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


                                 FORM 10-Q

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

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

               FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998

                       Commission File Number 1-9204


                         THE PACIFIC LUMBER COMPANY
           (Exact name of Registrant as specified in its charter)



           DELAWARE                          13-3318327
 (State or other jurisdiction             (I.R.S. Employer
      of incorporation or              Identification Number)
         organization)


         P. O. BOX 37                           95565
        125 MAIN STREET                      (Zip Code)
      SCOTIA, CALIFORNIA
     (Address of Principal
      Executive Offices)


     Registrant's telephone number, including area code: (707) 764-2222



     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 April 29, 1998:  100


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.

<PAGE>

                             TABLE OF CONTENTS


                                                                      PAGE
PART I.  -  FINANCIAL INFORMATION

     Item 1.   Financial Statements:
          Consolidated Balance Sheet at March 31, 1998 and
               December 31, 1997                                      3
          Consolidated Statement of Operations for the three
               months ended March 31, 1998 and 1997                   4
          Consolidated Statement of Cash Flows for the three
               months ended March 31, 1998 and 1997                   5
          Condensed Notes to Consolidated Financial Statements        6

     Item 2.   Management's Discussion and Analysis of Financial
          Condition and Results of Operations                         9

PART II.  -  OTHER INFORMATION

     Item 1.   Legal Proceedings                                      12
     Item 6.   Exhibits and Reports on Form 8-K                       12
     Signature                                                        S-1

<PAGE>


                THE PACIFIC LUMBER COMPANY AND SUBSIDIARIES

                         CONSOLIDATED BALANCE SHEET
              (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)


<TABLE>
<CAPTION>

                                                    MARCH 31,    DECEMBER 31,
                                                       1998          1997
                                                  ------------  ------------
                                                   (UNAUDITED)
                     ASSETS
<S>                                               <C>           <C>
Current assets:
     Cash and cash equivalents                    $     24,076  $     31,768 
     Receivables:
          Trade                                          9,053        19,216 
          Other                                          2,754         2,123 
     Inventories                                        50,214        56,079 
     Prepaid expenses and other current assets           7,647        12,898 
                                                  ------------  ------------
               Total current assets                     93,744       122,084 
Timber and timberlands, net of accumulated
     depletion of $238,125 and $236,824,
     respectively                                      320,752       321,206 
Property, plant and equipment, net of
     accumulated depreciation of $84,306 and
     $82,070, respectively                              95,986        96,292 
Deferred financing costs, net                           17,394        17,912 
Deferred income taxes                                   27,435        27,018 
Restricted cash                                         28,108        28,434 
Other assets                                             4,490         4,186 
                                                  ------------  ------------
                                                  $    587,909  $    617,132 
                                                  ============  ============

      LIABILITIES AND STOCKHOLDER'S DEFICIT

Current liabilities:
     Accounts payable                             $      2,808  $      3,538 
     Accrued compensation and related benefits           8,000        12,365 
     Accrued interest                                    6,959        19,650 
     Deferred income taxes                               9,671         9,671 
     Other accrued liabilities                           1,248         1,042 
     Long-term debt, current maturities                 20,607        19,429 
                                                  ------------  ------------
               Total current liabilities                49,293        65,695 
Long-term debt, less current maturities                533,617       545,571 
Other noncurrent liabilities                            29,163        27,991 
                                                  ------------  ------------
               Total liabilities                       612,073       639,257 
                                                  ------------  ------------ 

Contingencies
Stockholder's deficit:
     Common stock, $.01 par value, 100 shares
          authorized and issued                              -             - 
     Additional capital                                157,520       157,520 
     Accumulated deficit                              (181,684)     (179,645)
                                                  ------------  ------------ 
               Total stockholder's deficit             (24,164)      (22,125)
                                                  ------------  ------------ 
                                                  $    587,909  $    617,132 
                                                  ============  ============ 


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

</TABLE>
<PAGE>

                THE PACIFIC LUMBER COMPANY AND SUBSIDIARIES

                    CONSOLIDATED STATEMENT OF OPERATIONS
                         (IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>

                                                       THREE MONTHS ENDED
                                                            MARCH 31,         
                                                  --------------------------
                                                       1998          1997     
                                                  ------------  ------------
<S>                                               <C>           <C>
Net sales:
     Lumber and logs                              $     43,285  $     54,399 
     Other                                               3,229         6,450 
                                                  ------------  ------------
                                                        46,514        60,849 
                                                  ------------  ------------

Operating expenses:
     Cost of goods sold                                 30,279        34,723 
     Selling, general and administrative expenses        2,841         3,051 
     Depletion and depreciation                          5,533         6,563 
                                                  ------------  ------------ 
                                                        38,653        44,337 
                                                  ------------  ------------ 

Operating income                                         7,861        16,512 

Other income (expense):                                                      
     Investment, interest and other income               2,199           805 
     Interest expense                                  (13,197)      (13,485)
                                                  ------------  ------------ 
Income (loss) before income taxes                       (3,137)        3,832 
Credit (provision) in lieu of income taxes               1,098        (1,639)
                                                  ------------  ------------ 
Net income (loss)                                 $     (2,039) $      2,193 
                                                  ============  ============ 


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

</TABLE>
<PAGE>


                THE PACIFIC LUMBER COMPANY AND SUBSIDIARIES

                    CONSOLIDATED STATEMENT OF CASH FLOWS
                         (IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>

                                                        THREE MONTHS ENDED
                                                            MARCH 31,
                                                   --------------------------
                                                        1998          1997     
                                                   ------------  ------------
                                                           (UNAUDITED)
<S>                                                <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income (loss)                             $     (2,039) $      2,193 
     Adjustments to reconcile net income (loss)
          to net cash provided by operating
          activities:
          Depletion and depreciation                      5,533         6,563 
          Amortization of deferred financing
               costs                                        518           523 
          Net gain on asset dispositions                 (1,827)            - 
          Increase (decrease) in cash resulting
               from changes in:
               Receivables                                9,532         1,534 
               Inventories, net of depletion              3,860         5,698 
               Prepaid expenses and other assets            208        (1,872)
               Accounts payable                             (98)          (39)
               Accrued and deferred income taxes         (1,098)        1,639 
               Accrued interest                         (12,691)      (13,008)
               Other liabilities                         (2,987)       (2,755)
          Other                                               2            77 
                                                   ------------  ------------ 
          Net cash provided by (used for)
               operating activities                      (1,087)          553 
                                                   ------------  ------------ 

CASH FLOWS FROM INVESTING ACTIVITIES:
     Capital expenditures                                (2,636)       (2,164)
     Net proceeds from sale of assets                     6,481            -- 
                                                   ------------  ------------ 
          Net cash provided by (used for)
               investing activities                       3,845        (2,164)
                                                   ------------  ------------ 

CASH FLOWS FROM FINANCING ACTIVITIES:
     Redemptions, repurchases of and principal
          payments on long-term debt                    (10,776)       (8,756)
     Restricted cash withdrawals, net                       326           202 
                                                   ------------  ------------ 
          Net cash used for financing activities        (10,450)       (8,554)
                                                   ------------  ------------ 

NET DECREASE IN CASH AND CASH EQUIVALENTS                (7,692)      (10,165)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD         31,768        26,027 
                                                   ------------  ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD         $     24,076  $     15,862 
                                                   ============  ============ 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
     Interest paid, net of capitalized interest    $     25,369  $     25,970 

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

</TABLE>
<PAGE>


                THE PACIFIC LUMBER COMPANY 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 the Company 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 to present fairly
the consolidated financial position of the Company at March 31, 1998, the
consolidated results of operations for the three months ended March 31,
1998 and 1997 and consolidated cash flows for the three months ended March
31, 1998 and 1997.  The Company is an indirect, wholly owned subsidiary of
MGI.  MGI is a wholly owned subsidiary of MGHI which is a wholly owned
subsidiary of MAXXAM.

          SFAS No. 130 was issued in June 1997 with adoption required
for fiscal years beginning after December 31, 1997.  SFAS No. 130 requires
the presentation of an additional income measure (termed "comprehensive
income"), which adjusts traditional net income for certain items that
previously were only reflected as direct charges to equity (such as minimum
pension liabilities).  For the quarters ended March 31, 1998 and 1997, there
is not a significant difference between "traditional" net income and
comprehensive net income as the amount of the adjustments required to
arrive at comprehensive income is not significant.

2.        INVENTORIES

          Inventories consist of the following (in thousands):

<TABLE>
<CAPTION>

                                                    MARCH 31,   DECEMBER 31,
                                                       1998          1997     
                                                  ------------- -------------
<S>                                               <C>           <C>
Lumber                                            $      40,455 $      41,737
Logs                                                      9,759        14,342
                                                  ------------- -------------
                                                  $      50,214 $      56,079
                                                  ============= =============

</TABLE>

3.        RESTRICTED CASH

          Restricted cash represents the amount held by the trustee under
the indenture governing the Timber Notes of the Company's wholly owned
subsidiary, Scotia Pacific.  In addition, cash and cash equivalents
includes $3,904,000 and $17,784,000 at March 31, 1998 and December 31,
1997, respectively, which is restricted for debt service payments on the
Timber Notes.


4.        LONG-TERM DEBT

          Long-term debt consists of the following (in thousands):


<TABLE>
<CAPTION>
                                                    MARCH 31,    DECEMBER 31,
                                                       1998          1997
                                                  ------------  ------------ 
<S>                                               <C>           <C>
7.95% Scotia Pacific Timber Collateralized Notes
     due July 20, 2015                            $    309,192  $    319,965 
10-1/2% Pacific Lumber Senior Notes due March 1,
     2003                                              235,000       235,000 
Revolving Credit Agreement                               9,445         9,445 
Other                                                      587           590 
                                                  ------------  ------------ 
                                                       554,224       565,000 
Less: current maturities                               (20,607)      (19,429)
                                                  ------------  ------------ 
                                                  $    533,617  $    545,571 
                                                  ============  ============ 


</TABLE>

5.        CONTINGENCIES

          The Company's business is subject to a variety of California and
federal laws and regulations dealing with timber harvesting, threatened and
endangered species and habitat for such species, and air and water quality. 
Compliance with such laws and regulations plays a significant role in the
Company's business.  While compliance with such laws, regulations and
judicial and administrative interpretations, together with the cost of
litigation incurred in connection with certain timber harvesting
operations, have increased the costs of the Company, they have not had a
significant adverse effect on the Company's financial position, results of
operations or liquidity.  However, these laws and related administrative
actions and legal challenges have severely restricted the ability of the
Company to harvest virgin old growth timber, and to a lesser extent,
residual old growth timber on its timberlands.

          On September 28, 1996, the Pacific Lumber Parties entered into
the Headwaters Agreement with the United States and California which
provides the framework for the acquisition by the United States and
California of the Headwaters Timberlands.  A substantial portion of the
Headwaters Timberlands contains virgin old growth timber.  Approximately
4,900 of these acres are owned by Salmon Creek, with the remaining acreage
being owned by Scotia Pacific (the Company having harvesting rights on
approximately 300 of such acres).  The Headwaters Timberlands would be
transferred in exchange for (a) cash or other consideration from the United
States and California having an aggregate fair market value of $300
million, and (b) approximately 7,800 acres of timberlands to be acquired
from a third party.  As part of the Headwaters Agreement, the Pacific
Lumber Parties agreed to not enter the Headwaters Timberlands to conduct
any logging or salvage operations.

          Closing of the Headwaters Agreement is subject to various
conditions, including federal and California funding, approval of an SYP,
approval of a Multi-Species HCP and issuance of the Permits and the
issuance of certain tax agreements satisfactory to the Pacific Lumber
Parties.

          In November 1997, President Clinton signed an appropriations bill
which contains authorization for the expenditure of $250 million of federal
funds towards consummation of the Headwaters Agreement.  On February 27,
1998, Pacific Lumber, MAXXAM and various government agencies entered into
the HCP/SYP Agreement regarding certain understandings that they had
reached regarding the Multi-Species HCP, the Permits and the SYP.  The
HCP/SYP Agreement provides that the Permits and Multi-Species HCP would
have a term of 50 years, and would limit the activities which could be
conducted by the Company in twelve forest groves to those which would not
be detrimental to marbled murrelet habitat.  These groves aggregate
approximately 8,000 acres and consist of substantial quantities of virgin
and residual old growth redwood and Douglas-fir timber. 

          The Company believes that the HCP/SYP Agreement is a favorable
development that enhances its position in connection with legal and
regulatory challenges to its THPs as well as the prospects for consummation
of the Headwaters Agreement, the approval of the Multi-Species HCP and SYP
and the issuance of the Permits.  Several species, including the northern
spotted owl, the marbled murrelet and the coho salmon, have been listed as
endangered or threatened under the ESA and/or the CESA.  The Company has
developed federal and state northern spotted owl management plans which
permit harvesting activities to be conducted so long as the Company adheres
to certain measures designed to protect the northern spotted owl.  The
potential impact of the listings of the marbled murrelet and the coho
salmon is more uncertain.  If the Multi-Species HCP is approved, the
Company would be issued the Permits, which would allow limited incidental
"take" of listed species so long as there was no "jeopardy" to the continued
existence of the species and the Multi-Species HCP would identify the
measures to be instituted in order to minimize and mitigate the
anticipated level of take to the greatest extent possible.  The
Multi-Species HCP would not only provide for the Company's compliance
with habitat requirements for currently listed species, it would also
provide greater certainty and protection for the Company with regard to
identified species that may be listed in the future.  The Company is
attempting to include in the Multi-Species HCP a resolution of the
effect of potential regulatory limits by the EPA on sedimentation,
temperature and other factors for seventeen northern California rivers
and certain of their tributaries, including rivers within the Company's
timberlands.  These limitations would be aimed at protecting water quality.

          Lawsuits are pending or threatened which seek to prevent the
Company from implementing certain of its approved THPs or other operations.
While challenges with respect to the Company's young growth timber have
historically been limited, a lawsuit relating to the coho salmon was
recently filed under the ESA which relates to a significant number of
THPs covering young growth timber of the Company.  While the Company
expects these environmentally focused objections and lawsuits to continue,
it believes that the HCP/SYP Agreement will enhance its position in
connection with these challenges.  The Company also believes that the
Multi-Species HCP would expedite the preparation and facilitate approval
of its THPs.

          The HCP/SYP Agreement also contains certain provisions relating
to the SYP.  The Company expects to propose an LTSY which is approximately
10% less than the Company's average timber harvest over the last three
years.  If the SYP is approved by the CDF, the Company will have complied
with certain BOF regulations requiring that timber companies project timber
growth and harvest on their timberlands over a 100-year planning period and
establish an LTSY harvest level.  The SYP must demonstrate that the average
annual harvest over any rolling ten-year period will not exceed the LTSY
harvest level and that the Company's projected timber inventory is capable
of sustaining the LTSY harvest level in the last decade of the 100-year
planning period.  An approved  SYP is expected to be valid for ten years,
although it would be subject to review after five years.  Thereafter,
revised SYPs will be prepared every decade that address the LTSY harvest
level based upon reassessment of changes in the resource base and other
factors. 

          The final terms of the SYP, the Multi-Species HCP and the Permits
are subject to additional negotiation and agreement among the parties as
well as public review and comment.  While the parties are working
diligently to complete the Multi-Species HCP and the SYP as well as the
other closing conditions contained in the Headwaters Agreement, there can
be no assurance that the Headwaters Agreement will be consummated or that
an SYP, Multi-Species HCP or Permits acceptable to the Company will be
approved.  If the Headwaters Agreement is not consummated and the
Company is unable to harvest or is severely limited in harvesting on various
of its timberlands, it intends to continue and/or expand its takings
litigation seeking just compensation from the appropriate governmental
agencies on the grounds that such restrictions constitute an uncompensated
governmental taking of private property for public use.

          In the event that a Multi-Species HCP is not approved, the
Company will not enjoy the benefits of a more streamlined THP preparation
and review process.  Furthermore, if a Multi-Species HCP acceptable to the
Company is not approved, it is impossible for the Company to determine the
potential adverse effect of the listings of the marbled murrelet and coho
salmon or the EPA's potential regulatory limitations on river sedimentation
on the Company's financial position, results of operations or liquidity until
such time as the various regulatory and legal issues are resolved; however,
if the Company is unable to harvest, or is severely limited in harvesting,
on significant amounts of its timberlands, such effect could be materially
adverse to the Company.


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

          The following should be read in conjunction with the response to
Part I, Item 1 of this Report and Items 7 and 8 of the Form 10-K subsequent
to the filing 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.

          This section contains statements which constitute "forward-
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995.  These statements appear in several places in this Form
10-Q.  Such statements can be identified by the use of forward-looking
terminology such as "believes," "expects," "may," "estimates," "will,"
"should," "plans" or "anticipates" or the negative thereof or other
variations thereon or comparable terminology, or by discussions of
strategy.  Readers are cautioned that any such forward-looking statements
are not guarantees of future performance and involve significant risks and
uncertainties, and that actual results may vary materially from those in
the forward-looking statements as a result of various factors.  These
factors include the effectiveness of management's strategies and decisions,
general economic and business conditions, developments in technology, new
or modified statutory or regulatory requirements and changing prices and
market conditions.  This section and the Form 10-K identify other factors
that could cause such differences.  No assurance can be given that these
are all of the factors that could cause actual results to vary materially
from the forward-looking statements.

RESULTS OF OPERATIONS

          The Company is engaged in forest products operations.  Its
business is seasonal in that the Company generally experiences lower first
quarter sales due largely to the general decline in construction-related
activity during the winter months.  Accordingly, the Company's results for
any one quarter are not necessarily indicative of results to be expected
for the full year.  The following table presents selected operational and
financial information for the three months ended March 31, 1998 and 1997.



<TABLE>
<CAPTION>
                                                       THREE MONTHS ENDED
                                                           MARCH 31,
                                                  -------------------------- 
                                                       1998          1997
                                                  ------------  ------------ 
                                                    (In millions of dollars,
                                                       except shipments and
                                                            prices)
<S>                                               <C>           <C>
Shipments:
     Lumber: (1)
          Redwood upper grades                            10.2          13.0 
          Redwood common grades                           33.7          36.6 
          Douglas-fir upper grades                         1.9           2.5 
          Douglas-fir common grades                        9.2          19.4 
          Other                                            2.2           3.0 
                                                  ------------  ------------ 
               Total lumber                               57.2          74.5 
                                                  ============  ============ 
     Logs (2)                                              9.4          11.1 
                                                  ============  ============ 
     Wood chips (3)                                       27.6          56.9 
                                                  ============  ============ 
Average sales price:
     Lumber: (4)
          Redwood upper grades                    $      1,491  $      1,322 
          Redwood common grades                            538           541 
          Douglas-fir upper grades                       1,269         1,211 
          Douglas-fir common grades                        352           486 
     Logs (4)                                              414           400 
     Wood chips (5)                                         66            78 

Net sales:
     Lumber, net of discount                      $       39.4  $       50.0 
     Logs                                                  3.9           4.4 
     Wood chips                                            1.8           4.4 
     Cogeneration power                                     .6           1.0 
     Other                                                  .8           1.0 
                                                  ------------  ------------ 
               Total net sales                    $       46.5  $       60.8 
                                                  ============  ============
Operating income                                  $        7.9  $       16.5 
                                                  ============  ============ 
Operating cash flow (6)                           $       13.4  $       23.1 
                                                  ============  ============ 
Income (loss) before income taxes                 $       (3.1) $        3.8 
                                                  ============  ============ 
Net income (loss)                                 $       (2.0) $        2.2 
                                                  ============  ============ 
Capital expenditures                              $        2.6  $        2.2 
                                                  ============  ============ 


<FN>

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

(1)  Lumber shipments are expressed in millions of board feet.
(2)  Log shipments are expressed in millions of feet, net Scribner scale.
(3)  Wood chip shipments are expressed in thousands of bone dry units of
     2,400 pounds.
(4)  Dollars per thousand board feet.
(5)  Dollars per bone dry unit.
(6)  Operating income before depletion and depreciation, also referred to
     as "EBITDA."

</TABLE>

          Net sales
          Net sales for the quarter ended March 31, 1998 decreased from the
comparable prior year quarter due primarily to lower shipments of lumber,
logs, and chips and to lower average realized prices for common grade
Douglas-fir lumber.  This impact was partially offset by higher average
realized prices for upper grade redwood lumber.  The decrease in volumes
was due largely to well-above-normal rainfall during the 1998 period which
reduced demand, hindered logging operations, slowed production, and
inhibited shipments.

          Operating income and income (loss) before income taxes
          Operating income and income (loss) before income taxes for the
three months ended March 31, 1998 decreased from the comparable prior year
period, principally due to the decrease in net sales discussed above.  This
impact was partially offset by a gain on the sale of a non-timber property.

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.

          The indentures governing the Senior Notes, Timber Notes and the
Revolving Credit Agreement contain various covenants which, among other
things, limit the ability of the Company and Scotia Pacific to incur
additional indebtedness and liens, to engage in transactions with
affiliates, to pay dividends and to make investments.  As of March 31,
1998, under the most restrictive of these covenants, approximately $17.2
million of dividends could be paid by the Company to its parent.

          As of March 31, 1998, $30.3 million of borrowings was available
under the Revolving Credit Agreement, of which $4.9 million was available
for letters of credit and $20.6 million was restricted to timberland
acquisitions.  As of March 31, 1998, $9.4 million of borrowings were
outstanding and letters of credit outstanding amounted to $15.1 million.

          As of March 31, 1998, the Company had consolidated long-term debt
of $505.5 million (net of current maturities and restricted cash deposited
in the Liquidity Account) as compared to $517.1 million at December 31,
1997.  The decrease in long-term debt was principally due to principal
payments on the Timber Notes of $10.8 million.  The Company anticipates
that cash from operations, together with existing cash, cash equivalents
and available sources of financing, will be sufficient to fund its working
capital and capital expenditure requirements for the next year.  With
respect to its long-term liquidity, the Company believes that its existing
cash and cash equivalents, together with its ability to generate sufficient
levels of cash from operations and to obtain both short- and long-term
financing, should provide sufficient funds to meet its working capital and
capital expenditure requirements.  However, due to its highly leveraged
condition, the Company is more sensitive than less leveraged companies to
factors affecting its operations, including litigation and governmental
regulation affecting timber harvesting practices (see "--Trends" below),
increased competition from other lumber producers or alternative building
products and general economic conditions.

TRENDS

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

          The Company's operations are subject to a variety of California
and federal laws and regulations dealing with timber harvesting, threatened
and endangered species and habitat for such species, and air and water
quality.  Moreover, these laws and regulations are modified from time to
time and are subject to judicial and administrative interpretation. 
Compliance with such laws, regulations and judicial and administrative
interpretations, together with the cost of litigation incurred in
connection with certain timber harvesting operations of the Company, have
increased the cost of logging operations.  The Company is subject to
certain pending matters which could have a material adverse effect on its
consolidated financial position, results of operations or liquidity.  There
can be no assurance that these pending matters or future governmental
regulations, legislation or judicial or administrative decisions would not
have a material adverse effect on the Company.  See Part II, Item 1. "Legal
Proceedings" and Note 5 to the Condensed Consolidated Financial Statements
for further information regarding regulatory and environmental factors and
the Headwaters Agreement affecting the Company's operations.

          Judicial or regulatory actions adverse to the Company, increased
regulatory delays and inclement weather in northern California,
independently or collectively, could impair the Company's ability to
maintain adequate log inventories and force the Company to temporarily idle
or curtail operations at certain lumber mills from time to time.

                        PART II.  OTHER INFORMATION


ITEM 1.        LEGAL PROCEEDINGS

          Reference is made to Item 3 of the Form 10-K for information
concerning material legal proceedings with respect to the Company.  No
material developments have occurred with respect to such legal proceedings.


ITEM 6.        EXHIBITS AND REPORTS ON FORM 8-K

     A.   EXHIBITS:

          3.1  By-Laws of the Company, amended November 19, 1993
          27   Financial Data Schedule

     B.   REPORTS ON FORM 8-K:

          None.

                                 SIGNATURE


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


                                   THE PACIFIC LUMBER COMPANY



Date:  May 1, 1998              By:     /S/ GARY L. CLARK        
                                          Gary L. Clark
                                  Vice President - Finance and
                                         Administration



                                                                 APPENDIX A


                         GLOSSARY OF DEFINED TERMS


BOF:  California Board of Forestry

CDF:  California Department of Forestry

CESA:  California Endangered Species Act

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

ESA:  The federal Endangered Species Act

Form 10-K:  The Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission for the fiscal year ended December 31,
1997

HCP:  Habitat conservation plan

HCP/SYP Agreement:  A February 27, 1998 Pre-Permit Application Agreement in
Principle entered into by Pacific Lumber, MAXXAM and various government
agencies regarding certain understandings that they had reached regarding
the Multi-Species HCP, the Permits and the SYP

Headwaters Agreement:  The September 28, 1996 agreement between the Pacific
Lumber Parties, the United States and California which provides 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

Liquidity Account:  A liquidity account maintained by Scotia Pacific with 
respect to the Timber Notes

LTSY:  Long-term sustained yield

MAXXAM:  MAXXAM Inc.

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

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

Multi-Species HCP:  The habitat conservation plan covering multiple species
contemplated by the Headwaters Agreement

NMFS:  National Marine Fisheries Service

Pacific Lumber Parties:  Pacific Lumber, including its subsidiaries and
affiliates, and MAXXAM

Permits:  The incidental take permits related to the Multi-Species HCP

Revolving Credit Agreement:  The revolving credit agreement between the
Company and a bank which provides for borrowings of up to $60,000,000, of
which $20,000,000 may be used for standby letters of credit and $30,000,000
is restricted to timberland acquisitions

Salmon Creek:  Salmon Creek Corporation, a wholly owned subsidiary of the
Company

Scotia Pacific:  Scotia Pacific Holding Company, a wholly owned subsidiary
of the Company

Senior Notes:  10-1/2% Pacific Lumber Senior Notes due March
1, 2003

SFAS No. 130:  Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income"

SYP:  Sustained yield plan establishing long-term sustained yield harvest
levels for a company's timberlands

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

Timber Notes:  the 7.95% Scotia Pacific Timber Collateralized Notes due
July 20, 2015

USFWS:  United States Fish and Wildlife Service