----

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

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

| Delaware(State      or other jurisdictionof      incorporation or organization)                      |   | 95-2078752(I.R.S.      EmployerIdentification      Number) |
|------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------|
| 1330      Post Oak Blvd., Suite 2000Houston,      Texas(Address      of Principal Executive Offices) |   | 77056(Zip      Code)                                       |

| Large      accelerated filer  ☐ | Accelerated      filer  ☒ | Non-accelerated      filer  ☐ |
|-------------------------------------------------|-------------------------------------------|-----------------------------------------------|

----

| Item      1.       | 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                                                                                                                                                                                                                                                                    |

----

|                                                                                                                                                                                                                                                                                                                                                |   |               September 30,2007 |                                                                                                                                                    | December      31,2006 |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------|
|                                                                                                                                                                                                                                                                                                                                                |   |                                                                    |
|                                                                                                                                                                                                                                                                                                                                                |   | (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      sharesissued; 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 |

|                                                                                                                |   | Three      Months EndedSeptember      30, |                                                                                             |                            Nine Months Ended                               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 sharebefore 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 shareafter cumulative      effect of accounting change    |   | $                                         |                     (2.00) |                                                                                                                                                                                                                                                                                                                 | $ |                      79.61 |   | $ |                    (5.62) |   | $ |                     70.59 |
|                                                                                                                |   |                                      |                                                                                             |                                                                                                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |   |
| Diluted      income (loss) per common and common equivalentshare 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 equivalentshare after cumulative      effect of accounting change  |   | $                                         |                     (2.00) |                                                                                                                                                                                                                                                                                                                 | $ |                      69.32 |   | $ |                     (5.62) |   | $ |                     62.09 |

----

|                                                                                                                                                                                                       |   |         | Nine      Months EndedSeptember      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 |

----

----

|   |   | Three      Months EndedSeptember      30, |   |   |                          Nine Months EndedSeptember      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 accountingchange                        |   |   |                         (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                                                                                                  |

----

|                                                                                                                                                         |   |   | September      30,       2007                                                                    |   |   | December      31,                             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. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| 2. | New      Accounting Standards |
|----|-------------------------------|

----

----

|                                                                                            |   |  Reportable      Segments                                                                                                                                                                            |                                                                                                         |   |                                                                                                                            |    Corporate                                                       |                                                  |                                                                                                          |   Total      ExcludingDebtors |   |                                                                                  | Reportable           Segment |   |                                                                                          |            ConsolidatedTotal |
|-------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------|-------------------------------------------------------|---------------------------------------------------------------------------------------------------------------|-----------------------------------------|--------|---------------------------------------------------------------------------------------|-------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------|-------------------------------------------------------|
|               Real Estate                               |   |                                                                                                                                                                                                      |                       Racing |   |                                                                                                                            |                   MGI | Forest           Products(1) |
| Investment,      interest and otherincome for the      threemonths 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 otherincome for theninemonths 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 andadministrative      expensefor 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 andadministrative      expensefor 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                 |                                                  |   |                5.2 |                                                  |   |                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 andamortization 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 andamortization 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 |

| (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. |
|-----|-----------------------------------------------------------------------|

----

|                                                                       |   |   | September      30,2007                                                                    |   |   | December      31,2006 |
|----------------------------------------------------------------------------|--------|--------|-------------------------------------------------------------------------------------------|--------|--------|-----------------------|
|                                                                       |   |   |                                                                                      |   |   |                  |
|                                                                       |   |   |                                                                                      |   |   |                  |
| 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                 |

|                                                                                                                             |   |   |                   |   |   |                  |
|----------------------------------------------------------------------------------------------------------------------------------|--------|--------|------------------------|--------|--------|-----------------------|
|                                                                                                                             |   |   | September      30,2007 |   |   | December      31,2006 |
| 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. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                                |   |   |                      |   |   |                                                                                                                                     |
|-------------------------------------------------------------------------------------|--------|--------|---------------------------|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                |   |   | September      30,2007(1) |   |   | December      31,2006                                                                                                                    |
| 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      30,2007                                                                                                                  |   |   | December      31,2006                                                                                                              |
|                                                                                                 |   | (In      millions of dollars) |
| Unrealized      gains on available-for-sale investments in other comprehensive      income,      net |   | $                             |                            0.6 |   | $      |                            0.6 |

| 5. | Debt |
|----|------|

|                                                                                                                              |   |   | September      30,2007                                                                                          |      |   | December      31,2006                                                                                           |
|-----------------------------------------------------------------------------------------------------------------------------------|--------|--------|-----------------------------------------------------------------------------------------------------------------|-----------|--------|-----------------------------------------------------------------------------------------------------------------|
| 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. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------|

| 6. |  Income      Taxes |
|----|-------------------------|

----

| 7. | Employee      Benefit Plans |
|----|-----------------------------|

|                                                |   | FrozenPension      Benefits |                                                                                  |   | Medical/Life Benefits |                                                                            | FrozenPension      Benefits |   |                                                                                        | Medical/Life 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 |

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

|                                                                                |   |   |    Options                                                                                      |   |   |  WeightedAverageExercisePrice                                                                                                  |   |   | WeightedAverageRemainingContractualTerm      (in years) |   |   |  AggregateIntrinsicValue           (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                                                                            |

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| 10. | Per      Share Information |
|-----|----------------------------|

|                                                                                                    |   | Three      Months EndedSeptember      30,                                                                 |   | Nine      Months EndedSeptember      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. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                                                                                                             |   |   | Three      Months Ended                                  September 30, |   |   | Nine      Months EndedSeptember      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 |

----

|   | MAXXAM      INC. |
|--------|------------------|

| Date:      April 29, 2008  | By:                                                       /S/         M.      EMILY MADISONM.      Emily MadisonVice      President, Finance andChief      Financial Officer(Principal      Accounting Officer and        Principal Financial Officer) |
|---------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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