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


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-Q

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


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

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001

                        Commission File Number 333-18723


                           MAXXAM GROUP HOLDINGS INC.
             (Exact name of Registrant as specified in its charter)



                DELAWARE                              76-0518669
      (State or other jurisdiction                 (I.R.S. Employer
    of incorporation or organization)           Identification Number)

       5847 SAN FELIPE, SUITE 2600
             HOUSTON, TEXAS                              77057
(Address of Principal Executive Offices)              (Zip Code)


       Registrant's telephone number, including area code: (713) 975-7600



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


   Number of shares of common stock outstanding at November 12, 2001: 1,000


      REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(A)
AND (B) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.

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


                                TABLE OF CONTENTS



PART I.  -  FINANCIAL INFORMATION

         Item 1.   Financial Statements:
                   Consolidated Balance Sheet at September 30, 2001 and
                        December 31, 2000
                   Consolidated Statement of Operations for the three and nine
                        months ended September 30, 2001and 2000
                   Consolidated Statement of Cash Flows for the nine months
                        ended September 30, 2001 and 2000
                   Condensed Notes to Consolidated Financial Statements

         Item 2.   Management's Discussion and Analysis of Financial Condition
                        and Results of Operations

         Item 3.   Quantitative and Qualitative Disclosures About Market Risk

PART II.  -  OTHER INFORMATION

         Item 1.   Legal Proceedings
         Item 6.   Exhibits and Reports on Form 8-K
         Signatures

APPENDIX A - GLOSSARY OF DEFINED TERMS



                   MAXXAM GROUP HOLDINGS INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET
               (IN MILLIONS OF DOLLARS, EXCEPT SHARE INFORMATION)



                                                                                        SEPTEMBER 30, DECEMBER 31,
                                                                                            2001          2000
                                                                                        ------------- -------------
                                                                                         (UNAUDITED)
                                        ASSETS

Current assets:
   Cash and cash equivalents........................................................... $       44.8  $      201.7
   Marketable securities and other investments.........................................         54.0          28.9
   Receivables:
      Trade............................................................................         14.9          10.4
      Receivables from MAXXAM..........................................................          2.5           6.6
      Other............................................................................          3.2           4.0
   Inventories.........................................................................         56.3          55.1
   Prepaid expenses and other current assets...........................................         23.2          14.2
                                                                                        ------------- -------------
      Total current assets.............................................................        198.9         320.9
Property, plant and equipment, net of accumulated depreciation of $111.2 and
   $102.9, respectively................................................................        229.6         100.0
Timber and timberlands, net of accumulated depletion of $190.9 and
   $183.8, respectively................................................................        240.1         244.3
Note receivable from MAXXAM............................................................        183.1         164.5
Investment in Kaiser...................................................................         80.4          27.6
Deferred financing costs, net..........................................................         23.4          19.8
Deferred income taxes..................................................................         22.8          27.3
Restricted cash, marketable securities and other investments...........................         90.1          96.6
Other assets...........................................................................          7.2           7.9
                                                                                        ------------- -------------
                                                                                        $    1,075.6  $    1,008.9
                                                                                        ============= =============

                         LIABILITIES AND STOCKHOLDER'S DEFICIT

Current liabilities:
   Accounts payable.................................................................... $        5.9  $        6.2
   Accrued interest....................................................................         13.6          32.4
   Accrued compensation and related benefits...........................................         10.2           8.2
   Deferred income taxes...............................................................          1.2          10.0
   Other accrued liabilities...........................................................          6.8           3.6
   Short-term borrowings and current maturities of long-term debt......................         37.4          53.5
                                                                                        ------------- -------------
      Total current liabilities........................................................         75.1         113.9
Long-term debt, less current maturities................................................        960.9         886.6
Deferred income taxes..................................................................         31.5          31.2
Other noncurrent liabilities...........................................................         24.0          26.6
                                                                                        ------------- -------------
      Total liabilities................................................................      1,091.5       1,058.3
                                                                                        ------------- -------------

Contingencies (See Note 8)

Stockholder's deficit:
   Common stock, $1.00 par value; 3,000 shares authorized; 1,000 shares issued.........            -             -
   Additional capital..................................................................        123.2         123.2
   Accumulated deficit.................................................................       (149.5)       (172.6)
   Accumulated other comprehensive loss................................................         10.4             -
                                                                                        ------------- -------------
      Total stockholder's deficit......................................................        (15.9)        (49.4)
                                                                                        ------------- -------------
                                                                                        $    1,075.6  $    1,008.9
                                                                                        ============= =============


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


                   MAXXAM GROUP HOLDINGS INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF OPERATIONS
                            (IN MILLIONS OF DOLLARS)


                                                                     THREE MONTHS ENDED        NINE MONTHS ENDED
                                                                        SEPTEMBER 30,            SEPTEMBER 30,
                                                                   -----------------------  -----------------------
                                                                      2001         2000        2001        2000
                                                                   -----------  ----------  ----------  -----------
                                                                                      (UNAUDITED)
Net sales:
   Lumber and logs...............................................  $     39.5   $    43.0   $   124.4   $    137.7
   Other.........................................................         7.5         6.4        20.7         15.0
                                                                   -----------  ----------  ----------  -----------
                                                                         47.0        49.4       145.1        152.7
                                                                   -----------  ----------  ----------  -----------

Operating expenses:
   Cost of goods sold............................................        36.9        40.5       119.6        112.3
   Selling, general and administrative expenses..................         5.1         3.5        13.9         11.3
   Impairment of assets..........................................         0.7           -         0.7            -
   Depletion and depreciation....................................         5.5         5.3        15.7         14.8
                                                                   -----------  ----------  ----------  -----------
                                                                         48.2        49.3       149.9        138.4
                                                                   -----------  ----------  ----------  -----------

Operating income (loss)..........................................        (1.2)        0.1        (4.8)        14.3

Other income (expense):
   Equity in earnings (loss) of Kaiser...........................        23.7        (5.9)       43.3          2.1
   Investment, interest and other income (expense), net..........         7.1        10.6        25.5         34.6
   Interest expense..............................................       (20.2)      (19.7)      (56.7)       (59.8)
                                                                   -----------  ----------  ----------  -----------
Income (loss) before income taxes................................         9.4       (14.9)        7.3         (8.8)

Benefit in lieu of income taxes..................................         3.2         2.1        12.2          2.9
                                                                   -----------  ----------  ----------  -----------
Income (loss) before extraordinary item..........................        12.6       (12.8)       19.5         (5.9)
Extraordinary item:
   Gains on repurchases of debt, net of income tax provisions
      of $0.3, $2.0 and $1.3, respectively.......................           -         0.6         3.6          2.0
                                                                   -----------  ----------  ----------  -----------
Net income (loss)................................................  $     12.6   $   (12.2)  $    23.1   $     (3.9)
                                                                   ===========  ==========  ==========  ===========



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


                   MAXXAM GROUP HOLDINGS INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF CASH FLOWS
                            (IN MILLIONS OF DOLLARS)


                                                                                                 NINE MONTHS ENDED
                                                                                                   SEPTEMBER 30,
                                                                                               --------------------
                                                                                                 2001       2000
                                                                                               ---------  ---------
                                                                                                    (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income (loss).......................................................................... $   23.1   $   (3.9)
   Adjustments to reconcile net income (loss) to net cash used for operating activities:
      Depletion and depreciation..............................................................     15.7       14.8
      Non-cash impairment charge..............................................................      0.7          -
      Extraordinary gains on repurchases of debt..............................................     (3.6)      (2.0)
      Equity in undistributed earnings of Kaiser..............................................    (43.3)      (2.1)
      Amortization of deferred financing costs................................................      1.8        1.7
      Net gain on marketable securities.......................................................     (2.7)     (11.1)
      Deferral of interest payment on note receivable from MAXXAM.............................    (18.6)     (16.7)
   Increase (decrease) in cash resulting from changes in:
      Receivables.............................................................................      0.9        2.4
      Inventories, net of depletion...........................................................     (0.9)     (13.6)
      Prepaid expenses and other assets.......................................................     (2.6)      (5.4)
      Accounts payable........................................................................     (0.3)      (0.6)
      Accrued interest........................................................................    (18.8)     (20.4)
      Accrued and deferred income taxes.......................................................    (13.5)      (2.4)
      Other liabilities.......................................................................      5.4        3.2
      Long-term assets and long-term liabilities..............................................     (2.8)       1.2
                                                                                               ---------  ---------
        Net cash used for operating activities................................................    (59.5)     (54.9)
                                                                                               ---------  ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Net purchases of marketable securities.....................................................    (21.6)      (6.1)
   Capital expenditures.......................................................................   (141.6)     (11.0)
   Restricted cash withdrawals used to acquire timberlands....................................        -        0.8
   Net proceeds from dispositions of property and investments.................................        -        0.3
                                                                                               ---------  ---------
        Net cash used for investing activities................................................   (163.2)     (16.0)
                                                                                               ---------  ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from issuances of long-term debt..................................................    122.5          -
   Borrowings (repayments) under revolving credit agreements..................................    (19.0)      25.9
   Redemptions, repurchases of and principal payments on long-term debt.......................    (39.7)     (21.8)
   Incurrence of deferred financing costs.....................................................     (5.3)         -
   Restricted cash (deposits) withdrawals, net................................................     18.4       10.3
   Dividends paid to stockholder..............................................................        -      (45.0)
   Other......................................................................................    (11.1)         -
                                                                                               ---------  ---------
        Net cash provided by (used for) financing activities..................................     65.8      (30.6)
                                                                                               ---------  ---------

NET DECREASE IN CASH AND CASH EQUIVALENTS.....................................................   (156.9)    (101.5)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD..............................................    201.7      189.8
                                                                                               ---------  ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................................................... $   44.8   $   88.3
                                                                                               =========  =========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
   Interest paid, net of capitalized interest................................................. $   73.7   $   78.4
   Tax allocation payments to MAXXAM..........................................................      1.3        0.5

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
   Repurchases of debt using restricted cash and marketable securities........................ $      -   $   36.1


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


                   MAXXAM GROUP HOLDINGS INC. AND SUBSIDIARIES

              CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.    GENERAL

      The information contained in the following notes to the consolidated
financial statements is condensed from that which would appear in the annual
consolidated financial statements; accordingly, the consolidated financial
statements included herein should be reviewed in conjunction with the
consolidated financial statements and related notes thereto contained in the
Form 10-K. Any capitalized terms used but not defined in these Condensed Notes
to Consolidated Financial Statements are defined in the "Glossary of Defined
Terms" contained in Appendix A. All references to the "Company" include MAXXAM
Group Holdings Inc. and its subsidiary companies unless otherwise noted or the
context indicates otherwise. Accounting measurements at interim dates inherently
involve greater reliance on estimates than at year end. The results of
operations for the interim periods presented are not necessarily indicative of
the results to be expected for the entire year.

      The consolidated financial statements included herein are unaudited;
however, they include all adjustments of a normal recurring nature which, in the
opinion of management, are necessary for a fair presentation of the consolidated
financial position of the Company at September 30, 2001, and the consolidated
results of operations for the three and nine months ended September 30, 2001 and
2000, and the consolidated cash flows for the nine months ended September 30,
2001 and 2000. The Company is a wholly owned subsidiary of MAXXAM.

      COMPREHENSIVE INCOME (LOSS)
      The following table sets forth comprehensive income (loss) (in millions).


                                                                    THREE MONTHS ENDED       NINE MONTHS ENDED
                                                                       SEPTEMBER 30,           SEPTEMBER 30,
                                                                  ----------------------- -----------------------
                                                                     2001        2000        2001         2000
                                                                  ----------  ----------- -----------  ----------

Net income (loss)...............................................  $    12.6   $    (12.2) $     23.1   $    (3.9)
Cumulative effect of accounting change..........................          -            -         0.6           -
Unrealized net gains on derivative instruments arising during
   the period...................................................       12.4            -         9.9           -
Less reclassification adjustment for realized net gains   on
   derivative instruments included in net income................       (0.1)           -        (1.0)          -
Change in value of available-for-sale investments, net of income
   tax provision of $0.4, $0.0, $0.6 and $0.0, respectively.....        0.7          0.6         0.9         0.6
                                                                  ----------  ----------- -----------  ----------
Comprehensive income (loss).....................................  $    25.6   $    (11.6) $     33.5   $    (3.3)
                                                                  ==========  =========== ===========  ==========

      ACCOUNTING PRONOUNCEMENTS FOR DERIVATIVE FINANCIAL INSTRUMENTS - KAISER
      Effective January 1, 2001, Kaiser began reporting derivative activities
pursuant to SFAS No. 133, which requires companies to recognize all derivative
instruments as assets or liabilities in the balance sheet and to measure those
instruments at fair value. Kaiser, the Company's equity investee, utilizes
derivative financial instruments primarily to mitigate its exposure to changes
in prices for certain of the products which Kaiser sells and consumes and, to a
lesser extent, to mitigate its exposure to changes in foreign currency exchange
rates. Changes in the market value of Kaiser's derivative instruments represent
unrealized gains or losses. Such unrealized gains or losses will fluctuate,
based on prevailing market prices at each subsequent balance sheet date, until
the transaction occurs. Under SFAS No. 133, these changes are recorded as an
increase or reduction in stockholders' equity through either other comprehensive
income or net income, depending on the facts and circumstances with respect to
the hedge and its documentation. To the extent that changes in the market values
of Kaiser's hedging positions are initially recorded in other comprehensive
income, such changes are reversed from other comprehensive income (offset by any
fluctuations in other "open" positions) and are recorded in traditional net
income upon the occurrence of the transactions to which the hedges relate. Under
the equity method of accounting which the Company follows in accounting for its
investment in Kaiser, the Company will reflect its equity share of Kaiser's
adjustments through either other comprehensive income or traditional net income,
as appropriate.

      SFAS No. 133 requires that, as of the date of initial adoption, the
difference between the market value of derivative instruments and the previous
carrying amount of those derivatives recorded on Kaiser's consolidated balance
sheet be reported in net income or other comprehensive income, as appropriate,
as the cumulative effect of a change in accounting principle. As previously
discussed, this impact was reflected in Kaiser's first quarter 2001 financial
statements, and in turn the Company's equity share of the impact was recorded in
its first quarter 2001 financial statements.

      NEW ACCOUNTING STANDARD

      In August 2001, the Financial Accounting Standards Board issued SFAS No.
143 which addresses accounting and reporting standards for obligations
associated with the retirement of tangible long-lived assets and the related
asset retirement costs. The Company is required to adopt SFAS No. 143 beginning
on January 1, 2003. Management is assessing the impact of the standard on its
results of operations and financial position.

2.    SEGMENT INFORMATION

      As a result of the acquisition of certain real estate in June 2001 which
is described in Note 3 below, and beginning with the second quarter 2001
financial statements, the Company's financial results are reported in two
business segments: forest products and real estate. The column corporate and
other includes the results of the parent company and the investment in Kaiser,
and also serves to reconcile the total of the reportable segments' amounts to
the total in the Company's consolidated financial statements. The following
table presents such unaudited financial information, consistent with the manner
in which management reviews and evaluates the Company's business activities (in
millions).


                                                              FOREST          REAL       CORPORATE    CONSOLIDATED
                                                             PRODUCTS        ESTATE      AND OTHER        TOTAL
                                                           -------------  ------------  ------------  -------------
Net sales for the three months ended:
      September 30, 2001.................................. $       44.8   $       2.2   $         -   $       47.0
      September 30, 2000..................................         49.4            -              -           49.4

Operating income (loss) for the three months ended:
      September 30, 2001..................................         (1.9)          0.7             -           (1.2)
      September 30, 2000..................................          0.1            -              -            0.1

Other income (expense), net for the three months ended:
      September 30, 2001..................................        (13.0)         (2.4)         26.0           10.6
      September 30, 2000..................................        (11.2)           -           (3.8)         (15.0)

Net sales for the nine months ended:
      September 30, 2001..................................        142.8           2.3             -          145.1
      September 30, 2000..................................        152.7            -              -          152.7

Operating income (loss) for the nine months ended:
      September 30, 2001..................................         (5.4)          0.8          (0.2)          (4.8)
      September 30, 2000..................................         14.5            -           (0.2)          14.3

Other income (expense), net for the nine months ended:
      September 30, 2001..................................        (36.3)         (2.5)         50.9           12.1
      September 30, 2000..................................        (32.0)           -            8.9          (23.1)

Total assets as of:
      September 30, 2001..................................        606.7         135.1         333.8        1,075.6
      December 31, 2000...................................        726.2             -         282.7        1,008.9

   NON-RECURRING ITEMS
      As a result of management's ongoing evaluation of operations due to
declines in harvest levels, increased logging costs, and continued difficulty
obtaining approval of timber harvest plans, two of the Company's sawmills have
been idled. In connection with the closure of one of these two mills, the
Company recorded a charge to operating costs of $0.7 million to write-down the
assets to estimated fair value. Further reductions or curtailments in sawmill or
other operations may occur during the next year as MGI completes its evaluation
process, and additional potentially significant writedowns of the investment in
certain assets may be required.

3.    ACQUISITION OF ASSETS

      In June 2001, Lakepointe Assets purchased Lake Pointe Plaza, an office
complex located in Sugarland, Texas, for a purchase price of $131.3 million. The
transaction was financed with proceeds of $122.5 million, net of $5.2 million in
deferred financing costs, from the Lakepointe Notes ($122.5 million principal
amount with a final maturity date of June 8, 2021, and an interest rate of
7.56%), and with a cash payment of $14.0 million. Lakepointe Assets acquired the
property subject to two leases to existing tenants while simultaneously leasing
a majority of the premises, representing all of the remaining space, to an
affiliate of the seller. The office complex is fully leased for a period of 20
years under these three leases. Lakepointe Assets is accounting for these leases
as operating leases. The Lakepointe Notes are secured by the leases, Lake Pointe
Plaza and a $60.0 million residual value insurance contract.

4.    CASH, MARKETABLE SECURITIES AND OTHER INVESTMENTS

      Cash, marketable securities and other investments include the following
amounts which are restricted (in millions):


                                                                                       SEPTEMBER 30,  DECEMBER 31,
                                                                                           2001           2000
                                                                                       ------------- --------------
Current assets:
   Cash and cash equivalents:
      Amounts held as security for short positions in marketable securities..........  $          -  $         9.2
      Other restricted cash and cash equivalents.....................................          13.8           29.2
                                                                                       ------------- --------------
                                                                                               13.8           38.4
                                                                                       ------------- --------------
   Marketable securities, restricted:
      Amounts held in SAR Account....................................................          17.1           16.3
                                                                                       ------------- --------------

Long-term restricted cash, marketable securities and other investments:
   Amounts held in SAR Account.......................................................         137.0          144.4
   Other amounts restricted under the Timber Notes Indenture.........................           2.8            2.9
   Other long-term restricted cash...................................................           2.2            2.0
   Less: Amounts attributable to Timber Notes held in SAR Account....................         (51.9)         (52.7)
                                                                                       ------------- --------------
                                                                                               90.1           96.6
                                                                                       ------------- --------------

Total restricted cash, marketable securities and other investments...................  $      121.0  $       151.3
                                                                                       ============= ==============

      Cash, marketable securities and other investments include a limited
partnership interest in the Equity Fund Partnership, which invests in a
diversified portfolio of common stocks and other equity securities whose issuers
are involved in merger, tender offer, spin-off or recapitalization transactions.
The following table shows the Company's investment in the Equity Fund
Partnership, including restricted amounts held in the SAR Account, and the
ownership interest (dollars in millions).


                                                                                        SEPTEMBER 30,    DECEMBER 31,
                                                                                            2001             2000
                                                                                        -------------   --------------

Investment in Equity Fund Partnership:
   Restricted........................................................................   $       10.6    $        10.1
   Unrestricted......................................................................           36.6               -
                                                                                        -------------   --------------
                                                                                        $       47.2    $        10.1
                                                                                        =============   ==============

Percentage of ownership held.........................................................           13.7%            10.8%
                                                                                        =============   ==============

5.    INVENTORIES

      Inventories consist of the following (in millions):


                                                                                      September 30,   December 31,
                                                                                          2001            2000
                                                                                     --------------  --------------

Lumber.............................................................................  $        32.9   $        34.0
Logs...............................................................................           23.4            21.1
                                                                                     --------------  --------------
                                                                                     $        56.3   $        55.1
                                                                                     ==============  ==============

6.    INVESTMENT IN KAISER

      The Company owns the 27,938,250 Kaiser Shares, 23,443,953 shares of which
are pledged as collateral for the MGHI Notes as of September 30, 2001. Kaiser
operates in several principal aspects of the aluminum industry through the
following business segments: bauxite and alumina, primary aluminum, flat-rolled
products, engineered products and commodities marketing. Kaiser uses a portion
of its bauxite, alumina and primary aluminum production for additional
processing at certain downstream facilities. Kaiser's common stock is publicly
traded on the New York Stock Exchange under the trading symbol "KLU." The Kaiser
Shares represent a 34.6% equity interest in Kaiser at September 30, 2001.

      The market value for the Kaiser Shares based on the price per share quoted
at the close of business on November 13, 2001, was $54.5 million. There can be no
assurance that such value would be realized should the Company dispose of the
Kaiser Shares. The following tables contain summarized financial information for
Kaiser (in millions).


                                                                                        SEPTEMBER 30, DECEMBER 31,
                                                                                            2001          2000
                                                                                        ------------- -------------

Current assets......................................................................... $      990.5  $    1,012.1
Property, plant and equipment, net.....................................................      1,228.5       1,176.1
Other assets...........................................................................      1,145.3       1,154.9
                                                                                        ------------- -------------
        Total assets................................................................... $    3,364.3  $    3,343.1
                                                                                        ============= =============

Current liabilities.................................................................... $      860.4  $      841.4
Long-term debt, less current maturities................................................        698.7         957.8
Other liabilities......................................................................      1,454.3       1,360.6
Minority interests.....................................................................        116.0         101.1
Stockholders' equity...................................................................        234.9          82.2
                                                                                        ------------- -------------
        Total liabilities and stockholders' equity..................................... $    3,364.3  $    3,343.1
                                                                                        ============= =============



                                                                     THREE MONTHS ENDED        NINE MONTHS ENDED
                                                                        SEPTEMBER 30,            SEPTEMBER 30,
                                                                   ------------------------------------------------
                                                                      2001         2000        2001        2000
                                                                   -----------  ----------  ----------  -----------

Net sales........................................................  $    430.3   $   545.2   $ 1,357.4   $  1,673.7
Costs and expenses...............................................      (466.4)     (542.4)   (1,205.7)    (1,582.5)
Other expenses - net.............................................       152.7       (31.9)       53.3        (84.9)
                                                                   -----------  ----------  ----------  -----------
Income (loss) before income taxes and minority interests.........       116.6       (29.1)      205.0          6.3
Benefit (provision) for income taxes.............................       (49.4)       11.2       (83.9)        (2.5)
Minority interests...............................................         1.2         1.1         2.8          2.1
                                                                   -----------  ----------  ----------  -----------
Net income (loss)................................................  $     68.4   $   (16.8)  $   123.9   $      5.9
                                                                   ===========  ==========  ==========  ===========
Equity in earnings (loss) of Kaiser..............................  $     23.7   $    (5.9)  $    43.3   $      2.1
                                                                   ===========  ==========  ==========  ===========

7.    DEBT

      Long-term and short-term debt consists of the following (in millions):


                                                                                    SEPTEMBER 30,    DECEMBER 31,
                                                                                        2001             2000
                                                                                   ---------------  ---------------

Pacific Lumber Credit Agreement................................................... $         18.0   $         37.0
6.55% Scotia LLC Timber Notes due July 20, 2028...................................          120.3            136.7
7.11% Scotia LLC Timber Notes due July 20, 2028...................................          243.2            243.2
7.71% Scotia LLC Timber Notes due July 20, 2028...................................          463.3            463.3
12% MGHI Notes due August 1, 2003.................................................           88.2            118.8
7.56% Lakepointe Notes (See Note 3)...............................................          122.2                -
Other.............................................................................            0.8              1.0
                                                                                   ---------------  ---------------
                                                                                          1,056.0          1,000.0
Less: current maturities..........................................................          (37.4)           (53.5)
      Timber Notes held in SAR Account............................................          (57.7)           (59.9)
                                                                                   ---------------  ---------------
                                                                                   $        960.9   $        886.6
                                                                                   ===============  ===============


      On August 14, 2001, the Pacific Lumber Credit Agreement was renewed. The
new facility provides for a $50.0 million two-year revolving line of credit as
compared to a $60.0 million line of credit under the expired facility. On each
anniversary date (subject to the consent of the lender), the Pacific Lumber
Credit Agreement may be extended by one year. The other terms and conditions are
substantially the same as those under the expired facility. At September 30,
2001, $18.0 million of borrowings and $11.5 million of letters of credit were
outstanding under the Pacific Lumber Credit Agreement. Unused availability was
limited to $14.8 million at September 30, 2001.

      The amount attributable to the Timber Notes held in the SAR Account of
$51.9 million reflected in Note 4 above represents the amount paid to acquire
$57.7 million of principal amount of Timber Notes.

8.    CONTINGENCIES

      Regulatory and environmental matters play a significant role in the
Company's forest products business, which is subject to a variety of California
and federal laws and regulations, as well as the HCP and SYP and Pacific
Lumber's timber operator's license, dealing with timber harvesting practices,
threatened and endangered species and habitat for such species, and air and
water quality.

       The SYP complies with the California Board of Forestry and Fire
Protection regulations requiring timber companies to project timber growth and
harvest on their timberlands over a 100-year planning period and to demonstrate
that their projected average annual harvest for any decade within a 100-year
planning period will not exceed the average annual harvest level during the last
decade of the 100-year planning period. The SYP is effective for 10 years
(subject to review after five years) and may be amended by Pacific Lumber,
subject to approval by the CDF. Revised SYPs will be prepared every decade that
address the harvest level based upon reassessment of changes in the resource
base and other factors. The HCP and the Permits allow incidental "take" of
certain species located on the Company's timberlands which species have been
listed as endangered or threatened under the ESA and/or the CESA so long as
there is no "jeopardy" to the continued existence of such species. The HCP
identifies the measures to be instituted in order to minimize and mitigate the
anticipated level of take to the greatest extent practicable. The SYP is also
subject to certain of these provisions. The HCP and related Permits have a term
of 50 years.

      Under the CWA, the EPA is required to establish TMDLs in water courses
that have been declared to be "water quality impaired." The EPA and the North
Coast Water Board are in the process of establishing TMDLs for 17 northern
California rivers and certain of their tributaries, including nine water courses
that flow within the Company's timberlands. The Company expects this process to
continue into 2010. In the December 1999 EPA report dealing with TMDLs on two of
the nine water courses, the agency indicated that the requirements under the HCP
would significantly address the sediment issues that resulted in TMDL
requirements for these water courses. However, the September 2000 report by the
staff of the North Coast Water Board proposed various actions, including
restrictions on harvesting beyond those required under the HCP. Dates for
hearings concerning these matters have not been scheduled. Establishment of the
final TMDL requirements applicable to the Company's timberlands will be a
lengthy process, and the final TMDL requirements applicable to the Company's
timberlands may require aquatic protection measures that are different from or
in addition to the prescriptions to be developed pursuant to the watershed
analysis process provided for in the HCP.

      Since the consummation of the Headwaters Agreement on March 1, 1999, there
has been a significant amount of work required in connection with the
implementation of the Environmental Plans, and this work is expected to continue
for several more years. During the implementation period, government agencies
have thus far failed to approve THPs in a timely manner. The rate of approvals
of THPs during the nine months ended September 30, 2001, has improved over that
for the prior year; however, it continues to be below what the Company requires
to meet its targeted harvest levels under the SYP. Nevertheless, the Company
anticipates that once the Environmental Plans are fully implemented, the process
of preparing THPs will become more streamlined, and the time to obtain approval
of THPs will potentially be shortened.

      Lawsuits are pending and threatened which seek to prevent the Company from
implementing the HCP and/or the SYP, implementing certain of the Company's
approved THPs, or carrying out certain other operations. On January 28, 1997,
the ERF lawsuit was filed. This action alleges that Pacific Lumber has
discharged pollutants into federal waterways, and seeks to enjoin these
activities, remediation , civil penalties of up to $25,000 per day for each
violation, and other damages. This case was dismissed by the District Court on
August 19, 1999, but the dismissal was reversed by the U.S. Ninth Circuit Court
of Appeals on October 30, 2000, and the case was remanded to the District Court,
but no further proceedings have occurred.

      On December 2, 1997, the Wrigley lawsuit was filed. This action alleges,
among other things, that the defendants' logging practices have contributed to
an increase in flooding and damage to domestic water systems in a portion of the
Elk River watershed. The Company believes that it has strong factual and legal
defenses with respect to the Wrigley lawsuit and ERF lawsuit; however, there can
be no assurance that they will not have a material adverse effect on the
Company's financial position, results of operations or liquidity.

      On March 31, 1999, the EPIC-SYP/Permits lawsuit was filed alleging various
violations of the CESA and the California Environmental Quality Act, and
challenging, among other things, the validity and legality of the SYP and the
Permits issued by California. On March 31, 1999, the USWA lawsuit was filed also
challenging the validity and legality of the SYP. The Company believes that
appropriate procedures were followed throughout the public review and approval
process concerning the HCP and the SYP, and the Company is working with the
relevant government agencies to defend these challenges. Although uncertainties
are inherent in the final outcome of the EPIC-SYP/Permits lawsuit and the USWA
lawsuit, the Company believes that the resolution of these matters should not
result in a material adverse effect on its financial condition, results of
operations or the ability to harvest timber.

      In connection with a February 2001 notice of intent to sue Pacific Lumber,
on July 24, 2001, the Bear Creek lawsuit was filed. The lawsuit alleges that
Pacific Lumber's harvesting and other activities under certain of its approved
and proposed THPs will result in discharges of pollutants in violation of the
CWA. The plaintiff asserts that the CWA requires the defendants to obtain a
permit from the North Coast Water Board before beginning timber harvesting and
road construction activities in the Bear Creek watershed, and is seeking to
enjoin these activities until such permit has been obtained. The plaintiff also
seeks civil penalties of up to $27,000 per day for the defendant's alleged
continued violation of the CWA. The Company believes that the requirements under
the HCP are adequate to ensure that sediment and pollutants from its harvesting
activities will not reach levels harmful to the environment. Furthermore, EPA
regulations specifically provide that such activities are not subject to CWA
permitting requirements. The Company believes that it has strong legal defenses
in this matter; however, there can be no assurance that this lawsuit will not
have a material adverse effect on its consolidated financial condition or
results of operations.

      While the Company expects environmentally focused objections and lawsuits
to continue, it believes that the HCP, the SYP and the Permits should enhance
its position in connection with these continuing challenges and, over time,
reduce or minimize such challenges.

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

      The following should be read in conjunction with the financial statements
in Part I, Item 1 of this Report and Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Item 8.
"Financial Statements and Supplementary Data" of the Form 10-K. Any capitalized
terms used but not defined in this Item are defined in the "Glossary of Defined
Terms" contained in Appendix A. Except as otherwise noted, all references to
notes represent the Notes to the Condensed Consolidated Financial Statements
included in Item 1.

      This Quarterly Report on Form 10-Q 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, in Item 3. "Quantitative and Qualitative Disclosures About Market
Risk," and in Part II. Item 1. "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 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 Form
10-Q and the Form 10-K identify other factors that could cause such differences
between the forward-looking statements and actual results. 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.

RESULTS OF OPERATIONS

      The Company's wholly owned subsidiary, MGI, and its operating
subsidiaries, Pacific Lumber and Britt, are engaged in forest products
operations. The Company's business is somewhat seasonal, and its net sales have
been historically higher in the months of April through November than in the
months of December through March. Management expects that the Company's revenues
and cash flows will continue to be somewhat seasonal. Accordingly, the Company's
results for any one quarter are not necessarily indicative of results to be
expected for the full year.

      In recent years, MGI has experienced reduced harvests on its properties,
and as a result, production of lumber has decreased. The decline in harvest
levels is a result of the difficulties with THPs described under "--Trends."
Furthermore, logging costs have increased due to the harvest of smaller diameter
logs and compliance with environmental regulations and the Environmental Plans.
MGI's management is currently reevaluating MGI's operations in view of these
continuing challenges. In connection with the closure of one of its mills, MGI
recognized a writedown of $0.7 million (see Note 2). A second mill has also been
idled; however, a decision has not been made as to whether this mill will close
permanently. Further reductions or curtailments in sawmill or other operations
may occur during the next year as MGI completes its evaluation process, and
additional potentially significant writedowns of the investment in certain
assets may be required.

      The following table presents selected operational and financial
information for the three and nine months ended September 30, 2001 and 2000.


                                                                     THREE MONTHS ENDED        NINE MONTHS ENDED
                                                                        SEPTEMBER 30,            SEPTEMBER 30,
                                                                   -----------------------  -----------------------
                                                                      2001         2000        2001        2000
                                                                   -----------  ----------  ----------  -----------
                                                                   (IN MILLIONS OF DOLLARS, EXCEPT SHIPMENTS AND PRICES)
Shipments:
   Lumber: (1)
      Redwood upper grades.......................................         3.6         4.0        12.1         11.3
      Redwood common grades......................................        41.5        33.4       123.6        110.0
      Douglas-fir upper grades...................................         2.0         2.7         6.7          8.4
      Douglas-fir common grades..................................        11.4        20.1        44.2         59.0
      Other......................................................         1.0         0.5         3.6          5.2
                                                                   -----------  ----------  ----------  -----------
        Total lumber.............................................        59.5        60.7       190.2        193.9
                                                                   ===========  ==========  ==========  ===========
   Wood chips (2)................................................        29.6        48.8        90.2        133.3
                                                                   ===========  ==========  ==========  ===========

Average sales price:

   Lumber: (3)
      Redwood upper grades.......................................  $    1,739   $   1,820   $   1,788   $    1,760
      Redwood common grades......................................         570         719         595          740
      Douglas-fir upper grades...................................       1,287       1,374       1,341        1,340
      Douglas-fir common grades..................................         357         356         343          383
   Wood chips (4)................................................          64          70          67           68

Net sales:
   Lumber, net of discount.......................................  $     36.5   $    42.0   $   119.2   $    135.8
   Wood chips....................................................         1.9         3.4         6.1          9.0
   Cogeneration power............................................         2.0         1.6         9.4          3.2
   Other.........................................................         6.6         2.4        10.4          4.7
                                                                   -----------  ----------  ----------  -----------
        Total net sales..........................................  $     47.0   $    49.4   $   145.1   $    152.7
                                                                   ===========  ==========  ==========  ===========
Operating income (loss)..........................................  $     (1.2)  $     0.1   $    (4.8)  $     14.3
                                                                   ===========  ==========  ==========  ===========
Operating cash flow (5)..........................................  $      5.0   $     5.4   $    11.6   $     29.1
                                                                   ===========  ==========  ==========  ===========
Income (loss) before income taxes................................  $      9.4   $   (14.9)  $     7.3   $     (8.8)
                                                                   ===========  ==========  ==========  ===========
Net income (loss) (6)............................................  $     12.6   $   (12.2)  $    23.1   $     (3.9)
                                                                   ===========  ==========  ==========  ===========
--------------------

(1)   Lumber shipments are expressed in millions of board feet.
(2)   Wood chip shipments are expressed in thousands of bone dry units of 2,400 pounds.
(3)   Dollars per thousand board feet.
(4)   Dollars per bone dry unit.
(5)   Operating income before depletion and depreciation, also referred to as "EBITDA."
(6)   2001 results include an after-tax extraordinary gain of $3.6 million for
      the nine month period on the repurchase of MGHI Notes. 2000 results for
      the three and nine month periods include after-tax extraordinary gains of
      $0.6 million and $2.0 million, respectively, on the repurchase of Timber
      Notes.

      Net Sales
      Net sales for the third quarter and first nine months of 2001 were
negatively impacted by lower lumber prices, with lower prices for common grade
redwood lumber being the primary contributor to the decline. In addition,
shipments of lumber declined slightly for the third quarter and nine months
ended September 30, 2001, versus the comparable prior year periods. The Company
had higher sales volumes for redwood common grade lumber; however, this was more
than offset by lower shipments of common grade Douglas fir lumber.

      Operating Income (Loss)
      The Company experienced operating losses for the third quarter and first
nine months of 2001 compared to operating income for the same periods of 2000.
With respect to the third quarter results, despite the decline in net sales,
gross margins on lumber sales were flat period to period as a result of a
decline in cost of sales. The operating loss for the third quarter of 2001 was
primarily due to lower gross margins on other products, higher general and
administrative expenses, and a $0.7 million asset impairment charge (see Note
2). In addition to the items impacting the third quarter, results for the nine
months ended September 30, 2001, reflect higher costs associated with lumber
production and logging operations.

      Income (Loss) Before Income Taxes
      The Company had losses before income taxes for the third quarter and first
nine months of 2000 as compared to income before income taxes for the comparable
current year periods. This was primarily due to increases in equity of earnings
(loss) of Kaiser from $(5.9) million for the third quarter of 2000 to $23.7
million for the third quarter of 2001, and from $2.1 million for the nine months
ended September 30, 2000, to $43.3 million for the nine months ended September
30, 2001. Kaiser's results improved largely as a result of non-recurring gains
on power sales in addition to a gain from the sale of an interest in an alumina
partnership during the third quarter of 2001.

      Benefit in Lieu of Income Taxes
      The effective benefit in lieu of income taxes differs from the statutory
rate primarily due to disallowance of a portion of the Company's net operating
loss carryforwards for state tax purposes, and the exclusion of equity in
earnings (loss) of Kaiser from taxable income.

FINANCIAL CONDITION AND INVESTING AND FINANCING ACTIVITIES

      This section contains statements which constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. See above for cautionary information with respect to such
forward-looking statements.

      Note 7 to the Consolidated Financial Statements in the Form 10-K contains
additional information concerning the Company's indebtedness and information
concerning certain restrictive debt covenants. "MGHI PARENT" is used in this
section to refer to the Company on a stand-alone basis without its subsidiaries.

      The following table summarizes certain data related to financial condition
and to investing and financing activities of the Company and its subsidiaries.


                                                                  SCOTIA       PACIFIC     MGI AND       MGHI
                                                                    LLC        LUMBER       OTHER       PARENT      TOTAL
                                                                 ---------    ---------    --------    --------    --------
                                                                                (IN MILLIONS OF DOLLARS)

Debt and credit facilities (excluding intercompany notes)
Short-term borrowings and current maturities of long-term debt:
   September 30, 2001........................................... $   17.2     $   18.1     $   2.1     $     -     $  37.4
   December 31, 2000............................................     16.4         37.1           -           -        53.5

Long-term debt, excluding current maturities:
   September 30, 2001........................................... $  752.2 (1) $    0.5     $ 120.0 (3) $  88.2 (1) $ 960.9
   December 31, 2000............................................    767.2          0.6           -       118.8       886.6

Revolving credit facilities:
   Facility commitment amounts.................................. $   60.9     $   50.0     $   2.5     $     -     $ 113.4
   September 30, 2001:
      Borrowings................................................        -         18.0           -           -        18.0
      Letters of credit.........................................        -         11.5           -           -        11.5
      Unused and available credit...............................     60.9         14.8         2.5           -        78.2

Cash, cash equivalents, marketable
   securities and other investments
September 30, 2001:
   Current amounts restricted for debt service.................. $   30.8     $      -     $     -     $     -     $  30.8
   Other current amounts........................................      2.5          0.6        28.9        36.0        68.0
                                                                 ---------    ---------    --------    --------    --------
                                                                     33.3          0.6        28.9        36.0        98.8
                                                                 ---------    ---------    --------    --------    --------
   Long-term amounts restricted for debt service................     87.9            -           -           -        87.9
   Other long-term restricted amounts...........................        -            -         2.2           -         2.2
                                                                 ---------    ---------    --------    --------    --------
                                                                     87.9            -         2.2           -        90.1
                                                                 ---------    ---------    --------    --------    --------
                                                                 $  121.2     $    0.6     $  31.1     $  36.0     $ 188.9
                                                                 =========    =========    ========    ========    ========

December 31, 2000:
   Current amounts restricted for debt service.................. $   45.8     $      -     $     -     $     -     $  45.8
   Other current amounts........................................     68.6          0.2        61.7        54.3       184.8
                                                                 ---------    ---------    --------    --------    --------
                                                                    114.4          0.2        61.7        54.3       230.6
                                                                 ---------    ---------    --------    --------    --------

   Long-term amounts restricted for debt service................     92.1            -           -           -        92.1
   Other long-term restricted amounts...........................      2.5            -         2.0           -         4.5
                                                                 ---------    ---------    --------    --------    --------
                                                                     94.6            -         2.0           -        96.6
                                                                 ---------    ---------    --------    --------    --------
                                                                 $  209.0     $    0.2     $  63.7     $  54.3     $ 327.2
                                                                 =========    =========    ========    ========    ========

Changes in cash and cash equivalents
 Capital expenditures:
   September 30, 2001........................................... $   4.2      $    4.9     $ 132.5 (3) $     -     $ 141.6
   September 30, 2000...........................................     6.1           3.3         1.6           -        11.0

Net proceeds from dispositions of property and investments:
   September 30, 2001........................................... $     -      $      -     $     -     $     -     $     -
   September 30, 2000...........................................       -           0.3           -           -         0.3

Borrowings (repayments) of debt and credit facilities, net of
   financing costs:
   September 30, 2001........................................... $ (14.2)(1)  $  (19.2)    $ 117.0 (3) $ (25.1)(1) $  58.5
   September 30, 2000...........................................   (11.3)         21.2         7.3       (13.1)        4.1

Dividends and advances received (paid):
   September 30, 2001........................................... $ (77.4)(2)  $   83.8 (2) $ (23.5)(2) $  17.1 (2) $     -
   September 30, 2000...........................................       -          50.0      (158.4)       63.4       (45.0)
------------------

(1)     The decrease in Scotia LLC's long-term debt between December 31, 2000,
        and September 30, 2001, was the result of principal payments on the
        Timber Notes of $14.2 million during the nine months ended September 30,
        2001. The decrease in MGHI Parent's long-term debt was due primarily to
        repurchases of debt.
(2)     For the nine months ended September 30, 2001, $77.4 million of dividends
        were paid by Scotia LLC to Pacific Lumber, $63.9 million of which was
        made using proceeds from the sale of the Scotia LLC's Owl Creek grove.
        In addition to the $77.4 million of dividends from Scotia LLC, Pacific
        Lumber received $6.4 million from MGI related to repayment of
        intercompany debt. For the nine months ended September 30, 2000, $90.0
        million of the dividends paid from MGI to MGHI were made using proceeds
        from the sale of the Headwaters Timberlands. MGHI in turn paid a $45.0
        million dividend to MAXXAM Parent.
(3)     The increase in debt and capital expenditures for MGI and other
        subsidiaries is attributable to the Lake Pointe Plaza acquisition
        and related borrowings described in Note 3.

      MGHI Parent expects that interest payments on the $88.2 million of MGHI
Notes outstanding as of September 30, 2001, will be paid with its existing cash.

      On August 14, 2001, the Pacific Lumber Credit Agreement was renewed. The
new facility provides for a $50.0 million two-year revolving line of credit as
compared to a $60.0 million line of credit under the expired facility. On each
anniversary date (subject to the consent of the lender), the Pacific Lumber
Credit Agreement may be extended by one year. The other terms and conditions are
substantially the same as those under the expired facility. At September 30,
2001, $18.0 million of borrowings and $11.5 million in letters of credit were
outstanding under the Pacific Lumber Credit Agreement. Unused availability was
limited to $14.8 million at September 30, 2001.

      The Scotia LLC Line of Credit allows Scotia LLC to borrow up to one year's
interest on the Timber Notes. On June 1, 2001, this facility was extended for an
additional year to July 12, 2002.

      During the nine months ended September 30, 2001, Scotia LLC used $67.3
million set aside in the note payment account to pay the $57.4 million of
interest due as well as $9.9 million of principal. Scotia LLC repaid an
additional $4.3 million of principal on the Timber Notes using funds held in the
SAR Account, resulting in total principal payments of $14.2 million, an amount
equal to Scheduled Amortization. In addition, Scotia LLC made distributions in
the amount of $77.4 million to its parent, Pacific Lumber, $63.9 million of
which was made using funds from the December 2000 sale of the Owl Creek grove
and $13.5 million of which was made using excess funds released from the SAR
Account.

      In June 2001, Lakepointe Assets purchased Lake Pointe Plaza, an office
complex located in Sugarland, Texas, for a purchase price of $131.3 million. The
transaction was financed with proceeds of $122.5 million, net of $5.2 million in
deferred financing costs, from the Lakepointe Notes ($122.5 million principal
amount with a final maturity date of June 8, 2021, and an interest rate of
7.56%), and with a cash payment of $14.0 million. Lakepointe Assets acquired the
property subject to two leases to existing tenants while simultaneously leasing
a majority of the premises, representing all of the remaining space, to an
affiliate of the seller. The office complex is fully leased for a period of 20
years under these three leases.

      MGHI Parent believes that its existing resources, together with the cash
available from subsidiaries, will be sufficient to fund its debt service and
working capital requirements for the next year. With respect to its long-term
liquidity, MGHI Parent believes that its existing cash and cash resources,
together with payments by MAXXAM on the MAXXAM Note, should be sufficient to
meet its debt service and working capital requirements. However, there can be no
assurance that this will be the case. The regulatory and environmental matters
described under "--Trends" below have adversely affected cash available from
subsidiaries and therefore the distributions to MGHI Parent. Distributions from
subsidiaries may continue to be minimal, if any, over the next one to two years.

      Due to its highly leveraged condition, MGI is more sensitive than less
leveraged companies to factors affecting its operations, including governmental
regulation and litigation affecting its timber harvesting practices (see
"--Trends" below and Note 8), increased competition from other lumber producers
or alternative building products and general economic conditions. MGI and its
subsidiaries anticipate that existing cash, cash equivalents, marketable
securities, funds available from the SAR Account and available sources of
financing will be sufficient to fund their working capital, debt service and
capital expenditure requirements for the next year. With respect to Pacific
Lumber, its liquidity improved significantly as a result of $78.7 million in
distributions paid by Scotia LLC, and $6.4 million in repayments on an
intercompany loan by MGI during the period from January 1, 2001 to October 31,
2001. Nevertheless, Pacific Lumber expects that near-term cash flows from
operations will be adversely affected by lower lumber prices, an inadequate
supply of logs and a related slowdown in lumber production. Pacific Lumber may
require funds available under Pacific Lumber's revolving credit agreement,
additional repayments by MGI of an intercompany loan and/or capital
contributions from MGI to enable it to meet its working capital and capital
expenditure requirements for the next year. With respect to their long-term
liquidity, MGI and its subsidiaries believe that their existing cash and cash
equivalents should provide sufficient funds to meet their debt service and
working capital requirements. However, until such time as Pacific Lumber has
adequate cash flows from operations and/or dividends from Scotia LLC, there can
be no assurance that this will be the case.

TRENDS

      This section contains statements which constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. See above for cautionary information with respect to such
forward-looking statements.

      The Company's forest products operations are conducted by MGI through
Pacific Lumber and Britt. Regulatory and environmental matters play a
significant role in Pacific Lumber's operations. See Note 8 and Item 1.
"Business--Forest Products Operations--Regulatory and Environmental Factors" of
the Form 10-K for a discussion of these matters. Regulatory compliance and
related litigation have caused delays in obtaining approvals of THPs and delays
in harvesting on THPs once they are approved. This has resulted in a decline in
harvest, an increase in the cost of logging operations, and lower net sales.

      Since the consummation of the Headwaters Agreement on March 1, 1999, there
has been a significant amount of work required in connection with the
implementation of the Environmental Plans, and this work is expected to continue
for several more years. During the implementation period, government agencies
have thus far failed to approve THPs in a timely manner. The rate of approvals
of THPs during the nine months ended September 30, 2001, has improved over that
for the prior year; however, it continues to be below what Pacific Lumber
requires to meet its targeted harvest levels under the SYP. Nevertheless,
Pacific Lumber anticipates that once the Environmental Plans are fully
implemented, the process of preparing THPs will become more streamlined, and the
time to obtain approval of THPs will potentially be shortened.

      There can be no assurance that Pacific Lumber will not continue to
experience difficulties in receiving approvals of its THPs similar to those it
has been experiencing. Furthermore, there can be no assurance that certain
pending legal, regulatory and environmental matters or future governmental
regulations, legislation or judicial or administrative decisions, or adverse
weather conditions, would not have a material adverse effect on the Company's
financial position, results of operations or liquidity. See Part II. Item 1.
"Legal Proceedings" and Note 8 for further information regarding regulatory and
legal proceedings affecting the Company's operations.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      This section contains statements which constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. See Item 2. "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for cautionary information with respect to
such forward-looking statements.

      This item is not applicable for the Company and its subsidiaries; however,
Kaiser, the Company's equity investee, utilizes hedging transactions to lock-in
a specified price or range of prices for certain products which it sells or
consumes and to mitigate its exposure to changes in foreign currency exchange
rates. See Item 3. "Quantitative and Qualitative Disclosures about Market Risk"
from Kaiser's Quarterly Report on Form 10-Q filed for the period ended September
30, 2001, included as Exhibit 99.1 hereto, for information relative to Kaiser's
hedging activities.

                           PART II. OTHER INFORMATION

ITEM 1.         LEGAL PROCEEDINGS

      Reference is made to Item 3 of the Form 10-K for information concerning
material legal proceedings with respect to the Company. The following material
developments have occurred with respect to such legal proceedings subsequent to
the filing of the Form 10-K.

      TIMBER HARVESTING LITIGATION

      With respect to the EPIC-SYP Permits lawsuit and the USWA lawsuit, the
November 2001 trial date for each of these lawsuits has been postponed, and no
new trial date for either of these lawsuits has been set.

      With respect to a February 2001 notice of intent to sue Pacific Lumber, on
July 24, 2001, the Bear Creek lawsuit was filed. The lawsuit alleges that
Pacific Lumber's harvesting and other activities under certain of its approved
and proposed THPs will result in discharges of pollutants in violation of the
CWA. The plaintiff asserts that the CWA requires the defendants to obtain a
permit from the North Coast Water Board before beginning timber harvesting and
road construction activities in the Bear Creek watershed, and is seeking to
enjoin these activities until such permit has been obtained. The plaintiff also
seeks civil penalties of up to $27,000 per day for the defendant's alleged
continued violation of the CWA. The Company believes that the requirements under
the HCP are adequate to ensure that sediment and pollutants from its harvesting
activities will not reach levels harmful to the environment. Furthermore, EPA
regulations specifically provide that such activities are not subject to CWA
permitting requirements. The Company continues to believe that it has strong
legal defenses in this matter; however, there can be no assurance that this
lawsuit will not have a material adverse effect on its consolidated financial
condition or results of operations.

      HUNSAKER ACTION

      With respect to the Hunsaker action, on July 9, 2001, the U.S. Ninth
Circuit Court of Appeals affirmed the District Court's dismissal of the case.

ITEM 6.         EXHIBITS AND REPORTS ON FORM 8-K

A.    EXHIBITS:

      *4.1      Amended and Restated Credit Agreement, dated as of August 14,
                2001, between Pacific Lumber and Bank of America, N.A.

      *99.1     Item 3. to Kaiser's Form 10-Q for the quarterly period ended
                September 30, 2001

* Included with this filing.

B.      REPORTS ON FORM 8-K:

      None.

                                   SIGNATURES


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




                                     MAXXAM GROUP HOLDINGS INC.





Date: November 13, 2001        By:   /S/    PAUL N. SCHWARTZ
                                  -------------------------------------
                                            Paul N. Schwartz
                                Vice President, Chief Financial Officer
                                             and Director
                                      (Principal Financial Officer)




Date: November 13, 2001        By:   /S/    ELIZABETH D. BRUMLEY
                                  --------------------------------------
                                          Elizabeth D. Brumley
                                                Controller
                                       (Principal Accounting Officer)



                                                                      APPENDIX A


                            GLOSSARY OF DEFINED TERMS


Bear Creek lawsuit: An action entitled Environmental Protection Information
Association v. Pacific Lumber, Scotia Pacific Company LLC (No. C01-2821), filed
July 24, 2001, in the U.S. District Court in the Northern District of California

Britt:  Britt Lumber Co., Inc., a wholly owned subsidiary of MGI

CDF:  California Department of Forestry and Fire Protection

CESA:  California Endangered Species Act

Company:  MAXXAM Group Holdings Inc., a wholly owned subsidiary of MAXXAM

CWA:  Federal Clean Water Act

Environmental Plans:  The HCP and the SYP

EPA:  Environmental Protection Agency

EPIC-SYP/Permits lawsuit: An action entitled Environmental Protection
Information Association, Sierra Club v. California Department of Forestry and
Fire Protection, California Department of Fish and Game, The Pacific Lumber
Company, Scotia Pacific Company LLC, Salmon Creek Corporation, et al. (No.
99CS00639) filed March 31, 1999 in the Superior Court of Sacramento County

Equity Fund Partnership: A partnership investing in equity securities in which
the Company holds a limited partnership interest

ERF lawsuit: An action entitled Ecological Rights Foundation, Mateel
Environmental v. Pacific Lumber (No. 97-0292) which was filed in the U.S.
District Court in the Northern District of California on January 28, 1997

ESA:  The federal Endangered Species Act

Form 10-K: The Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission for the fiscal year ended December 31, 2000

HCP: The habitat conservation plan covering multiple species approved on March
1, 1999, in connection with the consummation of the Headwaters Agreement

Headwaters Agreement: The September 28, 1996, agreement between Pacific Lumber,
Scotia LLC, Salmon Creek, the United States and California which provided the
framework for the acquisition by the United States and California of the
Headwaters Timberlands

Headwaters Timberlands: Approximately 5,600 acres of Pacific Lumber timberlands
consisting of two forest groves commonly referred to as the Headwaters Forest
and the Elk Head Springs Forest which were sold to the United States and
California on March 1, 1999

Hunsaker action: An action entitled William Hunsaker, et al. v. Charles E.
Hurwitz, Pacific Lumber, MAXXAM Group Inc., MXM Corp., Federated Development
Company and Does 1-50 (No. C 98-4515) filed in the United States District Court
for the Northern District of California on November 24, 1998

Kaiser: Kaiser Aluminum Corporation, an equity investee of the Company engaged
in aluminum operations

Kaiser Shares: 27,938,250 shares of the common stock of Kaiser, of which
23,443,953 shares are pledged as collateral for the MGHI Notes

Lakepointe Assets: Lakepointe Assets Holdings LLC, a limited liability company,
and its subsidiaries, all of which are indirect wholly owned subsidiaries of the
Company

Lakepointe Notes: Lakepointe Assets' $122.5 million of 7.56% notes due June 8,
2021

MAXXAM:  MAXXAM Inc.

MAXXAM Note: Intercompany note issued by MAXXAM to the Company for an initial
principal amount of $125.0 million

MGHI Notes:  12% Senior Secured Notes of the Company due August 1, 2003

MGI:  MAXXAM Group Inc., a wholly owned subsidiary of the Company

North Coast Water Board:  North Coast Regional Water Quality Control Board

Pacific Lumber:  The Pacific Lumber Company, a wholly-owned subsidiary of MGI

Pacific Lumber Credit Agreement: The revolving credit agreement between Pacific
Lumber and a bank which provides for borrowings of up to $50.0 million

Permits: The incidental take permits issued by the United States and California
pursuant to the HCP

Salmon Creek:  Salmon Creek LLC, a wholly owned subsidiary of Pacific Lumber

SAR Account: Funds held in a reserve account to support principal payments on
the Timber Notes

Scheduled Amortization: The amount of principal which Scotia LLC must pay
through each Timber Note payment date in order to avoid prepayment or deficiency
premiums

Scotia LLC: Scotia Pacific Company LLC, a limited liability company wholly owned
by Pacific Lumber

Scotia LLC Line of Credit: The agreement between a group of lenders and Scotia
LLC pursuant to which it may borrow in order to pay up to one year's interest on
the Timber Notes

SFAS No. 133: Statement of Financial Accounting Standard No. 133, "Accounting for
Derivative Instruments and Hedging Activities"

SFAS No. 143: Statement of Financial Accounting Standard No. 143, "Accounting
for Asset Retirement Obligations"

SYP: The sustained yield plan approved on March 1, 1999, in connection with the
consummation of the Headwaters Agreement

THP: Timber harvesting plan required to be filed with and approved by the CDF
prior to the harvesting of timber

Timber Notes: Scotia LLC's $867.2 million original aggregate principal amount of
6.55% Series B Class A-1 Timber Collateralized Notes, 7.11% Series B Class A-2
Timber Collateralized Notes and 7.71% Series B Class A-3 Timber Collateralized
Notes due July 20, 2028

Timber Notes Indenture:  The indenture governing the Timber Notes

TMDLs:  Total maximum daily load limits

USWA lawsuit: An action entitled United Steelworkers of America, AFL-CIO, CLC,
and Donald Kegley v. California Department of Forestry and Fire Protection, The
Pacific Lumber Company, Scotia Pacific Company LLC and Salmon Creek Corporation
(No. 99CS00626) filed March 31, 1999 in the Superior Court of Sacramento County

Wrigley lawsuit: An action entitled Kristi Wrigley, et al. v. Charles Hurwitz,
John Campbell, Pacific Lumber, MAXXAM Group Holdings Inc., Scotia Pacific
Holding Company, MAXXAM Group Inc., MAXXAM Inc., Scotia Pacific Company LLC and
Federated Development Company (No. 9700399) filed December 2, 1997 in the
Superior Court of Humboldt County