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                         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, 2007

                             OR

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

                Commission File Number 1-3924

                         MAXXAM INC.
    (Exact name of Registrant as Specified in its Charter)

                Delaware                                        95-2078752
      (State or other jurisdiction                           (I.R.S. Employer
    of incorporation or organization)                     Identification Number)

     1330 Post Oak Blvd., Suite 2000                               77056
             Houston, Texas                                     (Zip Code)
(Address of Principal Executive Offices)

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

     Indicate by check mark whether the Registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. (Check one):
Large accelerated filer       Accelerated filer X          Non-accelerated filer

     Indicate  by check mark  whether  the  Registrant  is a shell  company  (as
defined in Rule 12b-2 of the Exchange Act).
Yes     No X

 Number of shares of common stock outstanding at November 5, 2007: 5,248,717

                                TABLE OF CONTENTS

                                                                            Page
PART I. - FINANCIAL INFORMATION

          Item 1.   General Information.........................................
                    Financial Statements (unaudited):
                    Condensed Consolidated Balance Sheets.......................
                    Condensed Consolidated Statements of Operations.............
                    Condensed Consolidated Statements of Cash Flows.............
                    Notes to Unaudited Condensed 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.   Controls and Procedures.....................................

PART II. - OTHER INFORMATION

          Item 1.   Legal Proceedings...........................................
          Item 1A.  Risk Factors................................................
          Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds.
          Item 3.   Defaults Upon Senior Securities.............................
          Item 6.   Exhibits....................................................
          Signatures............................................................

APPENDIX A - GLOSSARY OF DEFINED TERMS..........................................

                           MAXXAM INC. AND SUBSIDIARIES

                                GENERAL INFORMATION

In  connection  with a periodic  review by the staff of the SEC of the Company's
2006 Annual  Report on Form 10-K,  the Company  has been  notified  that the SEC
believes the Company should amend its 2006 Form 10-K to  incorporate  additional
financial  information for an equity method investee  pursuant to Regulation S-X
Rule 3-09, Separate financial statements of subsidiaries not consolidated and 50
percent  or  less  owned  persons  and/or  Rule  4-08(g),  Summarized  financial
information  of  subsidiaries  not  consolidated  and 50  percent  or less owned
persons.

Because we have not amended our 2006 Form 10-K  regarding  the  above-referenced
item or obtained a waiver from these requirements, our independent auditors have
advised  us that  they  are not  able to  complete  the  review  of the  interim
financial  statements  included  in this  Quarterly  Report as  required by Rule
10-01(d) of Regulation S-X.

The condensed  consolidated  financial statements herein include the accounts of
MAXXAM Inc. and its  consolidated  majority and wholly owned  subsidiaries  (the
"Company").  They have been prepared  without  audit,  pursuant to the rules and
regulations  of  the  SEC.  As  applicable  under  such   regulations,   certain
information and footnote  disclosures  have been condensed or omitted;  however,
these condensed  consolidated  financial statements include all adjustments of a
normal recurring nature which, in the opinion of management, are necessary for a
fair presentation of the Company's financial position at September 30, 2007, the
consolidated  results of  operations  for the three months and nine months ended
September 30, 2007 and 2006, and the consolidated cash flows for the nine months
ended September 30, 2007 and 2006.

                          MAXXAM INC. AND SUBSIDIARIES

                      CONDENSED CONSOLIDATED BALANCE SHEETS
               (In millions of dollars, except share information)

                                                                                     September 30, December 31,
                                                                                          2007          2006
                                                                                     -------------- -------------
                                                                                            (Unaudited)

Assets
Current assets:
  Cash and cash equivalents                                                              $  58.5       $   34.8
  Marketable securities and other short-term investments                                    85.2          126.2
  Receivables:
    Trade, net of allowance for doubtful accounts of $0.8 and $0.7, respectively             2.2            9.9
    Other                                                                                    1.9            9.7
  Inventories:
    Lumber                                                                                     -           16.3
    Logs                                                                                       -           25.5
  Real estate inventory                                                                      4.3            5.8
  Prepaid expenses and other current assets                                                  2.6           16.2
  Restricted cash and marketable securities                                                  3.0           43.1
                                                                                     -------------- -------------
     Total current assets                                                                  157.7          287.5
Property, plant and equipment, net of accumulated depreciation of $96.0 and
  $234.5, respectively                                                                     221.4          337.0
Timber and timberlands, net of accumulated depletion of $232.2 at December 31, 2006            -          200.3
Real estate                                                                                 50.8           46.0
Deferred income taxes                                                                       97.6           97.5
Intangible assets                                                                              -            2.0
Deferred financing costs                                                                     5.0           22.6
Long-term receivables and other assets                                                       7.7            8.8
Restricted cash and marketable securities                                                    3.5            8.2
                                                                                     -------------- -------------
                                                                                         $ 543.7       $1,009.9
                                                                                     ============== =============
Liabilities and Stockholders' Deficit
Current liabilities:
  Accounts payable                                                                       $   7.2       $   10.0
  Accrued interest                                                                           1.0           28.8
  Accrued compensation and related benefits                                                  3.6           13.8
  Accrued development costs                                                                  1.6            1.8
  Accrued other taxes                                                                        3.2            2.6
  Deferred revenue                                                                           1.6            1.8
  Other accrued liabilities                                                                 14.0           20.1
  Short-term borrowings and current maturities of long-term debt                             5.1          180.7
                                                                                     -------------- -------------
     Total current liabilities                                                              37.3          259.6
Long-term debt, less current maturities                                                    212.0          885.4
Accrued pension and other postretirement benefits                                            7.5           20.8
Other noncurrent liabilities                                                                44.6           55.9
Losses in excess of investment in Debtors                                                  483.9              -
Commitments and contingencies (see Note 8)
Stockholders' deficit:
  Preferred stock, $0.50 par value; $0.75 liquidation preference; 2,500,000
    shares authorized; Class A $0.05 Non-Cumulative Participating Convertible
    Preferred Stock; 668,964 shares issued and 668,119 shares outstanding                    0.3            0.3
  Common stock, $0.50 par value; 13,000,000 shares authorized; 10,063,359 shares
    issued; 5,248,717 and 5,257,657 shares outstanding
                                                                                             5.0            5.0
  Additional capital                                                                       225.3          225.3
  Accumulated deficit                                                                     (325.5)        (296.0)
  Accumulated other comprehensive income                                                     1.0            1.0
  Treasury stock, at cost (shares held:  preferred - 845; common - 4,814,642 and
    4,805,702, respectively)                                                              (147.7)        (147.4)
                                                                                     -------------- -------------
     Total stockholders' deficit                                                          (241.6)        (211.8)
                                                                                     -------------- -------------
                                                                                         $ 543.7       $1,009.9
                                                                                     ============== =============

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

                 MAXXAM INC. AND SUBSIDIARIES

         CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
      (In millions of dollars, except per share information)

                                                                   Three Months Ended         Nine Months Ended
                                                                      September 30,             September 30,
                                                                 ------------------------- -------------------------
                                                                     2007         2006         2007          2006
                                                                 ------------ ------------ ------------ ------------
                                                                                     (Unaudited)
Sales:
  Forest products, net of discounts                              $     -      $   37.9     $    4.4     $   109.5
  Real estate                                                        9.7          28.9         34.1          77.1
  Racing                                                            13.3          11.0         36.5          34.9
                                                                 ------------ ------------ ------------ ------------
                                                                    23.0          77.8         75.0         221.5
                                                                 ------------ ------------ ------------ ------------
Costs and expenses:
  Cost of sales and operations:
    Forest products                                                    -          28.0          4.3          90.2
    Real estate                                                      4.3           9.2         15.3          25.6
    Racing                                                          11.8           9.9         32.2          30.6
  Selling, general and administrative expenses                      11.0          14.7         29.8          39.3
  Gain on sales of timberlands and other assets                        -          (5.3)        (0.1)        (11.2)
  Depreciation, depletion and amortization                           3.5           8.7         11.5          26.1
  Reversal of net investment in Kaiser                                 -        (430.9)           -        (430.9)
                                                                 ------------ ------------ ------------ ------------
                                                                    30.6        (365.7)        93.0        (230.3)
                                                                 ------------ ------------ ------------ ------------
Operating income (loss):
  Forest products                                                   (0.3)          5.0         (3.8)         (0.4)
  Real estate                                                       (0.9)         10.4         (1.5)         26.8
  Racing                                                            (3.0)         (1.4)        (5.4)         (3.1)
  Corporate                                                         (3.4)        429.5         (7.3)        428.5
                                                                 ------------ ------------ ------------ ------------
                                                                    (7.6)        443.5        (18.0)        451.8
Other income (expense):
  Investment, interest and other income (expense)                    1.4          (0.1)         4.4           6.6
  Interest expense                                                  (4.2)        (20.2)       (15.3)        (58.9)
  Amortization of deferred financing costs                          (0.1)         (4.5)        (0.6)         (5.7)
                                                                 ------------ ------------ ------------ ------------
Income (loss) before income taxes and cumulative effect of
  accounting change                                                (10.5)        418.7        (29.5)        393.8
Benefit for income taxes                                               -             -            -           4.2
                                                                 ------------ ------------ ------------ ------------
Income (loss) before cumulative effect of accounting change        (10.5)        418.7        (29.5)        398.0
Cumulative effect of accounting change, net of tax                     -             -            -          (0.7)
                                                                 ------------ ------------ ------------ ------------
Net income (loss)                                                $ (10.5)     $  418.7     $  (29.5)    $   397.3
                                                                 ============ ============ ============ =============

Basic income (loss) per common and common equivalent share
  before cumulative effect of accounting change                  $ (2.00)     $  79.61     $  (5.62)    $   70.71

Cumulative effect of accounting change                                 -             -            -         (0.12)
                                                                 ------------ ------------ ------------ ------------
Basic income (loss) per common and common equivalent share
  after cumulative effect of accounting change                   $ (2.00)     $  79.61     $  (5.62)    $   70.59
                                                                 ============ ============ ============ =============
Diluted income (loss) per common and common equivalent
  share before cumulative effect of accounting change            $ (2.00)     $  69.32     $  (5.62)    $   62.20

Cumulative effect of accounting change                                 -             -            -         (0.11)
                                                                 ------------ ------------ ------------ ------------

Diluted income (loss) per common and common equivalent
  share after cumulative effect of accounting change             $ (2.00)     $  69.32     $  (5.62)    $   62.09
                                                                 ============ ============ ============ =============

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

                         MAXXAM INC. AND SUBSIDIARIES

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                          (In millions of dollars)

                                                                                               Nine Months Ended
                                                                                                 September 30,
                                                                                          --------------------------
                                                                                              2007         2006
                                                                                          ------------ -------------
                                                                                                 (Unaudited)
Cash flows from operating activities:
  Net income (loss)                                                                       $  (29.5)    $ 397.3
  Adjustments to reconcile net income (loss) to net cash provided by (used for)
    operating activities:
    Reversal of net investment in Kaiser                                                         -      (430.9)
    Depreciation, depletion and amortization                                                  11.5        26.1
    Non-cash stock-based compensation benefit                                                 (0.4)       (3.7)
    Gains on sales of timberlands and other assets                                            (0.1)      (11.2)
    Net losses from marketable securities                                                     (1.1)       (1.2)
    Amortization of deferred financing costs and discounts on long-term debt                   0.6         5.7
    Equity (income) loss of unconsolidated affiliates, net of dividends received              (0.7)        0.7
    Increase (decrease) in cash resulting from changes in:
      Receivables                                                                              8.3         0.1
      Inventories                                                                              0.8        (8.8)
      Prepaid expenses and other assets                                                        2.8        (1.5)
      Accounts payable                                                                         2.2         3.4
      Accrued and deferred income taxes                                                       (0.1)       (3.9)
      Other accrued liabilities                                                               (2.2)      (11.8)
      Accrued interest                                                                         2.7       (11.2)
      Long-term assets and long-term liabilities                                              (4.9)       (4.0)
      Other                                                                                   (0.3)        1.1
                                                                                          ------------ -------------
        Net cash used for operating activities                                               (10.4)      (53.8)
                                                                                          ------------ -------------

Cash flows from investing activities:
  Net proceeds from the disposition of property and investments                                0.1        15.9
  Maturities of marketable securities and other investments                                  130.5       346.0
  Sales of marketable securities and other investments                                        82.1        74.2
  Purchases of marketable securities and other investments                                  (172.1)     (419.0)
  Net proceeds from restricted cash                                                           (1.2)        0.4
  Capital expenditures                                                                        (3.0)       (8.4)
  Decrease in cash attributable to the deconsolidation of Debtors                             (1.1)          -
  Contribution to joint venture                                                               (0.6)          -
  Other, net                                                                                     -         0.3
                                                                                          ------------ -------------
        Net cash provided by investing activities                                             34.7         9.4
                                                                                          ------------ -------------

Cash flows from financing activities:
  Proceeds from issuance of long-term debt                                                       -         0.2
  Redemptions and repurchases of, and principal payments on, long-term debt                   (3.4)      (67.4)
  Principal payments on Scopac Timber Notes held in the SAR Account                              -        11.1
  Borrowings under revolving and short-term credit facilities, net                             2.2        88.3
  Incurrence of deferred financing costs                                                         -        (8.8)
  Treasury stock purchases                                                                    (0.3)      (22.5)
  Net proceeds from refundable deposits                                                        0.9         1.1
                                                                                          ------------ -------------
        Net cash provided by (used for) financing activities                                  (0.6)        2.0
                                                                                          ------------ -------------

Net increase (decrease) in cash and cash equivalents                                          23.7       (42.4)
Cash and cash equivalents at beginning of the period                                          34.8        72.9
                                                                                          ------------ -------------
Cash and cash equivalents at end of the period                                            $   58.5     $  30.5
                                                                                          ============ =============
Supplemental disclosure of cash flow information:

  Interest paid                                                                           $   12.4     $  70.2

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

                      MAXXAM INC. AND SUBSIDIARIES

    NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.   Basis of Presentation

     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  condensed  consolidated
financial  statements  included  herein should be read 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
Inc.  and its  consolidated  majority  and  wholly  owned  subsidiaries,  unless
otherwise noted or the context indicates  otherwise.  All references to specific
entities  refer to the  respective  companies  and  their  subsidiaries,  unless
otherwise specified 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  condensed   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, 2007, the
consolidated  results of  operations  for the three months and nine months ended
September 30, 2007 and 2006, and the consolidated cash flows for the nine months
ended September 30, 2007 and 2006.

     Deconsolidation of Palco and its Subsidiaries

     Under GAAP,  consolidation  is generally  required for  investments of more
than 50% of the outstanding voting stock of an investee,  except when control is
not held by the majority owner. Under these principles,  legal reorganization or
bankruptcy  represent  conditions which can preclude  consolidation in instances
where control rests with the bankruptcy  court,  rather than the majority owner.
As  discussed  below,  on  January  18,  2007,  the  Debtors  -  Palco  and  its
subsidiaries - filed for reorganization under Chapter 11 of the Bankruptcy Code.
See the "Reorganization Proceedings of Palco and its Subsidiaries" section below
for further information regarding the Debtors' reorganization  proceedings. As a
result,  the Company  deconsolidated  the Debtors'  financial  results beginning
January 19, 2007,  and began  reporting its  investment in the Debtors using the
cost  method.  These  consolidated  financial  statements  do  not  reflect  any
adjustment  related to the  deconsolidation of the Debtors other than presenting
the Company's investment in the Debtors using the cost method.

     Through  January  18,  2007,   under  generally   accepted   principles  of
consolidation,  the Company had recognized losses in excess of its investment in
the  Debtors  of  $483.9  million.  Since  the  Debtors'  results  are no longer
consolidated,  any adjustments  reflected in the Debtors'  financial  statements
subsequent   to  January  19,  2007   (relating   to  the   recoverability   and
classification  of recorded asset amounts and  classification  of liabilities or
the effects on existing stockholders' deficit as well as adjustments made to the
Debtors' financial  information for loss  contingencies and other matters),  are
not expected to impact the Company's consolidated financial results.

     The Company will  reevaluate the accounting  treatment of its investment in
the Debtors when either:  (i) the Debtors'  bankruptcies  are resolved,  or (ii)
there is a change in the equity ownership of the Debtors.

     The following proforma financial data reflects the results of operations of
the Company,  excluding  the Debtors,  for the periods  presented  (in millions,
except share data).

                                                            Three Months Ended               Nine Months Ended
                                                              September 30,                   September 30,
                                                      ------------------------------- ------------------------------
                                                            2007           2006            2007           2006
                                                      -------------- ----------------- ------------ ----------------
Sales                                                 $     23.0     $     39.9        $   70.6     $    112.0
Costs and expenses                                         (30.6)         (33.9)          (86.3)         (92.9)
Reversal of net investment in Kaiser                           -          430.9               -          430.9
                                                      -------------- ----------------- ------------ ----------------
Operating income (loss)                                     (7.6)         436.9           (15.7)         450.0
Other income (expense), net                                  1.4           (0.3)            4.3            5.7
Interest expense, including amortization of deferred
  financing costs                                           (4.3)          (4.1)          (12.8)         (12.8)
                                                      -------------- ----------------- ------------ ----------------
Income (loss) before income taxes and cumulative
  effect of accounting change                              (10.5)         432.5           (24.2)         442.9
Provision for income taxes                                     -           (0.3)              -           (0.8)
                                                      -------------- ----------------- ------------ ----------------
Income (loss) before cumulative effect of accounting
  change                                                   (10.5)         432.2           (24.2)         442.1
Cumulative effect of accounting change, net of tax             -              -               -           (0.7)
                                                      -------------- ----------------- ------------ ----------------
Net income (loss)                                     $    (10.5)    $    432.2        $  (24.2)    $    441.4
                                                      ============== ================= ============ =================
Net income (loss) per share:
  Basic                                               $    (2.00)    $    82.18        $  (4.61)    $    78.30
  Diluted                                             $    (2.00)    $    71.55        $  (4.61)    $    68.88

     Reorganization Proceedings of Palco and its Subsidiaries

     On  January  18,  2007,  Palco  and its  five  wholly  owned  subsidiaries,
including  Scopac,  filed  separate  voluntary  petitions  in the United  States
Bankruptcy  Court for the Southern  District of Texas for  reorganization  under
Chapter 11 of the  Bankruptcy  Code.  The six companies that filed for voluntary
protection are Scopac and the Palco Debtors:  Palco,  Britt, SDLLC, Salmon Creek
and Scotia Inn. The Bankruptcy  Cases are being jointly  administered,  with the
Debtors managing their business in the ordinary course as  debtors-in-possession
subject to the control and supervision of the Bankruptcy Court.

     The filing of the Bankruptcy Cases was precipitated by liquidity shortfalls
at Palco and Scopac and their resultant  inability to make January 2007 interest
payments  on  their  respective  debt   obligations,   arising  from  regulatory
restrictions  and limitations on timber  harvest,  increased  timber  harvesting
costs and  cyclical  lumber  prices.  Both  Scopac and Palco  undertook  various
efforts in 2006 to generate  additional  liquidity to satisfy  their  respective
debt  service  obligations;  however,  the cash  generated  from their  efforts,
together  with their cash flows from  operations,  was not  sufficient  to cover
their respective interest payment shortfalls in January 2007.

     As of the filing date, Scopac's indebtedness consisted of the Timber Notes,
its 6.55% Class A-1,  7.11% Class A-2 and 7.71% Class A-3 Timber  Collateralized
Notes due 2028 ($713.8 million  principal  outstanding as of December 31, 2006),
and a line of credit with a group of banks ($36.2 million principal  outstanding
as of  December  31,  2006),  each of which is secured by (i)  Scopac's  timber,
timberlands  and timber rights,  (ii) certain  contract rights and other assets,
(iii) the proceeds of the  foregoing,  and (iv) the funds held by the Trustee in
various accounts related to the Scopac Timber Notes.

     As of the filing date, Palco's indebtedness  consisted of a five-year $85.0
million  secured term loan ($84.3 million  principal  outstanding as of December
31, 2006) and a five-year $60.0 million  secured  asset-based  revolving  credit
facility  ($24.1 million of borrowings  outstanding and $13.7 million of letters
of credit issued as of December 31, 2006).  These  facilities are secured by the
stock of Palco and  substantially  all of the assets of the Palco Debtors (other
than Palco's equity interest in Scopac).  See "Palco Debtors  Liquidity" section
below for a discussion of the DIP facility that closed on August 6, 2007.

     The  outstanding  principal  of,  and  accrued  interest  on,  all  secured
indebtedness  of the Debtors became  immediately  due and payable as a result of
the  commencement  of the Bankruptcy  Cases.  However,  the vast majority of the
claims in  existence  at the Filing Date  (including  claims for  principal  and
accrued interest and substantially all legal  proceedings) are stayed (deferred)
while the Debtors  continue to operate the  businesses.  The  Bankruptcy  Court,
however, upon a motion of the Debtors, permitted the Debtors to pay or otherwise
honor certain  unsecured  pre-Filing Date claims,  including  employee wages and
benefits and certain customer claims in the ordinary course of business, subject
to certain limitations.

     The Debtors' overall objectives in the Bankruptcy Cases are to achieve both
an  operational  restructuring  and a financial  restructuring  of the  Debtors'
long-term debt obligations, in view of estimated lower harvest levels, increased
regulatory  compliance  costs and cyclical  lumber prices,  and also to continue
their  businesses.  There can be no  assurance  that the Debtors will be able to
attain these  objectives  and achieve a  successful  operational  and  financial
reorganization.  In the  event the  Debtors  are  unsuccessful  in  attaining  a
successful operational and financial reorganization, the Debtors could be forced
to surrender all or substantially  all of their assets to their  creditors.  The
outcome  of the  Bankruptcy  Cases is  impossible  to  predict  and could have a
material  adverse effect on the  businesses of the Debtors,  on the interests of
creditors, and on the Company.

     As provided by the Bankruptcy  Code, each of the Debtors  generally has the
exclusive  right to  propose a plan of  reorganization  during  the  Exclusivity
Period.  On September 30, 2007, the Debtors,  together with MAXXAM Parent,  MGHI
and MGI (as  co-proponents),  filed the  Plan,  a Joint  Plan of  Reorganization
pursuant to Section 112(a) of title 11 of the United States Code,  providing for
the  resolution  of  outstanding  claims  against and  interests  in each of the
Debtors. The Plan provides for the continued operations of Palco and Scopac as a
consolidated  company, the full repayment of all secured and unsecured creditors
and the retention of Palco's equity interest in Scopac and MGI's equity interest
in Palco.

     From an operational perspective, the Plan contemplates a new business model
for continued  operation of Palco's sawmill and continued  forestry  operations,
but at harvest  levels that are  significantly  lower than current or historical
rates. It also contemplates the sale of 6,600 acres of ancient redwood forest to
a buyer or buyers willing to commit to the permanent environmental protection of
these scarce and valuable  old-growth  redwood trees. The Plan moreover provides
for the creation of a new low density  conservation  and  preservation  oriented
real estate development project under which significant  acreage  (approximately
22,000  acres)  adjoining the old growth  redwood  groves would be developed and
sold.  The  proceeds  from  these  sales  would be used to retire a  substantial
portion of Scopac's indebtedness.

     As a Plan  proponent,  MAXXAM Parent has agreed to make important  economic
contributions  to the  Debtors  upon  confirmation  of the Plan,  including  (i)
providing real estate  expertise to assist Palco in "unlocking" the value of the
old  growth  redwood  groves  and the  adjacent  conservation  and  preservation
oriented real estate development,  (ii) contributing $25.0 million toward a fund
that will allow existing holders of Scopac Timber Notes to cash out a portion of
their Scopac Timber Notes,  (iii) forgiving $40.0 million of intercompany  debt,
and (iv) contributing important tax benefits to Palco.

     The  Trustee  for the  Scopac  Timber  Notes  has also  proposed  a plan of
reorganization  with respect to Scopac. The Trustee's plan essentially  provides
for the rapid  liquidation of Scopac.  On October 23, 2007, the Bankruptcy Court
held a hearing on the  question  of whether  the  Exclusivity  Period  should be
extended.  Without an extension  of  exclusivity,  the Trustee  would be able to
pursue its plan of  reorganization  in parallel  with the Debtors'  Plan. At the
conclusion of the hearing,  the Bankruptcy Court directed the Debtors,  the most
significant  creditors,  and MAXXAM Parent to undergo  mediation in an effort to
have the parties reach a consensual plan of  reorganization  with respect to the
Debtors.  The  mediation  is  scheduled  to begin the week of November 26, 2007.
There can be no assurance that the mediation will be successful.

     If the mediation is not successful  and the Debtors  proceed with the Plan,
they will be required to seek  approval of the Plan by the  creditors and equity
holders  entitled to vote on the Plan, and to seek  confirmation  of the Plan by
the Bankruptcy  Court.  The Debtors'  efforts to obtain  creditor  approvals and
Bankruptcy Court confirmation may not be successful.

     While the  Debtors'  liabilities  as of the Filing  Date would be  resolved
under the Plan, as noted above,  there can be no assurance that the Plan will be
approved by creditors or confirmed by the Bankruptcy  Court.  If the Plan is not
approved by creditors and  confirmed by the  Bankruptcy  Court,  there can be no
assurance that the Debtors'  creditors  will be paid in full,  either through an
alternative plan of reorganization or otherwise. If a debtor's creditors are not
paid in full, the Bankruptcy  Code provides that the debtor's equity holders are
not entitled to retain their equity interests,  unless certain exceptions apply.
In that  event,  Palco  could  lose  all or a  material  portion  of its  equity
ownership  in Scopac and  Palco's  other  subsidiaries,  MGI could lose all or a
material  portion of its equity  ownership in Palco, or the value of such equity
interests could be diluted, impaired or eliminated.

     Palco Debtors' Liquidity
     The Palco  Debtors  estimate  that they  will  have  significant  liquidity
shortfalls  in 2007.  On August 6,  2007,  the Palco  Debtors  closed on the DIP
Facility,  a $75.0 million  Debtor-in-Possession  revolving credit facility that
matures on the earliest of, among other  things,  (i) the sale of  substantially
all of the  assets of the Palco  Debtors,  (ii) an event of  default,  (iii) the
effective date of a plan of  reorganization  for Palco,  or (iv) August 6, 2008.
The DIP Facility was used to retire the Palco Revolving Credit Facility. The DIP
Facility provides the lender with a  "super-priority"  claim, which provides for
payment of the DIP Facility before any other secured or unsecured  creditors and
equity  holders  of the  Palco  Debtors  are  paid.  The DIP  Facility  contains
restrictive financial covenants that, among others, require the Palco Debtors to
maintain  a  minimum  level of EBITDA  and meet  weekly  cash flow  projections.
Continued  compliance  with the DIP  Facility is dependent on the ability of the
Palco  Debtors to meet the financial  covenants.  However,  operating  cash flow
estimates used to establish the EBITDA maintenance covenants and the weekly cash
flow projections are subject to a number of assumptions and actual results could
differ materially from these estimates. There can be no assurance that the Palco
Debtors  will meet the  restrictive  financial  covenants  specified  in the DIP
Facility,  in  which  case  they  may  not be able to  continue  operations  and
reorganize under Chapter 11 of the Bankruptcy Code.

     Scopac Liquidity
     Scopac has been authorized by the Bankruptcy Court to fund budgeted ongoing
operating and  bankruptcy-related  costs using  operating  cash flow and, to the
extent needed,  funds available in the SAR Account (subject to no more than $5.0
million in  withdrawals  from the SAR  Account  being  outstanding  at any given
time).  If these sources of liquidity are not adequate,  and if Scopac is unable
to obtain  additional  sources of liquidity and the necessary  Bankruptcy  Court
approval to utilize such additional sources of liquidity, Scopac may not be able
to continue  operations  and  reorganize  successfully  under  Chapter 11 of the
Bankruptcy Code.

     The financial  information of the Debtors contained herein and consolidated
with the  Company's  results at  December  31,  2006,  was  prepared on a "going
concern" basis, which contemplates the realization of assets and the liquidation
of liabilities in the ordinary course of business;  however,  as a result of the
commencement of the Bankruptcy Cases, such realization of assets and liquidation
of  liabilities  are subject to  significant  uncertainties.  For  example,  the
financial  information  of the Debtors  for the year ended  December  31,  2006,
contained  herein  does not  present:  (a) the  realizable  value of assets on a
liquidation  basis,  (b) the estimated  costs and expenses  associated  with the
Bankruptcy  Cases,  (c) the  amount  that  will  ultimately  be  paid to  settle
liabilities and  contingencies  which may be allowed in the Bankruptcy Cases, or
(d) the effect of any changes that may be made in connection  with the Company's
investment in the Debtors or with the Debtors' operations  resulting from a plan
of reorganization.  Because of the ongoing nature of, and uncertainties  related
to, the  Bankruptcy  Cases,  the  discussions  and financial  information of the
Debtors contained herein are subject to material uncertainties.

     The following tables contain summarized GAAP-based  consolidated  financial
information of the Debtors (in millions) for the periods presented.

                                                                                      September 30,  December 31,
                                                                                           2007           2006
                                                                                    -------------- --------------
Current assets                                                                      $     107.1    $       105.5
Property, plant and equipment, net                                                        102.9            108.3
Timber and timberlands, net                                                               199.2            200.4
Other assets                                                                               39.6             40.4
                                                                                    -------------- --------------
     Total assets                                                                   $     448.8    $       454.6
                                                                                    ============== ==============

Liabilities, not subject to compromise                                              $     977.3    $       877.9
Liabilities, subject to compromise                                                        101.4            106.3
Stockholders' deficit                                                                    (629.9)          (529.6)
                                                                                    -------------- --------------
     Total liabilities and stockholders' deficit                                    $     448.8    $       454.6
                                                                                    ============== ==============

                                                  Three Months Ended September 30,    Nine Months Ended September 30,
                                                  ---------------- ----------------- --------------- -----------------
                                                          2007             2006          2007(1)               2006
                                                  ---------------- ----------------- --------------- -----------------
Sales, net of discounts                           $       27.7     $       37.9      $   92.4        $        109.5
Costs and expenses (2)                                   (45.1)           (31.3)       (135.1)               (107.7)
                                                  ---------------- ----------------- --------------- -----------------
Operating income (loss)                                  (17.4)             6.6         (42.7)                  1.8
Other income (expense), net                               (0.7)             0.2           1.4                   0.9
Interest expense                                         (21.4)           (20.6)        (59.0)                (51.8)
                                                  ---------------- ----------------- --------------- -----------------
Loss before income taxes                                 (39.5)           (13.8)       (100.3)                (49.1)
Benefit for income taxes                                     -              0.3             -                   5.0
                                                  ---------------- ----------------- --------------- -----------------
Net loss                                          $      (39.5)    $      (13.5)     $ (100.3)       $        (44.1)
                                                  ================ ================= =============== =================

_______________

(1)  The  operating  results of the Debtors  from January 1, 2007 to January 18,
     2007 are included in the Company's consolidated  financial statements.  See
     Note 3.
(2)  Costs and  expenses  include  bankruptcy-related  legal and advisor fees of
     $10.2  million  for the three  months  ended  September  30, 2007 and $24.0
     million for the nine months ended September 30, 2007.

     Potential Impact on Registrant and Certain Related Entities
     The Bankruptcy  Cases could result in claims against and could have adverse
impacts on MAXXAM  Parent and its  affiliates,  including  MGHI and/or MGI.  For
example,  under ERISA,  if Palco's  pension plan were to be  terminated,  MAXXAM
Parent and its wholly owned  subsidiaries  would be jointly and severally liable
for any unfunded pension plan obligations.  The unfunded termination  obligation
attributable  to Palco's  pension plan as of December 31, 2006, is estimated not
to exceed $23.0 million based upon annuity  placement  interest rate assumptions
as of such date. In addition,  it is possible that certain transactions could be
completed in connection with a potential  restructuring or reorganization of the
Debtors,  such as a sale of all or a  portion  of the  equity  ownership  in the
Debtors,  a sale of a  substantial  portion  of the  Debtors'  assets  and/or  a
cancellation  of some or all of the Debtors'  indebtedness,  which could require
the utilization of all or a substantial portion of, or the loss of a significant
portion of, the  Company's  net  operating  losses or other tax  attributes  for
federal and state income tax purposes, and could require tax payments.

     Use  of Estimates and Assumptions

     The  preparation  of financial  statements  in accordance  with  accounting
principles  generally  accepted in the United States of America requires the use
of estimates and assumptions  that affect (i) the reported amounts of assets and
liabilities,  (ii) the disclosure of contingent  assets and liabilities known to
exist as of the date the  financial  statements  are  published,  and  (iii) the
reported  amount  of  revenues  and  expenses   recognized  during  each  period
presented.   The  Company  reviews  all  significant   estimates  affecting  its
consolidated financial statements on a recurring basis and records the effect of
any  necessary  adjustments  prior  to  filing  such  statements  with  the SEC.
Adjustments  made  to  estimates  often  relate  to  improved   information  not
previously  available.  Uncertainties are inherent in such estimates and related
assumptions;  accordingly,  actual  results could differ  materially  from these
estimates.

     Risks and  uncertainties  are inherent with respect to the ultimate outcome
of the  Bankruptcy  Cases and the matters  discussed in Note 8. The results of a
resolution of such  uncertainties  could have a material effect on the Company's
consolidated  financial  position,   results  of  operations  or  liquidity.  In
addition, uncertainties related to the projection of future taxable income could
affect the realization of the Company's deferred tax assets discussed in Note 6.
Estimates of future benefit  payments used to measure the Company's  pension and
other postretirement  benefit obligations are subject to a number of assumptions
about future experience, as are the estimated future cash flows projected in the
evaluation of long-lived assets for possible impairment. To the extent there are
material  differences between these estimates and actual results,  the Company's
consolidated financial position, results of operations and/or liquidity could be
materially affected.

     Reclassifications

     Certain  reclassifications  have  been made to the  consolidated  financial
statements   for  prior  years  to  be  consistent   with  the  current   year's
presentation.  Specifically,  certain  balance  sheet amounts as of December 31,
2006 have been  shown as a  separate  line item to comply  with  current  period
reporting  requirements.   Additionally,  sales  and  maturities  of  marketable
securities  and other  investments on the  consolidated  statement of cash flows
have  been  categorized  as  separate  line  items,  one for  sales  and one for
maturities.

2.   New Accounting Standards

     Accounting for Uncertainty in Income Taxes
     On  January  1,  2007,  the  Company  adopted  the  provisions  of FIN  48,
Accounting for Uncertainty in Income Taxes - an  interpretation of FASB No. 109.
FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an
entity's  financial  statements in accordance with SFAS No. 109 and prescribes a
recognition  threshold  and  measurement   attributes  for  financial  statement
disclosure of tax positions  taken or expected to be taken on a tax return.  The
adoption  of this  standard  did not have a  material  impact  on the  Company's
consolidated financial statements. See Note 6 for further information.

     Fair Value Measurements
     In September  2006, the FASB issued SFAS No. 157, Fair Value  Measurements,
which is  intended  to  increase  consistency  and  comparability  in fair value
measurements by defining fair value, establishing a framework for measuring fair
value, and expanding disclosures about fair value measurements.  SFAS No. 157 is
effective  for  financial  statements  issued for fiscal years  beginning  after
November 15, 2007, and interim  periods  within those fiscal years.  The Company
will adopt SFAS No. 157 on  January  1,  2008,  and has not yet  determined  the
impact, if any, on its consolidated financial statements.

     The  Fair Value Option for Financial Assets and Financial Liabilities
     In February  2007,  the FASB issued SFAS No. 159, The Fair Value Option for
Financial  Assets and  Financial  Liabilities  -- Including an amendment of FASB
Statement No. 115. SFAS No. 159 permits  entities to measure eligible assets and
liabilities  at fair value.  Unrealized  gains and losses on items for which the
fair value option has been  elected are  reported in  earnings.  SFAS No. 159 is
optional and, if adopted by a Company,  is effective for fiscal years  beginning
after November 15, 2007. The Company is in the process of evaluating  whether or
not to adopt SFAS No. 159.

3.   Segment Information and Other Items

     Sales and operating income (loss) for each reportable segment are presented
in the Condensed Consolidated Statements of Operations. The amounts reflected in
the  "MGI"  column   represent   MGI's  assets,   liabilities  and  general  and
administrative  expenses on a stand-alone basis (without Palco or any of Palco's
subsidiaries).   Operating   losses  for  "Corporate"   represent   general  and
administrative  expenses not directly  attributable to the reportable  segments.
The amounts  reflected in the  "Corporate"  column also serve to  reconcile  the
total  of  the  reportable   segments'   amounts  to  totals  in  the  Company's
consolidated financial statements.

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

                                                                                         Reportable
                               Reportable Segments                                        Segment
                            ------------------------                                     -----------
                                                                               Total
                               Real                                          Excluding      Forest      Consolidated
                              Estate       Racing        MGI     Corporate    Debtors      Products(1)       Total
                             ---------- ------------- --------- ----------- ------------- ------------- --------------
Investment, interest and
  other income for the three
  months ended:
  September 30, 2007         $   0.8    $        -    $    -    $     0.6   $     1.4     $         (2) $      1.4
  September 30, 2006             1.0             -         -         (1.4)       (0.4)         0.3            (0.1)

Investment, interest and
  other income for the nine
  months ended:
  September 30, 2007         $   2.0    $      0.1    $    -    $     2.1   $     4.2     $    0.2  (3) $      4.4
  September 30, 2006             3.5           0.1       0.1          2.1         5.8          0.8             6.6

Selling, general and
  administrative expense
  for the three months
  ended:
  September 30, 2007         $   3.2    $      4.1    $  0.3    $     3.4   $    11.0     $         (2) $     11.0
September 30, 2006               6.2           2.1       1.7          1.2        11.2          3.5            14.7

Selling, general and
  administrative expense
  for the nine months ended:
  September 30, 2007         $  11.1    $      8.5    $  1.5    $     7.2   $    28.3     $    1.5  (3) $     29.8
  September 30, 2006            14.4           6.4       2.3          2.1        25.2         14.1            39.3

Operating income (loss) for
  the three months ended:
  September 30, 2007         $  (0.9)   $     (3.0)   $ (0.3)   $    (3.4)  $    (7.6)    $         (2) $     (7.6)
  September 30, 2006            10.4          (1.4)     (1.6)       429.5(4)    436.9(4)        6.6          443.5

Operating income (loss) for
  the nine months ended:
  September 30, 2007         $  (1.5)   $     (5.4)   $ (1.5)   $    (7.3)  $   (15.7)    $    (2.3)(3) $    (18.0)
  September 30, 2006            26.8          (3.1)     (2.2)       428.5(4)    450.0(4)        1.8          451.8

Depreciation, depletion and
  amortization for the three
  months ended:
  September 30, 2007         $   3.1    $      0.4    $    -    $       -   $     3.5     $         (2) $      3.5
  September 30, 2006             3.1           0.4         -          0.1         3.6           5.1            8.7

Depreciation, depletion and
  amortization for the nine
  months ended:
  September 30, 2007         $   9.3    $      1.2    $    -    $     0.1   $    10.6     $     0.9 (3)  $    11.5
  September 30, 2006            10.3           1.1         -          0.2        11.6          14.5           26.1

Total assets as of:
  September 30, 2007         $ 286.6    $     35.7    $  0.2    $   221.2   $   543.7     $         (2) $    543.7
  December 31, 2006            299.5          36.4       0.9        232.1       568.9         441.0        1,009.9

_______________

(1)  Excludes MGI.
(2)  As a  result  of the  deconsolidation  of the  Debtors,  their  data is not
     included in the  consolidated  results of  operations  for the three months
     ended  September 30, 2007 or in  consolidated  total assets as of September
     30, 2007.
(3)  Amounts attributable to the Debtors are for the period from January 1, 2007
     through  January 18, 2007.
(4)  Includes a $430.9 million reversal of net investment in Kaiser.

4.   Cash, Cash  Equivalents,  Marketable  Securities and Investments in Limited
     Partnerships

     The following table presents cash, cash equivalents,  marketable securities
and other investments, in the aggregate (in millions):

                                                                                   September 30,    December 31,
                                                                                        2007             2006
                                                                                  -------------- ----------------
Cash and cash equivalents                                                         $     65.0     $       44.0
Marketable securities                                                                   60.6            142.2
Investments in limited partnerships                                                     24.6             26.1
                                                                                  -------------- ----------------
                                                                                       150.2            212.3
Less:  Restricted cash and restricted marketable securities                             (6.5)           (51.3)
                                                                                  -------------- ----------------
Unrestricted cash and unrestricted marketable securities                          $    143.7     $      161.0
                                                                                  ============== ================

     Cash Equivalents
     Cash  equivalents  consist of highly liquid money market  instruments  with
maturities  of three months or less.  As of September  30, 2007 and December 31,
2006, the carrying amounts of the Company's cash equivalents  approximated  fair
value.

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

                                                                                   September 30,     December 31,
                                                                                        2007             2006
                                                                                  -------------- ----------------
Current:
  Restricted cash and cash equivalents                                            $      3.0     $        3.6
  Restricted marketable securities, held in SAR Account                                      (1)         39.5
                                                                                  -------------- ----------------
                                                                                         3.0             43.1
                                                                                  -------------- ----------------
Non-Current:
  Restricted Scopac Timber Notes and other amounts held in SAR Account                       (1)          2.8
  Other amounts restricted under the Scopac Indenture                                        (1)          2.5
  Other long-term restricted amounts                                                     3.5              5.7
  Less: Amounts attributable to Scopac Timber Notes held in SAR Account                      (1)         (2.8)
                                                                                  -------------- ----------------
                                                                                         3.5              8.2
                                                                                  -------------- ----------------
Total restricted cash and cash equivalents and marketable securities              $      6.5     $       51.3
                                                                                  ============== ================

_______________

(1)  As a result of the deconsolidation of the Debtors, their investment amounts
     are not included in the consolidated total as of September 30, 2007.

      Marketable Securities
      Marketable securities consist of the following classification of
investments (in millions):

                                                                                     September 30,   December 31,
                                                                                        2007(1)          2006
                                                                                  -------------- ----------------
Debt securities:
  Maturities less than one year                                                   $     19.8     $       100.2
  Maturities one to five years                                                             -               6.2
Equity securities and other investments                                                 40.8              35.8
                                                                                  -------------- ----------------
  Total marketable securities                                                     $     60.6     $       142.2
                                                                                  ============== =================
_______________

(1)  As a result of the  deconsolidation  of the Debtors,  their amounts are not
     included in the consolidated total as of September 30, 2007.

                                                                                      September 30,   December 31,
                                                                                          2007            2006
                                                                                  -------------- ----------------
                                                                                        (In millions of dollars)
Unrealized gains on available-for-sale investments in other comprehensive
  income, net                                                                     $       0.6     $        0.6

     Included in other  comprehensive  income are  unrealized  net gains of $0.6
million as of September 30, 2007, consisting of unrealized gains of $0.7 million
and  unrealized  losses of $0.1  million.  As of December 31,  2006,  there were
unrealized gains of $0.6 million and no unrealized losses.

5.    Debt

      Principal amounts of outstanding debt consist of the following (in
millions):
                                                                                      September 30,   December 31,
                                                                                          2007            2006
                                                                                  -------------- ----------------
7.56% Lakepointe Notes due June 8, 2021                                           $     112.3     $      113.5
7.03% Motel Notes due May 1, 2018                                                        43.6             44.7
6.08% Beltway Notes due November 9, 2024                                                 28.1             28.6
7.12% Palmas Notes due December 20, 2030                                                 28.5             28.7
Other notes and contracts, primarily secured by receivables, buildings,
  real estate and equipment                                                               4.6              4.8
                                                                                  -------------- ----------------
  Total principal outstanding                                                           217.1            220.3

Forest products segment debt obligations(1):
  Palco Revolving Credit Facility                                                             (1)         24.1
  Palco Term Loan                                                                             (1)         84.3
  Scopac Line of Credit                                                                       (1)         36.2
  6.55% Scopac Class A-1 Timber Notes                                                         (1)          7.3
  7.11% Scopac Class A-2 Timber Notes                                                         (1)        243.2
  7.71% Scopac Class A-3 Timber Notes                                                         (1)        463.3
  Other notes and contracts, primarily secured by receivables, buildings,
    real estate and equipment                                                                 (1)          0.5
                                                                                  -------------- ----------------
    Total principal outstanding                                                               (1)        858.9

Less: Short term borrowings and current maturities                                       (5.1)          (180.7)
  Scopac Class A-1 Timber Notes held in the SAR Account, at par value                         (1)         (2.8)
  Discount on sale of Scopac Class A-2 Timber Notes held in SAR Account                       (1)        (10.3)
                                                                                  -------------- ----------------
                                                                                  $     212.0    $       885.4
                                                                                  ============== ================

_______________

(1)  As a result of the  deconsolidation of the Debtors,  their debt amounts are
     not included in the consolidated total as of September 30, 2007.

     Letters of Credit
     The  Company's  real  estate  segment  has posted  letters of credit in the
amount of $3.5  million at December 31, 2006 and  September  30, 2007 to satisfy
certain liability  insurance policy  requirements.  These letters of credit were
reduced to $2.0 million in October 2007.

     Loan Covenants
     Certain debt instruments restrict the ability of the Company's subsidiaries
to transfer assets, make loans and advances or pay dividends to the Company, and
require certain subsidiaries to maintain a minimum net worth.

6.   Income Taxes

     The  Company  had losses  before  income  taxes of $10.5  million and $29.5
million  for the third  quarter  and first  nine  months of 2007,  respectively;
however,  the Company has not recorded any tax benefit  during these  periods as
the Company  anticipates an effective tax rate of zero. Each period, the Company
evaluates  appropriate  factors in determining the realizability of the deferred
tax assets attributable to losses and credits generated in that period and those
being carried forward. Based on this evaluation,  the Company provided valuation
allowances  with respect to the deferred tax assets  attributable  to the losses
and credits  generated  during the three months and nine months ended  September
30,  2007.  These  valuation  allowances  were  in  addition  to  the  valuation
allowances that were provided in prior years.

     On  January  1,  2007,  the  Company  adopted  the  provisions  of FIN  48,
Accounting for Uncertainty in Income Taxes - an  interpretation of FASB No. 109.
FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an
entity's  financial  statements in accordance with FASB No. 109 and prescribes a
recognition  threshold  and  measurement   attributes  for  financial  statement
disclosure of tax positions taken or expected to be taken on a tax return. Under
FIN 48, the impact of an uncertain  income tax position on the income tax return
must be  recognized  as the  largest  amount  that is more likely than not to be
sustained upon audit by the relevant taxing authority. An uncertain tax position
need not be recognized if it has less than a 50% likelihood of being  sustained.
Additionally, FIN 48 provided guidance on the classification of unrecognized tax
benefits, disclosures for interest and penalties, accounting and disclosures for
interim reporting  periods,  and transition  requirements.  The adoption of this
standard did not have a material impact on the Company's  consolidated financial
statements.

     The Company has  unrecognized  tax benefits  associated  with net operating
losses and capital losses. These unrecognized tax benefits, if recognized, would
not be expected to affect the  effective  tax rate  because it is expected  that
valuation allowances would be required in respect of the related tax benefits.

     The Company has elected  under FIN 48 to classify  interest  and  penalties
related  to  unrecognized   tax  benefits  as  income  taxes  in  the  financial
statements. For the period ended September 30, 2007, there were no recognized or
unrecognized interest or penalties related to unrecognized tax benefits.

     The  Company  files U.S.  federal  income tax returns as well as income tax
returns in various  states and Puerto Rico. The tax years of 2000 to 2006 remain
open to examination by the United States taxing  jurisdiction  and the tax years
2002 to 2006 remain open to examination by the Puerto Rican taxing jurisdiction.
Additionally,  any net operating  losses that were  generated in prior years and
utilized  in these  years  may also be  subject  to  examination  by the  taxing
authorities.

7.   Employee Benefit Plans

     The components of pension and other postretirement  benefits expense are as
follows (in millions):

                                          Frozen           Medical/Life          Frozen             Medical/Life
                                     Pension Benefits        Benefits       Pension Benefits          Benefits
                                    ------------------- ------------------ -------------------- -------------------
                                       Three Months Ended September 30,         Nine Months Ended September 30,
                                    -------------------------------------- ----------------------------------------
                                      2007      2006      2007      2006      2007      2006       2007      2006
                                    --------- --------- --------- -------- ---------- --------- --------- ---------
Components of net periodic benefit
  costs:
  Service cost                      $    -    $    -    $    -    $  0.1    $    -    $    -     $    -   $   0.3
  Interest cost                        0.5       1.3         -       0.2       1.5       4.0          -       0.4
  Expected return on assets           (0.5)     (1.5)        -         -      (1.5)     (4.3)         -         -
  Amortization of prior service costs    -         -         -      (0.1)        -         -          -      (0.1)
  Recognized net actuarial loss          -         -         -         -         -       0.2          -         -
                                    --------- --------- --------- --------- --------- --------- --------- ---------
  Net periodic benefit costs        $    -   $  (0.2)   $    -    $  0.2    $    -    $ (0.1)   $     -   $   0.6
                                    ========= ========= ========= ========= ========= ========= ========= =========

     The MAXXAM  Pension  Plan was frozen  effective  December  31,  2005;  as a
result,  this plan will  continue,  but no  additional  benefits  will accrue to
participants subsequent to December 31, 2005.

8.   Contingencies

     Certain  present  and former  directors  and  officers  of the  Company are
defendants  in certain of the actions  described  below.  The  Company's  bylaws
provide for  indemnification of its officers and directors to the fullest extent
permitted by Delaware law. The Company is obligated to advance  defense costs to
its officers and directors, subject to the individual's obligation to repay such
amount if it is ultimately  determined  that the  individual was not entitled to
indemnification.  In addition,  the Company's  indemnity  obligation  can, under
certain  circumstances,  include  amounts  other than defense  costs,  including
judgments and settlements.

     Actions  Involving  Present and Former  Directors  and Officers In November
2002,  the Cook action and the Cave action were filed in the  Superior  Court of
Humboldt County, California. The defendants in these actions include the Company
and  certain  of its  subsidiaries,  as well as certain  affiliates  such as Mr.
Charles E. Hurwitz  (Chairman and Chief Executive  Officer of the Company).  The
Cook action alleges,  among other things,  that Palco's  logging  practices have
contributed  to an increase  in  flooding  along  Freshwater  Creek  (which runs
through  Palco's  timberlands),  resulting in personal injury and damages to the
plaintiffs'  properties.  Plaintiffs further allege that in order to have timber
harvest plans approved in the affected areas, the defendants  engaged in certain
unfair business practices. The plaintiffs seek, among other things, compensatory
and exemplary  damages,  injunctive  relief,  and  appointment  of a receiver to
ensure the watershed is restored.  The Cave action contains similar  allegations
and  requests  relief  similar to the Cook action with  respect to the Elk River
watershed (a portion of which is contained on Palco's  timberlands).  In October
2005,  the  Johnson  action  was filed in  Humboldt  County  Superior  Court and
contains  allegations  and requests  relief similar to the Cave and Cook actions
with respect to the Elk River  watershed.  The  defendants in the Johnson action
include the Company and certain of its subsidiaries and Mr. Hurwitz. The Company
does not believe the  resolution  of these  actions  should result in a material
adverse effect on its consolidated financial condition, results of operations or
liquidity.

     On December 7, 2006,  the Wilson  state  action was filed under seal in the
Superior  Court of San  Francisco,  California,  and on the same day, the Wilson
federal action was filed under seal in the U.S.  District Court for the Northern
District of California. The defendants in the Wilson actions include the Company
and certain of its forest products  subsidiaries,  as well as Mr.  Hurwitz.  The
Wilson  actions  allege  violations of the  California  False Claims Act and the
Federal  False  Claims  Act,  respectively,  and are qui  tam  actions  (actions
ostensibly  brought  by  the  government,  but  on  the  information  and at the
instigation of a private  individual,  who would receive a portion of any amount
recovered).  As the State of California  declined to  participate  in the Wilson
state action and the United States declined to participate in the Wilson federal
action,  the seal on each  case  was  lifted  and the  private  individuals  are
entitled to proceed with the suits.  Both suits allege that the defendants  made
false claims by submitting to the CDF a sustained yield plan  misrepresenting as
sustainable the projected harvest yields of the timberlands of Palco and Scopac.
The remedies being sought are actual damages  (essentially  based on over $450.0
million of cash and timberlands  transferred by the United States and California
in exchange for various timberlands  purchased from Palco and its subsidiaries),
treble damages and civil  penalties of up to $10,000 for every  violation of the
California  False  Claims Act and the Federal  False  Claims Act,  respectively.
There can be no  assurance  that the  Wilson  actions  will not have a  material
adverse impact on the Company's  consolidated  financial  condition,  results of
operations or liquidity.

     OTS  Contingency and Related Matters
     In December 1995, the OTS initiated the OTS action, a formal administrative
proceeding  against  the  Company  and  others  alleging,  among  other  things,
misconduct  by the  Respondents  and others with respect to the failure of USAT.
The OTS sought  damages  ranging  from $326.6  million to $821.3  million  under
various theories. Following 110 days of proceedings before an administrative law
judge during 1997-1999,  and over two years of post-trial briefing, on September
12, 2001, the administrative law judge issued a recommended decision in favor of
the  Respondents  on each claim made by the OTS.  On October 17,  2002,  the OTS
action was settled for $0.2 million with no admission of  wrongdoing on the part
of the Respondents.

     As a result of the dismissal of the OTS action,  the FDIC action, a related
civil action  alleging  damages in excess of $250.0  million,  was  subsequently
dismissed.  The FDIC  action  was  originally  filed by the FDIC in August  1995
against Mr. Hurwitz.

     In May 2000, the Respondents filed a counterclaim to the FDIC action in the
U.S.  District  Court in Houston,  Texas (No.  H95-3956).  In November 2002, the
Respondents filed the Sanctions Motion consisting of an amended counterclaim and
an amended  motion for  sanctions.  The  Sanctions  Motion  states that the FDIC
illegally paid the OTS to bring the OTS action against the  Respondents and that
the FDIC  illegally  sued for an  improper  purpose  (i.e.,  in order to acquire
timberlands held by a subsidiary of the Company). The Respondents are seeking as
a sanction to be made whole for the  attorneys'  fees (plus  interest) they have
paid in connection with the OTS and FDIC actions. As of September 30, 2007, such
fees were in excess of $41.1  million.  On August 23, 2005,  the District  Court
ruled on the Sanctions  Motion,  ordering the FDIC to pay the Respondents  $72.3
million,  a portion  of which is accrued  interest.  The FDIC has  appealed  the
District  Court  decision to the U.S.  Fifth Circuit Court of Appeals.  The U.S.
District  Court award has not been accrued as of September  30, 2007 or December
31, 2006. There can be no assurance that the Company will ultimately collect all
or any portion of this award.

     Other Matters
     On December 6, 2005,  the  Herrera  action was filed in the state  District
Court of Harris County,  Texas. The defendants in this action are SHRP, Ltd. and
its managing general partner.  The plaintiffs allege,  among other things,  that
due to the  gross  negligence  of SHRP,  Ltd.,  Mr.  Herrera  was  thrown  while
exercising a horse at Sam Houston Race Park,  rendering  him a  paraplegic.  The
case was settled in July 2007; the  settlement  did not have a material  adverse
effect on the Company's consolidated financial condition,  results of operations
or liquidity.

     On September 2, 2004,  the Company was advised that the NJDEP  alleged that
one of its former  subsidiaries  is a successor to a company  that  manufactured
munitions  for the U.S.  Navy during  World War II. The owner of the  underlying
property,  which is located in Cranbury,  New Jersey,  was seeking the Company's
participation  in efforts to address  contamination  of the site  resulting from
such operations. In January 2005, MGI and the owner of the property entered into
an  Administrative  Consent  Order with the NJDEP  providing  for,  among  other
things,  cleanup of the facility.  In April 2005, MGI filed a Complaint  against
the United States of America, the U.S. Navy, and the U.S. Army for cost recovery
and contribution; the defendants subsequently denied all of the claims. In early
2006, the property was sold to a new owner and the Administrative  Consent Order
was amended to substitute  the new owner for the original  property  owner.  MGI
also reached an agreement with several potentially responsible parties regarding
cleanup at the site, the terms of which the Company  believes will not result in
a material  adverse  effect on the Company's  consolidated  financial  position,
results of operations or liquidity. MGI retained its cause of action against the
government parties noted above.

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

9.   Stock-Based Compensation Plans

     Under the  Company's  stock-based  compensation  plans,  stock  options and
similar instruments may be granted to employees and outside directors at no less
than the fair market value of the  Company's  Common Stock on the date of grant.
Grants  generally  vest ratably over a five-year  period for grants to employees
and over a four-year period for grants to outside directors and expire ten years
after the grant date. Grants have generally been settled in cash upon exercise.

     The fair value of grants is determined using a Black-Scholes option-pricing
model.  The  following  assumptions  apply to the  options  granted  through the
periods presented.

                                                                                             Nine Months Ended
                                                                                               September 30,
                                                                                        ----------------------------
                                                                                            2007          2006
                                                                                        -------------- -------------
Expected volatility                                                                           29%           33%
Expected dividends                                                                             -             -
Expected term (in years)                                                                    7.33          6.22
Risk-free rate                                                                               4.2%         4.59%

     Expected  volatilities  are based on  historical  volatility  of the market
price for the Company's Common Stock. The dividend yield on the Company's Common
Stock is assumed to be zero since the Company has not paid dividends in the past
five  years and has no  current  plans to do so.  The  Company  uses  historical
experience regarding exercises of grants to determine the grants' expected term.
The expected  term  represents  the period of time that the options  granted are
expected to remain outstanding. The risk-free interest rate is based on the U.S.
Treasury  yield  curve in  effect  for the  expected  term of the  option at the
reporting date.

     A summary of activity under the Company's stock option plans during 2007 is
presented below:

                                                                                           Weighted
                                                                            Weighted        Average      Aggregate
                                                                            Average        Remaining     Intrinsic
                                                                            Exercise      Contractual      Value
                                                             Options         Price     Term(in years)  (in millions)
                                                          -------------- ------------- --------------- -------------
Balance at January 1, 2007                                 1,081,853     $   25.06
Granted                                                        2,400         29.25
Exercised                                                    (37,652)        17.00
Forfeited or expired                                         (65,440)        45.04
                                                          --------------
Balance at September 30, 2007                                981,161     $   24.55           5.02      $     7.7
                                                          ============== ============= =============== =============
Exercisable at September 30, 2007                            696,569     $   23.98           4.00      $     6.4
                                                          ============== ============= =============== =============

     The Company has recognized a liability for stock-based  compensation in the
amount of $6.4  million at  September  30, 2007 and $7.2 million at December 31,
2006. Total compensation cost for share-based payment  arrangements for the nine
months ended  September 30, 2007,  was $0.1  million.  As of September 30, 2007,
total estimated  compensation related to non-vested grants not yet recognized is
$3.2 million,  although the Company may  ultimately  not have to pay all of such
amount,  and the  weighted  average  period  over  which  it is  expected  to be
recognized  is 2.0 years.  During the nine  months  ended  September  30,  2007,
options  with a fair value of $0.6  million  were  exercised,  resulting in cash
payments of $0.4 million, (the difference between the market price of the Common
Stock on the exercise  date and the exercise  prices of the options  exercised).
During the nine months ended  September  30, 2006,  options with a fair value of
$0.5 million were exercised,  resulting in cash payments of $0.4 million. During
the three months ended  September 30, 2007, no options vested and 21,200 options
with a fair value of $0.3 million vested during the three months ended September
30, 2006. There were 3,400 options with a fair value of $0.1 million, and 23,700
options  with a fair value of $0.3 million  vested  during the nine months ended
September  30,  2007 and 2006,  respectively.  Options  granted  during the nine
months  ended  September  30,  2007 and 2006 had a grant date fair value of $0.1
million  and $0.2  million,  respectively.  There  were no shares  issued as the
result of stock option exercises during the nine months ended September 30, 2007
and 2006.

10.  Per Share Information

     The weighted  average number of shares used to determine  basic and diluted
earnings per share was:

                                                                  Three Months Ended         Nine Months Ended
                                                                     September 30,             September 30,
                                                               -------------------------- ---------------------------
                                                                     2007         2006         2007          2006
                                                               ------------- ------------ ------------- -------------

Weighted average number of common shares outstanding - basic:   5,250,230    5,259,315    5,252,244     5,628,438

  Effect of dilution (1):
  Conversion of Class A Convertible Preferred Stock                     -      668,119            -       668,119
  Exercise of stock options                                             -      112,803            -       101,702
                                                               ------------- ------------ ------------- -------------
Weighted average number of common and common equivalent
  shares - diluted:                                             5,250,230    6,040,237    5,252,244     6,398,259
                                                               ============= ============ ============= =============

_______________

(1)  Common Stock  options and Class A Preferred  Stock were not included in the
     computation of basic or diluted  earnings per share because the Company had
     a loss for the three  months and nine months ended  September  30, 2007 and
     the effect  would thus be  anti-dilutive.  If the Company  was  required to
     include  dilutive  shares  in its per  share  calculations,  the  number of
     dilutive  shares for the three months and nine months ended  September  30,
     2007 would be 933,357 and 756,532, respectively.

11.  Comprehensive Income (Loss)

     The following table sets forth comprehensive income (loss) (in millions):

                                                                  Three Months Ended         Nine Months Ended
                                                                     September 30,             September 30,
                                                               -------------------------- ---------------------------
                                                                     2007         2006         2007          2006
                                                               ------------- ------------ ------------- -------------
Net income (loss)                                              $    (10.5)   $   418.7    $   (29.5)    $   397.3
  Other comprehensive income (loss):
    Reversal of other comprehensive income related to Kaiser            -         85.3            -          85.3
    Unrealized income (loss) on available-for-sale investments       (0.2)         0.3            -           0.5
                                                               ------------- ------------ ------------- -------------
Total comprehensive income (loss)                              $    (10.7)   $   504.3    $   (29.5)    $   483.1
                                                               ============= ============ ============= =============

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 refer to the Condensed Notes to Consolidated Financial Statements included
herein.

     This Quarterly  Report on Form 10-Q contains  statements  which  constitute
"forward-looking  statements"  within the meaning of the PSLRA. These statements
appear in a number of places in this report.  Such  statements can be identified
by the use of forward-looking  terminology such as "believes," "expects," "may,"
"estimates," "will," "should," "could," "plans," "intends," "projects," "seeks,"
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,   environmental  or  regulatory
requirements,   litigation   developments,   and  changing   prices  and  market
conditions.  This Form 10-Q and the Form 10-K identify other factors which could
cause differences between such 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 PSLRA.  See the  statement  in the second
paragraph  of Item 2.  above for  cautionary  information  with  respect to such
forward-looking statements.

     The Company now operates in two primary industries:  real estate investment
and development,  through various  subsidiaries  and joint ventures;  and racing
operations  through  SHRP,  Ltd.  MGHI  owns  100% of MGI and is a wholly  owned
subsidiary  of the Company.  MGI owns 100% of the common stock of Palco,  which,
along with its  subsidiaries,  recently filed for protection under Chapter 11 of
the Bankruptcy Code. See Note 1 for information regarding the deconsolidation of
the Debtors' financial  results,  the status of Debtors' Chapter 11 proceedings,
and the accounting  treatment of MGI's investment in the Debtors.  Any reference
herein to a company  includes the  subsidiaries of that company unless otherwise
noted or the context indicates otherwise.

     Consolidated Operations

     Selected Operational Data

     The following table presents  selected proforma  financial  information for
the periods indicated for the Company's consolidated  operations,  excluding the
Debtors (in millions).

                                                                  Three Months Ended         Nine Months Ended
                                                                     September 30,             September 30,
                                                               -------------------------- ---------------------------
                                                                     2007         2006         2007          2006
                                                               ------------- ------------ ------------- -------------
Sales                                                          $     23.0    $    39.9    $    70.6     $   112.0
Costs and expenses                                                  (30.6)       (33.9)       (86.3)        (92.9)
Reversal of net investment in Kaiser                                    -        430.9            -         430.9
                                                               ------------- ------------ ------------- -------------
Operating income (loss)                                              (7.6)       436.9        (15.7)        450.0
Other income (expense), net                                           1.4         (0.3)         4.3           5.7
Interest expense, including amortization of deferred financing costs (4.3)        (4.1)       (12.8)        (12.8)
                                                               ------------- ------------ ------------- -------------
Income (loss) before income taxes and cumulative effect of
  accounting change                                                 (10.5)       432.5        (24.2)        442.9
Provision for income taxes                                              -         (0.3)           -          (0.8)
                                                               ------------- ------------ ------------- -------------
Income (loss) before cumulative effect of accounting change         (10.5)       432.2        (24.2)        442.1
Cumulative effect of accounting change, net of tax                      -            -            -          (0.7)
                                                               ------------- ------------ ------------- -------------
Net income (loss)                                              $    (10.5)   $   432.2    $   (24.2)    $   441.4
                                                               ============= ============ ============= =============

     Overview of Results of Operations, Excluding the Debtors

     Sales
     Sales,  excluding  those for Debtors,  for the three months and nine months
ended   September  30,  2007,   declined   $16.9  million  and  $41.4   million,
respectively, as compared to the comparable periods in the prior year, primarily
due to the  substantial  sell-out of lots at Mirada in 2006 and a  reduction  in
parcel sales,  deferred  profit and profit  participation  payments at Palmas in
2007.

     Operating Income (Loss)
     The Company's operating income,  excluding that for Debtors,  for the three
months and nine  months  ended  September  30,  2006  includes  income of $430.9
million  resulting  from the Company's  reversal of its net investment in Kaiser
and $3.7 million from reductions of stock compensation expense due to changes in
the Company's share price.  The Company's  operating losses for the three months
and nine months ended September 30, 2007 are primarily due to the lower sales in
the real estate segment described above.

     Other Income, net
     Consolidated other income for the three and nine months ended September 30,
2007,  was impacted by returns on  marketable  securities  and other  short-term
investments.  Returns on marketable securities and other short-term  investments
for the three months  ended  September  30, 2007 were $1.0  million  higher than
comparable period in the prior year. Returns on marketable  securities and other
short-term  investments  for the nine months ended  September 30, 2007 were $2.6
million lower than comparable period in the prior year.

     Real Estate Operations

     Industry Overview and Selected Operational Data
     The Company,  principally  through its wholly owned  subsidiaries and joint
ventures,  owns, invests in and develops  residential and commercial real estate
primarily in Puerto Rico, Arizona,  California and Texas.  Results of operations
between quarterly periods for the Company's real estate operations are generally
not  comparable due to the timing of individual  real estate sales  transactions
and  cash  collections.  Accordingly,  results  for  any  one  quarter  are  not
necessarily  indicative of results to be expected for the full year. In 2005 and
2006, the Company's real estate operations realized substantial revenues related
to sales at the Company's Fountain Hills, Mirada and Palmas developments. As the
proceeds  from these asset sales have not been  redeployed  on other real estate
assets and there have been  significant  declines in real estate demand in areas
where the Company  operates,  this level of sales  activity  has not recurred in
2007 and is not expected to recur for the foreseeable future.

     The following table presents selected operational and financial information
for the three months and nine months ended  September 30, 2007 and 2006, for the
Company's real estate operations.

                                                                  Three Months Ended         Nine Months Ended
                                                                     September 30,             September 30,
                                                               -------------------------- ---------------------------
                                                                      2007        2006        2007          2006
                                                               ------------- ------------ ------------- -------------
                                                                               (In millions of dollars)
Sales:
  Real estate:
    Fountain Hills                                              $      1.4   $     4.6    $    6.3      $    7.8
    Mirada                                                             0.4        10.2         1.8          26.1
    Palmas                                                             0.1         5.7         0.3          16.2
                                                               ------------- ------------ ------------- -------------
      Total                                                            1.9        20.5         8.4          50.1
                                                               ------------- ------------ ------------- -------------

Resort, commercial and other:
  Fountain Hills                                                       0.5         0.7         2.6           2.8
  Palmas                                                               2.6         2.7         9.1           9.8
  Commercial lease properties                                          4.6         4.6        13.8          13.8
  Other                                                                0.1         0.4         0.2           0.6
                                                               ------------- ------------ ------------- -------------
      Total                                                            7.8         8.4        25.7          27.0
                                                               ------------- ------------ ------------- -------------

  Total sales                                                  $       9.7   $    28.9    $   34.1      $   77.1
                                                               ============= ============ ============= =============
Operating income (loss):
  Fountain Hills                                               $      (0.2)  $     2.3    $    0.5      $    2.4
  Mirada                                                               0.4         6.5         1.0          14.6
  Palmas                                                              (3.5)       (0.7)       (9.6)          4.0
  Commercial lease properties                                          2.6         2.6         7.8           6.8
  Other                                                               (0.2)       (0.3)       (1.2)         (1.0)
                                                               ------------- ------------ ------------- -------------
  Total operating income (loss)                                $      (0.9)  $    10.4    $   (1.5)     $   26.8
                                                               ============= ============ ============= =============
Investment, interest and other income:
  Equity in earnings (losses) from real estate joint ventures  $       0.3   $    (0.4)   $    0.7      $   (0.7)
  Other                                                                0.5         1.4         1.3           4.2
                                                               ------------- ------------ ------------- -------------
                                                               $       0.8   $     1.0    $    2.0      $    3.5
                                                               ============= ============ ============= =============

Interest expense                                                      (4.2)       (4.2)      (12.7)        (12.9)
Income (loss) before income taxes and cumulative effect of
  accounting change                                            $      (4.3)  $     7.2    $  (12.2)     $   17.4
                                                               ============= ============ ============= =============

     Sales and Operating Income (Loss)
     Total sales and  operating  income for the real estate  operations  for the
three months and nine months ended September 30, 2007 declined substantially, as
compared to the same periods in 2006,  primarily due to the substantial sell-out
of lots at Mirada in 2006 and a reduction in parcel sales,  deferred  profit and
profit participation payments at Palmas in 2007.

     Racing Operations

     Industry Overview and Selected Operational Data
     The Company owns SHRP, Ltd., which owns and operates Sam Houston Race Park,
a Class 1 horse  racing  facility in  Houston,  Texas,  and Valley Race Park,  a
greyhound  racing facility  located in Harlingen,  Texas.  Results of operations
between  quarterly periods are generally not comparable for these facilities due
to the  timing,  varying  lengths and types of racing  meets held.  Accordingly,
results  for any one  quarter are not  necessarily  indicative  of results to be
expected for any other quarter or for the full year.  Historically,  Sam Houston
Race Park and Valley Race Park have derived a significant amount of their annual
pari-mutuel   commissions  from  live  racing  and   simulcasting.   Pari-mutuel
commissions  have typically been highest during the first and fourth quarters of
the year,  the time during which Sam Houston Race Park and Valley Race Park have
historically conducted live thoroughbred and greyhound racing, respectively.  In
in an effort to increase  attendance on days with live racing,  Sam Houston Race
Park in June 2007  expanded and enhanced its summer  concert  series,  including
improving  its  facilities  to allow the concerts to be held on the race track's
infield.

     The following table presents selected operational and financial information
for the three months and nine months ended  September 30, 2007 and 2006, for the
Company's racing operations.

                                                                 Three Months Ended         Nine Months Ended
                                                                     September 30,             September 30,
                                                               -------------------------- ---------------------------
                                                                      2007        2006        2007          2006
                                                               ------------- ------------ ------------- -------------
                                                                               (In millions of dollars)
Number of live race days:
  Sam Houston Race Park                                                 35          35          81           88
  Valley Race Park                                                       -           -          70           72

Handle:
  Sam Houston Race Park:
    On-track handle                                            $      33.4   $    32.1    $   97.0      $  99.2
    Off-track handle                                                   9.1         9.5        92.9         98.8
                                                               ------------- ------------ ------------- -------------
      Total                                                    $      42.5   $    41.6    $  189.9      $ 198.0
                                                               ============= ============ ============= =============
Valley Race Park:
  On-track handle                                              $       3.7   $     3.4    $   13.5      $  13.7
  Off-track handle                                                       -           -         2.9          2.8
                                                               ------------- ------------ ------------- -------------
      Total                                                    $       3.7   $     3.4    $   16.4      $  16.5
                                                               ============= ============ ============= =============

Sales:
  Sam Houston Race Park:
    Gross pari-mutuel commissions                              $       7.6   $     7.3    $   24.1      $  24.6
    Other revenues                                                     4.8         2.8         8.5          6.4
                                                               ------------- ------------ ------------- -------------
      Total                                                           12.4        10.1        32.6         31.0
                                                               ------------- ------------ ------------- -------------
Valley Race Park:
  Gross pari-mutuel commissions                                        0.8         0.7         3.2          3.2
  Other revenues                                                       0.1         0.2         0.7          0.7
                                                               ------------- ------------ ------------- -------------
      Total                                                            0.9         0.9         3.9          3.9
                                                               ------------- ------------ ------------- -------------
  Total sales                                                  $      13.3   $    11.0    $   36.5      $  34.9
                                                               ============= ============ ============= =============

Operating loss:
  Sam Houston Race Park                                        $      (2.7)  $    (0.9)   $   (4.2)     $  (1.4)
  Valley Race Park                                                    (0.2)       (0.2)       (0.7)        (0.5)
  Other                                                               (0.1)       (0.3)       (0.5)        (1.2)
                                                               ------------- ------------ ------------- -------------
    Total operating loss                                       $      (3.0)  $    (1.4)   $   (5.4)     $  (3.1)
                                                               ============= ============ ============= =============

Loss before income taxes and cumulative effect of accounting
  change                                                       $      (3.0)  $    (1.4)   $   (5.3)     $  (3.0)
                                                               ============= ============ ============= =============

     Sales
     Total  sales  increased  $2.3  million  in the third  quarter  of 2007,  as
compared to the prior year  period,  primarily  due to the expanded and enhanced
summer concert series at Sam Houston Race Park.

     Total sales  increased $1.6 million for the nine months ended September 30,
2007,  as compared  to the prior year  period,  primarily  due to  increases  in
entertainment  revenue from the expanded and enhanced  summer  concert series at
Sam Houston Race Park,  partially  offset by declines in wagering at Sam Houston
Race Park.

     Operating Loss
     Total  operating loss increased $1.6 million and $2.3 million for the three
months and nine months ended  September  30, 2007, as compared to the prior year
period,  principally  due to costs  associated  with the  expanded  and enhanced
summer  concert  series at Sam  Houston  Race  Park,  partially  offset by lower
spending at Laredo LLC.

     Other Items Not Directly Related to Industry Segments

     Corporate

                                                                 Three Months Ended         Nine Months Ended
                                                                     September 30,             September 30,
                                                               -------------------------- ---------------------------
                                                                      2007        2006        2007          2006
                                                               ------------- ------------ ------------- -------------
                                                                               (In millions of dollars)

Reversal of net investment in Kaiser                           $        -    $   430.9    $      -      $  430.9
Operating income (loss), excluding reversal of investment in
  Kaiser                                                             (3.4)        (1.4)       (7.3)         (2.4)
Income (loss) before income taxes and cumulative effect of
  accounting change                                                  (2.9)       428.3        (5.2)        430.7

     Operating Loss
     Corporate  operating losses represent general and  administrative  expenses
that  are not  attributable  to the  Company's  industry  segments  and  include
stock-based  compensation  expense.  In the third  quarter of 2006,  the Company
reversed  its net  investment  in  Kaiser of $430.9  million.  The $2.0  million
increase in operating  losses,  excluding the reversal of the net  investment in
Kaiser,  in the third quarter of 2007, as compared to the prior year period,  is
primarily due to changes in  stock-based  compensation  expense  resulting  from
fluctuations  in the quoted  market price of the  Company's  Common Stock and an
increase  in  legal  fees,   partially  offset  by  cost  cutting   initiatives.
Stock-based  compensation  expense  was a benefit of $0.3  million for the three
months ended September 30, 2006.

     The $4.9 million  increase in operating  losses,  excluding the reversal of
the Company's net investment in Kaiser,  for the nine months ended September 30,
2007,  as  compared to the prior year  period,  is  primarily  due to changes in
stock-based  compensation  expense  resulting  from  fluctuations  in the quoted
market  price of the  Company's  Common  Stock and an  increase  in legal  fees,
partially offset by cost cutting initiatives.  Stock-based  compensation expense
was a  benefit  of $0.4  million  and $3.7  million  for the nine  months  ended
September 30, 2007 and 2006, respectively.

     Income (Loss)  Before  Income  Taxes and  Cumulative  Effect of  Accounting
          Change
     The overall loss before  income taxes and  cumulative  effect of accounting
changes for the three  months and nine months  ended  September  30, 2007 is the
result of the cost changes discussed above and earnings on marketable securities
and other short-term investments.  Earnings on investments were $0.5 million for
the three months ended September 30, 2007, as compared to a loss of $1.5 million
in the prior year period. Earnings on investments were $2.1 million for the nine
months ended  September  30, 2007, as compared to $1.9 million in the prior year
period.

     MGI

                                                                 Three Months Ended         Nine Months Ended
                                                                     September 30,             September 30,
                                                               -------------------------- ---------------------------
                                                                      2007        2006        2007          2006
                                                               ------------- ------------ ------------- -------------
                                                                               (In millions of dollars)

Operating loss                                                 $      (0.3)  $    (1.6)   $   (1.5)     $  (2.2)
Loss before income taxes and cumulative effect of accounting
  change                                                              (0.3)       (1.6)       (1.5)        (2.2)

     Operating Loss
     MGI's operating losses represent MGI's general and administrative  expenses
on a stand-alone  basis (excluding  Debtors) and consists  primarily of auditing
and legal fees.

     Debtors' Operations

     The following table presents selected operational and financial information
for the periods indicated for the Debtors' operations.

                                                                 Three Months Ended         Nine Months Ended
                                                                     September 30,             September 30,
                                                               -------------------------- ---------------------------
                                                                      2007        2006         2007          2006
                                                               ------------- ------------ ------------- -------------
                                                                (In millions of dollars, except shipments and prices)

Timber harvest  (1)                                                   28.2        38.9         63.3          74.2
                                                               ============= ============ ============= =============
Shipments:
  Lumber: (2)
    Redwood upper grades                                               1.0         0.6          3.8           2.7
    Redwood common grades                                             42.9        39.3         83.8         103.3
    Douglas-fir upper grades                                             -           -            -             -
    Douglas-fir common grades                                          6.8        15.0         30.5          60.4
    Other                                                                -           -            -           1.6
                                                               ------------- ------------ ------------- -------------
  Total lumber                                                        50.7        54.9        118.1         168.0
                                                               ============= ============ ============= =============
  Cogeneration power (3)                                              30.7        35.6         77.6          89.1
                                                               ============= ============ ============= =============
Average sales price:
  Lumber: (4)
    Redwood upper grades                                       $     1,683   $   1,569    $   1,450     $   1,701
    Redwood common grades                                              641         708          686           682
    Douglas-fir upper grades                                             -           -            -             -
    Douglas-fir common grades                                          273         340          296           359
  Cogeneration power (5)                                                73          81           74            75

Sales:
 Lumber, net of discount                                       $      20.6   $    33.1    $    67.5     $    96.2
 Logs                                                                  3.3         0.1         13.4           1.7
 Cogeneration power                                                    2.2         3.0          5.9           6.9
 Wood chips                                                            0.6         0.7          3.0           2.2
 Other                                                                 1.0         1.0          2.6           2.5
                                                               ------------- ------------ ------------- -------------
     Total sales                                               $      27.7   $    37.9    $    92.4     $   109.5
                                                               ============= ============ ============= =============
Operating income (loss)(6)                                     $     (17.4)  $     6.6    $   (42.7)    $     1.8
                                                               ============= ============ ============= =============
Loss before income taxes and cumulative effect of
  accounting change                                            $     (39.5)  $   (13.8)   $  (100.3)    $   (49.1)
                                                               ============= ============ ============= =============
_____________

(1)  Timber harvest is expressed in millions of board feet, net Scribner scale.
(2)  Lumber shipments are expressed in millions of board feet.
(3)  Power deliveries are expressed in thousands of megawatt hours.
(4)  Dollars per thousand board feet.
(5)  Dollars per megawatt hour.
(6)  Operating income (loss) includes  bankruptcy-related legal and advisor fees
     of $10.2  million for the three months ended  September  30, 2007 and $24.0
     million for the nine months ended September 30, 2007.

     Sales
     Sales for the three months ended September 30, 2007, declined $10.2 million
as  compared  to the prior year  period,  primarily  due to lower  shipments  of
Douglas-fir lumber and declines in the prices of redwood and Douglas-fir lumber,
partially offset by an increase in the volume of Douglas-fir logs sold.

     Sales for the nine months ended September 30, 2007, declined $17.1 million,
as  compared  to the prior year  period,  primarily  due to lower  shipments  of
redwood and Douglas-fir lumber and declines in the pries of Douglas-fir  lumber,
partially offset by an increase in the volume of Douglas-fir logs sold.

     Operating  Loss and Loss  Before  Income  Taxes  and  Cumulative  Effect of
          Accounting Change
     The Debtors  reported  operating  losses of $17.4 million and $42.7 million
for the three months and nine months  ended  September  30, 2007,  respectively,
which  includes  bankruptcy-related  costs of $10.2  million and $24.0  million,
respectively.  Additionally,  the Debtors' interest expense for the three months
and nine months ended September 30, 2007, was higher than that of the prior year
periods as a result of increased debt levels and higher interest rates.

Financial Condition and Investing and Financing Activities

     This  section  contains   statements   which  constitute   "forward-looking
statements"  within the meaning of the PSLRA.  See the  statement  in the second
paragraph  of Item 2.  above for  cautionary  information  with  respect to such
forward-looking statements.

     Overview

     The Company  conducts its operations  primarily  through its  subsidiaries.
Creditors  of  subsidiaries  of the Company  have  priority  with respect to the
assets and earnings of such subsidiaries over the claims of the creditors of the
Company.

     Cash Flow

     The following table summarizes certain data related to financial  condition
and to  investing  and  financing  activities  of the  Company,  for the periods
presented (in millions).

                                                                                    Total
                                      Real                                         Excluding                 Consolidated
                                     Estate     Racing       MGI      Corporate     Debtors       Debtors       Total
                                  ---------- ------------- --------- ----------- ------------- ------------- --------------
                                                              (In millions of dollars)
Debt and credit facilities
  (excluding intercompany  notes)

Short-term borrowings and current
  maturities of long-term debt:
  September 30, 2007              $   5.0    $    0.1      $   -     $     -     $     5.1     $        (1)  $     5.1
  December 31, 2006                   4.7         0.2          -           -           4.9         175.8         180.7

Long-term debt, excluding current
  maturities and discounts:
  September 30, 2007              $ 211.8    $    0.2      $   -     $     -     $   212.0     $        (1)  $   212.0
  December 31, 2006                 215.3         0.2          -           -         215.5         669.9         885.4

Cash, cash equivalents, marketable
  securities and other investments

  September 30, 2007:
    Current restricted amounts    $   0.3    $    2.7      $   -     $     -     $     3.0     $        (1)  $     3.0
    Other current amounts            15.9         2.0          -       125.8         143.7              (1)      143.7
                                  ---------- ------------- --------- ----------- ------------- ------------- --------------
                                     16.2         4.7          -       125.8         146.7              (1)      146.7
                                  ---------- ------------- --------- ----------- ------------- ------------- --------------

    Long-term restricted
      amounts                         3.5           -          -           -           3.5              (1)        3.5
                                  ---------- ------------- --------- ----------- ------------- ------------- --------------
                                  $  19.7    $    4.7      $   -     $ 125.8     $   150.2     $        (1)  $   150.2
                                  ========== ============= ========= =========== ============= ============= ==============

Changes in cash and cash
  equivalents

Capital expenditures:
  September 30, 2007              $   0.8    $    2.1      $   -     $   0.1     $     3.0     $       -(2)  $     3.0
  September 30, 2006                  1.2         0.4          -           -           1.6           6.8           8.4

Net proceeds from dispositions of
  property and investments:
  September 30, 2007              $   0.1    $      -      $   -     $     -     $     0.1     $       -(2)  $     0.1
  September 30, 2006                    -           -          -           -             -          15.9          15.9

Borrowings (repayments) of debt
  and credit facilities, net of
  financing costs:
  September 30, 2007              $  (3.3)   $   (0.1)     $   -     $     -     $    (3.4)    $     2.2(2)  $    (1.2)
  September 30, 2006                 (2.9)          -          -           -          (2.9)         26.3          23.4

Dividends, advances including
  interest paid, and tax sharing
  payments received (paid):
  September 30, 2007              $   1.5    $    2.5      $(0.4)    $  (3.6)    $       -     $       -(2)  $       -
  September 30, 2006                (19.4)        1.1        9.3       (21.1)        (30.1)         30.1             -

_______________

(1)  As a result of the  deconsolidation  of the  Debtors  discussed  in Note 1,
     their data is not included in the  consolidated  total as of September  30,
     2007.
(2)  Amounts attributable to the Debtors are for the period from January 1, 2007
     through January 18, 2007.

     Operating Activities
     The Company's  operating  activities used cash of $10.4 million in the nine
months ended  September  30, 2007,  primarily  due to a low level of real estate
sales during the nine months of 2007.

     Investing Activities
     Net cash  provided by investing  activities  of $34.7  million for the nine
months ended  September  30, 2007,  primarily  reflects net sales of  short-term
investments.  Net cash provided by investing  activities of $9.4 million for the
nine months ended September 30, 2006, reflected proceeds from the disposition of
assets by the Debtors partially offset by capital expenditures.

     Financing Activities
     Net cash used for  financing  activities of $0.6 million in the nine months
ended  September 30, 2007,  principally  reflects  additional  borrowings by the
Debtors to fund their  operations  from  January  1, 2007 to January  18,  2007,
offset  by  repayments  on  long-term  debt.  Net  cash  provided  by  financing
activities  of $2.0  million  for the nine  months  ended  September  30,  2006,
reflects  scheduled debt payments by the Debtors and treasury  stock  purchases,
offset by additional borrowings by the Debtors.

     MAXXAM Parent

     MAXXAM  Parent has in the past  provided,  and may from time to time in the
future, under circumstances determined to be appropriate,  provide various forms
of direct or indirect financial or liquidity assistance to its subsidiaries,  or
enter into  financing or other  transactions  with its  subsidiaries,  including
secured or unsecured loans, or asset  purchases.  There can be no assurance that
such subsidiaries will have sufficient liquidity to repay intercompany loans.

     Although  there  are  no  restrictions  on  the  Company's  ability  to pay
dividends on its capital  stock,  the Company has not paid any  dividends  for a
number of years and has no present  intention  to do so. The  Company has in the
past and may from time to time in the future purchase shares of its Common Stock
on national exchanges or in privately negotiated transactions.  During the third
quarter of 2007,  MAXXAM Parent purchased 2,400 shares of its Common Stock at an
average price of $27.49 per share.

     At  September  30,  2007,   MAXXAM  Parent  had  unrestricted   cash,  cash
equivalents  and marketable  securities and other  investments of $125.8 million
and MAXXAM Parent did not have any external  debt.  MAXXAM Parent  believes that
its  existing   resources  will  be  sufficient  to  fund  its  working  capital
requirements  for the next year.  With  respect to long-term  liquidity,  MAXXAM
Parent believes that its existing cash and cash resources,  together with future
distributions  from the real  estate  segment,  will be  sufficient  to meet its
long-term working capital requirements.

     See the  "Potential  Impact on  Registrant  and Certain  Related  Entities"
section of Note 1 for a discussion  of the  potential  impact of the  Bankruptcy
Cases on the Company's liquidity.

     Real Estate Operations

     At September 30, 2007, the real estate segment had cash,  cash  equivalents
and other  investments  of $19.7  million,  of which $3.8 million is restricted.
Real estate  management  believes  that the  segment's  existing cash and credit
facilities   will  be  sufficient  to  fund  its  working  capital  and  capital
expenditure  requirements  for 2007.  With  respect to the  segment's  long-term
liquidity,  real estate  management  believes  that the ability to generate cash
from the sale of existing assets,  together with the ability to obtain financing
and joint venture partners,  should provide sufficient funds to meet its working
capital and capital expenditure requirements.

     Capital  expenditures and real estate  improvements  and development  costs
were $8.0  million  for the nine  months of 2007 and are  expected to be between
approximately  $3.5  million and $4.5  million for the  remainder  of 2007.  The
Company  expects  that these  expenditures  will be funded by existing  cash and
available credit facilities.  Subject to available resources, the Company's real
estate segment may purchase  additional  properties and/or seek other investment
ventures from time to time as appropriate opportunities arise.

     Racing Operations

     At September 30, 2007, the racing segment had cash,  cash  equivalents  and
other investments of $4.7 million,  of which $2.7 million is restricted.  During
the second quarter of 2007, SHRP, Ltd.  borrowed $2.5 million from MAXXAM Parent
and in October 2007, SHRP, Ltd.  borrowed an additional $3.3 million from MAXXAM
Parent to improve its working capital position.  SHRP, Ltd.'s management expects
that SHRP, Ltd. will require additional  advances from MAXXAM Parent to fund its
operations and capital  expenditures  in the future.  SHRP, Ltd. is experiencing
strong  competition from Internet wagering and "racinos" in surrounding  states.
The Company  expects that these factors will also have an adverse  impact on the
long-term liquidity of SHRP, Ltd.

     Capital  expenditures  and  investments  in new ventures  (the expanded and
enhanced  summer concert  series) were $2.1 million for the first nine months of
2007 and an  additional  $0.3  million is expected  for the  remainder  of 2007.
Subject to  available  resources,  the  Company's  racing  segment may  purchase
additional  properties  and/or seek to expand its  operations  as  opportunities
arise that are determined to be appropriate.

Off-Balance Sheet Arrangements

     The  Company  does not have any  off-balance  sheet  financing,  other than
operating leases entered into in the normal course of business. The Company does
not use derivatives for any of its treasury or risk management activities.

Trends

     Real Estate Operations

     The  Company's  real  estate  segment  is engaged  in  marketing  and sales
programs  of varying  magnitudes  at its real estate  developments.  The Company
intends to continue  selling  undeveloped  acreage and  semi-developed  parcels,
generally to builders and  developers,  and fully  developed lots to individuals
and builders.  In 2005 and 2006, the Company's real estate  operations  realized
substantial  revenues related to sales at the Company's  Fountain Hills,  Mirada
and Palmas  developments.  As the proceeds  from these asset sales have not been
redeployed on other real estate assets and there have been significant  declines
in real estate demand in areas where the Company  operates,  this level of sales
activity  has  not  recurred  in  2007  and is not  expected  to  recur  for the
foreseeable future. The real estate segment may purchase  additional  properties
and/or seek other investment ventures as appropriate opportunities arise.

     Racing Operations

     The  Company has in the past  pursued  and  intends to continue  vigorously
pursuing  Texas  gaming  legislation  favorable  to it. The regular  legislative
session  of the  Texas  Legislature  that  ended in May 2007 did not  result  in
legislation  enabling  additional  forms of  gaming.  The next  opportunity  for
approval of such  legislation  will be during the  regular  session of the Texas
Legislature that begins in January 2009 or any special  legislative session that
might be held prior to January  2009.  Some gaming  legislation  may require the
approval of two-thirds of each legislative house and a majority of Texas voters,
and no  assurance  can be given  that any such  legislation  will be  enacted or
become effective. Moreover, it is impossible to determine what the provisions of
any such legislation would be or to predict its effect on the Company.

     In January  2004, a subsidiary of the Company,  Laredo LLC,  applied to the
Racing  Commission for an additional  license to construct and operate a Class 2
horse  racing  facility in Laredo,  Texas.  Following a hearing on Laredo  LLC's
application  and that of a competing  applicant,  in September  2006,  two state
administrative  law judges  recommended to the Racing Commission that Laredo LLC
be awarded the license. On March 20, 2007, the Racing Commission ruled that both
Laredo LLC and the competing  applicant be awarded licenses for the Laredo area.
At the August 8,  2007,  Racing  Commission  meeting,  Laredo LLC was  awarded a
license effective  September 1, 2007. As a condition of the award, Laredo LLC is
required  to comply with  certain  requirements  including,  but not limited to,
hosting  simulcasting racing no later than July 15, 2009 and hosting live racing
on a date to be  determined  by the Texas  Racing  Commission,  which will be no
earlier than July 1, 2009. If these  conditions  are not met,  Laredo LLC may be
subject to daily fines.

     In June 2007,  Sam Houston  Race Park  expanded  and  enhanced  its outdoor
concert series in an effort to increase attendance on days with live racing.

Critical Accounting Policies and Estimates

     See Item 7.  "Management's  Discussion and Analysis of Financial  Condition
and Results of  Operations-Critical  Accounting  Policies and  Estimates" of the
Form 10-K for a discussion of the Company's critical accounting policies.  There
have been no material changes to the Company's critical  accounting policies and
estimates  provided  in the Form  10-K  except  for the  deconsolidation  of the
Debtors as described in Note 1.

New Accounting Pronouncements

     See Note 2 for a  discussion  of new  accounting  pronouncements  and their
impact on the Company's consolidated financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     On January 18, 2007,  Palco and its five  subsidiaries,  including  Scopac,
filed separate voluntary petitions in the United States Bankruptcy Court for the
Southern District of Texas for reorganization under Chapter 11 of the Bankruptcy
Code.  See  Note  1 to  the  Condensed  Consolidated  Financial  Statements  for
additional  information.  As a result of the  deconsolidation of these entities,
the Company no longer has variable interest rate debt.

     The  Company's  cash flow and income may be affected by changes in domestic
short-term  interest  rates due to the  investment  of  available  cash in money
market  funds and  auction  rate  securities.  We monitor  our net  exposure  to
short-term  interest  rates  and,  as  appropriate,  reallocate  investments  to
maximize returns.

     The valuation of our  marketable  equity  security  portfolio is subject to
equity  price  risk.  We monitor our net  exposure to equity  price risk and, as
appropriate, reallocate investments to minimize the Company's exposure.

     The Company  does not manage risk  through  use of  derivatives,  hedges or
other complex financial instruments.

ITEM 4. 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  reports
under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported  within the time  periods  specified in the rules and forms of the SEC,
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.

     Conclusion  Regarding  the   Effectiveness   of  Disclosure   Controls  and
          Procedures
     As of the end of the period covered by this report,  our management carried
out an evaluation, under the supervision and with the participation of our Chief
Executive  Officer and Chief  Financial  Officer,  of the  effectiveness  of the
design and operation of the Company's disclosure controls and procedures.  Based
on the  evaluation,  our management,  including our Chief Executive  Officer and
Chief Financial Officer,  concluded that the Company's  disclosure  controls and
procedures were effective as of September 30, 2007.

     Changes in Internal Controls Over Financial Reporting
     Since  December 31,  2006,  there have been no  significant  changes in the
Company's internal controls over financial reporting that materially affected or
are reasonably  likely to materially affect the internal controls over financial
reporting.

                           PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     The information  set forth in Note 8 is  incorporated  herein by reference.
Also, see Note 1 for the status of the Debtors' reorganization proceedings.

ITEM 1A. RISK FACTORS

     Part I, Item 1A of the Form 10-K contains important risk factors that could
cause the Company's actual results to differ  materially from those projected in
any forward-looking statement.  Additional risks and uncertainties not currently
known or that are currently  deemed  immaterial may materially  adversely impact
our business, financial condition or operating results.

     The information  presented below updates, and should be read in conjunction
with, the risk factor information  disclosed in the Form 10-K for the year ended
December 31, 2006.

     The Company has removed all of the risks under the headings  "Risks Related
to Forest  Products  Regulatory  Matters" and "Other Risks Related to Our Forest
Products Operations" since forest products operations are no longer consolidated
with the Company's financial results.

     The Company has amended and restated the second and third items under "Risk
Factors: Risks related to the Bankruptcy Cases" to read as follows:

     The Debtors  may not be able to  reorganize  successfully,  and the Company
could lose some or all of is equity ownership interest.

     The Debtors' overall objectives in the Bankruptcy Cases are to achieve both
an  operational  restructuring  and a financial  restructuring  of the  Debtors'
long-term debt obligations, in view of estimated lower harvest levels, increased
regulatory  compliance  costs and cyclical  lumber prices,  and also to continue
their  businesses.  There can be no  assurance  that the Debtors will be able to
attain these  objectives  and achieve a  successful  operational  and  financial
reorganization.  In the  event the  Debtors  are  unsuccessful  in  attaining  a
successful operational and financial reorganization, the Debtors could be forced
to surrender all or substantially  all of their assets to their  creditors.  The
outcome  of the  Bankruptcy  Cases is  impossible  to  predict  and could have a
material  adverse effect on the  businesses of the Debtors,  on the interests of
creditors, and on the Company.

     As provided by the Bankruptcy  Code, each of the Debtors  generally has the
exclusive  right to  propose a plan of  reorganization  during  the  Exclusivity
Period.  On September 30, 2007, the Debtors,  together with MAXXAM Parent,  MGHI
and MGI (as  co-proponents),  filed the  Plan,  a Joint  Plan of  Reorganization
pursuant to Section 112(a) of title 11 of the United States Code,  providing for
the  resolution  of  outstanding  claims  against and  interests  in each of the
Debtors. The Plan provides for the continued operations of Palco and Scopac as a
consolidated  company, the full repayment of all secured and unsecured creditors
and the retention of Palco's equity interest in Scopac and MGI's equity interest
in Palco.

     From an operational perspective, the Plan contemplates a new business model
for continued  operation of Palco's sawmill and continued  forestry  operations,
but at harvest  levels that are  significantly  lower than current or historical
rates. It also contemplates the sale of 6,600 acres of ancient redwood forest to
a buyer or buyers willing to commit to the permanent environmental protection of
these scarce and valuable  old-growth  redwood trees. The Plan moreover provides
for the creation of a new low density  conservation  and  preservation  oriented
real estate development project under which significant  acreage  (approximately
22,000  acres)  adjoining the old growth  redwood  groves would be developed and
sold.  The  proceeds  from  these  sales  would be used to retire a  substantial
portion of Scopac's indebtedness.

     As a Plan  proponent,  MAXXAM Parent has agreed to make important  economic
contributions  to the  Debtors  upon  confirmation  of the Plan,  including  (i)
providing real estate  expertise to assist Palco in "unlocking" the value of the
old  growth  redwood  groves  and the  adjacent  conservation  and  preservation
oriented real estate development,  (ii) contributing $25.0 million toward a fund
that will allow existing holders of Scopac Timber Notes to cash out a portion of
their Scopac Timber Notes,  (iii) forgiving $40.0 million of intercompany  debt,
and (iv) contributing important tax benefits to Palco.

     The  Trustee  for the  Scopac  Timber  Notes  has also  proposed  a plan of
reorganization  with respect to Scopac. The Trustee's plan essentially  provides
for the rapid  liquidation of Scopac.  On October 23, 2007, the Bankruptcy Court
held a hearing on the  question  of whether  the  Exclusivity  Period  should be
extended.  Without an extension  of  exclusivity,  the Trustee  would be able to
pursue its plan of  reorganization  in parallel  with the Debtors'  Plan. At the
conclusion of the hearing,  the Bankruptcy Court directed the Debtors,  the most
significant  creditors,  and MAXXAM Parent to undergo  mediation in an effort to
have the parties reach a consensual plan of  reorganization  with respect to the
Debtors.  The  mediation  is  scheduled  to begin the week of November 26, 2007.
There  can be no  assurance  that  the  mediation  will  be  successful.  If the
mediation is not successful and the Debtors  proceed with the Plan, they will be
required  to seek  approval  of the Plan by the  creditors  and  equity  holders
entitled  to  vote on the  Plan,  and to seek  confirmation  of the  Plan by the
Bankruptcy  Court.  The  Debtors'  efforts  to  obtain  creditor  approvals  and
Bankruptcy Court confirmation may not be successful.

     While the  Debtors'  liabilities  as of the Filing  Date would be  resolved
under the Plan, as noted above,  there can be no assurance that the Plan will be
approved by creditors or confirmed by the Bankruptcy  Court.  If the Plan is not
approved by creditors and  confirmed by the  Bankruptcy  Court,  there can be no
assurance that the Debtors'  creditors  will be paid in full,  either through an
alternative plan of reorganization or otherwise. If a debtor's creditors are not
paid in full, the Bankruptcy  Code provides that the debtor's equity holders are
not entitled to retain their equity interests,  unless certain exceptions apply.
In that  event,  Palco  could  lose  all or a  material  portion  of its  equity
ownership  in Scopac and  Palco's  other  subsidiaries,  MGI could lose all or a
material  portion of its equity  ownership in Palco, or the value of such equity
interests could be diluted, impaired or eliminated.

     The Palco Debtors and Scopac may be unable to obtain sufficient  additional
liquidity to continue operations and reorganize successfully under Chapter 11.

     The Palco  Debtors  estimate  that they  will  have  significant  liquidity
shortfalls  in 2007.  On August 6,  2007,  the Palco  Debtors  closed on the DIP
Facility,  which  is  a  $75.0  million  Debtor-in-Possession  revolving  credit
facility.  The DIP Facility contains restrictive financial covenants that, among
others, require the Palco Debtors to maintain a minimum level of EBITDA and meet
weekly cash flow  projections.  Continued  compliance  with the DIP  Facility is
dependent on the ability of the Palco Debtors to meet the  financial  covenants.
However,  the  operating  cash  flow  estimates  used to  establish  the  EBITDA
maintenance  covenant  and the weekly  cash flow  projections  are  subject to a
number of  assumptions  and actual  results could differ  materially  from these
estimates.  The Palco Debtors may not be able to meet the restrictive  financial
covenants  specified in the DIP Facility,  in which case they may not be able to
continue operations and reorganize under Chapter 11 of the Bankruptcy Code.

     Scopac has been authorized by the Bankruptcy Court to fund budgeted ongoing
operating and  bankruptcy-related  costs using  operating  cash flow and, to the
extent needed,  funds available in the SAR Account (subject to no more than $5.0
million in  withdrawals  from the SAR  Account  being  outstanding  at any given
time).  If these sources of liquidity are not adequate,  and if Scopac is unable
to obtain  additional  sources of liquidity and the necessary  Bankruptcy  Court
approval to utilize such additional sources of liquidity, Scopac may not be able
to continue  operations  and  reorganize  successfully  under  Chapter 11 of the
Bankruptcy Code.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

     The following table contains  information about the Company's  purchases of
shares of its Common Stock during the three months ended September 30, 2007.

               Issuer Purchases of Equity Securities
---------------------------------------------------------------------
                                Total Number of      Average Price
           Period              Shares Purchased(1)    Paid Per Share
----------------------------- -------------------- ------------------
July 1-31, 2007                        -           $         -
August 1-31, 2007                  2,400           $     27.49
September 1-30, 2007                   -           $         -
                              -------------------- ------------------
     Total                         2,400           $     27.49

_________________

(1)  All of  such  purchases  were  made  on  national  exchanges.  The  Company
     currently has no publicly-announced  plans or programs to repurchase shares
     of its Common Stock.

     The Company may from time to time purchase  additional shares of its Common
Stock on national exchanges or in privately negotiated transactions.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     As a result of the  commencement of the Bankruptcy  Cases,  the outstanding
principal  of and accrued  interest  on, the  secured  debt  obligations  of the
Debtors,  consisting of the Scopac Timber Notes, the Scopac Line of Credit,  the
Palco Term Loan and the Palco Revolving  Credit Facility became  immediately due
and  payable.  However,  claims  against the Debtors for  principal  and accrued
interest  are  stayed  while  the  Debtors  continue   business   operations  as
debtors-in-possession.  See  Note 1 for  additional  information  regarding  the
effects  of the  commencement  of the  Bankruptcy  Cases  on the  Debtors'  debt
obligations. Such information is incorporated herein by reference.

ITEM 6. EXHIBITS

        a.   Exhibits:

             * 31.1 Section 302 Certification of Chief Executive Officer

             * 31.2 Section 302 Certification of Chief Financial Officer

             * 32.1 Section 906 Certification of Chief Executive Officer

             * 32.2 Section 906 Certification of Chief Financial Officer

* Included with this filing

                                   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 INC.

Date: November 14, 2007    By:     /S/         M. EMILY MADISON
                             ---------------------------------------------------
                                              M. Emily Madison
                                        Vice President, Finance and
                                      Interim Chief Financial Officer
                                     (Principal Accounting Officer and
                                    Interim Principal Financial Officer)

                                                                      APPENDIX A

                            Glossary of Defined Terms

Bankruptcy Cases: The Chapter 11 proceedings of the Debtors

Bankruptcy Code: The United States Bankruptcy Code

Bankruptcy  Court: The United States  Bankruptcy Court for the Southern District
of Texas

Beltway Assets:  Beltway Assets LLC, an indirect wholly owned  subsidiary of the
Company

Beltway Notes: The 6.08% notes of Beltway Assets due in November 2024

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

Cave action:  An action  entitled Steve Cave, et al. v. Gary Clark,  et al. (No.
DR020719) filed in the Superior Court of Humboldt County, California

CDF: California Department of Forestry and Fire Protection

Class  A  Preferred   Stock:   The  Company's   Class  A  $0.05   Non-Cumulative
Participating Convertible Preferred Stock

Common Stock: The Company's $0.50 par value common stock

Company:  MAXXAM Inc.,  including  its  majority and wholly owned  subsidiaries,
except as otherwise indicated

Cook action:  An action  entitled Alan Cook,  et al. v. Gary Clark,  et al. (No.
DR020718) filed in the Superior Court of Humboldt County, California

Debtors:  Palco,  Scopac,  Britt, SDLLC and Palco's other  subsidiaries,  all of
which have filed for reorganization under the Bankruptcy Code

DIP Facility: The $75.0 million revolving credit agreement dated as of August 6,
2007, among the Palco Debtors, as borrowers, and Marathon

ERISA: The Employee Retirement Income Security Act of 1974, as amended from time
to time

Exclusivity  Period:  A  period  following  the date of  filing  of  Chapter  11
bankruptcy  (generally 120 days,  subject to extension by the bankruptcy court),
during which the debtor  generally has the  exclusive  right to propose and seek
approval of a plan of reorganization

FASB: Financial Accounting Standards Board

FDIC: Federal Deposit Insurance Corporation

FDIC action:  An action  entitled  Federal  Deposit  Insurance  Corporation,  as
manager of the FSLIC Resolution Fund v. Charles E. Hurwitz (No. H-95-3956) filed
by the FDIC on  August  2,  1995 in the U.S.  District  Court  for the  Southern
District of Texas

Filing Date:  January 18, 2007,  the date the Debtors filed  separate  voluntary
petitions with the Bankruptcy Court

Form 10-K:  Annual  Report on Form 10-K of the Company for the fiscal year ended
December 31, 2006

Fountain Hills:  Fountain Hills, a master-planned  residential community located
in Fountain Hills, Arizona

GAAP:  Generally  accepted  accounting  principles in the United States  Herrera
action: An action entitled Gildardo and Lisa Herrera, individually and on behalf
of their children v. Sam Houston Race Park, Ltd. and SHRP General  Partners Inc.
(No. 2005-76898) filed in the state District Court of Harris County, Texas

Johnson action: An action entitled Edyth Johnson,  et al. v. Charles E. Hurwitz,
an individual, MAXXAM Inc., et al. (No. DR040720) filed in the Superior Court of
Humboldt County, California

Lakepointe  Assets:  Lakepointe  Assets  Holdings LLC, an indirect  wholly owned
subsidiary of the Company

Lakepointe  Notes: The 7.56% notes of Lakepointe Assets and its subsidiaries due
in June 2021

Laredo LLC: Laredo Race Park LLC, a wholly owned subsidiary of the Company

Marathon: Marathon Structured Finance Fund L.P.

MAXXAM Parent: MAXXAM Inc., excluding its majority and wholly owned subsidiaries

MAXXAM Pension Plan: MAXXAM Parent's pension plan

MGHI: MAXXAM Group Holdings Inc., a wholly owned subsidiary of the Company,  and
MGI Parent

MGI: MAXXAM Group Inc., a wholly owned subsidiary of MGHI and Palco's parent

Mirada:  The  Company's  luxury  resort-residential  project  located  in Rancho
Mirage, California

Motel Assets:  Motel Assets Holdings LLC, an indirect wholly owned subsidiary of
the Company

Motel  Notes:  The 7.03% notes of Motel Assets and its  subsidiaries  due in May
2018

NJDEP: New Jersey Department of Environmental Protection

OTS: The United States Department of Treasury's Office of Thrift Supervision

OTS action: A formal administrative  proceeding initiated by the OTS against the
Company and others on December 26, 1995

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

Palco Debtors: Palco, Britt, SDLLC, Salmon Creek and Scotia Inn

Palco Revolving Credit Facility: The five-year $60.0 million secured asset-based
revolving  credit facility  evidenced by the Revolving Credit Agreement dated as
of July 18, 2006, among Palco and Britt, as borrowers, and Marathon, as amended

Palco Term Loan: The five-year  $85.0 million secured term loan evidenced by the
Term  Loan  Agreement  dated as of July 18,  2006,  among  Palco and  Britt,  as
borrowers, and Marathon, as amended

Palmas:  Palmas  del Mar,  a  master-planned  residential  community  and resort
located on the southeastern coast of Puerto Rico near Humacao

Palmas Notes: The 7.12% notes due December 20, 2030 of Palmas Country Club Inc.,
an indirect wholly owned subsidiary of the Company

Plan: A Joint Plan of Reorganization  filed by the Debtors on September 30, 2007
pursuant to Section 112(a) of Title 11 of the United States Code

PSLRA: Private Securities Litigation Reform Act of 1995

Racing Commission: The Texas Racing Commission

Respondents:  Federated  Development  Company,  a principal  stockholder  of the
Company  now known as  Giddeon  Holdings,  Inc.,  the  Company,  Mr.  Charles E.
Hurwitz,  the Chairman of the Board and Chief Executive  Officer of the Company,
and the other respondents in the OTS action

Salmon Creek: Salmon Creek LLC, a wholly owned subsidiary of Palco

Sam Houston  Race Park:  Texas Class 1 horse racing  facility in Houston,  Texas
owned and operated by SHRP, Ltd.

Sanctions Motion: An amended  counterclaim and motion for sanctions filed by the
Respondents on November 8, 2002, in connection with the FDIC action

SAR Account:  Funds held in a reserve account titled the Scheduled  Amortization
Reserve  Account,  which was  established to support  principal  payments on the
Scopac Timber Notes

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

Scopac Indenture: The indenture governing the Scopac Timber Notes

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

Scopac Timber:  The timber in respect of the Scopac  Timberlands  and the Scopac
Timber Rights

Scopac Timber  Notes:  Scopac's  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

Scopac Timberlands:  Approximately 200,000 acres of timberlands owned by Scopac

Scopac  Timber  Rights:  Scopac's  exclusive  right to harvest on  approximately
10,000 acres of timberlands owned by Palco and Salmon Creek

Scotia Inn: Scotia Inn Inc., a wholly owned subsidiary of Palco

SDLLC:  Scotia  Development  LLC, a wholly owned  subsidiary  of Palco as of the
Filing Date

SEC: The Securities and Exchange Commission

SFAS: Statement of Financial Accounting Standards

SFAS No. 109: SFAS No. 109, "Accounting for Income Taxes"

SHRP,  Ltd.:  Sam Houston  Race Park,  Ltd., a wholly  owned  subsidiary  of the
Company that owns and operates Sam Houston Race Park and Valley Race Park

Staff: the staff of the SEC

Trustee:  The trustee under the Scopac Indenture

USAT: United Savings Association of Texas

Valley Race Park: The Company's  greyhound racing facility located in Harlingen,
Texas

Wilson federal  action:  An action  entitled  United States of America,  ex rel.
Richard Wilson and Chris Maranto v. MAXXAM Inc., et al. (No. C 06 7497) filed in
the U.S. District Court for the Northern District of California

Wilson state action:  An action  entitled  State of  California ex rel.  Richard
Wilson and Chris Maranto v. MAXXAM Inc., et al. (No. CGC 06 458528) filed in the
Superior Court of San Francisco County, California

Wilson actions: The Wilson federal action and Wilson state action, collectively
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