculated based on the current and anticipated number of asbestos-related
claims, the prior timing and amounts of asbestos-related payments, and the
advice of Wharton Levin Ehrmantraut Klein & Nash, P.A. with respect to the
current state of the law related to asbestos claims. Accordingly, an estimated
asbestos-related cost accrual of $136.7 million, before consideration of
insurance recoveries, is





                               KAISER ALUMINUM CORPORATION 1996 ANNUAL REPORT 19

<PAGE>   10
Kaiser Aluminum Corporation and Subsidiary Companies

Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)

included primarily in Long-term liabilities at December 31, 1996. While the
Company does not presently believe there is a reasonable basis for estimating
such costs beyond 2008 and, accordingly, no accrual has been recorded for such
costs which may be incurred beyond 2008, there is a reasonable possibility that
such costs may continue beyond 2008, and such costs may be substantial. The
Company estimates that annual future cash payments in connection with such
litigation will be approximately $8.0 to $17.0 million for each of the years
1997 through 2001, and an aggregate of approximately $80.0 million thereafter.

The Company believes that KACC has insurance coverage available to recover a
substantial portion of its asbestos-related costs. Claims for recovery from
some of KACC's insurance carriers are currently subject to pending litigation
and other carriers have raised certain defenses, which have resulted in delays
in recovering costs from the insurance carriers.  The timing and amount of
ultimate recoveries from these insurance carriers are dependent upon the
resolution of these disputes. The Company believes, based on prior
insurance-related recoveries in respect of asbestos-related claims, existing
insurance policies, and the advice of Thelen, Marrin, Johnson & Bridges LLP
with respect to applicable insurance coverage law relating to the terms and
conditions of those policies, that substantial recoveries from the insurance
carriers are probable. Accordingly, an estimated aggregate insurance recovery
of $109.8 million, determined on the same basis as the asbestos-related cost
accrual, is recorded primarily in Other assets at December 31, 1996.

Management continues to monitor claims activity, the status of lawsuits
(including settlement initiatives), legislative progress, 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. 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, results of operations, or liquidity. See Note
8 of the Notes to Consolidated Financial Statements for further description of
this contingency.

INCOME TAX MATTERS

The Company's net deferred income tax assets as of December 31, 1996, were
$309.2 million, net of valuation allowances of $127.2 million. The Company
believes a long-term view of profitability is appropriate and has concluded
that this net deferred income tax asset will more likely than not be realized.
See Note 5 of the Notes to Consolidated Financial Statements for a discussion
of these and other income tax matters.

RECENT ACCOUNTING PRONOUNCEMENTS

In October 1996 the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position No. 96-1 ("SOP 96-1") which provides
authoritative guidance intended to improve and narrow the manner in which
existing accounting literature is applied to the recognition, measurement,
display, and disclosure of environmental remediation liabilities arising
pursuant to existing federal, state and local laws and regulations. SOP 96-1
addresses the nature of items that are to be included in the measurement of a
company's liability related to any environmental remediation efforts it is
currently undertaking or required to complete in the future. In this regard,
SOP 96-1 requires that all incremental direct third party costs, as well as any
internal compensation costs (including benefits) for employees expected to
devote a significant amount of time directly to remediation efforts, should be
included in the determination of the estimated liability. The term "remediation
effort" is defined in SOP 96-1 to include such things as remedial risk
assessment, feasibility studies and operations and maintenance associated with
corrective actions. SOP 96-1 must be adopted in the first quarter of 1997. The
adoption of SOP 96-1 is not currently expected to have a material impact on the
Company's financial position or results of operations.





20 KAISER ALUMINUM CORPORATION 1996 ANNUAL REPORT

<PAGE>   11

Report of Independent Public Accountants

To the Stockholders and the Board of Directors of Kaiser Aluminum Corporation:

We have audited the accompanying consolidated balance sheets of Kaiser Aluminum
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1996
and 1995, and the related statements of consolidated income (loss) and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Kaiser Aluminum Corporation
and subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.



                                                          ARTHUR ANDERSEN LLP

Houston, Texas

February 14, 1997






                               KAISER ALUMINUM CORPORATION 1996 ANNUAL REPORT 21

<PAGE>   12

Kaiser Aluminum Corporation and Subsidiary Companies

Consolidated Balance Sheets


<TABLE>
<CAPTION>
                                                                                      December 31,
                                                                                 ---------------------
(In millions of dollars, except share amounts)                                       1996         1995
- ------------------------------------------------------------------------------------------------------
<S>                                                                              <C>          <C>
ASSETS
Current assets:
   Cash and cash equivalents                                                     $   81.3     $   21.9
   Receivables:
      Trade, less allowance for doubtful receivables of $4.7 in 1996 and
         $5.0 in 1995                                                               177.9        222.9
      Other                                                                          74.5         85.7
   Inventories                                                                      562.2        525.7
   Prepaid expenses and other current assets                                        127.8         76.6
                                                                                 --------     --------
      Total current assets                                                        1,023.7        932.8

Investments in and advances to unconsolidated affiliates                            168.4        178.2
Property, plant, and equipment-net                                                1,168.7      1,109.6
Deferred income taxes                                                               264.5        269.1
Other assets                                                                        308.7        323.5
                                                                                 --------     --------
      Total                                                                      $2,934.0     $2,813.2
                                                                                 ========     ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                                              $  189.7     $  184.5
   Accrued interest                                                                  35.6         32.0
   Accrued salaries, wages, and related expenses                                     95.4        105.3
   Accrued postretirement medical benefit obligation-current portion                 50.1         46.8
   Other accrued liabilities                                                        132.7        129.4
   Payable to affiliates                                                             97.0         94.2
   Long-term debt-current portion                                                     8.9          8.9
                                                                                 --------     --------
      Total current liabilities                                                     609.4        601.1

Long-term liabilities                                                               458.1        548.5
Accrued postretirement medical benefit obligation                                   722.5        734.0
Long-term debt                                                                      953.0        749.2
Minority interests                                                                  121.7        122.7
Commitments and contingencies
Stockholders' equity:
   Preferred stock, par value $.05, authorized 20,000,000 shares;
      PRIDES Convertible, par value $.05, issued and outstanding,
      8,673,850 in 1996 and 1995                                                       .4           .4
   Common stock, par value $.01, authorized 100,000,000 shares; issued and
      outstanding, 71,646,789 and 71,638,514 in 1996 and 1995                          .7           .7
   Additional capital                                                               531.1        530.3
   Accumulated deficit                                                             (460.1)      (459.9)
   Additional minimum pension liability                                              (2.8)       (13.8)
                                                                                 --------     --------
      Total stockholders' equity                                                     69.3         57.7
                                                                                 --------     --------
      Total                                                                      $2,934.0     $2,813.2
                                                                                 ========     ========
</TABLE>



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





22 KAISER ALUMINUM CORPORATION 1996 ANNUAL REPORT

<PAGE>   13
Statements of Consolidated Income (Loss)


<TABLE>
<CAPTION>
                                                                                       Year Ended December 31,
                                                                                 ---------------------------------
(In millions of dollars, except share amounts)                                       1996         1995        1994
- ------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>          <C>         <C>
Net sales                                                                        $2,190.5     $2,237.8    $1,781.5
                                                                                 --------     --------    --------
Costs and expenses:
   Cost of products sold                                                          1,869.1      1,798.4     1,625.5
   Depreciation                                                                      96.0         94.3        95.4
   Selling, administrative, research and development, and general                   127.6        134.5       116.8
                                                                                 --------     --------    --------
      Total costs and expenses                                                    2,092.7      2,027.2     1,837.7
                                                                                 --------     --------    --------
Operating income (loss):                                                             97.8        210.6       (56.2)

Other income (expense):
   Interest expense                                                                 (93.4)       (93.9)      (88.6)
   Other-net                                                                         (2.7)       (14.1)       (7.3)
                                                                                 --------     --------    --------

Income (loss) before income taxes, minority interests and extraordinary loss          1.7        102.6      (152.1)

Credit (provision) for income taxes                                                   9.3        (37.2)       53.8

Minority interests                                                                   (2.8)        (5.1)       (3.1)
                                                                                 --------     --------    --------
Income (loss) before extraordinary loss                                               8.2         60.3      (101.4)

Extraordinary loss on early extinguishment of debt, net
   of tax benefit of $2.9                                                                                     (5.4)
                                                                                 --------     --------    --------
Net income (loss)                                                                     8.2         60.3      (106.8)

Dividends on preferred stock                                                         (8.4)       (17.6)      (20.1)
                                                                                 --------     --------    --------
Net income (loss) available to common shareholders                               $   (0.2)    $   42.7    $ (126.9)
                                                                                 ========     ========    ========
Earnings (loss) per common and common equivalent share:
   Primary:
      Income (loss) before extraordinary loss                                    $    .00     $    .69    $  (2.09)
      Extraordinary loss                                                                                      (.09)
                                                                                 --------     --------    --------
      Net income (loss)                                                          $    .00     $    .69    $  (2.18)
                                                                                 ========     ========    ========
   Fully diluted                                                                              $    .72
                                                                                              ========
Weighted average common and common equivalent shares outstanding (000):
   Primary                                                                         71,644       62,264      58,139
                                                                                 ========     ========    ========

   Fully diluted                                                                                71,809
                                                                                              ========
</TABLE>


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





                               KAISER ALUMINUM CORPORATION 1996 ANNUAL REPORT 23

<PAGE>   14
Kaiser Aluminum Corporation and Subsidiary Companies

Statements of Consolidated Cash Flows


<TABLE>
<CAPTION>
                                                                                       Year Ended December 31,
                                                                                 ---------------------------------
(In millions of dollars)                                                           1996         1995        1994
- -------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>          <C>         <C>
Cash flows from operating activities:
   Net income (loss)                                                             $    8.2     $   60.3    $ (106.8)
   Adjustments to reconcile net income (loss) to net cash
     provided by (used for) operating activities:
      Depreciation                                                                   96.0         94.3        95.4
      Amortization of excess investment over equity in unconsolidated
         affiliates                                                                  11.6         11.4        11.6
      Amortization of deferred financing costs and net discount on
         long-term debt                                                               5.6          5.4         6.2
      Undistributed equity in (income) losses of unconsolidated
         affiliates                                                                   3.0        (19.2)        1.9
      Minority interests                                                              2.8          5.1         3.1
      Decrease (increase) in receivables                                             51.8       (109.7)       36.4
      Increase in inventories                                                       (36.5)       (57.7)      (41.1)
      (Increase) decrease in prepaid expenses and other assets                      (39.5)        82.9       (60.6)
      Increase in accounts payable                                                    5.2         32.4        25.8
      Increase (decrease) in accrued interest                                         3.6          (.6)        9.3
      (Decrease) increase in payable to affiliates and accrued
         liabilities                                                                (62.9)        10.6        50.8
      Decrease in accrued and deferred income taxes                                 (36.5)        (7.4)      (68.8)
      Other                                                                           9.5         10.9        14.7
                                                                                 --------     --------    --------
           Net cash provided by (used for) operating activities                      21.9        118.7       (22.1)
                                                                                 --------     --------    --------

Cash flows from investing activities:
   Additions to property, plant, and equipment                                     (160.3)       (79.4)      (70.0)
   Investments in unconsolidated affiliates                                          (1.2)        (9.0)
   Other                                                                             17.2          8.6         4.1
                                                                                 --------     --------    --------
           Net cash used for investing activities                                  (144.3)       (79.8)      (65.9)
                                                                                 --------     --------    --------

Cash flows from financing activities:
   Borrowings (repayments) under revolving credit facility, net                     (13.1)         6.4      (181.3)
   Borrowings of long-term debt                                                     225.9                    223.6
   Repayments of long-term debt                                                      (9.0)       (11.8)       (9.0)
   Incurrence of financing costs                                                     (6.2)         (.8)      (19.2)
   Dividends paid                                                                   (10.5)       (20.8)      (14.8)
   Capital stock issued                                                                            1.2       100.1
   Redemption of minority interests' preference stock                                (5.3)        (8.8)       (8.5)
                                                                                 --------     --------    --------
           Net cash provided by (used for) financing activities                     181.8        (34.6)       90.9
                                                                                 --------     --------    --------
Net increase in cash and cash equivalents during the year                            59.4          4.3         2.9
Cash and cash equivalents at beginning of year                                       21.9         17.6        14.7
                                                                                 --------     --------    --------
Cash and cash equivalents at end of year                                         $   81.3     $   21.9    $   17.6
                                                                                 ========     ========    ========
Supplemental disclosure of cash flow information:
   Interest paid, net of capitalized interest                                    $   84.2     $   88.8    $   73.1
   Income taxes paid                                                                 22.7         35.7        16.0
   Tax allocation payments to (from) MAXXAM Inc.                                      1.1                     (3.9)
</TABLE>



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





24 KAISER ALUMINUM CORPORATION 1996 ANNUAL REPORT

<PAGE>   15

Notes to Consolidated Financial Statements

(In millions of dollars, except share amounts)
- --------------------------------------------------------------------------------


1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the statements of Kaiser Aluminum
Corporation ("Kaiser" or the "Company") and its majority owned subsidiaries.
The Company is a subsidiary of MAXXAM Inc. ("MAXXAM") and conducts its
operations through its wholly owned subsidiary, Kaiser Aluminum & Chemical
Corporation ("KACC"). KACC operates in all principal aspects of the aluminum
industry--the mining of bauxite (the major aluminum-bearing ore), the refining
of bauxite into alumina (the intermediate material), the production of primary
aluminum, and the manufacture of fabricated and semi- fabricated aluminum
products. Kaiser's production levels of alumina and primary aluminum exceed its
internal processing needs, which allows it to be a major seller of alumina and
primary aluminum to domestic and international third parties (see Note 10).

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 operation.

Investments in 50%-or-less-owned entities are accounted for primarily by the
equity method. Intercompany balances and transactions are eliminated.

Certain reclassifications of prior-year information were made to conform to the
current presentation.

CASH AND CASH EQUIVALENTS

The Company considers only those short-term, highly liquid investments with
original maturities of 90 days or less to be cash equivalents.

INVENTORIES

Substantially all product inventories are stated at last-in, first-out ("LIFO")
cost, not in excess of market value.  Replacement cost is not in excess of LIFO
cost. Other inventories, principally operating supplies and repair and
maintenance parts, are stated at the lower of average cost or market. Inventory
costs consist of material, labor, and manufacturing overhead, including
depreciation. Inventories consist of the following:


<TABLE>
<CAPTION>
                                                                                       December 31,
                                                                                  --------------------                 
                                                                                     1996         1995
- ------------------------------------------------------------------------------------------------------
<S>                                                                               <C>          <C>
Finished fabricated products                                                      $ 113.5      $  91.5
Primary aluminum and work in process                                                200.3        195.9
Bauxite and alumina                                                                 110.2        119.6
Operating supplies and repair and maintenance parts                                 138.2        118.7
                                                                                  -------      -------
                                                                                  $ 562.2      $ 525.7
                                                                                  =======      =======
</TABLE>

DEPRECIATION

Depreciation is computed principally by the straight-line method at rates based
on the estimated useful lives of the various classes of assets. The principal
estimated useful lives of land improvements, buildings, and machinery and
equipment are 8 to 25 years, 15 to 45 years, and 10 to 22 years, respectively.





                               KAISER ALUMINUM CORPORATION 1996 ANNUAL REPORT 25

<PAGE>   16
Kaiser Aluminum Corporation and Subsidiary Companies

Notes to Consolidated Financial Statements (continued)

(In millions of dollars, except share amounts)
- --------------------------------------------------------------------------------

STOCK-BASED COMPENSATION

The Company applies the intrinsic value method to account for a stock-based
compensation plan whereby compensation cost is recognized only to the extent
that the quoted market price of the stock at the measurement date exceeds the
amount an employee must pay to acquire the stock. No compensation cost has been
recognized for this plan as no stock options were granted in 1996 or 1995 and
as the stock options granted in 1994 were at the market price (see Note 6).

OTHER INCOME (EXPENSE)

Other expense in 1996, 1995, and 1994 includes $3.1, $17.8, and $16.5 of
pre-tax charges related principally to establishing additional: (i) litigation
reserves for asbestos claims, net of estimated aggregate insurance recoveries,
and (ii) environmental reserves for potential soil and ground water remediation
matters, each pertaining to operations which were discontinued prior to the
acquisition of the Company by MAXXAM in 1988.

DEFERRED FINANCING COSTS

Costs incurred to obtain debt financing are deferred and amortized over the
estimated term of the related borrowing.  Such amortization is included in
interest expense.

FOREIGN CURRENCY

The Company uses the United States dollar as the functional currency for its
foreign operations.

DERIVATIVE FINANCIAL INSTRUMENTS

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

Most of KACC's hedging activities involve the use of option contracts (which
establish a maximum and/or minimum amount to be paid or received) and forward
sales contracts (which effectively fix or lock-in the amount KACC will pay or
receive). Option contracts typically require the payment of an up-front premium
in return for the right to receive the amount (if any) by which the price at
the settlement date exceeds the strike price. Any interim fluctuations in
prices prior to the settlement date are deferred until the settlement date of
the underlying hedged transaction, at which point they are reflected in net
sales or cost of sales (as applicable) together with the related premium cost.
Forward sales contracts do not require an up-front payment and are settled by
the receipt or payment of the amount by which the price at the settlement date
varies from the contract price. No accounting recognition is accorded to
interim fluctuations in prices of forward sales contracts.

KACC has established margin accounts and credit limits with certain
counterparties related to open forward sales and option contracts. When
unrealized gains or losses are in excess of such credit limits, KACC is
entitled to receive advances from the counterparties on open positions or is
required to make margin deposits to counterparties, as the case may be. At
December 31, 1996, KACC had received $13.0 of margin advances from
counterparties. At December 31, 1995, KACC had neither received nor made any
margin deposits. Management considers credit risk related to possible failure
of the counterparties to perform their obligations pursuant to the derivative
contracts to be minimal.





26 KAISER ALUMINUM CORPORATION 1996 ANNUAL REPORT

<PAGE>   17
(In millions of dollars, except share amounts)
- --------------------------------------------------------------------------------

Deferred gains or losses as of December 31, 1996, are included in Prepaid
expenses and other current assets and Other accrued liabilities (See Note 9).

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company estimates the fair value of its outstanding indebtedness to be
$1,006.9 and $806.3 at December 31, 1996, and 1995, respectively, based on
quoted market prices for KACC's 97/8% Senior Notes due 2002 (the "97/8% Notes")
and 123/4% Senior Subordinated Notes due 2003 (the "123/4% Notes"), the
issuance price of the 107/8% Notes (as defined in Note 4), and the discounted
future cash flows for all other indebtedness, using the current rate for debt
of similar maturities and terms. The Company believes that the carrying amount
of other financial instruments is a reasonable estimate of their fair value,
unless otherwise noted.

EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE

Primary--Earnings (loss) per common and common equivalent share are computed by
deducting preferred stock dividends from net income (loss) in order to
determine net income (loss) available to common shareholders. This amount is
then divided by the weighted average number of common and common equivalent
shares outstanding during the period. The weighted average number of common and
common equivalent shares outstanding for the year ended December 31, 1996,
excludes the impact of outstanding stock options since they were antidilutive.
The impact of outstanding stock options on weighted average number of common
and common equivalent shares on the other periods presented was immaterial.

Fully Diluted--The Company's 8.255% PRIDES, Convertible Preferred Stock
("PRIDES") were excluded from the calculation of the weighted average number of
common and common equivalent shares outstanding for all periods presented
because they were antidilutive. For the year ended December 31, 1995, dividends
of $9.2 attributable to the Company's Mandatory Conversion Premium Dividend
Preferred Stock (the "Series A Shares") which were exchanged for approximately
13.1 million shares of the Company's Common Stock and certain cash payments on
September 19, 1995, have not been deducted from net income and the weighted
average number of common and common equivalent shares outstanding have been
adjusted to reflect the shares of common stock issued in the exchange as if
they had been outstanding for the entire period. As a result of the conversion
of the Series A Shares, fully diluted earnings per share for the 1995 periods
are presented even though the results are antidilutive.

2.    INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES

Summary combined financial information is provided below for unconsolidated
aluminum investments, most of which supply and process raw materials. The
investees are Queensland Alumina Limited ("QAL") (28.3% owned), Anglesey
Aluminium Limited ("Anglesey") (49.0% owned), and Kaiser Jamaica Bauxite
Company (49.0% owned). The equity in earnings (losses) before income taxes of
such operations is treated as a reduction (increase) in cost of products sold.
At December 31, 1996 and 1995, KACC's net receivables from these affiliates
were not material.





                               KAISER ALUMINUM CORPORATION 1996 ANNUAL REPORT 27

<PAGE>   18
Kaiser Aluminum Corporation and Subsidiary Companies

Notes to Consolidated Financial Statements (continued)

(In millions of dollars, except share amounts)
- --------------------------------------------------------------------------------

SUMMARY OF COMBINED FINANCIAL POSITION


<TABLE>
<CAPTION>
                                                                                                     December 31,
                                                                                               -------------------   
                                                                                                  1996        1995
- ------------------------------------------------------------------------------------------------------------------
<S>                                                                                            <C>         <C>
Current assets                                                                                 $ 450.3     $ 429.0
Long-term assets (primarily property, plant, and equipment, net)                                 364.7       370.1
                                                                                               -------     -------
   Total assets                                                                                $ 815.0     $ 799.1
                                                                                               =======     =======

Current liabilities                                                                            $ 116.9     $ 125.4
Long-term liabilities (primarily long-term debt)                                                 386.7       367.4
Stockholders' equity                                                                             311.4       306.3
                                                                                               -------     -------
   Total liabilities and stockholders' equity                                                  $ 815.0     $ 799.1
                                                                                               =======     =======
</TABLE>


SUMMARY OF COMBINED OPERATIONS


<TABLE>
<CAPTION>
                                                                                        Year Ended December 31,
                                                                                  --------------------------------
                                                                                     1996         1995        1994
- ------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>          <C>         <C>
Net sales                                                                         $ 660.5      $ 685.9     $ 489.8
Costs and expenses                                                                 (631.5)      (618.7)     (494.8)
Provision for income taxes                                                           (8.7)       (18.7)       (6.3)
                                                                                  -------      -------     -------
Net income (loss)                                                                 $  20.3      $  48.5     $ (11.3)
                                                                                  =======      =======     =======
Company's equity in income (loss)                                                 $   8.8      $  19.2     $  (1.9)
                                                                                  =======      =======     =======
Dividends received                                                                $  11.8
                                                                                  =======      
</TABLE>


The Company's equity in income (loss) differs from the summary net income
(loss) due to various percentage ownerships in the entities and equity method
accounting adjustments. At December 31, 1996, KACC's investment in its
unconsolidated affiliates exceeded its equity in their net assets by
approximately $42.0 which amount will be fully amortized over the next four
years.

The Company and its affiliates have interrelated operations. KACC provides some
of its affiliates with services such as financing, management, and engineering.
Significant activities with affiliates include the acquisition and processing
of bauxite, alumina, and primary aluminum. Purchases from these affiliates were
$281.6, $284.4, and $219.7 in the years ended December 31, 1996, 1995, and
1994, respectively.

3.    PROPERTY, PLANT, AND EQUIPMENT

The major classes of property, plant, and equipment are as follows:


<TABLE>
<CAPTION>
                                                                                      December 31,
                                                                                 ---------------------                 
                                                                                     1996         1995
- ------------------------------------------------------------------------------------------------------
<S>                                                                              <C>          <C>
Land and improvements                                                            $  157.5     $  151.8
Buildings                                                                           216.0        198.5
Machinery and equipment                                                           1,441.1      1,337.6
Construction in progress                                                             84.7         59.6
                                                                                 --------     --------
                                                                                  1,899.3      1,747.5
Accumulated depreciation                                                            730.6        637.9
                                                                                 --------     --------
   Property, plant, and equipment, net                                           $1,168.7     $1,109.6
                                                                                 ========     ========
</TABLE>






28 KAISER ALUMINUM CORPORATION 1996 ANNUAL REPORT

<PAGE>   19
(In millions of dollars, except share amounts)
- --------------------------------------------------------------------------------

4.    LONG-TERM DEBT

Long-term debt and its maturity schedule are as follows:


<TABLE>
<CAPTION>                                                                                               December 31,
                                                                                             2002     ----------------  
                                                                                              and       1996      1995
                                                   1997    1998    1999     2000     2001   After      Total     Total
- ----------------------------------------------------------------------------------------------------------------------
<S>                                              <C>     <C>     <C>      <C>      <C>     <C>        <C>       <C>
Credit Agreement                                                                                                $ 13.1
9-7/8% Senior Notes due 2002, net                                                          $224.0     $224.0     223.8
10-7/8% Senior Notes due 2006, net                                                          225.9      225.9
Alpart CARIFA Loan - Series A, due 2008
   (variable rates)                                                                          38.0       38.0      38.0
Alpart CARIFA Loan - Series B, due 2007 (8.25%)                                              22.0       22.0      22.0
12-3/4% Senior Subordinated Notes due 2003                                                  400.0      400.0     400.0
Other borrowings (fixed and variable rates)      $  8.9  $  9.1  $   .4   $   .4   $   .4    32.8       52.0      61.2
                                                 ------  ------  ------   ------   ------  ------     ------    ------
Total                                            $  8.9  $  9.1  $   .4   $   .4   $   .4  $942.7      961.9     758.1
                                                 ======  ======  ======   ======   ======  ======     
Less current portion                                                                                     8.9       8.9
                                                                                                      ------    ------
   Long-term debt                                                                                     $953.0    $749.2
                                                                                                      ======    ======

</TABLE>


CREDIT AGREEMENT

In February 1994, the Company and KACC entered into a credit agreement (as
amended, the "Credit Agreement") which provides a $325.0 five-year secured,
revolving line of credit. KACC is able to borrow under the facility by means of
revolving credit advances and letters of credit (up to $125.0) in an aggregate
amount equal to the lesser of $325.0 or a borrowing base relating to eligible
accounts receivable plus eligible inventory. As of December 31, 1996, $269.7
(of which $71.9 could have been used for letters of credit) was available to
KACC under the Credit Agreement. The Credit Agreement is unconditionally
guaranteed by the Company and by certain significant subsidiaries of KACC.
Interest on outstanding balances will bear a premium (which varies based on the
results of a financial test) over either a base rate or LIBOR at the Company's
option.

1996 ISSUANCES

During the fourth quarter of 1996, KACC sold a total of $225.0 principal amount
of two separate series of 10 7/8% Senior Notes due 2006 (the "10 7/8% Notes")
in separate transactions. A net premium of $.9 was realized from the issuance
of the 10 7/8% Notes. The 10 7/8% Notes rank pari passu in right and priority
of payment with the indebtedness under the Credit Agreement and the 9 7/8%
Notes and are guaranteed on a senior, unsecured basis by certain of KACC's
subsidiaries.

LOAN COVENANTS AND RESTRICTIONS

The Credit Agreement requires KACC to comply with certain financial covenants
and places restrictions on the Company's and KACC's ability to, among other
things, incur debt and liens, make investments, pay dividends, undertake
transactions with affiliates, make capital expenditures, and enter into
unrelated lines of business. The Credit Agreement is secured by, among other
things, (i) mortgages on KACC's major domestic plants (excluding KACC's
Gramercy alumina plant and Nevada Micromill); (ii) subject to certain
exceptions, liens on the accounts receivable, inventory, equipment, domestic
patents and trademarks, and substantially all other personal property of KACC
and certain of its subsidiaries; (iii) a pledge of all the stock of KACC owned
by Kaiser; and (iv) pledges of all of the stock of a number of KACC's wholly
owned domestic subsidiaries, pledges of a portion of the stock of certain
foreign subsidiaries, and pledges of a portion of the stock of certain
partially owned foreign affiliates.





                               KAISER ALUMINUM CORPORATION 1996 ANNUAL REPORT 29

<PAGE>   20
Kaiser Aluminum Corporation and Subsidiary Companies

Notes to Consolidated Financial Statements (continued)

(In millions of dollars, except share amounts)
- --------------------------------------------------------------------------------

The obligations of KACC with respect to its 9 7/8% Notes, its 10 7/8% Notes and
its 12 3/4% Notes are guaranteed, jointly and severally, by certain
subsidiaries of KACC. The indentures governing the 9 7/8% Notes, the 10 7/8%
Notes and the 12 3/4% Notes (collectively, the "Indentures") restrict, among
other things, KACC's ability, to incur debt, undertake transactions with
affiliates, and pay dividends. Further, the Indentures provide that KACC must
offer to purchase the 9 7/8% Notes, the 10 7/8% Notes and the 12 3/4% Notes,
respectively, upon the occurrence of a Change of Control (as defined therein),
and the Credit Agreement provides that the occurrence of a Change in Control
(as defined therein) shall constitute an Event of Default thereunder.

Under the most restrictive of the covenants in the Indentures and the Credit
Agreement, neither the Company nor KACC currently is permitted to pay dividends
on its common stock.

In December 1991, Alpart entered into a loan agreement with the Caribbean Basin
Projects Financing Authority ("CARIFA").  Pursuant to the loan agreement,
Alpart must remain a qualified recipient for Caribbean Basin Initiative funds
as defined in applicable laws. Alpart has also agreed to indemnify bondholders
of CARIFA for certain tax payments that could result from events, as defined,
that adversely affect the tax treatment of the interest income on the bonds.
Alpart's obligations under the loan agreement are secured by a $64.2 letter of
credit guaranteed by the partners in Alpart (of which $22.5 is guaranteed by
the Company's minority partner in Alpart).

RESTRICTED NET ASSETS OF SUBSIDIARIES

Certain debt instruments restrict the ability of KACC to transfer assets, make
loans and advances, and pay dividends to the Company. The restricted net assets
of KACC totaled $56.1 and $24.0 at December 31, 1996 and 1995, respectively.

CAPITALIZED INTEREST

Interest capitalized in 1996, 1995, and 1994 was $4.9, $2.8, and $2.7,
respectively.

EXTRAORDINARY ITEM

The Company recorded a pre-tax extraordinary loss of $5.4 (net of $2.9 of
deferred income taxes provided at a rate which approximates the federal
statutory rate) in the first quarter of 1994 when the Company entered into the
Credit Agreement, as a result of the write-off of unamortized deferred
financing costs related to the previous credit agreement.

5.    INCOME TAXES

Income (loss) before income taxes, minority interests and extraordinary loss by
geographic area is as follows:


<TABLE>
<CAPTION>
                                                                                  Year Ended December 31,
                                                                             -------------------------------
                                                                                 1996       1995       1994
- ------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>        <C>        <C>
Domestic                                                                     $  (45.8)  $  (55.9)  $ (168.4)
Foreign                                                                          47.5      158.5       16.3
                                                                             --------   --------   --------
   Total                                                                     $    1.7   $  102.6   $ (152.1)
                                                                             ========   ========   ========
</TABLE>


Income taxes are classified as either domestic or foreign, based on whether
payment is made or due to the United States or a foreign country. Certain
income classified as foreign is also subject to domestic income taxes.





30 KAISER ALUMINUM CORPORATION 1996 ANNUAL REPORT

<PAGE>   21
(In millions of dollars, except share amounts)
- --------------------------------------------------------------------------------

The credit (provision) for income taxes on income (loss) before income taxes,
minority interests and extraordinary loss consists of:


<TABLE>
<CAPTION>
                                                                  Federal      Foreign      State      Total
- ------------------------------------------------------------------------------------------------------------
<S>                                                               <C>          <C>        <C>        <C>
1996  Current                                                     $ (1.6)      $(21.8)    $  (.1)    $(23.5)
      Deferred                                                       8.6          7.6       16.6       32.8
                                                                  ------       ------     ------     ------
           Total                                                  $  7.0       $(14.2)    $ 16.5     $  9.3
                                                                  ======       ======     ======     ======

1995  Current                                                     $ (4.3)      $(40.2)    $  (.1)    $(44.6)
      Deferred                                                      15.2         (4.9)      (2.9)       7.4
                                                                  ------       ------     ------     ------
           Total                                                  $ 10.9       $(45.1)    $ (3.0)    $(37.2)
                                                                  ======       ======     ======     ======

1994  Current                                                                  $(18.0)    $  (.1)    $(18.1)
      Deferred                                                    $ 71.2           .6         .1       71.9
                                                                  ------       ------     ------     ------
           Total                                                  $ 71.2       $(17.4)    $   .0     $ 53.8
                                                                  ======       ======     ======     ======
</TABLE>



The 1994 federal deferred credit for income taxes of $71.2 includes $29.3 for
the benefit of operating loss carryforwards generated in 1994.

A reconciliation between the credit (provision) for income taxes and the amount
computed by applying the federal statutory income tax rate to income (loss)
before income taxes, minority interest and extraordinary loss is as follows:


<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                                                   ------------------------------
                                                                   1996         1995       1994
- -------------------------------------------------------------------------------------------------
<S>                                                               <C>          <C>         <C>
Amount of federal income tax credit (provision)
   based on the statutory rate                                    $  (.6)      $(35.9)     $53.2
Revision of prior years' tax estimates and other
   changes in valuation allowances                                  10.0          1.5         .2
Percentage depletion                                                 3.9          4.2        5.6
Foreign taxes, net of federal tax benefit                           (5.5)        (5.4)      (5.3)
Other                                                                1.5         (1.6)        .1
                                                                  ------       ------      -----
Credit (provision) for income taxes                                $ 9.3       $(37.2)     $53.8
                                                                  ======       ======      =====
</TABLE>



Included in revision of prior years' tax estimates and other changes in
valuation allowances for 1996 shown above is $9.8 related to the resolution of
certain income tax matters in the fourth quarter of 1996.





                               KAISER ALUMINUM CORPORATION 1996 ANNUAL REPORT 31

<PAGE>   22
Kaiser Aluminum Corporation and Subsidiary Companies

Notes to Consolidated Financial Statements (continued)

(In millions of dollars, except share amounts)
- --------------------------------------------------------------------------------

The components of the Company's net deferred income tax assets are as follows:


<TABLE>
<CAPTION>
                                                                       December 31,
                                                                 ---------------------                  
                                                                    1996         1995
- --------------------------------------------------------------------------------------
<S>                                                              <C>          <C>
Deferred income tax assets:
Postretirement benefits other than pensions                      $ 290.5      $ 289.9
Loss and credit carryforwards                                      135.1        156.1
Other liabilities                                                  157.6        163.8
Other                                                               86.7         66.2
Valuation allowances                                              (127.2)      (128.5)
                                                                 -------      -------
      Total deferred income tax assets-net                         542.7        547.5
                                                                 -------      -------

Deferred income tax liabilities:
   Property, plant, and equipment                                 (160.9)      (179.8)
   Other                                                           (72.6)       (75.9)
                                                                 -------      -------
      Total deferred income tax liabilities                       (233.5)      (255.7)
                                                                 -------      -------
Net deferred income tax assets                                   $ 309.2      $ 291.8
                                                                 =======      =======
</TABLE>


The principal component of the Company's net deferred income tax asset is the
tax benefit, net of certain valuation allowances, associated with the accrued
liability for postretirement benefits other than pensions. The future tax
deductions with respect to the turnaround of this accrual will occur over a 30-
to 40-year period. If such deductions create or increase a net operating loss
in any one year, the Company has the ability to carry forward such loss for 15
taxable years. For these reasons, the Company believes that a long-term view of
profitability is appropriate and has concluded that this net deferred income
tax asset will more likely than not be realized.

A substantial portion of the valuation allowances provided by the Company
relates to loss and credit carryforwards. To determine the proper amount of
valuation allowances with respect to these carryforwards, the Company evaluated
all appropriate factors, including any limitations concerning their use and the
year the carryforwards expire, as well as the levels of taxable income
necessary for utilization. For example, full valuation allowances were provided
for certain credit carryforwards that expire in the near term. With regard to
future levels of income, the Company believes, based on the cyclical nature of
its business, its history of operating earnings, and its expectations for
future years, that it will more likely than not generate sufficient taxable
income to realize the benefit attributable to the loss and credit carryforwards
for which valuation allowances were not provided.

As of December 31, 1996 and 1995, $69.7 and $53.5, respectively, of the net
deferred income tax assets listed above are included on the Consolidated
Balance Sheets in the caption entitled Prepaid expenses and other current
assets. Certain other portions of the deferred income tax liabilities listed
above are included on the Consolidated Balance Sheets in the captions entitled
Other accrued liabilities and Long-term liabilities.

The Company and its subsidiaries file consolidated federal income tax returns.
For the period from October 28, 1988 through June 30, 1993, the Company and its
subsidiaries were included in the consolidated federal income tax returns of
MAXXAM. Payments or refunds for periods ended prior to July 1, 1993, may still
be required by or payable to the Company or KACC pursuant to their respective
tax allocation agreements with MAXXAM due to the final resolution of audits,
amended returns,  and related matters. However, the Credit Agreement prohibits
the payment by KACC to MAXXAM of any amounts due under KACC's tax allocation
agreement with MAXXAM (the "KACC Tax Allocation Agreement"), except for certain
payments that are required as a result of audits and only to the extent of any
amounts paid after February 17, 1994, by MAXXAM to KACC under the KACC Tax





32 KAISER ALUMINUM CORPORATION 1996 ANNUAL REPORT

<PAGE>   23
(In millions of dollars, except share amounts)
- --------------------------------------------------------------------------------

Allocation Agreement. The respective tax allocation agreements of the Company
and KACC with MAXXAM terminated pursuant to their terms, effective for taxable
periods beginning after June 30, 1993.

The following table presents the Company's tax attributes for federal income
tax purposes as of December 31, 1996. The utilization of certain of these tax
attributes is subject to limitations:


<TABLE>
<CAPTION>
                                                                             Expiring
                                                                              Through
- -------------------------------------------------------------------------------------
<S>                                                               <C>     <C>
Regular tax attribute carryforwards:
   Net operating losses                                           $ 36.0         2010
   General business tax credits                                     23.1         2010
   Foreign tax credits                                              68.5         2001
   Alternative minimum tax credits                                  19.9   Indefinite
Alternative minimum tax attribute carryforwards:
   Net operating losses                                           $ 26.6         2010
   Foreign tax credits                                              72.2         2001
</TABLE>


6.    EMPLOYEE BENEFIT AND INCENTIVE PLANS

RETIREMENT PLANS

Retirement plans are non-contributory for salaried and hourly employees and
generally provide for benefits based on a formula which considers length of
service and earnings during years of service. The Company's funding policies
meet or exceed all regulatory requirements.

The funded status of the employee pension benefit plans and the corresponding
amounts that are included in the Company's Consolidated Balance Sheets are as
follows:


<TABLE>
<CAPTION>
                                                                Plans with Accumulated
                                                             Benefits Exceeding Assets(1)
                                                                      December 31,
                                                                 ------------------------                 
                                                                    1996             1995  
- -----------------------------------------------------------------------------------------
<S>                                                              <C>              <C>      
Accumulated benefit obligation:                                                            
   Vested employees                                              $ 737.7          $ 753.0  
   Nonvested employees                                              38.5             28.7  
                                                                 -------          -------                
   Accumulated benefit obligation                                  776.2            781.7  
Additional amounts related to projected salary increases            40.0             34.2  
                                                                 -------          -------                
Projected benefit obligation                                       816.2            815.9  
Plan assets (principally common stocks and fixed income                                    
   obligations) at fair value                                     (662.0)          (592.3) 
                                                                 -------          -------                
Plan assets less than projected benefit obligation                 154.2            223.6  
Unrecognized net losses                                            (13.6)           (54.7) 
Unrecognized net obligations                                         (.4)             (.5) 
Unrecognized prior-service cost                                    (26.9)           (28.2) 
Adjustment required to recognize minimum liability                  13.7             49.8  
                                                                 -------          -------                
Accrued pension obligation included in the Consolidated                                    
   Balance Sheets (principally in Long-term liabilities)         $ 127.0          $ 190.0  
                                                                 =======          =======
</TABLE>


(1)   Includes plans with assets exceeding accumulated benefits by
approximately $.3 and $.1 in 1996 and 1995, respectively.





                               KAISER ALUMINUM CORPORATION 1996 ANNUAL REPORT 33

<PAGE>   24
Kaiser Aluminum Corporation and Subsidiary Companies

Notes to Consolidated Financial Statements (continued)

(In millions of dollars, except share amounts)
- --------------------------------------------------------------------------------

As required by Statement of Financial Accounting Standards No. 87, Employers'
Accounting for Pensions, the Company recorded an after-tax credit (charge) to
equity of $11.0 and $(4.7) at December 31, 1996 and 1995, respectively, for the
deficit (excess) of the minimum liability over the unrecognized net obligation
and prior-service cost. These amounts were recorded net of the related income
tax (provision) credit of $(6.5) and $2.8 as of December 31, 1996 and 1995,
respectively, which approximated the federal and state statutory rates.

The components of net periodic pension cost are:


<TABLE>
<CAPTION>
                                                                       Year Ended December 31,
                                                                 --------------------------------                             
                                                                    1996         1995       1994
- -------------------------------------------------------------------------------------------------
<S>                                                              <C>          <C>        <C>
Service cost - benefits earned during the period                 $  12.9      $  10.0    $  11.2
Interest cost on projected benefit obligation                       60.0         59.8       57.3
Return on assets:
  Actual gain                                                      (89.8)      (112.2)       (.8)
  Deferred gain (loss)                                              34.8         64.6      (53.0)
Net amortization and deferral                                        5.5          4.2        4.1
                                                                 -------      -------    -------
Net periodic pension cost                                        $  23.4      $  26.4    $  18.8
                                                                 =======      =======    =======
</TABLE>


Assumptions used to value obligations at year-end, and to determine the net
periodic pension cost in the subsequent year are:


<TABLE>
<CAPTION>
                                                                    1996         1995       1994
- ------------------------------------------------------------------------------------------------
<S>                                                                <C>           <C>        <C>
Discount rate                                                      7.75%         7.5%       8.5%
Expected long-term rate of return on assets                         9.5%         9.5%       9.5%
Rate of increase in compensation levels                             5.0%         5.0%       5.0%
</TABLE>


POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

The Company and its subsidiaries provide postretirement health care and life
insurance benefits to eligible retired employees and their dependents.
Substantially all employees may become eligible for those benefits if they
reach retirement age while still working for the Company or its subsidiaries.
The Company has not funded the liability for these benefits, which are expected
to be paid out of cash generated by operations. The Company reserves the right,
subject to applicable collective bargaining agreements, to amend or terminate
these benefits.

In 1995, the Company adopted the Kaiser Aluminum Medicare Program ("KAMP").
KAMP is mandatory for all salaried retirees over 65 and for United Steelworkers
of America ("USWA") retirees who retire after December 31, 1995, when they
become 65, and voluntary for other hourly retirees of the Company's operations
in the states of California, Louisiana, Pennsylvania, Rhode Island, and
Washington.





34 KAISER ALUMINUM CORPORATION 1996 ANNUAL REPORT

<PAGE>   25
(In millions of dollars, except share amounts)
- --------------------------------------------------------------------------------

The Company's accrued postretirement benefit obligation is composed of the
following:


<TABLE>
<CAPTION>
                                                                      December 31,
                                                                 --------------------                 
                                                                    1996         1995
- -------------------------------------------------------------------------------------
<S>                                                              <C>          <C>
Accumulated postretirement benefit obligation:
   Retirees                                                      $ 498.7      $ 557.6
   Active employees eligible for postretirement benefits            36.7         30.7
   Active employees not eligible for postretirement benefits        67.4         61.1
                                                                 -------      -------
   Accumulated postretirement benefit obligation                   602.8        649.4
Unrecognized net gains                                              71.3         20.5
Unrecognized gains related to prior-service costs                   98.5        110.9
                                                                 -------      -------
Accrued postretirement benefit obligation                        $ 772.6      $ 780.8
                                                                 =======      =======
</TABLE>


The components of net periodic postretirement benefit cost are:


<TABLE>
<CAPTION>
                                                                     Year Ended December 31,
                                                                    1996         1995       1994
- -------------------------------------------------------------------------------------------------
<S>                                                              <C>          <C>        <C>
Service cost                                                     $   3.8      $   4.5    $   8.2
Interest cost                                                       46.9         52.3       56.9
Amortization of prior service cost                                 (12.4)        (8.9)      (3.2)
                                                                 -------      -------    -------
Net periodic postretirement benefit cost                         $  38.3      $  47.9    $  61.9
                                                                 =======      =======    =======
</TABLE>




The 1997 annual assumed rates of increase in the per capita cost of covered
benefits (i.e., health care cost trend rate) for non-HMO are 8.0% and 6.0% for
retirees under 65 and over 65, respectively, and 5.5% for HMO at all ages.
Non-HMO rates are assumed to decrease gradually to 5.5% in 2004 and remain at
that level thereafter. The health care cost trend rate has a significant effect
on the amounts reported. A one percentage point increase in the assumed health
care cost trend rate would increase the accumulated postretirement benefit
obligation as of December 31, 1996, by approximately $60.4 and the aggregate of
the service and interest cost components of net periodic postretirement benefit
cost for 1996 by approximately $6.1. The weighted average discount rate used to
determine the accumulated postretirement benefit obligation at December 31,
1996 and 1995, was 7.75% and 7.5%, respectively.

POSTEMPLOYMENT BENEFITS

The Company provides certain benefits to former or inactive employees after
employment but before retirement.





                               KAISER ALUMINUM CORPORATION 1996 ANNUAL REPORT 35

<PAGE>   26
Kaiser Aluminum Corporation and Subsidiary Companies

Notes to Consolidated Financial Statements (continued)

(In millions of dollars, except share amounts)
- --------------------------------------------------------------------------------

INCENTIVE PLANS

In 1993, the Company adopted the Kaiser 1993 Omnibus Stock Incentive Plan (the
"1993 Incentive Plan"). A total of 2,500,000 shares of the Company's Common
Stock were reserved for awards or for payment of rights granted under the 1993
Incentive Plan, of which 572,254 shares were available to be awarded at
December 31, 1996. During 1994, under the 1993 Incentive Plan, 102,564
restricted shares, which are now fully vested, were distributed to two Company
executives.  Compensation expense recognized during 1996, 1995 and 1994
associated with the 1993 Incentive Plan and a prior long-term incentive plan
(the "LTIP") was approximately $.7, $1.4 and $2.2, respectively.

In 1994, the Compensation Committee of the Board of Directors approved the
award of "nonqualified stock options" to certain members of management. These
options generally vest at the rate of 25% per year. Information relating to
nonqualified stock option activity is shown below. The weighted average price
per share is shown parenthetically.


<TABLE>
<CAPTION>
                                                                    1996         1995       1994
- -------------------------------------------------------------------------------------------------
<S>                                                              <C>       <C>        <C>
Outstanding at beginning of year ($10.32, $9.85
   and $7.55)                                                    926,085    1,119,680    664,400
Granted ($12.75)                                                                         494,800
Exercised ($8.99, $7.32 and $7.25)                                (8,275)    (155,500)    (6,920)
Expired or forfeited ($10.45, $8.88 and $7.46)                   (27,415)     (38,095)   (32,600)
                                                                --------   ----------  ---------
Outstanding at end of year ($10.33, $10.32 and $9.85)            890,395      926,085  1,119,680
                                                                ========   ==========  =========
Exercisable at end of year ($10.47, $10.73 and $7.57)            436,195      211,755    120,180
                                                                ========   ==========  =========
</TABLE>


In 1995, the Company adopted the Kaiser Aluminum Total Compensation System, an
unfunded incentive compensation program.  The program provides incentive pay
based on performance against annual plans and over rolling three-year periods.
KACC also has a defined contribution plan for salaried employees. The Company's
expense for these plans was $(2.1), $11.9 and $6.1 for the years ended December
31, 1996, 1995, and 1994, respectively.




36 KAISER ALUMINUM CORPORATION 1996 ANNUAL REPORT

<PAGE>   27
(In millions of dollars, except share amounts)

7.    STOCKHOLDERS' EQUITY AND MINORITY INTERESTS

Changes in stockholders' equity and minority interests were:


<TABLE>
<CAPTION>
                                          Minority Interests                     Stockholders' Equity
                                       ----------------------  ---------------------------------------------------------          
                                                                                                              Additional
                                       Redeemable                                                   Accu-        Minimum
                                       Preference              Preferred     Common  Additional     mulated      Pension
                                            Stock       Other      Stock      Stock     Capital     Deficit    Liability
- ------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>          <C>       <C>         <C>         <C>        <C>           <C>
BALANCE, DECEMBER 31, 1993                 $ 33.6      $ 71.4     $   .2     $   .6      $425.9     $(375.7)      $(21.6)
   Net loss                                                                                          (106.8)
   Redeemable preference stock:
      Accretion                               4.0
      Stock redemption                       (8.5)
   Common stock issued                                                                      2.2
   Preferred stock issued                                             .4                   99.7
   Dividends on preferred stock                                                                       (20.1)
   Minority interests                                    15.7
   Reduction of minimum pension
    liability                                                                                                       12.5
                                           ------      ------     ------     ------      ------     -------       ------ 
BALANCE, DECEMBER 31, 1994                   29.1        87.1         .6         .6       527.8      (502.6)        (9.1)
   Net income                                                                                          60.3
   Redeemable preference stock:
      Accretion                               3.9
      Stock redemption                       (8.7)
      Stock repurchase                        5.4
   Conversions (1,222 preference 
      shares into cash)                                   (.1)
   Common stock issued upon redemption
      and conversion of preferred stock                              (.2)        .1         1.1
   Dividends on preferred stock                                                                       (17.6)
   Minority interests                                     6.0
   Incentive plans accretion                                                                1.4
   Additional minimum pension                                                                                       
      liability                                                                                                     (4.7)
                                           ------      ------     ------     ------      ------     -------       ------ 
BALANCE, DECEMBER 31, 1995                   29.7        93.0         .4         .7       530.3      (459.9)       (13.8)
   Net Income                                                                                           8.2
   Redeemable preference stock:
      Accretion                               3.1
      Stock redemption                       (5.3)
   Common stock issued upon redemption
      and conversion of preferred stock                                                      .1
   Dividends on preferred stock                                                                        (8.4)
   Minority interests                                     1.2
   Incentive plan accretion                                                                  .7
   Reduction of minimum pension 
      liability                                                                                                     11.0
                                           ------      ------     ------     ------      ------     -------       ------ 
BALANCE, DECEMBER 31, 1996                 $ 27.5      $ 94.2     $   .4     $   .7      $531.1     $(460.1)      $ (2.8)
                                           ======      ======     ======     ======      ======     =======       ======
</TABLE>






                               KAISER ALUMINUM CORPORATION 1996 ANNUAL REPORT 37

<PAGE>   28
Kaiser Aluminum Corporation and Subsidiary Companies

Notes to Consolidated Financial Statements (continued)

(In millions of dollars, except share amounts)
- --------------------------------------------------------------------------------

REDEEMABLE PREFERENCE STOCK

In 1985, KACC issued its Cumulative (1985 Series A) Preference Stock and its
Cumulative (1985 Series B) Preference Stock (together, the "Redeemable
Preference Stock") each of which has a par value of $1 per share and a
liquidation and redemption value of $50 per share plus accrued dividends, if
any. No additional Redeemable Preference Stock is expected to be issued.
Holders of the Redeemable Preference Stock are entitled to an annual cash
dividend of $5 per share, or an amount based on a formula tied to KACC's
pre-tax income from aluminum operations, when and as declared by the Board of
Directors.

The carrying values of the Redeemable Preference Stock are increased each year
to recognize accretion between the fair value (at which the Redeemable
Preference Stock was originally issued) and the redemption value. Changes in
Redeemable Preference Stock are shown below.


<TABLE>
<CAPTION>
                                                                      1996         1995         1994
- -----------------------------------------------------------------------------------------------------
<S>                                                               <C>          <C>         <C>
Shares:
  Beginning of year                                                737,363      912,167    1,081,548
  Redeemed                                                        (102,679)    (174,804)    (169,381)
                                                                 ---------     --------    ---------
  End of year                                                      634,684      737,363      912,167
                                                                 =========     ========    =========

</TABLE>


Redemption fund agreements require KACC to make annual payments by March 31 of
the subsequent year based on a formula tied to consolidated net income until
the redemption funds are sufficient to redeem all of the Redeemable Preference
Stock. On an annual basis, the minimum payment is $4.3 and the maximum payment
is $7.3. KACC also has certain additional repurchase requirements which are,
among other things, based upon profitability tests.

The Redeemable Preference Stock is entitled to the same voting rights as KACC
common stock and to certain additional voting rights under certain
circumstances, including the right to elect, along with other KACC preference
stockholders, two directors whenever accrued dividends have not been paid on
two annual dividend payment dates or when accrued dividends in an amount
equivalent to six full quarterly dividends are in arrears. The Redeemable
Preference Stock restricts the ability of KACC to redeem or pay dividends on
common stock if KACC is in default on any dividends payable on Redeemable
Preference Stock.

PREFERENCE STOCK

KACC has four series of $100 par value Cumulative Convertible Preference Stock
("$100 Preference Stock") with annual dividend requirements of between 4 1/8%
and 4 3/4%. KACC has the option to redeem the $100 Preference Stock at par
value plus accrued dividends. KACC does not intend to issue any additional
shares of the $100 Preference Stock.

The $100 Preference Stock can be exchanged for per share cash amounts between
$69 - $80. KACC records the $100 Preference Stock at their exchange amounts for
financial statement presentation and the Company includes such amounts in
minority interests. At December 31, 1996, and 1995, outstanding shares of $100
Preference Stock were 21,630 and 22,214, respectively.

PREFERRED STOCK

Series A Convertible--In 1993, Kaiser issued 19,382,950 of its $.65 Depositary
Shares (the "Depositary Shares"), each representing one-tenth of a share of
Series A Mandatory Conversion Premium Dividend Preferred Stock (the "Series A
Shares"). On September 19, 1995, the Company redeemed all 1,938,295 Series A
Shares, which resulted in the simultaneous redemption of all Depositary Shares
in exchange for (i) 13,126,521 shares of the Company's





38 KAISER ALUMINUM CORPORATION 1996 ANNUAL REPORT

<PAGE>   29
(In millions of dollars, except share amounts)
- --------------------------------------------------------------------------------

Common Stock and (ii) $2.8 in cash in satisfaction of all accrued and unpaid
dividends up to and including the day immediately prior to the redemption date
and any fractional shares of common stock that would have otherwise been
issuable.

PRIDES Convertible--In the first quarter of 1994, the Company consummated the
public offering of 8,855,550 shares of the PRIDES. The net proceeds from the
sale of the shares of PRIDES were approximately $100.1. The Company used such
net proceeds to make non-interest bearing loans to KACC in the aggregate
principal amount of $33.2 (the aggregate dividends scheduled to accrue on the
shares of PRIDES from the issuance date until December 31, 1997, the date on
which the outstanding PRIDES will be mandatorily converted into shares of the
Company's Common Stock), evidenced by intercompany notes, and used the balance
of such net proceeds to make capital contributions to KACC in the aggregate
amount of $66.9.  Holders of shares of PRIDES are entitled to receive (when,
as, and if the Board of Directors declares dividends on the PRIDES) cumulative
preferential cash dividends at a rate per annum of 8.255% of the per share
offering price (equivalent to $.97 per annum for each share of PRIDES), from
the date of initial issuance, payable quarterly in arrears. Holders of shares
of PRIDES have a 4/5 vote for each share held of record and, except as required
by law, are entitled to vote together with the holders of the Company's Common
Stock and together with the holders of any other classes or series of stock who
are entitled to vote in such manner on all matters submitted to a vote of
common stockholders.

On December 31, 1997, unless either previously redeemed by the Company or
converted at the option of the holder, each of the outstanding shares of PRIDES
will mandatorily convert into one share of the Company's Common Stock, subject
to adjustment in certain events, and the right to receive an amount in cash
equal to all accrued and unpaid dividends thereon.

At any time and from time to time after December 31, 1996, the Company may
redeem any or all of the outstanding shares of PRIDES. The number of shares of
the Company's Common Stock a holder will receive upon redemption will vary
depending on a formula and the market price of the Company's Common Stock from
time to time, but in no event will be less than .8333 of a share of Common
Stock, subject to adjustment in certain events. At any time prior to December
31, 1997, each share of PRIDES is convertible at the option of the holder
thereof into .8333 of a share of Common Stock (equivalent to a conversion price
of $14.10 per share of Common Stock), subject to adjustment in certain events.
The value of the shares received by a holder will vary depending on the market
price of the Company's Common Stock.

PLEDGED SHARES

At December 31, 1996, 27,938,250 shares of the Company's Common Stock (the
"Pledged Shares") beneficially owned by MAXXAM Group Holdings Inc. ("MGHI"), a
wholly owned subsidiary of MAXXAM, were pledged as security for debt of MAXXAM
Group Inc. ("MGI"), a wholly owned subsidiary of MGHI, consisting of $100.0
aggregate principal amount of 11 1/4% Senior Secured Notes due 2003 and $125.7
aggregate principal amount of 12 1/4% Senior Secured Discount Notes due 2003
(collectively the "MGI Secured Debt"). Additionally, up to 16,055,000 of the
Pledged Shares are to be pledged by MGHI as security for $130.0 principal
amount of 12% Senior Secured Notes due 2003 issued in December 1996 by MGHI, if
any of the Pledged Shares are released as security for the MGI Secured Debt by
reason of an early retirement of such indebtedness (other than by a
refinancing).

PROPOSED RECAPITALIZATION

On February 5, 1996, the Company announced that it filed with the Securities
and Exchange Commission ("SEC") a preliminary proxy statement relating to a
proposed recapitalization and a special meeting of stockholders to consider and
vote upon the proposal. The proposed recapitalization would have: (i) provided
for two classes of





                               KAISER ALUMINUM CORPORATION 1996 ANNUAL REPORT 39

<PAGE>   30
Kaiser Aluminum Corporation and Subsidiary Companies

Notes to Consolidated Financial Statements (continued)

(In millions of dollars, except share amounts)
- --------------------------------------------------------------------------------

common stock: Class A Common Shares, $.01 par value, with one vote per share
and a new lesser-voting class designated as Common Stock, $.01 par value, with
1/10 vote per share; (ii) redesignated as Class A Common Shares the 100 million
currently authorized shares of existing common stock and authorize an
additional 250 million shares to be designated as Common Stock; and (iii)
changed each issued share of the Company's existing common stock, par value
$.01 per share, into (a) .33 of a Class A Common Share and (b) .67 of a share
of Common Stock. Although approved by the Company's stockholders, the proposed
recapitalization was not implemented and was ultimately abandoned as a result
of an unfavorable court ruling in a suit that had challenged the plan. The
decision to abandon the proposed recapitalization does not preclude a
recapitalization from being proposed to the Company's stockholders in the
future.

8.    COMMITMENTS AND CONTINGENCIES

COMMITMENTS

KACC has a variety of financial commitments, including purchase agreements,
tolling arrangements, forward foreign exchange and forward sales contracts (see
Note 9), letters of credit, and guarantees. Such purchase agreements and
tolling arrangements include long-term agreements for the purchase and tolling
of bauxite into alumina in Australia by QAL. These obligations expire in 2008.
Under the agreements, KACC is unconditionally obligated to pay its proportional
share of debt, operating costs, and certain other costs of QAL. The aggregate
minimum amount of required future principal payments at December 31, 1996, is
$94.4, of which approximately $12.0 is due in each of 2000 and 2001 with the
balance being due thereafter. KACC's share of payments, including operating
costs and certain other expenses under the agreements, has ranged between
$110.0-$120.0 over the past three years. KACC also has agreements to supply
alumina to and to purchase aluminum from Anglesey.

Minimum rental commitments under operating leases at December 31, 1996, are as
follows: years ending December 31, 1997- $23.2; 1998-$25.8; 1999-$30.7;
2000-$27.6; 2001-$27.2; thereafter-$160.3. The future minimum rentals
receivable under noncancelable subleases was $46.7 at December 31, 1996.

Rental expenses were $29.6, $29.0, and $26.8, for the years ended December 31,
1996, 1995, and 1994, respectively.

ENVIRONMENTAL CONTINGENCIES

The Company and KACC are subject to a number of environmental laws, to fines or
penalties assessed for alleged breaches of the environmental laws, and to
claims and litigation based upon such laws. KACC currently is subject to a
number of lawsuits 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. The
following table presents the changes in such accruals, which are primarily
included in Long-term liabilities, for the years ended December 31, 1996, 1995,
and 1994:


<TABLE>
<CAPTION>
                                                                    1996         1995       1994
- -------------------------------------------------------------------------------------------------
<S>                                                              <C>          <C>        <C>
Balance at beginning of period                                   $  38.9      $  40.1    $  40.9
Additional amounts                                                   3.2          3.3        2.8
Less expenditures                                                   (8.8)        (4.5)      (3.6)
                                                                 -------      -------    -------
Balance at end of period                                         $  33.3      $  38.9    $  40.1
                                                                 =======      =======    =======
</TABLE>






40 KAISER ALUMINUM CORPORATION 1996 ANNUAL REPORT

<PAGE>   31
(In millions of dollars, except share amounts)
- --------------------------------------------------------------------------------

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 action 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 $3.0 to $9.0 for the years 1997 through 2001 and
an aggregate of approximately $6.0 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 $24.0 and that,
subject to further regulatory review and approval, the factors upon which a
substantial portion of this estimate is based are expected to be resolved over
the next twelve months. 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

KACC 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 KACC or exposure to products
containing asbestos produced or sold by KACC. The lawsuits generally relate to
products KACC has not manufactured for at least 15 years.

The following table presents the changes in number of such claims pending for
the years ended December 31, 1996, 1995, and 1994.


<TABLE>
<CAPTION>
                                                                    1996         1995       1994
- -------------------------------------------------------------------------------------------------
<S>                                                              <C>          <C>       <C>
Number of claims at beginning of period                           59,700       25,200     23,400
Claims received                                                   21,100       41,700     14,300
Claims settled or dismissed                                       (9,700)      (7,200)   (12,500)
                                                                 -------      -------   --------
Number of claims at end of period                                 71,100       59,700     25,200
                                                                 =======      =======   ========
</TABLE>




A substantial portion of the asbestos-related claims that were filed and served
on KACC during 1995 and 1996 were filed in Texas. KACC has been advised by its
counsel that, although there can be no assurance, the increase in pending
claims may have been attributable in part to tort reform legislation in Texas.
Although asbestos-related claims are currently exempt from certain aspects of
the Texas tort reform legislation, management has been advised that efforts to
remove the asbestos-related exemption in the tort reform legislation relating
to the doctrine of forum non conveniens, as well as other developments in the
legislative and legal environment in Texas, may be responsible for the
accelerated pace of new claims experienced in late 1995 and its continuance in
1996, albeit at a somewhat reduced rate.

Based on past experience and reasonably anticipated future activity, the
Company has established an accrual for estimated asbestos-related costs for
claims filed and estimated to be filed through 2008. There are inherent
uncertainties involved in estimating asbestos-related costs, and the Company's
actual costs could exceed these estimates. The Company's accrual was calculated
based on the current and anticipated number of asbestos-related claims, the





                               KAISER ALUMINUM CORPORATION 1996 ANNUAL REPORT 41

<PAGE>   32
Kaiser Aluminum Corporation and Subsidiary Companies

Notes to Consolidated Financial Statements (continued)

(In millions of dollars, except share amounts)

prior timing and amounts of asbestos-related payments, and the advice of
Wharton Levin Ehrmantraut Klein & Nash, P.A.  with respect to the current state
of the law related to asbestos claims. Accordingly, an estimated
asbestos-related cost accrual of $136.7, before consideration of insurance
recoveries, is included primarily in Long-term liabilities at December 31,
1996. While the Company does not presently believe there is a reasonable basis
for estimating such costs beyond 2008 and, accordingly, no accrual has been
recorded for such costs which may be incurred beyond 2008, there is a
reasonable possibility that such costs may continue beyond 2008, and such costs
may be substantial. The Company estimates that annual future cash payments in
connection with such litigation will be approximately $8.0 to $17.0 for each of
the years 1997 through 2001, and an aggregate of approximately $80.0
thereafter.

The Company believes that KACC has insurance coverage available to recover a
substantial portion of its asbestos-related costs. Claims for recovery from
some of KACC's insurance carriers are currently subject to pending litigation
and other carriers have raised certain defenses, which have resulted in delays
in recovering costs from the insurance carriers.  The timing and amount of
ultimate recoveries from these insurance carriers are dependent upon the
resolution of these disputes. The Company believes, based on prior
insurance-related recoveries in respect of asbestos-related claims, existing
insurance policies, and the advice of Thelen, Marrin, Johnson & Bridges LLP
with respect to applicable insurance coverage law relating to the terms and
conditions of those policies, that substantial recoveries from the insurance
carriers are probable. Accordingly, an estimated aggregate insurance recovery
of $109.8, determined on the same basis as the asbestos-related cost accrual,
is recorded primarily in Other assets at December 31, 1996.

Management continues to monitor claims activity, the status of lawsuits
(including settlement initiatives), legislative progress, 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. 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, results of operations, or liquidity.

OTHER CONTINGENCIES

The Company or KACC 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.

9.    DERIVATIVE FINANCIAL INSTRUMENTS AND RELATED HEDGING PROGRAMS

At December 31, 1996, the net unrealized gain on KACC's position in aluminum
forward sales and option contracts, (based on an average price of $1,610 per
ton ($.73 per pound) of primary aluminum), natural gas and fuel oil forward
purchase and option contracts, and forward foreign exchange contracts, was
approximately $10.5. However, increases in the price of primary aluminum during
January 1997 caused KACC's net hedging position at January 31, 1997, to change
to an unrealized loss of approximately $2.2. Any gains or losses on the
derivative contracts utilized in KACC's hedging activities are offset by losses
or gains, respectively, on the transactions being hedged.





42 KAISER ALUMINUM CORPORATION 1996 ANNUAL REPORT

<PAGE>   33
(In millions of dollars, except share amounts)
- --------------------------------------------------------------------------------

ALUMINA AND ALUMINUM

The Company's earnings are sensitive to changes in the prices of alumina,
primary aluminum and fabricated aluminum products, and also depend to a
significant degree upon the volume and mix of all products sold. Primary
aluminum prices have historically been subject to significant cyclical price
fluctuations. Alumina prices as well as fabricated aluminum product prices
(which vary considerably among products) are significantly influenced by
changes in the price of primary aluminum but generally lag behind primary
aluminum price changes by up to three months. During the period January 1, 1993
through December 31, 1996, the Average Midwest United States transaction price
for primary aluminum has ranged from approximately $.50 to $1.00 per pound.

From time to time in the ordinary course of business, KACC enters into hedging
transactions 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 market price of primary aluminum. Forward sales contracts are used by KACC
to effectively lock-in or fix the price that KACC will receive for its
shipments. KACC also uses option contracts (i) to establish a minimum price for
its product shipments, (ii) to establish a "collar" or range of price for
KACC's anticipated sales, and/or (iii) to permit KACC to realize possible
upside price movements. As of December 31, 1996, KACC had sold forward, at
fixed prices, approximately 70,000 and 93,600 tons of primary aluminum with
respect to 1997 and 1998, respectively. As of December 31, 1996, KACC had also
purchased put options to establish a minimum price for approximately 202,700
and 52,000 tons with respect to 1997 and 1998, respectively, and had entered
into option contracts that established a price range for an additional 165,600
tons with respect to 1998. During January 1997, the Company entered into
additional option contracts that establish a price range for 51,500, 60,000 and
51,000 tons with respect to 1997, 1998 and 1999, respectively. During January
1997 KACC also sold forward, at fixed prices, an additional 24,000 tons with
respect to 1999.

As of December 31, 1996, KACC had sold forward approximately 90% of the alumina
available to it in excess of its projected internal smelting requirements for
1997 and 1998. Virtually all of such 1997 and 1998 sales were made at prices
indexed to future prices of primary aluminum.

ENERGY

KACC is exposed to energy price risk from fluctuating prices for fuel oil and
natural gas consumed in the production process. Accordingly, KACC from time to
time in the ordinary course of business enters into hedging transactions with
major suppliers of energy and energy related financial instruments. As of
December 31, 1996, KACC had a combination of fixed price purchase and option
contracts for the purchase of approximately 40,000 MMBtu of natural gas per day
during the first and second quarter of 1997, and for 25,000 MMBtu of natural
gas per day for the period July 1997 through December 1998. At December 31,
1996, KACC also held option contracts for an average of 152,000 barrels of fuel
oil per month for 1997 and 174,000 barrels of fuel oil per month for 1998.

FOREIGN CURRENCY

KACC enters into forward exchange contracts to hedge material cash commitments
to foreign subsidiaries or affiliates. At December 31, 1996, KACC had net
forward foreign exchange contracts totaling approximately $81.6 for the
purchase of 110.0 Australian dollars from January 1997 through June 1998, in
respect of its commitments for 1997 and 1998 expenditures denominated in
Australian dollars.

10.   SEGMENT AND GEOGRAPHICAL AREA INFORMATION

The Company's operations are located in many foreign countries, including
Australia, Canada, the People's Republic of China, Ghana, Jamaica, and the
United Kingdom. Foreign operations in general may be more vulnerable than
domestic operations due to a variety of political and other risks. Sales and
transfers among geographic areas are made on a basis intended to reflect the
market value of products.





                               KAISER ALUMINUM CORPORATION 1996 ANNUAL REPORT 43

<PAGE>   34
Kaiser Aluminum Corporation and Subsidiary Companies

Notes to Consolidated Financial Statements (continued)

(In millions of dollars, except share amounts)
- --------------------------------------------------------------------------------

The aggregate foreign currency gain included in determining net income was $5.3
for the year ended December 31, 1995, and was immaterial in 1996 and 1994.

No single customer accounted for sales in excess of 10% of total revenue in
1996 and 1995. Sales of more than 10% of total revenue to a single customer
were $58.2 of bauxite and alumina and $147.7 of aluminum processing for the
year ended December 31, 1994, respectively.

Export sales were less than 10% of total revenue during the years ended
December 31, 1996, 1995, and 1994, respectively.

Geographical area information relative to operations is summarized as follows:


<TABLE>
<CAPTION>
                                  Year Ended                                    Other
                                December 31,   Domestic  Caribbean   Africa   Foreign   Eliminations      Total
- --------------------------------------------------------------------------------------------------------------
<S>                                 <C>        <C>         <C>     <C>        <C>           <C>        <C>
Net sales to unaffiliated
   customers                            1996   $1,610.0    $ 201.8  $ 198.3   $ 180.4                  $2,190.5
                                        1995    1,589.5      191.7    239.4     217.2                   2,237.8
                                        1994    1,263.2      169.9    180.0     168.4                   1,781.5

Sales and transfers among               1996               $ 116.9            $ 206.0        $(322.9)
   geographic areas                     1995                  79.6              191.5         (271.1)
                                        1994                  98.7              139.4         (238.1)

Equity in income (losses) of            1996    $    .3                       $   8.5                   $   8.8
   unconsolidated affiliates            1995        (.2)                         19.4                      19.2
                                        1994         .2                          (2.1)                     (1.9)

Operating income (loss)                 1996    $   4.4    $   1.6  $  27.8   $  64.0                   $  97.8
                                        1995       32.0        9.8     83.5      85.3                     210.6
                                        1994     (128.8)       9.9     18.3      44.4                     (56.2)

Investment in and advances to           1996    $    .5    $  25.3            $ 142.6                   $ 168.4
   unconsolidated affiliates            1995        1.2       27.1              149.9                     178.2

Identifiable assets                     1996   $2,136.7    $ 391.2  $ 194.7   $ 211.4                  $2,934.0
                                        1995    2,017.9      381.9    196.5     216.9                   2,813.2
</TABLE>






44 KAISER ALUMINUM CORPORATION 1996 ANNUAL REPORT

<PAGE>   35

(In millions of dollars, except share amounts)
- --------------------------------------------------------------------------------

Financial information by industry segment at December 31, 1996 and 1995, and
for the years ended December 31, 1996, 1995, and 1994, is as follows:


<TABLE>
<CAPTION>
                                                 Year Ended      Bauxite &     Aluminum
                                               December 31,        Alumina   Processing   Corporate       Total
- ---------------------------------------------------------------------------------------------------------------
<S>                                                    <C>         <C>         <C>         <C>         <C>
Net sales to unaffiliated customers                    1996        $ 508.0     $1,682.5                $2,190.5
                                                       1995          514.2      1,723.6                 2,237.8
                                                       1994          432.5      1,349.0                 1,781.5

Intersegment sales                                     1996        $ 181.6                              $ 181.6
                                                       1995          159.7                                159.7
                                                       1994          146.8                                146.8

Equity in income (losses) of unconsolidated
   affiliates                                          1996        $   1.7      $   6.7     $    .4     $   8.8
                                                       1995            3.6         15.8         (.2)       19.2
                                                       1994           (4.7)         2.6          .2        (1.9)

Operating income (loss)                                1996        $   1.1      $ 156.5    $  (59.8)    $  97.8
                                                       1995           54.0        238.9       (82.3)      210.6
                                                       1994           19.8         (8.4)      (67.6)      (56.2)

Depreciation                                           1996        $  31.2      $  61.7     $   3.1     $  96.0
                                                       1995           31.1         60.4         2.8        94.3
                                                       1994           33.5         59.1         2.8        95.4

Capital expenditures                                   1996        $  29.9      $ 126.9     $   4.7    $  161.5
                                                       1995           27.3         53.0         8.1        88.4
                                                       1994           28.9         39.9         1.2        70.0

Investment in and advances to unconsolidated
   affiliates                                          1996        $ 121.3      $  46.6     $    .5     $ 168.4
                                                       1995          129.9         47.1         1.2       178.2

Identifiable assets                                    1996        $ 784.6     $1,408.5     $ 740.9    $2,934.0
                                                       1995          746.0      1,341.2       726.0     2,813.2
</TABLE>






                               KAISER ALUMINUM CORPORATION 1996 ANNUAL REPORT 45

<PAGE>   36
Kaiser Aluminum Corporation and Subsidiary Companies

Five-Year Financial Data--Consolidated Balance Sheets


<TABLE>
<CAPTION>
                                                                               December 31,
                                                   -------------------------------------------------------------
(In millions of dollars, except share amounts)         1996           1995         1994        1993        1992
- ----------------------------------------------------------------------------------------------------------------
<S>                                                <C>            <C>          <C>         <C>         <C>
ASSETS
Current assets:
   Cash and cash equivalents                        $  81.3        $  21.9      $  17.6     $  14.7     $  19.1
   Receivables                                        252.4          308.6        199.2       234.7       270.0
   Inventories                                        562.2          525.7        468.0       426.9       439.9
   Prepaid expenses and other current assets          127.8           76.6        158.0        60.7        37.0
                                                   --------       --------     ---------   --------    --------
      Total current assets                          1,023.7          932.8        842.8       737.0       766.0
Investments in and advances to
   unconsolidated affiliates                          168.4          178.2        169.7       183.2       150.1
Property, plant, and equipment-net                  1,168.7        1,109.6      1,133.2     1,163.7     1,066.8
Deferred income taxes                                 264.5          269.1        271.2       210.8
Other assets                                          308.7          323.5        281.2       233.2       189.7
                                                   --------       --------     ---------   --------    --------
      Total                                        $2,934.0       $2,813.2     $2,698.1    $2,527.9    $2,172.6
                                                   ========       ========     ========    ========    ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable and accruals                     $453.4         $451.2       $439.3      $339.7      $351.4
   Accrued postretirement medical benefit
     obligation-current portion                        50.1           46.8         47.0        47.6
   Payable to affiliates                               97.0           94.2         85.3        62.4        78.4
   Long-term debt-current portion                       8.9            8.9         11.5         8.7        25.9
                                                   --------       --------     ---------   --------    --------
      Total current liabilities                       609.4          601.1        583.1       458.4       455.7
Long-term liabilities                                 458.1          548.5        495.5       501.8       281.7
Accrued postretirement medical benefit
   obligation                                         722.5          734.0        734.9       713.1
Long-term debt                                        953.0          749.2        751.1       720.2       765.1
Minority interests                                    121.7          122.7        116.2       105.0       104.9

Stockholders' equity:
   Preferred stock                                       .4             .4           .6          .2
   Common stock                                          .7             .7           .6          .6          .6
   Additional capital                                 531.1          530.3        527.8       425.9       288.5
   Retained earnings (accumulated deficit)           (460.1)        (459.9)      (502.6)     (375.7)      282.8
   Additional minimum pension liability                (2.8)         (13.8)        (9.1)      (21.6)       (6.7)
                                                   --------       --------     ---------   --------    --------
      Total stockholders' equity                       69.3           57.7         17.3        29.4       565.2
                                                   --------       --------     ---------   --------    --------
      Total                                        $2,934.0       $2,813.2     $2,698.1    $2,527.9    $2,172.6
                                                   ========       ========     ========    ========    ========
Debt-to-capital ratio(1)                               81.2           78.1         82.4        81.3        54.1
</TABLE>


(1)   Total of long-term debt--current portion and long-term debt (collectively
      "total debt") as a ratio of total debt, deferred income tax liabilities,
      minority interests, and stockholders' equity.





46 KAISER ALUMINUM CORPORATION 1996 ANNUAL REPORT

<PAGE>   37
Five-Year Financial Data--Statements of Consolidated Income (Loss)


<TABLE>
<CAPTION>
Year Ended December 31,
(In millions of dollars, except share amounts)         1996           1995        1994        1993         1992
- ---------------------------------------------------------------------------------------------------------------
<S>                                                <C>            <C>         <C>         <C>          <C>
Net sales                                          $2,190.5       $2,237.8    $ 1,781.5    $1,719.1    $1,909.1
                                                   --------       --------    ---------    --------    --------
Costs and expenses:
   Cost of products sold                            1,869.1        1,798.4      1,625.5     1,587.7     1,619.3
   Depreciation                                        96.0           94.3         95.4        97.1        80.3
   Selling, administrative, research and
      development, and general                        127.6          134.5        116.8       121.9       119.6
   Restructuring of operations                                                                 35.8
                                                   --------       --------    ---------    --------    --------
      Total costs and expenses                      2,092.7        2,027.2      1,837.7     1,842.5     1,819.2
                                                   --------       --------    ---------    --------    --------
Operating income (loss)                                97.8          210.6        (56.2)     (123.4)       89.9
Other income (expense):
   Interest expense                                   (93.4)         (93.9)       (88.6)      (84.2)      (78.7)
   Other-net                                           (2.7)         (14.1)        (7.3)        (.9)       20.9
                                                   --------       --------    ---------    --------    --------

Income (loss) before income taxes, minority
   interests, extraordinary loss, and
   cumulative effect of changes in
   accounting principles                                1.7          102.6       (152.1)     (208.5)       32.1
Credit (provision) for income taxes                     9.3          (37.2)        53.8        86.9        (5.3)
Minority interests                                     (2.8)          (5.1)        (3.1)       (1.5)         .1
                                                   --------       --------    ---------    --------    --------
Income (loss) before extraordinary loss and
   cumulative effect of changes in accounting
   principles                                           8.2           60.3       (101.4)     (123.1)       26.9
Extraordinary loss on early extinguishment
   of debt, net of tax benefit of $2.9 and
   $11.2 for 1994 and 1993, respectively                                           (5.4)      (21.8)

Cumulative effect of changes in accounting
   principles, net of tax benefit of $237.7                                                  (507.3)
                                                   --------       --------    ---------    --------    --------
Net income (loss)                                  $    8.2       $   60.3    $  (106.8)   $ (652.2)   $   26.9
                                                   ========       ========    =========    ========    ========
Per common and common equivalent share:
   Net income (loss):
      Primary                                      $    .00       $    .69    $   (2.18)   $ (11.47)   $    .47
      Fully diluted                                                    .72
   Dividends declared                                                                                       .20
</TABLE>






                               KAISER ALUMINUM CORPORATION 1996 ANNUAL REPORT 47

<PAGE>   38
Kaiser Aluminum Corporation and Subsidiary Companies

Quarterly Financial Data (unaudited)


<TABLE>
<CAPTION>
                                                                                Quarter Ended
                                                               ----------------------------------------------------
(In millions of dollars, except share amounts)                March 31    June 30   September 30    December 31
- -------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>        <C>            <C>            <C>
1996
   Net Sales                                                   $ 531.1    $ 567.6        $ 553.4        $ 538.4
   Operating income                                               40.3       36.6           10.5           10.4
   Net Income (loss)                                               9.9        8.2           (6.6)          (3.3)(1)
   Earnings (loss) per common and common equivalent shares:
      Primary                                                      .11        .09           (.12)          (.08)(1)
   Common stock market price:
      High                                                      16 1/8     15 3/4         12 1/2             12
      Low                                                           12     10 7/8          9 3/4         10 1/8

1995
   Net sales                                                   $ 513.0    $ 583.4        $ 550.3        $ 591.1
   Operating income                                               32.6       63.6           53.2           61.2
   Net income                                                      3.5       23.3           12.5           21.0
   Earnings (loss) per common and common equivalent share:
      Primary                                                     (.03)(2)    .31            .13            .26
      Fully diluted                                                                          .14
   Common stock market price:
      High                                                      11 7/8         14             21         15 3/4
      Low                                                       10 1/8     10 1/2         13 7/8         10 3/4
</TABLE>


(1)   Includes approximately $17.0 on an after tax basis resulting from
      settlements of certain tax matters. Excluding these items, primary loss
      per common and common equivalent share would have been approximately
      $.32.

(2)   After deduction of $5.3 of dividends on preferred stock from net income.





48 KAISER ALUMINUM CORPORATION 1996 ANNUAL REPORT





<PAGE>   1

                                                                    EXHIBIT 23.1


                   CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS


     As independent public accountants, we hereby consent to the incorporation
of our reports included and incorporated by reference in this Form 10-K, into 
the Company's previously filed Registration Statements File No.'s 333-71, 
333-16239 and 33-49889.



                                               ARTHUR ANDERSEN LLP


Houston, Texas
March 26, 1997







<PAGE>   1
                                                                   EXHIBIT 23.2




         We hereby consent to (i) any references to our firm, or (ii) any
references to advice rendered by our firm contained in Kaiser Aluminum
Corporation's Annual Report on Form 10-K for the year ended December 31, 1996,
which is incorporated into the company's previously filed Registration
Statements on Form S-3 No.'s 333-16239 and 333-71 and Registration Statement on
Form S-8 No. 33-49889.



                                           WHARTON LEVIN EHRMANTRAUT
                                           KLEIN & NASH, P.A.




March 26, 1997







<PAGE>   1


                                                                   EXHIBIT 23.3




         With respect to the Registration Statements on Form S-3 (No.'s
333-16239 and 333-71) and on Form S-8 (No. 33-49889) filed by Kaiser Aluminum
Corporation, a Delaware corporation (the "Registration Statements"), we hereby
consent to use of our name, and to references to advice rendered by our firm,
incorporated by reference into the Registration Statements from Kaiser Aluminum
Corporation's Annual Report on Form 10-K for the year ended December 31, 1996,
under the headings (i) Management's Discussion and Analysis of Financial
Condition and Results of Operation - Liquidity and Capital resources - Asbestos
Contingencies and (ii) Note 8 of the Notes to Consolidated Financial Statements.



                                       THELEN, MARRIN, JOHNSON &
                                             BRIDGES LLP




March 26, 1997









<TABLE> <S> <C>

<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements of the Company for the twelve months ended
December 31, 1996, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000811596
<NAME> KAISER ALUMINUM CORPORATION
<MULTIPLIER> 1,000,000
       
<S>                             <C>
<PERIOD-TYPE>                   12-MOS
<FISCAL-YEAR-END>                          DEC-31-1996
<PERIOD-START>                             JAN-01-1996
<PERIOD-END>                               DEC-31-1996
<CASH>                                              81
<SECURITIES>                                         0
<RECEIVABLES>                                      252
<ALLOWANCES>                                         5
<INVENTORY>                                        562
<CURRENT-ASSETS>                                 1,024
<PP&E>                                           1,169
<DEPRECIATION>                                      96
<TOTAL-ASSETS>                                   2,934
<CURRENT-LIABILITIES>                              609
<BONDS>                                            953
<COMMON>                                             1
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                          0
<OTHER-SE>                                          68
<TOTAL-LIABILITY-AND-EQUITY>                     2,934
<SALES>                                          2,191
<TOTAL-REVENUES>                                 2,191
<CGS>                                            1,869
<TOTAL-COSTS>                                    1,869
<OTHER-EXPENSES>                                   224
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                                  93
<INCOME-PRETAX>                                      2
<INCOME-TAX>                                       (9)
<INCOME-CONTINUING>                                  8
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                         8
<EPS-PRIMARY>                                      .00
<EPS-DILUTED>                                      .00
        

</TABLE>