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


                                    FORM 10-Q

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


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

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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 November 8, 2001: 1,000

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


                                TABLE OF CONTENTS



PART I.  -  FINANCIAL INFORMATION

    Item 1.   Financial Statements:
              Consolidated Balance Sheet at September 30, 2002 and December
                 31, 2001
              Consolidated Statement of Operations for the three and nine
                 months ended September 30, 2002 and 2001
              Consolidated Statement of Cash Flows for the nine months ended
                 September 30, 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

    Item 4.   Disclosure Controls and Procedures

PART II.  -  OTHER INFORMATION

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

APPENDIX A - GLOSSARY OF DEFINED TERMS



                   MAXXAM GROUP HOLDINGS INC. AND SUBSIDIARIES

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



                                                                                        SEPTEMBER 30, DECEMBER 31,
                                                                                            2002          2001
                                                                                        ------------- -------------
                                                                                                (UNAUDITED)
ASSETS
Current assets:
   Cash and cash equivalents........................................................... $       26.2  $       66.0
   Marketable securities...............................................................         52.1          53.6
   Receivables:
      Trade............................................................................         10.5          12.5
      Receivables from MAXXAM..........................................................            -           8.5
      Other............................................................................          1.7           2.1
   Inventories.........................................................................         34.1          51.4
   Prepaid expenses and other current assets...........................................         17.7          17.5
                                                                                        ------------- -------------
      Total current assets.............................................................        142.3         211.6
Property, plant and equipment, net of accumulated depreciation of $109.6 and
   $100.1, respectively................................................................        220.5         224.9
Timber and timberlands, net of accumulated depletion of $201.8 and
   $193.7, respectively................................................................        229.3         235.0
Note receivable from MAXXAM............................................................        191.5         183.1
Deferred financing costs, net..........................................................         20.8          22.8
Deferred income taxes..................................................................         22.9          13.4
Restricted cash, marketable securities and other investments...........................         57.4          89.8
Other assets...........................................................................          8.1           6.8
                                                                                        ------------- -------------
                                                                                        $      892.8  $      987.4
                                                                                        ============= =============

LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
   Accounts payable.................................................................... $        5.4  $        5.7
   Accrued interest....................................................................         12.4          30.5
   Accrued compensation and related benefits...........................................         11.8          12.4
   Deferred income taxes...............................................................          8.4           6.8
   Other accrued liabilities...........................................................         10.4           8.0
   Short-term borrowings and current maturities of long-term debt, excluding
      $2.6 and $2.3, respectively, of repurchased Timber Notes held in
      the SAR Account..................................................................         68.1          35.5
                                                                                        ------------- -------------
      Total current liabilities........................................................        116.5          98.9
Long-term debt, less current maturities and excluding $52.8 and $55.4,
   respectively, of repurchased Timber Notes held in the SAR Account...................        855.9         962.7
Deferred income taxes..................................................................         22.8          19.5
Other noncurrent liabilities...........................................................         28.8          28.3
                                                                                        ------------- -------------
      Total liabilities................................................................      1,024.0       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.................................................................       (254.6)       (245.5)
   Accumulated other comprehensive income..............................................          0.2           0.3
                                                                                        ------------- -------------
      Total stockholder's deficit......................................................       (131.2)       (122.0)
                                                                                        ------------- -------------
                                                                                        $      892.8  $      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        NINE MONTHS ENDED
                                                                        SEPTEMBER 30,            SEPTEMBER 30,
                                                                   -----------------------  -----------------------
                                                                      2002         2001        2002        2001
                                                                   -----------  ----------  ----------  -----------
                                                                                      (UNAUDITED)

Net sales:
   Lumber and logs...............................................  $     47.9   $    39.5   $   142.8   $    124.4
   Real estate...................................................         2.2         2.2         6.5          2.3
   Other.........................................................         3.9         5.3        11.2         18.4
                                                                   -----------  ----------  ----------  -----------
                                                                         54.0        47.0       160.5        145.1
                                                                   -----------  ----------  ----------  -----------

Operating expenses:
   Cost of goods sold............................................        32.3        36.9       103.8        119.6
   Selling, general and administrative expenses..................         8.2         5.1        17.9         13.9
   Impairment of assets..........................................           -         0.7           -          0.7
   Depletion and depreciation....................................         7.1         5.5        21.6         15.7
                                                                   -----------  ----------  ----------  -----------
                                                                         47.6        48.2       143.3        149.9
                                                                   -----------  ----------  ----------  -----------

Operating income (loss)..........................................         6.4        (1.2)       17.2         (4.8)

Other income (expense):
   Equity in earnings of Kaiser..................................           -        23.7           -         43.3
   Investment, interest and other income (expense), net..........         6.5         7.1        22.3         25.5
   Interest expense..............................................       (18.9)      (20.2)      (57.7)       (56.7)
                                                                   -----------  ----------  ----------  -----------
Income (loss) before income taxes................................        (6.0)        9.4       (18.2)         7.3
Benefit in lieu of income taxes..................................         1.9         3.2         6.8         12.2
                                                                   -----------  ----------  ----------  -----------

Income (loss) before extraordinary item..........................        (4.1)       12.6       (11.4)        19.5
Extraordinary item:
   Gains on repurchases of debt, net of income tax provisions
      of $0.1, $1.2 and $2.0, respectively.......................         0.2           -         2.3          3.6
                                                                   -----------  ----------  ----------  -----------
Net income (loss)................................................  $     (3.9)  $    12.6   $    (9.1)  $     23.1
                                                                   ===========  ==========  ==========  ===========



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



                   MAXXAM GROUP HOLDINGS INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF CASH FLOWS
                            (IN MILLIONS OF DOLLARS)


                                                                                                 NINE MONTHS ENDED
                                                                                                   SEPTEMBER 30,
                                                                                               --------------------
                                                                                                 2002       2001
                                                                                               ---------  ---------
                                                                                                    (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income (loss).......................................................................... $   (9.1)  $   23.1
   Adjustments to reconcile net income (loss) to net cash provided by (used for) operating
      activities:
      Depletion and depreciation..............................................................     21.6       15.7
      Non-cash impairment charge..............................................................        -        0.7
      Extraordinary gains on repurchases of debt, net.........................................     (2.3)      (3.6)
      Equity in undistributed earnings of Kaiser..............................................        -      (43.3)
      Amortization of deferred financing costs................................................      2.0        1.8
      Net loss (gain) on marketable securities................................................      1.1       (2.7)
      Deferral of interest payment on note receivable from MAXXAM.............................     (0.2)     (18.6)
      Increase (decrease) in cash resulting from changes in:
        Receivables...........................................................................      2.6        0.9
        Inventories, net of depletion.........................................................     15.0       (0.9)
        Prepaid expenses and other assets.....................................................     (2.2)      (2.6)
        Accounts payable......................................................................     (0.3)      (0.3)
        Accrued interest......................................................................    (18.1)     (18.8)
        Accrued and deferred income taxes.....................................................     (6.9)     (13.5)
        Other liabilities.....................................................................      1.5        5.4
        Long-term assets and long-term liabilities............................................      1.6       (2.8)
                                                                                               ---------  ---------
        Net cash provided by (used for) operating activities..................................      6.3      (59.5)
                                                                                               ---------  ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Net sales (purchases) of marketable securities.............................................      2.7      (21.6)
   Capital expenditures.......................................................................     (9.0)    (141.6)
   Net proceeds from dispositions of property and investments.................................      1.9          -
                                                                                               ---------  ---------
        Net cash used for investing activities................................................     (4.4)    (163.2)
                                                                                               ---------  ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from issuances of long-term debt..................................................        -      122.5
   Borrowings (repayments) under revolving credit agreements, net.............................    (12.8)     (19.0)
   Redemptions, repurchases of and principal payments on long-term debt.......................    (58.0)     (39.7)
   Incurrence of deferred financing costs.....................................................        -       (5.3)
   Restricted cash (deposits) withdrawals, net................................................     30.3       18.4
   Other......................................................................................     (1.2)     (11.1)
                                                                                               ---------  ---------
        Net cash provided by (used for) financing activities..................................    (41.7)      65.8
                                                                                               ---------  ---------

NET DECREASE IN CASH AND CASH EQUIVALENTS.....................................................    (39.8)    (156.9)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD..............................................     66.0      201.7
                                                                                               ---------  ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................................................... $   26.2   $   44.8
                                                                                               =========  =========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
   Interest paid, net of capitalized interest................................................. $   73.8   $   73.7
   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 September 30, 2002, and the consolidated
results of operations for the three and nine months ended September 30, 2002 and
2001, and the consolidated cash flows for the nine months ended September 30,
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, closed 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 historically performed approximately half of its logging) as of March 31,
2002, and now relies exclusively on contract loggers to conduct these
activities. In connection with these changes, the Company recorded an impairment
charge to operating costs of $2.2 million in the fourth quarter of 2001. Further
actions may be taken during the next year as a result of Pacific Lumber's
continuing evaluation process, and additional writedowns of certain assets may
be required.

      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 and/or additional repayments
by MGI of an intercompany loan in order to meet its working capital and capital
expenditure requirements for the next year.

      Scotia LLC's cash flows from operations are significantly impacted by
harvest volumes and SBE prices. On June 19, 2002, the State Board of
Equalization adopted the new Harvest Value Schedule for the second half of 2002.
The SBE Prices published in this schedule reflect an approximate 16% decline for
small redwood logs and no price change for small Douglas fir logs. This decline
in SBE Prices will continue to have an adverse impact on Scotia LLC's net sales
and liquidity during the fourth quarter of 2002. With respect to the note
payment due in January 2003, 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. With respect to short-term liquidity, Scotia LLC believes that
existing cash available for principal payments from the SAR Account, and funds
available under the Scotia LLC Line of Credit, together with cash flows from
operations, should provide sufficient funds to meet its working capital, capital
expenditures and required debt service obligations through 2003. However, cash
flows from operations and funds available under the Scotia LLC Line of Credit
may be insufficient to allow Scotia LLC to fulfill its interest and certain
other payment obligations in the long-term if SBE Prices do not improve.

      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 and SBE Prices improve,
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       NINE MONTHS ENDED
                                                                       SEPTEMBER 30,           SEPTEMBER 30,
                                                                  ----------------------- -----------------------
                                                                     2002        2001        2002         2001
                                                                  ----------  ----------- -----------  ----------

Net income (loss)...............................................  $    (3.9)  $     12.6  $     (9.1)  $    23.1
Cumulative effect of accounting change..........................          -            -           -         0.6
Unrealized net gains on derivative instruments arising during
   the period...................................................          -         12.4           -         9.9
Less reclassification adjustment for realized net gains on
   derivative instruments included in net income................          -         (0.1)          -        (1.0)
Change in value of available-for-sale investments, net of income
   tax provision (benefit) of $0.2, $0.4, $(0.1) and $0.6,
   respectively.................................................        0.2          0.7        (0.1)        0.9
                                                                  ----------  ----------- -----------  ----------
Comprehensive income (loss).....................................  $    (3.7)  $     25.6  $     (9.2)  $    33.5
                                                                  ==========  =========== ===========  ==========

      INVESTMENT IN KAISER
      The Company's investment in Kaiser consists of a 34.6% equity interest at
September 30, 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 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 for 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 the Company's fiscal year
beginning January 1, 2003. The Company does not expect the adoption of SFAS No.
145 to have a material impact on its financial statements.

      In July 2002, the FASB issued SFAS No. 146. The standard requires
companies to recognize costs associated with exit or disposal activities when
they are incurred rather than at the date of a commitment to an exit or disposal
plan. Costs covered by the standard include lease termination costs and certain
employee severance costs that are associated with a restructuring, discontinued
operation, plant closing, or other exit or disposal activity. This statement is
to be applied prospectively to exit or disposal activities initiated after
December 31, 2002.

2.    SEGMENT INFORMATION

      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:
      September 30, 2002.................................. $       51.8   $       2.2   $         -   $       54.0
      September 30, 2001..................................         44.8           2.2             -           47.0

Operating income (loss) for the three months ended:
      September 30, 2002..................................          5.7           0.8          (0.1)           6.4
      September 30, 2001..................................         (1.9)          0.7             -           (1.2)

Other income (expense), net for the three months ended:
      September 30, 2002..................................        (13.6)         (2.4)          3.6          (12.4)
      September 30, 2001..................................        (13.0)         (2.4)         26.0           10.6

Net sales for the nine months ended:
      September 30, 2002..................................        154.0           6.5             -          160.5
      September 30, 2001..................................        142.8           2.3             -          145.1

Operating income (loss) for the nine months ended:
      September 30, 2002...................................         15.3           2.4          (0.5)          17.2
      September 30, 2001..................................         (5.4)          0.8          (0.2)          (4.8)

Other income (expense), net for the nine months ended:
      September 30, 2002..................................        (38.1)         (7.1)          9.8          (35.4)
      September 30, 2001..................................        (36.3)         (2.5)         50.9           12.1

Total assets as of:
      September 30, 2002..................................        547.8         129.4         215.6          892.8
      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 in 2001 committed to a plan for disposal of these assets
during 2002. During the third quarter of 2002, machinery and equipment with a
carrying value of $1.2 million was sold, resulting in a loss of $0.4 million.
During the nine months ended September 30, 2002, machinery and equipment with a
carrying value of $2.2 million was sold, resulting in a gain of $1.0 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
June 30, 2002, all of the affected employees had left the Company, and the
entire amount of the related liability had been paid.

3.    CASH, MARKETABLE SECURITIES AND OTHER INVESTMENTS
      RESTRICTED CASH, MARKETABLE SECURITIES AND OTHER INVESTMENTS
      Cash, marketable securities and other investments include the following
amounts which are restricted (in millions):


                                                                                       SEPTEMBER 30,  DECEMBER 31,
                                                                                           2002           2001
                                                                                       ------------- --------------

Current assets:
      Restricted cash and cash equivalents...........................................  $        0.1  $        35.4
                                                                                       ------------- --------------

   Marketable securities, restricted:
      Amounts held in SAR Account....................................................          19.3           17.1
                                                                                       ------------- --------------

Long-term restricted cash, marketable securities and other investments:
   Amounts held in SAR Account.......................................................         102.9          137.8
   Other amounts restricted under the Timber Notes Indenture.........................           2.6            2.8
   Other long-term restricted cash...................................................           2.3            2.2
   Less: Amounts attributable to Timber Notes held in SAR Account....................         (50.4)         (53.0)
                                                                                       ------------- --------------
                                                                                               57.4           89.8
                                                                                       ------------- --------------

Total restricted cash, marketable securities and other investments...................  $       76.8  $       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 (e.g., certain harvest, THP inventory and Scotia LLC
Line of Credit requirements). 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 interests in
several limited partnerships which invest in diversified portfolios of common
stocks and other equity securities. These investments are not consolidated, but
are accounted for under the equity method. The following table shows the
Company's investment in these partnerships, including restricted amounts held in
the SAR Account (in millions).


                                                                                        SEPTEMBER 30,    DECEMBER 31,
                                                                                            2002             2001
                                                                                        -------------   --------------

   Restricted........................................................................   $       13.7    $        15.7
   Unrestricted......................................................................            9.7             36.5
                                                                                        -------------   --------------
                                                                                        $       23.4    $        52.2
                                                                                        =============   ==============

4.    INVENTORIES

      Inventories consist of the following (in millions):


                                                                                         SEPTEMBER 30,   DECEMBER 31,
                                                                                             2002            2001
                                                                                        --------------  --------------

Lumber.............................................................................     $        24.2   $        29.3
Logs...............................................................................               9.9            22.1
                                                                                        --------------  --------------
                                                                                        $        34.1   $        51.4
                                                                                        ==============  ==============

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

5.    INVESTMENT IN KAISER

      As of November 8, 2002, the Company has 27,938,250 shares of the common
stock of Kaiser, of which 18,333,939 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. On July 22, 2002, the Company
agreed with Kaiser that it would not dispose of any of its Kaiser shares prior
to a hearing on the April 12, 2002 motion. The Company and Kaiser also agreed
that the Company may upon 10 days written notice to Kaiser (a) request the Court
to hear the matter at a special hearing or (b) have the matter heard at one of
Kaiser's scheduled monthly bankruptcy hearings.

      The market value for the Kaiser Shares based on the price per share quoted
at the close of business on November 8, 2002, was $1.7 million. There can be no
assurance that such value would be realized should the Company dispose of the
Kaiser Shares. The following tables contain summarized financial information for
Kaiser (in millions).


                                                                                        SEPTEMBER 30, DECEMBER 31,
                                                                                            2002          2001
                                                                                        ------------- -------------

Current assets......................................................................... $      594.3  $      759.2
Property, plant and equipment, net.....................................................      1,160.7       1,215.4
Other assets...........................................................................        746.6         769.1
                                                                                        ------------- -------------
        Total assets................................................................... $    2,501.6  $    2,743.7
                                                                                        ============= =============

Liabilities not subject to compromise:
   Current liabilities................................................................. $      323.4  $      803.4
   Long-term debt, less current maturities.............................................         42.8         700.8
   Other liabilities...................................................................         94.9       1,562.1
Liabilities subject to compromise......................................................      2,592.2             -
Minority interests.....................................................................        119.9         118.5
Stockholders' deficit..................................................................       (671.6)       (441.1)
                                                                                        ------------- -------------
        Total liabilities and stockholders' deficit.................................... $    2,501.6  $    2,743.7
                                                                                        ============= =============



                                                                     THREE MONTHS ENDED        NINE MONTHS ENDED
                                                                        SEPTEMBER 30,            SEPTEMBER 30,
                                                                   ------------------------------------------------
                                                                      2002         2001        2002        2001
                                                                   -----------  ----------  ----------  -----------

Net sales........................................................  $    348.0   $   430.3   $ 1,104.9   $  1,357.4
Costs and expenses...............................................      (413.7)     (466.4)   (1,244.0)    (1,205.7)
Other expenses - net.............................................       (12.1)      152.7       (41.7)        53.3
                                                                   -----------  ----------  ----------  -----------
Income (loss) before income taxes and minority interests.........       (77.8)      116.6      (180.8)       205.0
Benefit (provision) for income taxes.............................        (7.0)      (49.4)      (21.4)       (83.9)
Minority interests...............................................         1.4         1.2         4.3          2.8
                                                                   -----------  ----------  ----------  -----------
Net income (loss)................................................  $    (83.4)  $    68.4   $  (197.9)  $    123.9
                                                                   ===========  ==========  ==========  ===========
Equity in earnings (loss) of Kaiser..............................  $        -   $    23.7   $       -   $     43.3
                                                                   ===========  ==========  ==========  ===========

6.    DEBT

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


                                                                                    SEPTEMBER 30,    DECEMBER 31,
                                                                                        2002             2001
                                                                                   ---------------  ---------------

12% MGHI Notes due August 1, 2003................................................. $         43.2   $         88.2
Pacific Lumber Credit Agreement...................................................              -             17.7
6.55% Scotia LLC Timber Notes due July 20, 2028...................................          103.2            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...........................................          120.1            121.7
Scotia LLC Line of Credit.........................................................            5.5                -
Other.............................................................................            0.9              1.5
                                                                                   ---------------  ---------------
                                                                                            979.4          1,055.9
Less: current maturities..........................................................          (68.1)           (35.5)
      Timber Notes held in SAR Account............................................          (55.4)           (57.7)
                                                                                   ---------------  ---------------
                                                                                   $        855.9   $        962.7
                                                                                   ===============  ===============

      The amount attributable to the Timber Notes held in the SAR Account of
$50.4 million as of September 30, 2002, reflected in Note 3 above represents the
amount paid to acquire $55.4 million of principal amount of Timber Notes.

      During the nine months ended September 30, 2002, the Company repurchased
$45.0 million principal amount of the MGHI Notes, resulting in an extraordinary
gain of $2.3 million (net of tax). Subsequent to September 30, 2002, the Company
repurchased $11.6 million principal amount of the MGHI Notes resulting in a
small gain.

      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.

      At September 30, 2002, $14.0 million of letters of credit and no
borrowings were outstanding under the Pacific Lumber Credit Agreement. Unused
availability was limited to $18.0 million at September 30, 2002. On July 24,
2002, a letter agreement was signed extending the maturity date of the Pacific
Lumber Credit Agreement from August 14, 2003, to August 13, 2004. In connection
with such extension, the facility commitment amount was reduced from $50.0
million to $45.0 million. On October 28, 2002, a new credit agreement was
entered into which incorporated these changes and allowed for syndication of the
facility.

      The Scotia LLC Line of Credit allows Scotia LLC to borrow up to one year's
interest on the Timber Notes. On May 31, 2002, the Scotia LLC Line of Credit was
extended for an additional year to July 11, 2003. Annually, Scotia LLC will
request that the Scotia LLC Line of Credit be extended for a period of not less
than 364 days. 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 the note payment date in July 2002, Scotia LLC borrowed $13.9 million under
the Scotia LLC Line of Credit to pay interest on the Timber Notes. At September
30, 2002, Scotia LLC could have borrowed a maximum of $54.3 million under the
Scotia LLC Line of Credit, and there was $5.5 million outstanding under the
Scotia LLC Line of Credit.

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 the 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.

      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. Nevertheless, the rate of approvals of THPs during 2001
improved over that for the prior year, and further improvements had been
experienced in 2002 prior to the recent developments in the EPIC-SYP/Permits
lawsuit described below. Despite the improvements in the THP approval process,
other factors such as actions by the North Coast Water Board and pending
litigation discussed below may adversely impact the Company's ability to meet
its harvesting goals.

      In late May 2002, the Company completed its timber cruise, its first since
1986. The results of the timber cruise provided the Company with an estimate of
the volume of merchantable timber on the Company's timberlands. The new cruise
data reflected a 0.1 million MBF decrease in estimated overall timber volume as
compared to the estimated volumes reported as of December 31, 2001 using the
1986 cruise data (adjusted for harvest and estimated growth), with an increase
in young growth timber volume almost equal to the decrease in old growth timber
volume. This shift in timber volume between classifications decreased the
overall timber volume reported in Mbfe by 0.2 million to 2.9 million. The new
cruise data indicates that there is significantly less old growth timber
available for harvest than estimated as of December 31, 2001, using the 1986
cruise data. This change in mix could potentially result in a decrease in the
Company's revenues. However, because there are many variables that affect
revenues and profitability, the Company cannot quantify the effect of the above
changes on current and future cash flows. The new timber volumes are now being
utilized in various aspects of the Company's operations, including estimating
volumes on THPs and determining depletion expense.

      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 two water courses. The North Coast Water Board has
begun the process of establishing the TMDL requirements applicable to two other
water courses on the Company's timberlands. The North Coast Water Board has
targeted the fall of 2003 as the completion date of the TMDL process for these
four water courses. The final TMDL requirements applicable to the Company's
timberlands may require aquatic protection measures that are different from or
in addition to those in the HCP or that result from the prescriptions to be
developed pursuant to the watershed analysis process provided for in the HCP.

       Effective January 1, 2003, a California statute eliminates a waiver
previously granted to, among others, timber companies. This waiver had been in
effect for a number of years and waived the requirement under California
water quality regulations for timber companies to follow certain waste discharge
requirements in connection with their timber harvesting and related operations.
The new statute provides, however, that regional water boards such as the North
Coast Water Board are authorized to renew the waiver. If a regional water board
decides not to renew the waiver by January 1, 2003, it may notify a company that
the board will require such company to follow certain waste discharge
requirements in order to conduct harvesting operations on a THP. The waste
discharge requirements may include aquatic protection measures that are
different from or in addition to those provided for in the THP approved by the
CDF. Harvesting activities could be delayed and/or adversely affected, as a
separate, additional regulatory process would be required for harvesting under
THPs.

      In August 2002, the North Coast Water Board issued the Company an order
requiring reports of waste discharge in connection with the Company's winter
operations in the Elk River basin to be conducted under THPs approved by CDF.
This order currently impacts an estimated 18,000 Mbfe of timber covered by a
number of THPs. This order prohibits sediment discharges caused by Company
operations during the winter period in the watershed until the reports are
submitted by the Company and a determination is made by the North Coast Water
Board regarding what, if any, waste discharge requirements are to be imposed.
The Company submitted a report of waste discharge, and on November 7, 2002, the
North Coast Water Board approved waste discharge requirements that the Company
believes will allow it to operate within this basin during the winter months.

      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. On June 5, 2002,
the Company settled this lawsuit for $0.5 million.

      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. On September 20, 2002, an agreement was reached to settle
this litigation, and the parties are proceeding to implement that agreement.

      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. On March 31, 1999, the lawsuit
USWA lawsuit was filed also challenging the validity and legality of the SYP.
The trial judge has issued a stay of the effectiveness of the Permits but has
not issued an injunction against harvesting on the Company's lands under THPs
that were previously approved consistently with the Permits. The stay does,
however, prevent CDF from approving certain new THPs that rely upon the Permits,
and unless the stay can be vacated or amended, as the Company has requested, it
could force the Company to modify its pending THPs in accordance with
alternative Board of Forestry rules that do not depend upon an approved SYP.
This procedure could cause reductions in 2003 harvest levels and could have an
adverse impact on the Company. A trial date is set for January 20, 2003. The
judge has indicated that he expects to rule on this matter no earlier than July
2003. The Company believes that appropriate procedures were followed throughout
the public review and approval process concerning the HCP and the SYP, the
Company is working with the relevant government agencies to defend these
challenges, and does not believe the resolution of these matters should result
in a material adverse effect on its financial condition, results of operations
or the ability to harvest timber. However, in addition to the potential
short-term adverse impacts described above, these matters could have a long-term
negative impact if they are decided adversely to the Company.

      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.

      On April 3, 2002, the Environmental Protection Information Association
filed a 60-day notice letter threatening suit against the Company and certain
federal agencies under the ESA. The threatened suit would seek to require the
federal agencies to consider new information obtained since the approval of the
HCP concerning marbled murrelets and salmon and to require a cessation of
certain harvesting operations. No suit has yet been filed. The Company believes
that it has strong factual and legal defenses with respect to this matter;
however, there can be no assurance that such a suit would not have a material
adverse effect on the Company's financial position, results of operations, or
liquidity.

      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.

8.    PENSION PLAN MATTERS

      The assets of the Pacific Lumber-sponsored pension plan, like numerous
other companies' plans, are, to a substantial degree, invested in equity trust
funds which are managed by a third party. Given the year-to-date performance of
the capital markets, it is likely that, barring a material improvement during
the remainder of 2002, the Company may be required to reflect an increase in its
minimum pension liability in its year-end financial statements as a result of a
decline in the value of the assets held by Pacific Lumber's pension plan. Such
an increase in the minimum pension liability would be a non-cash adjustment that
would be reflected as an increase in pension liability with an offsetting charge
to stockholders' deficit (net of income tax) through comprehensive income
(rather than net income). The ultimate amount of such additional adjustment
cannot be determined until year-end 2002. However, such amount could be
material.

9.    OTHER SIGNIFICANT EVENTS

      In August 2002, Motel Assets entered into an agreement to acquire for
approximately $53.0 million an interest in a trust which owns a portfolio of
sixteen motel properties located in ten different states. Under the agreement,
Motel Assets would make a cash payment of $3.0 million and assume the
outstanding principal balance of approximately $50.0 million on the Motel Notes
at the expected closing date in November 2002. The Motel Notes have an interest
rate of 7.03% with a May 1, 2018, maturity date. Motel Assets would acquire the
properties subject to an existing lease agreement with the current tenant, under
which the properties are fully leased through April 2019, and under which all
obligations are guaranteed by the parent company of the current tenant. Motel
Assets expects to account for the lease as an operating lease. The Motel Notes
are secured by the lease, the properties, and an $11.2 million residual value
insurance contract.

      In August 2002, Beltway Assets entered into an agreement to acquire an
office building located in Houston, Texas, for a purchase price of approximately
$32.0 million. The transaction would be financed with a cash payment of $2.0
million and proceeds of approximately $30.0 million from the issuance of the
Beltway Notes. At the time of the acquisition, Beltway Assets would
simultaneously lease the property back to the seller for a period of 22 years.
Beltway Assets expects to account for the lease as an operating lease. The
Beltway Notes would be secured by the building, the lease, and an $11.2 million
residual value insurance contract.

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

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

      The Company's 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. 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. As discussed in Note 7 to the Condensed Consolidated Financial
Statements, other factors may adversely impact the Company's abilities to meet
its harvesting goals. The North Coast Water Board is requiring the Company to
apply certain waste discharge requirements to approved THPs covering winter
harvesting operations in the Elk River basin, and beginning in 2003 the North
Coast Water Board could require the Company to follow waste discharge
requirements before harvesting operations are conducted on THPs in other
watersheds. This requirement could cause further delays in harvesting. A stay
issued in connection with the EPIC- SYP/Permits lawsuit could require the
Company to follow an alternative THP approval process, resulting in delays in
obtaining approvals of THPs which have already been submitted or are currently
being prepared.

     Furthermore, there can be no assurance that certain other pending legal,
regulatory and environmental matters or future governmental regulations,
legislation or judicial or administrative decisions, adverse weather conditions
or low SBE prices, will 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, closed 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 historically performed approximately half
of its logging) as of March 31, 2002, and now relies exclusively on contract
loggers to conduct these activities. Further actions may be taken during the next
year as a result of Pacific Lumber's continuing evaluation process, and additional
writedowns of certain assets may be required.

      Timber Cruise. In late May 2002, the Company completed its timber cruise,
its first since 1986. The results of the timber cruise provided the Company with
an estimate of the volume of merchantable timber on the Company's timberlands.
The new cruise data reflected a 0.1 million MBF decrease in estimated overall
timber volume as compared to the estimated volumes reported as of December 31,
2001 using the 1986 cruise data (adjusted for harvest and estimated growth),
with an increase in young growth timber volume almost equal to the decrease in
old growth timber volume. This shift in timber volume between classifications
decreased the overall timber volume reported in Mbfe by 0.2 million to 2.9
million. The new cruise data indicates that there is significantly less old
growth timber available for harvest than estimated as of December 31, 2001,
using the 1986 cruise data. This change in mix could potentially result in a
decrease in the Company's revenues. However, because there are many variables
that affect revenues and profitability, the Company cannot quantify the effect
of the above changes on current and future cash flows. The new timber volumes
are now being utilized in various aspects of the Company's operations, including
estimating volumes on THPs and determining depletion expense.

      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 September 30, 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 and nine months ended September 30, 2002 and 2001.


                                                                     THREE MONTHS ENDED        NINE MONTHS ENDED
                                                                        SEPTEMBER 30,            SEPTEMBER 30,
                                                                   -----------------------  -----------------------
                                                                      2002         2001        2002        2001
                                                                   -----------  ----------  ----------  -----------
                                                                   (IN MILLIONS OF DOLLARS, EXCEPT SHIPMENTS AND PRICES)

Shipments:
   Lumber: (1)
      Redwood upper grades.......................................         7.4         3.6        20.9         12.1
      Redwood common grades......................................        55.9        41.5       173.5        123.6
      Douglas-fir upper grades...................................         1.0         2.0         3.7          6.7
      Douglas-fir common grades..................................         7.3        11.4        12.9         44.2
      Other......................................................           -         1.0           -          3.6
                                                                   -----------  ----------  ----------  -----------
   Total lumber..................................................        71.6        59.5       211.0        190.2
                                                                   ===========  ==========  ==========  ===========
   Wood chips (2)................................................        19.2        29.6        51.7         90.2
                                                                   ===========  ==========  ==========  ===========

Average sales price:
   Lumber: (3)
      Redwood upper grades.......................................  $    1,291   $   1,739   $   1,327   $    1,788
      Redwood common grades......................................         559         570         546          595
      Douglas-fir upper grades...................................       1,456       1,287       1,330        1,341
      Douglas-fir common grades..................................         336         357         336          343
   Wood chips (4)................................................          34          64          34           67

Net sales:
   Lumber, net of discount.......................................  $     44.5   $    36.5   $   130.6   $    119.2
   Logs..........................................................         3.3         3.0        12.2          5.2
   Wood chips....................................................         0.6         1.9         1.7          6.1
   Cogeneration power............................................         2.5         2.0         7.2          9.4
   Other.........................................................         0.9         1.4         2.3          2.9
                                                                   -----------  ----------  ----------  -----------
        Total forest products....................................        51.8        44.8       154.0        142.8
   Real estate...................................................         2.2         2.2         6.5          2.3
                                                                   -----------  ----------  ----------  -----------
      Total net sales............................................  $     54.0   $    47.0   $   160.5   $    145.1
                                                                   ===========  ==========  ==========  ===========
Operating income (loss)..........................................  $      6.4   $    (1.2)  $    17.2   $     (4.8)
                                                                   ===========  ==========  ==========  ===========
Operating cash flow (5)..........................................  $     13.5   $     5.0   $    38.8   $     11.6
                                                                   ===========  ==========  ==========  ===========
Income (loss) before income taxes................................  $     (6.0)  $     9.4   $   (18.2)  $      7.3
                                                                   ===========  ==========  ==========  ===========
Net income (loss) (6)............................................  $     (3.9)  $    12.6   $    (9.1)  $     23.1
                                                                   ===========  ==========  ==========  ===========

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

(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 results for the three and nine month periods include an after-tax
      extraordinary gain of $0.2 million and $2.3 million, respectively, on the
      repurchase of MGHI Notes. 2001 results include after-tax extraordinary
      gains of $3.6 million for the nine month period on the repurchase of MGHI
      Notes.


      Net Sales
      Net sales increased for the third quarter and first nine months of 2002 as
compared to the third quarter and first nine months of 2001, primarily due to
increased shipments of redwood common grade lumber. Net sales for the first nine
months of 2002 also increased due to additional rental income from the Lake
Pointe Plaza office complex acquired in June 2001. Growth in net sales was
negatively impacted by a decline in shipments of Douglas-fir lumber and lower
average sales prices for redwood lumber.

      Operating Income (Loss)
      Operating results improved for the three and nine month periods ended
September 30, 2002, as compared to the same periods of 2001. The Company was
able to increase shipments while lowering cost of sales and operations. The
decline in operating expenses primarily reflects the benefits of cost saving
measures taken in late 2001 and early 2002. Selling, general and administrative
expenses for the two periods increased, however, primarily as a result of an
increase in administrative, litigation and other expenses.

      Income (Loss) Before Income Taxes
      The Company had losses before income taxes for the third quarter and first
nine months of 2002 as compared to income before income taxes for the comparable
prior year periods. The decline is primarily because during the 2002 periods,
the Company recognized no earnings or losses with respect to its investment in
Kaiser, whereas the third quarter and first nine months of 2001 included equity
in earnings of Kaiser of $23.7 million and $43.3 million, respectively. The
decline in income as a result of the decrease in earnings from kaiser was offset
in part by the improvement in operating income described 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.


                                                                  Scotia       Pacific      MGI and       MGHI
                                                                    LLC        Lumber        Other       PARENT      TOTAL
                                                                 ---------    ---------     --------    --------    --------
                                                                                   (IN MILLIONS OF DOLLARS)

Debt and credit facilities (excluding intercompany notes)
Short-term borrowings and current maturities of long-term
   debt:
   September 30, 2002........................................... $   22.3     $    0.3 (1)  $   2.3     $  43.2 (2)  $  68.1
   December 31, 2001............................................     14.9         17.8          2.8           -         35.5

Long-term debt, excluding current maturities:
   September 30, 2002........................................... $  737.6 (2) $   0.4       $ 117.9     $     - (2)  $ 855.9
   December 31, 2001............................................    754.5         0.5         119.5        88.2        962.7

Revolving credit facilities:
   Facility commitment amounts.................................. $   59.8     $   45.0      $   2.5     $     -      $ 107.3
   September 30, 2002:
      Borrowings................................................      5.5            -            -           -          5.5
      Letters of credit.........................................        -         14.0            -           -         14.0
      Unused and available credit...............................     54.3         18.0          2.5           -         74.8

Cash, cash equivalents, marketable
   securities and other investments
September 30, 2002:
   Current amounts restricted for debt service.................. $   19.3     $      -      $   0.1     $     -      $  19.4
   Other current amounts........................................      2.0         24.8         31.8         0.3         58.9
                                                                 ---------    ---------     --------    --------     --------
                                                                     21.3         24.8         31.9         0.3         78.3
                                                                 ---------    ---------     --------    --------     --------

   Long-term amounts restricted for debt service................     55.1            -            -           -         55.1
   Other long-term restricted amounts...........................       -             -          2.3           -          2.3
                                                                 ---------    ---------     --------    --------     --------
                                                                     55.1            -          2.3           -         57.4
                                                                 ---------    ---------     --------    --------     --------
                                                                 $   76.4     $   24.8      $  34.2     $   0.3      $ 135.7
                                                                 =========    =========     ========    ========     ========


-----------------------------
Table and Notes continued on next page


                                                                  Scotia       Pacific      MGI and       MGHI
                                                                   LLC         Lumber        Other       PARENT       TOTAL
                                                                 --------     ---------     --------    --------    ---------
                                                                                    (IN MILLIONS OF DOLLARS)
December 31, 2001:
   Current amounts restricted for debt service.................. $  52.4      $      -      $   0.1     $     -     $   52.5
   Other current amounts........................................     2.5           2.3         26.6        35.7         67.1
                                                                 --------      ---------    --------    --------    ---------
                                                                    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:
   September 30, 2002........................................... $   4.9      $    3.8      $   0.3     $     -     $    9.0
   September 30, 2001...........................................     4.2           4.9        132.5 (3)       -        141.6

Borrowings (repayments) of debt and credit facilities, net of
   financing costs:
   September 30, 2002........................................... $  (9.4)(2)  $  (17.8)     $  (2.2)    $ (41.4)(2) $  (70.8)
   September 30, 2001...........................................   (14.2)        (19.2)       117.0 (3)   (25.1)        58.5

Dividends and advances received (paid):
   September 30, 2002........................................... $ (29.4)(1)  $   29.4 (1)  $     -     $     -     $      -
   September 30, 2001...........................................   (77.4)(4)      83.8 (4)    (23.5)       17.1            -
------------------

(1)     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.
(2)     The decrease in Scotia LLC's long-term debt between
        December 31, 2001, and September 30, 2002, was the result
        of principal payments on the Timber Notes of $14.8
        million during the nine months ended September 30, 2002.
        The decrease in MGHI Parent's long-term debt and increase
        in short-term debt was due to repurchases of $45.0
        million principal amount of MGHI Notes, and
        reclassification of $43.2 million from long-term to
        short-term debt. Borrowings (repayments) of debt and
        credit facilities also includes $5.5 million outstanding
        on the Scotia LLC Line of Credit as of September 30,
        2002.
(3)     Capital expenditures and borrowings for MGI, Lakepointe
        Assets and Other as of and for the period ended September
        30, 2001, reflect the purchase of the Lake Pointe Plaza
        office complex.
(4)     For the nine months ended September 30, 2001, $77.4
        million of dividends were paid by Scotia LLC to Pacific
        Lumber, $63.9 million of which was made using proceeds
        from the sale of Scotia LLC's Owl Creek grove. In
        addition to the $77.4 million of dividends from Scotia
        LLC, Pacific Lumber received $6.4 million from MGI
        related to repayment of intercompany debt.

      During the nine months ended September 30, 2002, the Company repurchased
$45.0 million principal amount of the MGHI Notes, resulting in an extraordinary
gain of $2.3 million (net of tax). Subsequent to September 30, 2002, the Company
repurchased $11.6 million principal amount of the MGHI Notes, resulting in a
small gain. MAXXAM Parent expects to pay MGHI the amount of the Intercompany
Note necessary to enable MGHI to satisfy its obligations under the MGHI Notes,
which are due August 1, 2003.

      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 November 8,
2002, was $1.7 million. It is possible that MGHI's interest may be diluted or
cancelled as a part of a plan of reorganization.

      At September 30, 2002, $14.0 million of letters of credit and no
borrowings were outstanding under the Pacific Lumber Credit Agreement. Unused
availability was limited to $18.0 million at September 30, 2002. On July 24,
2002, a letter agreement was signed extending the maturity date of the Pacific
Lumber Credit Agreement from August 14, 2003, to August 13, 2004, subject to
certain conditions such as completion of a new credit agreement. In connection
with such extension, the facility commitment amount was reduced from $50.0
million to $45.0 million. On October 28, 2002, a new credit agreement was
entered into which incorporated these changes and allowed for syndication of the
facility.

      The Scotia LLC Line of Credit allows Scotia LLC to borrow up to one year's
interest on the Timber Notes. On May 31, 2002, the Scotia LLC Line of Credit was
extended for an additional year to July 11, 2003. Annually, Scotia LLC will
request that the Scotia LLC Line of Credit be extended for a period of not less
than 364 days. 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.
At September 30, 2002, Scotia LLC could have borrowed a maximum of $54.3 million
under the Scotia LLC Line of Credit, and there was $5.5 million outstanding
under the Scotia LLC Line of Credit.

      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 (e.g., certain harvest, THP inventory and Scotia LLC
Line of Credit requirements). 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).

      On the note payment date in July 2002, Scotia LLC had $15.1 million set
aside in the note payment account and borrowed $13.0 million (net of $0.9
million for Timber Notes held by Scotia LLC) from the Scotia LLC Line of Credit
to pay the $28.1 million of interest due. Scotia LLC repaid $3.2 million of
principal on the Timber Notes (an amount equal to Scheduled Amortization) using
funds held in 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" above have
adversely affected cash available from subsidiaries, and in turn the amount of
distributions to MGHI Parent. Distributions from subsidiaries may continue to be
minimal, if any, over the next year.

      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, closed 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 historically performed approximately half of its logging) as of March 31,
2002, and now relies exclusively on contract loggers to conduct these
activities. Further actions may be taken during the next year as a result of
Pacific Lumber's continuing evaluation process, and additional writedowns of
certain assets may be required.

      The $29.4 million release from the SAR Account discussed above improved
Pacific Lumber's liquidity during the nine months ended September 30, 2002.
However, Pacific Lumber's cash flows from operations may be adversely affected
by the availability of logs. See "Results of Operations" above as well as Note 7
to the Condensed Consolidated Financial Statements for further discussion on the
regulatory and environmental factors affecting harvest levels and the results of
the timber cruise completed in 2002. Pacific Lumber may require funds available
under the Pacific Lumber Credit Agreement and/or additional repayments by MGI of
an intercompany loan in order to meet its working capital and capital
expenditure requirements for the next year.

      Scotia LLC's cash flows from operations are significantly impacted by
harvest volumes and SBE prices. On June 19, 2002, the State Board of
Equalization adopted the new Harvest Value Schedule for the second half of 2002.
The SBE Prices published in this schedule reflect an approximate 16% decline for
small redwood logs and no price change for small Douglas fir logs. This decline
in SBE Prices will continue to have an adverse impact on Scotia LLC's net sales
and liquidity during the fourth quarter of 2002. With respect to the note
payment due in January 2003, 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. With respect to short-term liquidity, Scotia LLC believes that
existing cash available for principal payments from the SAR Account, and funds
available under the Scotia LLC Line of Credit, together with cash flows from
operations, should provide sufficient funds to meet its working capital, capital
expenditures and required debt service obligations through 2003. However, cash
flows from operations and funds available under the Scotia LLC Line of Credit
may be insufficient to allow Scotia LLC to fulfill its interest and certain
other payment obligations in the long-term if SBE Prices do not improve. In
addition, cash flows from operations may continue to be adversely affected if
harvest levels decline as a result of the factors discussed in "--Results of
Operations" above and Note 7 to the Condensed Consolidated Financial Statements.

      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 and SBE Prices improve, there can be
no assurance that this will be the case. Cash flows from operations in the
long-term may continue to be adversely affected by the same factors discussed
above which are affecting short-term cash flows from operations.

      In August 2002, Motel Assets entered into an agreement to acquire for
approximately $53.0 million an interest in a trust which owns a portfolio of
sixteen motel properties located in ten different states. Under the agreement,
Motel Assets would make a cash payment of $3.0 million and assume the
outstanding principal balance of approximately $50.0 million on the Motel Notes
at the expected closing date in November 2002. The Motel Notes have an interest
rate of 7.03% with a May 1, 2018, maturity date. Motel Assets would acquire the
properties subject to an existing lease agreement with the current tenant, under
which the properties are fully leased through April 2019, and under which all
obligations are guaranteed by the parent company of the current tenant. Motel
Assets expects to account for the lease as an operating lease. The Motel Notes
are secured by the lease, the properties, and an $11.2 million residual value
insurance contract.

      In August 2002, Beltway Assets entered into an agreement to acquire an
office building located in Houston, Texas, for a purchase price of approximately
$32.0 million. The transaction would be financed with a cash payment of $2.0
million and proceeds of approximately $30.0 million from the issuance of the
Beltway Notes. At the time of the acquisition, Beltway Assets would
simultaneously lease the property back to the seller for a period of 22 years.
Beltway Assets expects to account for the lease as an operating lease. The
Beltway Notes would be secured by the building, the lease, and an $11.2 million
residual value insurance contract.

CRITICAL ACCOUNTING POLICIES

      In the second quarter of 2002, the Company completed its timber cruise
which resulted in new and updated timber volume information (see also Note 7 to
the Condensed Consolidated Financial Statements). Accordingly, the Company
revised its estimated depletion rates beginning April 1, 2002. There was
relatively no impact on depletion expense for the nine months ended September
30, 2002, as a result of using the updated timber volume information.

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

NEW ACCOUNTING 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.


ITEM 4.         DISCLOSURE CONTROLS AND PROCEDURES

      The Company maintains disclosure controls and procedures that are designed
to ensure that information required to be disclosed in the Company's Exchange
Act reports is recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms, and that such information is
accumulated and communicated to the Company's management, including its Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure. In designing and evaluating the
disclosure controls and procedures, management recognized that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. Also, the Company has
investments in certain unconsolidated entities. As the Company does not control
or manage these entities, its disclosure controls and procedures with respect to
such entities are necessarily substantially more limited than those it maintains
with respect to its consolidated subsidiaries.

      Within 90 days prior to the date of this report, the Company carried out
an evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and the Company's
Chief Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based on the foregoing, the
Company's Chief Executive Officer and Chief Financial Officer concluded that the
Company's disclosure controls and procedures were effective.

      There have been no significant changes in the Company's internal controls
or in other factors that could significantly affect the internal controls
subsequent to the date the Company completed its evaluation.


                           PART II. OTHER INFORMATION

ITEM 1.     LEGAL PROCEEDINGS

      The information set forth in Note 7 to the Condensed Consolidated Financial
Statements in Part I, Item 1 of this Form 10-Q is incorporated herein by
reference.


ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K

A.    EXHIBITS:

4.1   Credit Agreement dated October 28, 2002 among Pacific Lumber, Bank of
      America, N.A., as Administrative Agent and L/C Issuer, and the Lenders
      from time to time party thereto

B.      REPORTS ON FORM 8-K:

      On August 13, 2002, the Company filed a current report on Form 8-K dated
August 13, 2002, related to the Certification of the Chief Executive and Chief
Financial Officers pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

      On October 4, 2002, the Company filed a current report on Form 8-K dated
October 1, 2002, related to the EPIC- SYP/Permits lawsuit.


                                   SIGNATURES


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



                                                 MAXXAM GROUP HOLDINGS INC.





Date: November 13, 2002      By:         /S/     PAUL N. SCHWARTZ
                                ------------------------------------------------
                                                Paul N. Schwartz
                            Vice President, Chief Financial Officer and Director
                                         (Principal Financial Officer)




Date: November 13, 2002     By:         /S/   ELIZABETH D. BRUMLEY
                               -------------------------------------------------
                                           Elizabeth D. Brumley
                                               Controller
                                      (Principal Accounting Officer)


                                 CERTIFICATIONS



     I, Charles E. Hurwitz, certify that:

     1.  I have reviewed this quarterly report on Form 10-Q of MAXXAM Group
         Holdings Inc.;

     2.  Based on my knowledge, this quarterly report does not contain any
         untrue statement of a material fact or omit to state a material fact
         necessary to make the statements made, in light of the circumstances
         under which such statements were made, not misleading with respect to
         the period covered by this quarterly report;

     3.  Based on my knowledge, the financial statements, and other financial
         information included in this quarterly report, fairly present in all
         material respects the financial condition, results of operations and
         cash flows of the registrant as of, and for, the periods presented in
         this quarterly report;

     4.  The registrant's other certifying officers and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         we have:

         a)   designed such disclosure controls and procedures to ensure that
              material information relating to the registrant, including its
              consolidated subsidiaries, is made known to us by others within
              those entities, particularly during the period in which this
              quarterly report is being prepared;

         b)   evaluated the effectiveness of the registrant's disclosure
              controls and procedures as of a date within 90 days prior to the
              filing date of this quarterly report (the "Evaluation Date"); and

         c)   presented in this quarterly report our conclusions about the
              effectiveness of the disclosure controls and procedures based on
              our evaluation as of the Evaluation Date;

     5.  The registrant's other certifying officers and I have disclosed, based
         on our most recent evaluation, to the registrant's auditors and the
         audit committee of registrant's board of directors (or persons
         performing the equivalent function):

         a)   all significant deficiencies in the design or operation of
              internal controls which could adversely affect the registrant's
              ability to record, process, summarize and report financial data
              and have identified for the registrant's auditors any material
              weaknesses in internal controls; and

         b)   any fraud, whether or not material, that involves management or
              other employees who have a significant role in the registrant's
              internal controls; and

     6.  The registrant's other certifying officers and I have indicated in this
         quarterly report whether or not there were significant changes in
         internal controls or in other factors that could significantly affect
         internal controls subsequent to the date of our most recent evaluation,
         including any corrective actions with regard to significant
         deficiencies and material weaknesses.


Date:    November 13, 2002        By:        /S/    CHARLES E. HURWITZ
                                     -------------------------------------------
                                                 Charles E. Hurwitz
                                         Chairman of the Board, President and
                                               Chief Executive Officer




     I, Paul N. Schwartz, certify that:

     1.  I have reviewed this quarterly report on Form 10-Q of MAXXAM Group
         Holdings Inc.;

     2.  Based on my knowledge, this quarterly report does not contain any
         untrue statement of a material fact or omit to state a material fact
         necessary to make the statements made, in light of the circumstances
         under which such statements were made, not misleading with respect to
         the period covered by this quarterly report;

     3.  Based on my knowledge, the financial statements, and other financial
         information included in this quarterly report, fairly present in all
         material respects the financial condition, results of operations and
         cash flows of the registrant as of, and for, the periods presented in
         this quarterly report;

     4.  The registrant's other certifying officers and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         we have:

         a)   designed such disclosure controls and procedures to ensure that
              material information relating to the registrant, including its
              consolidated subsidiaries, is made known to us by others within
              those entities, particularly during the period in which this
              quarterly report is being prepared;

         b)   evaluated the effectiveness of the registrant's disclosure
              controls and procedures as of a date within 90 days prior to the
              filing date of this quarterly report (the "Evaluation Date"); and

         c)   presented in this quarterly report our conclusions about the
              effectiveness of the disclosure controls and procedures based on
              our evaluation as of the Evaluation Date;

     5.  The registrant's other certifying officers and I have disclosed, based
         on our most recent evaluation, to the registrant's auditors and the
         audit committee of registrant's board of directors (or persons
         performing the equivalent function):

         a)   all significant deficiencies in the design or operation of
              internal controls which could adversely affect the registrant's
              ability to record, process, summarize and report financial data
              and have identified for the registrant's auditors any material
              weaknesses in internal controls; and

         b)   any fraud, whether or not material, that involves management or
              other employees who have a significant role in the registrant's
              internal controls; and

     6.  The registrant's other certifying officers and I have indicated in this
         quarterly report whether or not there were significant changes in
         internal controls or in other factors that could significantly affect
         internal controls subsequent to the date of our most recent evaluation,
         including any corrective actions with regard to significant
         deficiencies and material weaknesses.


Date:   November 13, 2002        By:               /S/   PAUL N. SCHWARTZ
                                     ----------------------------------------------------
                                                      Paul N. Schwartz
                                     Vice President, Chief Financial Officer and Director
                                                (Principal Financial 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

Beltway Assets: Beltway Assets LLC, a limited liability company, which is an
indirect wholly owned subsidiary of the Company

Beltway Notes: Beltway Assets' 6.31% notes due in November, 2024

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

Cases: The Chapter 11 proceedings of Kaiser, KACC and 15 of KACC's 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 (Order
Granting Change of Venue was filed on May 27, 1999, and assigned Case No. CV990452
in Humboldt County Superior Court)

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

Harvest Value Schedule: A schedule setting forth the SBE Prices published
bi-annually by the California Board of Equalization for purposes of computing
yield taxes on timber sales

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 Corporation, 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: Lakepointe Assets' 7.45% notes due June 8, 2021

MAXXAM:  MAXXAM Inc.

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

MBF: One thousand board feet

Mbfe: A concept developed for use in structuring the Timber Notes; under this
concept one thousand board feet, net Scribner scale, of residual old growth
redwood timber equates to one Mbfe

MGHI Notes:  The Company's 12% Senior Secured Notes due August 1, 2003

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

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

Motel Notes:  Motel Assets' 7.03% notes due May 1, 2018

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 $45.0 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

SBE Price: The applicable stumpage price for a particular species and size of
log, as set forth in the most recent Harvest Value Schedule

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 years' 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"

SFAS No. 146: Statement of Financial Accounting Standards No. 146, "Accounting
for Costs Associated with Exit or Disposal Activities"

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