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


                                  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 MARCH 31, 2002

                        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 May 17, 2002: 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 March 31, 2002 and December 31, 2001
             Consolidated Statement of Operations for the three months ended
                  March 31, 2002 and 2001
             Consolidated Statement of Cash Flows for the three months ended
                  March 31, 2002 and 2001
             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)



                                                                                          MARCH 31,   DECEMBER 31,
                                                                                            2002          2001
                                                                                        ------------- -------------
                                                                                                (UNAUDITED)

                                        ASSETS

Current assets:
   Cash, cash equivalents and restricted cash.......................................... $       28.9  $       66.0
   Marketable securities...............................................................         53.0          53.6
   Receivables:
      Trade............................................................................         16.3          12.5
      Receivables from MAXXAM..........................................................          3.4           8.5
      Other............................................................................          1.6           2.1
   Inventories.........................................................................         45.7          51.4
   Prepaid expenses and other current assets...........................................         15.2          17.5
                                                                                        ------------- -------------
        Total current assets...........................................................        164.1         211.6
Property, plant and equipment, net of accumulated depreciation of $103.7 and
   $100.1, respectively................................................................        223.0         224.9
Timber and timberlands, net of accumulated depletion of $196.4 and $193.7,
   respectively........................................................................        233.5         235.0
Note receivable from MAXXAM............................................................        193.2         183.1
Deferred financing costs, net..........................................................         22.2          22.8
Deferred income taxes..................................................................         15.7          13.4
Restricted cash, marketable securities and other investments...........................         56.8          89.8
Other assets...........................................................................          9.2           6.8
                                                                                        ------------- -------------
                                                                                        $      917.7  $      987.4
                                                                                        ============= =============

                         LIABILITIES AND STOCKHOLDER'S DEFICIT

Current liabilities:
   Accounts payable.................................................................... $        5.9  $        5.7
   Accrued interest....................................................................         13.0          30.5
   Accrued compensation and related benefits...........................................         10.4          12.4
   Deferred income taxes...............................................................          8.3           6.8
   Other accrued liabilities...........................................................          6.8           8.0
   Short-term borrowings and current maturities of long-term debt, excluding $2.4 and
        $2.3, respectively, of repurchased Timber Notes held in the SAR Account........         17.7          35.5
                                                                                        ------------- -------------
        Total current liabilities......................................................         62.1          98.9
Long-term debt, less current maturities and excluding $53.5 and $55.4, respectively, of
   repurchased Timber Notes held in the SAR Account....................................        933.0         962.7
Deferred income taxes..................................................................         19.0          19.5
Other noncurrent liabilities...........................................................         29.3          28.3
                                                                                        ------------- -------------
        Total liabilities..............................................................      1,043.4       1,109.4
                                                                                        ------------- -------------

Contingencies (See Note 7)

Stockholder's deficit:
   Common stock, $1.00 par value; 3,000 shares authorized; 1,000 shares
      issued and outstanding...........................................................            -             -
   Additional capital..................................................................        123.2         123.2
   Accumulated deficit.................................................................       (248.6)       (245.5)
   Accumulated other comprehensive income (loss).......................................         (0.3)          0.3
                                                                                        ------------- -------------
        Total stockholder's deficit....................................................       (125.7)       (122.0)
                                                                                        ------------- -------------
                                                                                        $      917.7  $      987.4
                                                                                        ============= =============

   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
                                                                                                   MARCH 31,
                                                                                            -----------------------
                                                                                               2002        2001
                                                                                            ----------  -----------
                                                                                                  (UNAUDITED)

Net sales:
   Lumber and logs........................................................................  $    44.5   $     37.8
   Other..................................................................................        5.6          7.0
                                                                                            ----------  -----------
                                                                                                 50.1         44.8
                                                                                            ----------  -----------

Operating expenses:
   Cost of goods sold.....................................................................       35.4         40.0
   Selling, general and administrative expenses...........................................        5.0          4.4
   Depletion and depreciation.............................................................        6.7          4.9
                                                                                            ----------  -----------
                                                                                                 47.1         49.3
                                                                                            ----------  -----------

Operating income (loss)...................................................................        3.0         (4.5)

Other income (expense):
   Equity in earnings of Kaiser...........................................................          -         42.0
   Investment, interest and other income (expense), net...................................        8.5          9.3
   Interest expense.......................................................................      (19.7)       (18.6)
                                                                                            ----------  -----------
Income (loss) before income taxes and extraordinary item..................................       (8.2)        28.2
Benefit in lieu of income taxes...........................................................        3.3          5.5
                                                                                            ----------  -----------

Income (loss) before extraordinary item...................................................       (4.9)        33.7
Extraordinary item:
   Gains on repurchases of debt, net of provision in lieu of income taxes
      of $1.0 for each period.............................................................        1.8          1.9
                                                                                            ----------  -----------
Net income (loss).........................................................................  $    (3.1)  $     35.6
                                                                                            ==========  ===========



   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)


                                                                                                THREE MONTHS ENDED
                                                                                                     MARCH 31,
                                                                                               --------------------
                                                                                                 2002       2001
                                                                                               ---------  ---------
                                                                                                    (UNAUDITED)

CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income (loss).......................................................................... $   (3.1)  $   35.6
   Adjustments to reconcile net income (loss) to net cash used for operating activities:
      Depletion and depreciation..............................................................      6.7        4.9
      Extraordinary gains on repurchases of debt..............................................     (1.8)      (1.9)
      Equity in undistributed earnings of Kaiser..............................................        -      (42.0)
      Amortization of deferred financing costs................................................      0.6        0.5
      Net gain on marketable securities.......................................................     (0.2)      (0.7)
      Deferral of interest payment on note receivable from MAXXAM.............................    (10.1)      (9.0)
   Increase (decrease) in cash resulting from changes in:
      Receivables.............................................................................      1.7        1.1
      Inventories, net of depletion...........................................................      5.4        8.1
      Prepaid expenses and other current assets...............................................      1.2       (0.3)
      Accounts payable........................................................................     (1.2)      (2.2)
      Accrued interest........................................................................    (17.4)     (19.1)
      Accrued and deferred income taxes.......................................................     (3.3)      (6.8)
      Other liabilities.......................................................................      1.0        2.4
      Long-term assets and long-term liabilities..............................................     (3.0)      (2.2)
                                                                                               ---------  ---------
        Net cash used for operating activities................................................    (23.5)     (31.6)
                                                                                               ---------  ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Proceeds from dispositions of property and investments.....................................      0.9          -
   Net sales (purchases) of marketable securities.............................................      1.4      (39.6)
   Capital expenditures.......................................................................     (2.5)      (3.0)
                                                                                               ---------  ---------
        Net cash used for investing activities................................................     (0.2)     (42.6)
                                                                                               ---------  ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Borrowings (repayments) under revolving credit agreements..................................    (18.3)     (37.0)
   Redemptions, repurchases of and principal payments on long-term debt.......................    (26.3)     (24.2)
   Restricted cash withdrawals (deposits), net................................................     31.2        9.7
                                                                                               ---------  ---------
        Net cash used for financing activities................................................    (13.4)     (51.5)
                                                                                               ---------  ---------

NET DECREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH.................................    (37.1)    (125.7)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD.............................     66.0      201.7
                                                                                               ---------  ---------
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD................................... $   28.9   $   76.0
                                                                                               =========  =========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
   Interest paid, net of capitalized interest................................................. $   36.5   $   37.1
   Tax allocation payments to MAXXAM..........................................................        -        1.3


   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 March 31, 2002, and the consolidated
results of operations and cash flows for the three months ended March 31, 2002
and 2001. The Company is a wholly owned subsidiary of MAXXAM.

      LIQUIDITY AND CASH RESOURCES
      Pacific Lumber's 2001 cash flows from operations were adversely affected
by operating inefficiencies, lower lumber prices, an inadequate supply of logs
and a related slowdown in lumber production. During 2001, comprehensive external
and internal reviews were conducted of Pacific Lumber's business operations.
These reviews were conducted in an effort to identify ways in which Pacific
Lumber could operate on a more efficient and cost effective basis. Based upon
the results of these reviews, Pacific Lumber, among other things, indefinitely
idled two of its four sawmills, eliminated certain of its operations, including
its soil amendment and concrete block activities, began utilizing more efficient
harvesting methods and adopted certain other cost saving measures. Most of these
changes were implemented by Pacific Lumber in the last quarter of 2001, or the
first quarter of 2002. Pacific Lumber also ended its internal logging operations
(which performed approximately half of its logging operations) as of March 31,
2002, and intends to rely exclusively on third party contract loggers to conduct
these activities in the future. In connection with these changes, the Company
recorded an impairment charge to operating costs of $2.2 million in the fourth
quarter of 2001.

      The $29.4 million release from the SAR Account discussed in Note 3
improved Pacific Lumber's liquidity. However, Pacific Lumber may require funds
available under the Pacific Lumber 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 long-term liquidity, although MGI and its subsidiaries
expect that their existing cash and cash equivalents, lines of credit and
ability to generate cash flows from operations should provide sufficient funds
to meet their debt service, working capital and capital expenditure
requirements, 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.

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


                                                                                              THREE MONTHS ENDED
                                                                                                   MARCH 31,
                                                                                            -----------------------
                                                                                               2002        2001
                                                                                            ----------  -----------

Net income (loss).........................................................................  $    (3.1)  $     35.6
Cumulative effect of accounting change....................................................          -          0.7
Unrealized net losses on derivative instruments arising during the period.................          -         (1.1)
Less reclassification adjustment for realized net gaion derivative instruments
   included in net income.................................................................          -         (4.0)
Change in value of available-for-sale investments, net of income tax (provision)
   benefit of $0.5 and $(0.2), respectively ..............................................       (0.6)         0.3
                                                                                            ----------  -----------
Comprehensive income (loss)...............................................................  $    (3.7)  $     31.5
                                                                                            ==========  ===========

      INVESTMENT IN KAISER
      The Company's investment in Kaiser consists of a 34.6% equity interest at
March 31, 2002. As of December 31, 2001, the Company's investment in Kaiser was
accounted for under the equity method. On February 12, 2002, Kaiser filed a
voluntary petition under Chapter 11 of the Code. As a result of such filing, the
Company began reporting its investment in Kaiser under the cost method with no
further recognition of equity in earnings or losses until such time as the
shares are disposed of or a plan of reorganization is implemented. See Note 5
for further discussion of the Company's investment in Kaiser.

      NEW ACCOUNTING STANDARDS
      In June 2001, the FASB 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. In general, SFAS
No. 143 requires the recognition of a liability resulting from anticipated asset
retirement obligations, offset by an increase in the value of the associated
productive asset for such anticipated costs. Over the life of the asset,
depreciation expense is to include the ratable expensing of the retirement cost
included with the asset value. The statement applies to all legal obligations
associated with the retirement of a tangible long-lived asset that results from
the acquisition, construction, or development and (or) the normal operation of a
long-lived asset, except for certain lease obligations. Excluded from this
statement are obligations arising solely from a plan to dispose of a long-lived
asset and obligations that result from the improper operation of an asset (i.e.,
certain types of environmental obligations). The Company is continuing its
evaluation of SFAS No. 143. However, the Company does not currently expect the
adoption of SFAS No. 143 to have a material impact on its future financial
statements.

      In August 2001, the FASB issued SFAS No. 144 which sets forth new guidance
for accounting and reporting for impairment or disposal of long-lived assets.
The provisions of SFAS No. 144 were effective for the Company beginning on
January 1, 2002. Based on presently available estimates, the new impairment and
disposal rules did not result in the recognition of material impairment losses
in 2002 beyond those reported as of December 31, 2001 (see Note 2). In addition
to the new guidance on impairments, SFAS No. 144 broadens the applicability of
the provisions of Accounting Principles Board Opinion 30 for the presentation of
discontinued operations in the income statement to include a component of an
entity (rather than a segment of a business). A component of an entity comprises
operations and cash flows that can be clearly distinguished, operationally and
for financial reporting purposes, from the rest of the entity. Effective after
December 31, 2001, when the Company commits to a plan of sale of a component of
an entity, such component will be presented as a discontinued operation if the
operations and cash flows of the component will be eliminated from the ongoing
operations of the entity and the entity will not have any significant continuing
involvement in the operations of the component. Although this provision will not
affect the total amount reported for net income, the income statements of prior
periods will be reclassified to report the results of operations of the
component separately when a component of an entity is reported as a discontinued
operation. The Company does not currently expect the adoption of SFAS No. 144 to
have a material impact on its financial statements.

      In April 2002, the FASB issued SFAS No. 145 which rescinds the previous
guidance for debt extinguishments. This statement also amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings, or describe applicability under changed conditions. SFAS No. 145
eliminates the requirement that gains and losses from extinguishment of debt be
aggregated and, if material, classified as an extraordinary item, net of related
income tax effect. However, transactions would not be prohibited from
extraordinary item classification if they meet the criteria in APB Opinion 30,
"Reporting the Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." Applying the provisions of APB 30 will distinguish
transactions that are part of an entity's recurring operations from those that
are unusual or infrequent or that meet the criteria for classification as an
extraordinary item. This statement is effective for fiscal years beginning after
May 15, 2002. The Company does not expect the adoption of SFAS No. 145 to have a
material impact on its financial statements.

2.    SEGMENT INFORMATION AND SPECIAL ITEMS

      The following table presents unaudited financial information by reportable
segment (in millions).


                                                              FOREST          REAL       CORPORATE    CONSOLIDATED
                                                             PRODUCTS        ESTATE      AND OTHER        TOTAL
                                                           -------------  ------------  ------------  -------------
Net sales for the three months ended:
      March 31, 2002...................................... $       47.9   $       2.2   $         -   $       50.1
      March 31, 2001......................................         44.8             -             -           44.8

Operating income (loss) for the three months ended:
      March 31, 2002......................................          2.5           0.8          (0.3)           3.0
      March 31, 2001......................................         (4.5)            -             -           (4.5)

Other income (expense), net for the three months ended:
      March 31, 2002......................................        (11.8)         (2.4)          3.0          (11.2)
      March 31, 2001......................................        (11.3)            -          44.0           32.7

Total assets as of:
      March 31, 2002......................................        559.8         132.3         225.6          917.7
      December 31, 2001...................................        610.8         133.7         242.9          987.4

      The column entitled "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.

      SPECIAL ITEMS
      In connection with the operational changes described in Note 1, the
Company identified machinery and equipment that it no longer needed for its
current or future operations and committed to a plan in 2001 to dispose of it
during 2002. As of March 31, 2002, machinery and equipment with a carrying value
of $1.0 million had been sold, resulting in a gain of $1.3 million.

      A $2.6 million restructuring charge was recorded in the fourth quarter of
2001 reflecting cash termination benefits associated with the separation of
approximately 305 employees as part of an involuntary termination plan. As of
March 31, 2002, 276 of the affected employees had left the Company. The
remainder are expected to leave by the second quarter of 2002.

3.    CASH, MARKETABLE SECURITIES AND OTHER INVESTMENTS

      Restricted Cash, Marketable Securities and Other Investments
      Cash, marketable securities and other investments include the following
amounts (in millions):


                                                                                         March 31,    DECEMBER 31,
                                                                                           2002           2001
                                                                                       ------------- --------------

Current assets:
   Cash and cash equivalents:
      Other restricted cash and cash equivalents.....................................  $        6.1  $        35.4
                                                                                       ------------- --------------

   Marketable securities, restricted:
      Amounts held in SAR Account....................................................          17.7           17.1
                                                                                       ------------- --------------

Long-term restricted cash, marketable securities and other investments:
   Amounts held in SAR Account.......................................................         102.5          137.8
   Other amounts restricted under the Timber Notes Indenture.........................           2.7            2.8
   Other long-term restricted cash...................................................           2.2            2.2
   Less: Amounts attributable to Timber Notes held in SAR Account....................         (50.6)         (53.0)
                                                                                       ------------- --------------
                                                                                               56.8           89.8
                                                                                       ------------- --------------

Total restricted cash, marketable securities and other investments...................  $       80.6  $       142.3
                                                                                       ============= ==============

      On March 5, 2002, Scotia LLC notified the trustee for the Timber Notes
that it had met all of the requirements of the SAR Reduction Date, as defined in
the Timber Notes Indenture. Accordingly, on March 20, 2002, Scotia LLC released
$29.4 million from the SAR Account and distributed this amount to Pacific
Lumber.

      Other Investments
      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.
This investment is not consolidated, but is accounted for under the equity
method. 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).


                                                                                          MARCH 31,      DECEMBER 31,
                                                                                            2002             2001
                                                                                        -------------   --------------

Investment in Equity Fund Partnership:
   Restricted........................................................................   $        7.7    $        10.6
   Unrestricted......................................................................           25.9             36.5
                                                                                        -------------   --------------
                                                                                        $       33.6    $        47.1
                                                                                        =============   ==============

Percentage of ownership held.........................................................           10.3%            13.7%
                                                                                        =============   ==============

       As of March 31, 2002, long-term restricted cash, marketable securities,
and other investments also included $4.9 million related to an investment in a
limited partnership which invests in, among other things, debt and equity
securities associated with developed and emerging markets.

4.    INVENTORIES

      Inventories consist of the following (in millions):


                                                                                        March 31,     December 31,
                                                                                          2002            2001
                                                                                     --------------  --------------

Lumber.............................................................................  $        29.9   $        29.3
Logs...............................................................................           15.8            22.1
                                                                                     --------------  --------------
                                                                                     $        45.7   $        51.4
                                                                                     ==============  ==============

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

5.    INVESTMENT IN KAISER

      As of May 16, 2002, the Company has 27,938,250 shares of the common stock
of Kaiser, of which 20,553,418 shares are pledged as collateral for the MGHI
Notes. Kaiser operates in several principal aspects of the aluminum
industry--the mining of bauxite into alumina, (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 common stock is publicly traded on the OTC Bulletin
Board under the trading symbol "KLUCQ."

      On February 12, 2002, Kaiser filed a voluntary petition for reorganization
under Chapter 11 of the Code. The necessity for filing the Cases was
attributable to the liquidity and cash flow problems of Kaiser arising in late
2001 and early 2002. Kaiser was facing significant near-term debt maturities at
a time of unusually weak aluminum industry business conditions, depressed
aluminum prices and a broad economic slowdown that was further exacerbated by
the events of September 11, 2001. In addition, Kaiser had become increasingly
burdened by the asbestos litigation and growing legacy obligations for retiree
medical and pension costs. The confluence of these factors created the prospect
of continuing operating losses and negative cash flow, resulting in lower credit
ratings and an inability to access the capital markets.

      For 2001 and prior years, the Company accounted for its investment in
Kaiser using the equity method. As a result of the Cases, the Company began
reporting its investment in Kaiser under the cost method with no further
recognition of equity in earnings or losses until such time as the shares are
disposed of or a plan of reorganization is implemented. No assurances can be
given that the Company's ownership interest in Kaiser will not be significantly
diluted or cancelled. When and if Kaiser emerges from the jurisdiction of the
Court, the subsequent accounting will be determined based upon the facts and
circumstances at the time, including the terms of any plan of reorganization.

      On April 12, 2002, Kaiser filed with the Court a motion seeking an order
of the Court prohibiting the Company (or MAXXAM), without first seeking Court
relief, from making any disposition of its stock of Kaiser, including any sale,
transfer, or exchange of such stock or treating any of its Kaiser stock as
worthless for federal income tax purposes. Kaiser indicated in its Court filing
that it was concerned that such a transaction could have the effect of depriving
Kaiser of the ability to utilize the full value of its net operating losses,
foreign tax credits and minimum tax credits. The Company is in the process of
analyzing the motion and other materials which were filed with the Court.

      The market value for the Kaiser Shares based on the price per share quoted
at the close of business on May 16, 2002, was $1.5 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).


                                                                                          MARCH 31,   DECEMBER 31,
                                                                                            2002          2001
                                                                                        ------------- -------------

Current assets......................................................................... $      679.5  $      759.2
Property, plant and equipment, net.....................................................      1,201.6       1,215.4
Other assets...........................................................................        780.9         769.1
                                                                                        ------------- -------------
        Total assets................................................................... $    2,662.0  $    2,743.7
                                                                                        ============= =============

Liabilities not subject to compromise:
   Current liabilities................................................................. $      368.6  $      803.4
   Long-term debt, less current maturities.............................................         43.1         700.8
   Other liabilities...................................................................        102.1       1,562.1
Liabilities subject to compromise......................................................      2,554.9             -
Minority interests.....................................................................        118.7         118.5
Stockholders' deficit..................................................................       (525.4)       (441.1)
                                                                                        ------------- -------------
        Total liabilities and stockholders' deficit.................................... $    2,662.0  $    2,743.7
                                                                                        ============= =============



                                                                                              THREE MONTHS ENDED
                                                                                                   MARCH 31,
                                                                                            -----------------------
                                                                                               2002        2001
                                                                                            ----------  -----------


Net sales.................................................................................  $   370.6   $    480.3
Costs and expenses........................................................................     (407.3)      (264.9)
Other income (expenses) - net.............................................................      (20.9)       (20.6)
                                                                                            ----------  -----------
Income (loss) before income taxes and minority interests..................................      (57.6)       194.8
Provision for income taxes ...............................................................       (8.0)       (76.0)
Minority interests........................................................................        1.5          0.8
                                                                                            ----------  -----------
Net income (loss).........................................................................  $   (64.1)  $    119.6
                                                                                            ==========  ===========
Equity in earnings (loss) of Kaiser.......................................................  $       -   $     42.0
                                                                                            ==========  ===========

6.    DEBT


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


                                                                                      MARCH 31,      DECEMBER 31,
                                                                                        2002             2001
                                                                                   ---------------  ---------------

12% MGHI Notes due August 1, 2003................................................. $         71.3   $         88.2
Pacific Lumber Credit Agreement...................................................              -             17.7
6.55% Scotia LLC Timber Notes due July 20, 2028...................................          106.9            120.3
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
7.56% Lakepointe Notes due June 8, 2021...........................................          121.2            121.7
Other.............................................................................            0.7              1.5
                                                                                   ---------------  ---------------
                                                                                          1,006.6          1,055.9
Less: current maturities..........................................................          (17.7)           (35.5)
      Timber Notes held in SAR Account............................................          (55.9)           (57.7)
                                                                                   ---------------  ---------------
                                                                                   $         933.0  $        962.7
                                                                                   ===============  ===============


      The amount attributable to the Timber Notes held in the SAR Account of
$50.6 million as of March 31, 2002, reflected in Note 3 above represents the
amount paid to acquire $55.9 million of principal amount of Timber Notes.

      During the three months ended March 31, 2002, the Company repurchased
$16.9 million of the MGHI Notes, resulting in an extraordinary gain of $1.8
million (net of tax). Subsequent to March 31, 2002, the Company repurchased
$10.0 million of the MGHI Notes resulting in an extraordinary gain of $0.3
million (net of tax).

      With respect to the MAXXAM Note which is pledged to secure the MGHI Notes,
the Company expects MAXXAM to pay the amount of the MAXXAM Note necessary to
retire the MGHI Notes.

7.    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, dealing with
timber harvesting practices, threatened and endangered species and habitat for
such species, and air and water quality.

       The SYP complies with regulations of the California Board of Forestry and
Fire Protection 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 assessment of changes in the resource base and other
factors. The HCP and incidental take permits related to the HCP 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 December 1999, the EPA issued a 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. The North Coast Water Board has begun
the process of establishing the final TMDL requirements applicable to the
Company's timberlands. This 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 in March 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
had until recently failed to approve THPs in a timely manner. The rate of
approvals of THPs during 2001 improved over that for the prior year, and further
improvements have been experienced thus far in 2002. Although delays in the
approvals of THPs may from time to time continue to impact the Company's ability
to meet its harvesting goals, 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 against Pacific Lumber. 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. On September 26, 2001, the plaintiffs sent Pacific Lumber a 60
day notice alleging that Pacific Lumber violated the CWA by discharging
pollutants into certain waterways. Pacific Lumber has taken certain remedial
actions since its receipt of the notice. The Company believes that it has strong
factual and legal defenses with respect to the ERF lawsuit; however, there can
be no assurance that it will not have a material adverse effect on the Company's
financial position, results of operations or liquidity.

      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; however, there can be no assurance
that it 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, among
other things, 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. August 5, 2002, has been set as
the trial date. On March 31, 1999, the USWA lawsuit was filed also challenging
the validity and legality of the SYP. June 10, 2002, has been set as the trial
date. 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.

      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 EPA has been joined as a defendant in this
case. 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," 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 primarily in forest products
operations. In addition, the Company added real estate operations to its
business with the June 2001 acquisition of Lake Pointe Plaza, an office complex
located in Sugar Land, Texas. The Company's forest products 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 this segment's revenues and cash flows will continue to be somewhat
seasonal. Accordingly, the segment's results for any one quarter are not
necessarily indicative of results to be expected for the full year. Real estate
operations do not have any seasonality elements impacting the quarterly results.

      Regulatory and environmental matters play a significant role in the
Company's forest products operations. See Item 1. "Business--Forest Products
Operations--Regulatory and Environmental Factors" of the Form 10-K and Note 7 to
the Condensed Consolidated Financial Statements 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 in March 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
had until recently failed to approve THPs in a timely manner. The rate of
approvals of THPs during 2001 improved over that for the prior year, and further
improvements have been experienced thus far in 2002. Although delays in the
approvals of THPs may from time to time continue to impact the Company's ability
to meet its harvesting goals, 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.

      While the Company has experienced recent improvements in the THP approval
process, there can be no assurance that Pacific Lumber will not in the future
have difficulties in receiving approvals of its THPs similar to those
experienced in the past. Furthermore, there can be no assurance that certain
pending legal, regulatory and environmental matters or future governmental
regulations, legislation or judicial or administrative decisions, adverse
weather conditions or low selling prices, 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 7 to the Condensed
Consolidated Financial Statements for further information regarding regulatory
and legal proceedings affecting the Company's operations.

      During 2001, comprehensive external and internal reviews were conducted of
Pacific Lumber's business operations. These reviews were conducted in an effort
to identify ways in which Pacific Lumber could operate on a more efficient and
cost effective basis. Based upon the results of these reviews, Pacific Lumber,
among other things, indefinitely idled two of its four sawmills, eliminated
certain of its operations, including its soil amendment and concrete block
activities, began utilizing more efficient harvesting methods and adopted
certain other cost saving measures. Most of these changes were implemented by
Pacific Lumber in the last quarter of 2001, or the first quarter of 2002.
Pacific Lumber also ended its internal logging operations (which performed
approximately half of its logging operations) as of March 31, 2002, and intends
to rely exclusively on third party contract loggers to conduct these activities
in the future. Results for the three months ended March 31, 2002, met
management's expectations; however, if business performance does not continue to
improve, additional restructuring charges may be necessary.

      The Company owns 27,938,250 shares of Kaiser common stock, representing a
34.6% interest in Kaiser on a fully diluted basis as of March 31, 2002. For 2001
and prior years, the Company's investment in Kaiser was accounted for under the
equity method. On February 12, 2002, Kaiser filed a voluntary petition for
reorganization under Chapter 11 of the Code in the Court. As a result of such
filing, the Company began reporting its investment in Kaiser under the cost
method with no further recognition of equity in earnings or losses until such
time as the shares are disposed of or a plan of reorganization is implemented.
See Notes 1 and 5 of the Condensed Consolidated Notes to the Financial
Statements for further information, including summarized financial information
of Kaiser.

      The following table presents selected operational and financial
information for the three months ended March 31, 2002 and 2001.


                                                                                            THREE MONTHS ENDED
                                                                                                 MARCH 31,
                                                                                        ----------------------------
                                                                                            2002           2001
                                                                                        -------------  -------------
                                                                                         (IN MILLIONS OF DOLLARS,
                                                                                        EXCEPT SHIPMENTS AND PRICES)
Shipments:
   Lumber: (1)
      Redwood upper grades.............................................................          6.6            4.1
      Redwood common grades............................................................         52.7           37.2
      Douglas-fir upper grades.........................................................          1.3            2.0
      Douglas-fir common grades........................................................          2.4           13.0
      Other............................................................................          0.1            0.5
                                                                                        -------------  -------------
             Total lumber..............................................................         63.1           56.8
                                                                                        =============  =============
   Wood chips (2)......................................................................         15.3           26.6
                                                                                        =============  =============

Average sales price:
   Lumber: (3)
      Redwood upper grades............................................................. $      1,365   $      1,845
      Redwood common grades............................................................          531            614
      Douglas-fir upper grades.........................................................        1,265          1,385
      Douglas-fir common grades........................................................          341            322
   Wood chips (4)......................................................................           34             70

Net sales:
   Lumber, net of discount............................................................. $       39.1   $       37.1
   Logs................................................................................          5.4            0.7
   Wood chips..........................................................................          0.5            1.9
   Cogeneration power..................................................................          2.3            4.4
   Other...............................................................................          0.6            0.7
                                                                                        -------------  -------------
      Total forest products............................................................         47.9           44.8
   Real estate.........................................................................          2.2             -
                                                                                        -------------  -------------
      Total net sales.................................................................. $       50.1   $       44.8
                                                                                        =============  =============
Operating income (loss)................................................................ $        3.0   $       (4.5)
                                                                                        =============  =============
Operating cash flow (5)................................................................ $        9.6   $        0.4
                                                                                        =============  =============
Income (loss) before income taxes and extraordinary item............................... $       (8.2)  $       28.2
                                                                                        =============  =============
Net income (loss) (6).................................................................. $       (3.1)  $       35.6
                                                                                        =============  =============
--------------------
(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)   2002 and 2001 results include after-tax extraordinary gains of $1.8
      million and $1.9 million, respectively, on the repurchase of MGHI Notes.

      Net Sales
      Net sales for the three months ended March 31, 2002, increased over the
comparable prior year period due to higher shipments of common grade redwood
lumber, partly offset by lower prices for redwood lumber, and to a lesser
degree, lower shipments of Douglas-fir lumber.

      Operating Income (Loss)
      The Company had operating income for the three months ended March 31,
2002, as compared to an operating loss for the comparable period of 2001. In
addition to the increase in net sales discussed above, costs associated with
lumber production and logging operations decreased as a result of benefits
realized from the Company's restructuring and performance improvement
initiatives. More specifically, reductions in employees and lower harvesting and
operating costs contributed to the improvement in operating results.

      Income (Loss) Before Income Taxes and Extraordinary Item
      The Company had a loss before income taxes and extraordinary item for the
first quarter of 2002 as compared to income in the comparable prior year period.
Results for the first quarter of 2001 included equity in earnings from Kaiser of
$42.0 million. This decline was offset in part as a result of the increase in
operating income discussed above.


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 8 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.


                                                                                         MGI,
                                                                                      Lakepointe
                                                                 Scotia    Pacific    Assets 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:
   March 31, 2002.............................................  $  15.4    $   0.1 (2)$     2.2   $     -    $   17.7
   December 31, 2001..........................................     14.9       17.8          2.8         -        35.5

Long-term debt, excluding current maturities:
   March 31, 2002.............................................  $ 742.3 (1)$   0.5    $   118.9   $  71.3 (1)$  933.0
   December 31, 2001..........................................    754.5        0.5        119.5      88.2       962.7

Revolving credit facilities:
   Facility commitment amounts................................  $  60.0    $  50.0    $     2.5   $     -    $  112.5
   March 31, 2002:
      Borrowings..............................................        -          -            -         -           -
      Letters of credit.......................................        -       11.5            -         -        11.5
      Unused and available credit.............................     60.0       32.1          2.5         -        94.6

Cash, cash equivalents, marketable
   securities and other investments
March 31, 2002:
   Current amounts restricted for debt service................  $   6.0    $     -    $     0.1   $     -    $    6.1
   Other current amounts......................................     19.7       10.3         29.4      16.4        75.8
                                                                --------   --------   ----------  --------   ---------
                                                                   25.7       10.3         29.5      16.4        81.9
                                                                --------   --------   ----------  --------   ---------

   Long-term amounts restricted for debt service..............     54.6 (2)      -            -         -        54.6
   Other long-term restricted amounts.........................        -          -          2.2         -         2.2
                                                                --------   --------   ----------  --------   ---------
                                                                   54.6          -          2.2         -        56.8
                                                                --------   --------   ----------  --------   ---------
                                                                $  80.3    $  10.3    $    31.7   $  16.4    $  138.7
                                                                ========   ========   ==========  ========   =========



                     Table and Notes continued on next page




                                                                                         MGI,
                                                                                      Lakepointe
                                                                 Scotia    Pacific    Assets and    MGHI
                                                                  LLC      Lumber       Other      PARENT      TOTAL
                                                                --------   --------   ----------  --------   ---------
                                                                             (IN MILLIONS OF DOLLARS)
December 31, 2001:
   Current amounts restricted for debt service................  $  35.3    $     -    $     0.1   $     -    $   35.4
   Other current amounts......................................     19.6        2.3         26.6      35.7        84.2
                                                                --------   --------   ----------  --------   ---------
                                                                   54.9        2.3         26.7      35.7       119.6
                                                                --------   --------   ----------  --------   ---------

   Long-term amounts restricted for debt service..............     87.6         -            -         -        87.6
   Other long-term restricted amounts.........................       -          -          2.2         -         2.2
                                                                --------   --------   ----------  --------   ---------
                                                                   87.6         -          2.2         -        89.8
                                                                --------   --------   --------------------   ---------
                                                                $ 142.5    $   2.3    $    28.9   $  35.7    $  209.4
                                                                ========   ========   ==========  ========   =========

Changes in cash and cash equivalents
Capital expenditures:
   March 31, 2002.............................................  $   1.3    $   1.1    $     0.1   $     -    $    2.5
   March 31, 2001.............................................      0.7        1.7          0.6         -         3.0

Net proceeds from dispositions of property and investments:
   March 31, 2002.............................................  $     -    $   0.9    $       -   $     -    $    0.9
   March 31, 2001.............................................        -          -            -         -           -

Borrowings (repayments) of debt and credit facilities,
     net of financing costs:
   March 31, 2002.............................................  $ (11.6)(1)$ (17.7)   $    (1.2)  $ (14.1)(1)$  (44.6)
   March 31, 2001.............................................    (11.4)     (37.0)          -      (12.8)      (61.2)

Dividends and advances received (paid):
   March 31, 2002.............................................  $ (29.4)(2)$  29.4 (2)$       -   $          $      -
   March 31, 2001.............................................    (73.1)(3)   73.1 (3)    (17.1)     17.1           -
------------------

(1)   The decrease in Scotia LLC's long-term debt between December 31, 2001, and
      March 31, 2002, was the result of principal payments on the Timber Notes
      of $11.6 million during the three months ended March 31, 2002. The
      decrease in MGHI Parent's long-term debt between December 31, 2001 and
      March 31, 2002, was the result of repurchases of debt.

(2)   In March 2002, Scotia LLC released $29.4 million from the SAR Account and
      distributed this amount to Pacific Lumber. Pacific Lumber used these funds
      to repay the borrowings outstanding under the Pacific Lumber Credit
      Agreement.

(3)   For the three months ended March 31, 2001, $73.1 million of dividends were
      paid by Scotia LLC to Pacific Lumber using proceeds from the sale of the
      Owl Creek grove.

      During the three months ended March 31, 2002, the Company repurchased
$16.9 million of the MGHI Notes, resulting in an extraordinary gain of $1.8
million (net of tax). Subsequent to March 31, 2002, MGHI repurchased $10.0
million of the MGHI Notes resulting in an extraordinary gain of $0.3 million
(net of tax). MGHI expects that interest payments on the remaining $61.3 million
of MGHI Notes will be paid with its existing cash and/or payments by MAXXAM
Parent on the MAXXAM Note.

      MGHI owns 27,938,250 shares of the common stock of Kaiser, representing a
34.6% interest. As a result of the Cases, the value of Kaiser common stock has
declined substantially. The market value of the Kaiser shares owned by MGHI
based on the price per share quoted at the close of business on May 16, 2002,
was $1.5 million. There can be no assurance that such value would be realized
should MGHI dispose of its investment in these shares, and it is possible that
all or a portion of MGHI's interest may be diluted or cancelled as a part of a
plan of reorganization.

      The Scotia LLC Line of Credit allows Scotia LLC to borrow up to one year's
interest on the Timber Notes. Scotia LLC has requested that the Scotia LLC Line
of Credit be extended for a period of not less than 364 days beginning July 12,
2002. If not extended, Scotia LLC may draw upon the full amount available. The
amount drawn would be repayable in 12 semiannual installments on each note
payment date (after the payment of certain other items, including the Aggregate
Minimum Principal Amortization Amount, as defined, then due), commencing
approximately two and one-half years following the date of the draw.

      On March 5, 2002, Scotia LLC notified the trustee for the Timber Notes
that it had met all of the requirements of the SAR Reduction Date, as defined in
the Timber Notes Indenture. Accordingly, on March 20, 2002, Scotia LLC released
$29.4 million from the SAR Account and distributed this amount to Pacific
Lumber.

      On the note payment date in January 2002, Scotia LLC had $33.9 million set
aside in the note payment account to pay the $28.4 million of interest due as
well as $5.5 million of principal. Scotia LLC repaid an additional $6.1 million
of principal on the Timber Notes using funds held in the SAR Account, resulting
in a total principal payment of $11.6 million, an amount equal to Scheduled
Amortization (as defined in the Timber Notes Indenture).

      With respect to the note payment due in July 2002, Scotia LLC expects that
it will require funds from the Scotia LLC Line of Credit to pay a portion of the
interest due and that all of the funds used to pay the Scheduled Amortization
amount will be provided from the SAR Account.

      MGHI Parent believes that its existing resources and payments on the
MAXXAM Note 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 on the MAXXAM Note, should be sufficient to meet its debt service and
working capital requirements, although there can be no assurance that this will
be the case. MGHI Parent expects MAXXAM to pay the amount of the MAXXAM Note
necessary to retire the MGHI Notes which are due in 2003. The regulatory and
environmental matters described under "--Results of Operations - Forest Products
Operations" above 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
"--Results of Operations" above and Note 7 to the Condensed Consolidated
Financial Statements), increased competition from other lumber producers or
alternative building products and general economic conditions.

      Pacific Lumber's 2001 cash flows from operations were adversely affected
by operating inefficiencies, lower lumber prices, an inadequate supply of logs
and a related slowdown in lumber production. During 2001, comprehensive external
and internal reviews were conducted of Pacific Lumber's business operations.
These reviews were conducted in an effort to identify ways in which Pacific
Lumber could operate on a more efficient and cost effective basis. Based upon
the results of these reviews, Pacific Lumber, among other things, indefinitely
idled two of its four sawmills, eliminated certain of its operations, including
its soil amendment and concrete block activities, began utilizing more efficient
harvesting methods and adopted certain other cost saving measures. Most of these
changes were implemented by Pacific Lumber in the last quarter of 2001, or the
first quarter of 2002. Pacific Lumber also ended its internal logging operations
(which performed approximately half of its logging operations) as of March 31,
2002, and intends to rely exclusively on third party contract loggers to conduct
these activities in the future.

      The $29.4 million release from the SAR Account discussed above improved
Pacific Lumber's liquidity during the three months ended March 31, 2002, and
operating results for the period met management's expectations. However, Pacific
Lumber may require funds available under the Pacific Lumber 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 long-term liquidity,
although MGI and its subsidiaries expect that their existing cash and cash
equivalents, lines of credit and ability to generate cash flows from operations
should provide sufficient funds to meet their debt service, working capital and
capital expenditure requirements, 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.


CRITICAL ACCOUNTING POLICIES

      See Item 7. "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Critical Accounting Policies" of the Form 10-K for a
discussion of the Company's critical accounting policies.

NEW ACCOUTNING PRONOUNCEMENTS

      See Note 1 to the Condensed Consolidated Financial Statements for a
discussion of new accounting pronouncements and their potential impact on the
Company.


ITEM 3.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      This item is not applicable for the Company and its subsidiaries.


                           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. No material developments
have occurred with respect to such legal proceedings subsequent to the filing of
the Form 10-K.


ITEM 6.         EXHIBITS AND REPORTS ON FORM 8-K

A.    EXHIBITS:

      None.

B.           REPORTS ON FORM 8-K:

      On January 15, 2002, the Company filed a current report on Form 8-K dated
January 15, 2002 (under Item 5), related to discussions between Kaiser and its
noteholders.

      On January 31, 2002, the Company filed a current report on Form 8-K dated
January 31, 2002 (under Item 5), related to the deferral of the release of 2001
fourth quarter earnings for Kaiser and MAXXAM, Kaiser's decision not to make an
interest payment on a series of notes, and a related matter.

      On February 12, 2002, the Company filed a current report on Form 8-K dated
February 12, 2002 (under Item 5), in connection with Kaiser's filing for Chapter
11 bankruptcy protection.

      On May 2, 2002, the Company filed a current report on Form 8-K dated as of
April 30, 2002 (under Item 4), related to the change of Registrant's certifying
accountant.


                                   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: May 20, 2002         By:                     /S/ PAUL N. SCHWARTZ
                                    -------------------------------------------------------
                                                       Paul N. Schwartz
                                     Vice President, Chief Financial Officer and Director
                                                 (Principal Financial Officer)



Date: May 20, 2002         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

Cases: The Chapter 11 proceedings of Kaiser and 16 of its subsidiaries

CDF:  California Department of Forestry and Fire Protection

CESA:  California Endangered Species Act

Code: The United States Bankruptcy Code

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

Court: The United States Bankruptcy Court for the District of Delaware

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

FASB: Financial Accounting Standards Board

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, 2001

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

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
20,553,418 shares are pledged as collateral for the MGHI Notes as of the date
hereof

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: The 7.56% notes of Lakepointe Assets 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. 143: Statement of Financial Accounting Standards No. 143, "Accounting
for Asset Retirement Obligations"

SFAS No. 144: Statement of Financial Accounting Standards No. 144, "Accounting
for the Impairment or Disposal of Long-lived Assets"

SFAS No. 145: Statement of Financial Accounting Standards No. 145, "Rescission
of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections"

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