`-------------------------------------------------------------------------------

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


                                    FORM 10-Q

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


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

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003

                          Commission File Number 1-3924


                                   MAXXAM INC.
             (Exact name of Registrant as specified in its charter)



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

             5847 SAN FELIPE, SUITE 2600
                   HOUSTON, TEXAS                            77057
      (Address of Principal Executive Offices)            (Zip Code)


       Registrant's telephone number, including area code: (713) 975-7600


      Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X|   No |_|

      Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes |_|   No |X|

         The aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was last sold, as of the last business day of the registrant's most
recently completed second fiscal quarter: $52.8 million.


    Number of shares of common stock outstanding at August 1, 2003: 6,518,071

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


                                TABLE OF CONTENTS



PART I. - FINANCIAL INFORMATION


          Item 1.   Financial Statements:
                    Consolidated Balance Sheet
                    Consolidated Statement of Operations
                    Consolidated Statement of Cash Flows
                    Condensed Notes to Consolidated Financial Statements

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

          Item 3.   Quantitative and Qualitative Disclosures About Market Risk

          Item 4.   Disclosure Controls and Procedures

PART II. - OTHER INFORMATION

          Item 1.   Legal Proceedings
          Item 4.   Submission of Matters to a Vote of Security Holders
          Item 6.   Exhibits and Reports on Form 8-K
          Signatures

APPENDIX A - GLOSSARY OF DEFINED TERMS




                          MAXXAM INC. AND SUBSIDIARIES

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


                                                                                          JUNE 30,    DECEMBER 31,
                                                                                             2003         2002
                                                                                        ------------- -------------
                                                                                                (UNAUDITED)
ASSETS
Current assets:
   Cash and cash equivalents........................................................... $       34.0  $       45.6
   Marketable securities...............................................................        122.8         105.7
   Receivables:
      Trade, net of allowance for doubtful accounts of $3.0 and $2.9, respectively.....         11.8          11.4
      Other............................................................................          3.7           4.6
   Inventories:
      Lumber...........................................................................         22.7          22.2
      Logs.............................................................................          5.4          12.4
   Prepaid expenses and other current assets...........................................         42.0          41.8
                                                                                        ------------- -------------
      Total current assets.............................................................        242.4         243.7
Property, plant and equipment, net of accumulated depreciation of $153.1 and
   $140.4, respectively................................................................        369.4         375.2
Timber and timberlands, net of accumulated depletion of $209.0 and $204.5,
   respectively........................................................................        223.0         227.3
Deferred income taxes..................................................................         83.4          82.4
Restricted cash, marketable securities and other investments...........................         48.5          63.6
Long-term receivables and other assets.................................................        110.3         115.1
                                                                                        ------------- -------------
                                                                                        $    1,077.0  $    1,107.3
                                                                                        ============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
   Accounts payable.................................................................... $       11.3  $       12.2
   Accrued interest....................................................................         26.0          26.0
   Accrued compensation and related benefits...........................................         19.3          14.0
   Other accrued liabilities...........................................................         19.1          27.6
   Short-term borrowings and current maturities of long-term debt, excluding $3.8 and
      $2.6, respectively, of repurchased Timber Notes held in the SAR Account..........         34.0          30.5
                                                                                        ------------- -------------
        Total current liabilities......................................................        109.7         110.3
Long-term debt, less current maturities and excluding $53.7 and $52.8, respectively,
   of repurchased Timber Notes held in the SAR Account.................................        963.5         982.3
Accrued postretirement medical benefits................................................         10.6          10.3
Losses in excess of investment in Kaiser...............................................        516.2         516.2
Other noncurrent liabilities...........................................................         77.5          70.7
                                                                                        ------------- -------------
        Total liabilities..............................................................      1,677.5       1,689.8
                                                                                        ------------- -------------
Commitments and contingencies (see Note 8)
Stockholders' deficit:
   Preferred stock, $0.50 par value; $0.75 liquidation preference; Class A $0.05
      Non- Cumulative Participating Convertible Preferred Stock; 12,500,000
      shares authorized; 669,235 shares issued; 668,390 shares outstanding.............          0.3           0.3
   Common stock, $0.50 par value; 28,000,000 shares authorized;
      10,063,359 shares issued; 6,518,071 and 6,527,671 shares outstanding,
      respectively.....................................................................          5.0           5.0
   Additional capital..................................................................        225.3         225.3
   Accumulated deficit.................................................................       (626.8)       (608.2)
   Accumulated other comprehensive loss................................................        (88.4)        (89.2)
   Treasury stock, at cost (shares held:  preferred - 845; common - 3,545,288 and
      3,535,688, respectively) ........................................................       (115.9)       (115.7)
                                                                                        ------------- -------------
        Total stockholders' deficit....................................................       (600.5)       (582.5)
                                                                                        ------------- -------------
                                                                                        $    1,077.0  $    1,107.3
                                                                                        ============= =============
   The accompanying notes are an integral part of these financial statements.




                          MAXXAM INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF OPERATIONS
             (IN MILLIONS OF DOLLARS, EXCEPT PER SHARE INFORMATION)


                                                                     THREE MONTHS ENDED        SIX MONTHS ENDED
                                                                          JUNE 30,                 JUNE 30,
                                                                   -----------------------  -----------------------
                                                                      2003         2002        2003        2002
                                                                   -----------  ----------  ----------  -----------
                                                                                      (UNAUDITED)
Net sales:
   Forest products...............................................  $     55.2   $    54.3   $   100.5   $    102.2
   Real estate...................................................        14.3         9.0        28.3         24.1
   Racing........................................................         4.9         5.1        14.3         14.9
   Aluminum......................................................           -           -           -        167.5
                                                                   -----------  ----------  ----------  -----------
                                                                         74.4        68.4       143.1        308.7
                                                                   -----------  ----------  ----------  -----------

Costs and expenses:
   Cost of sales and operations:
      Forest products............................................        35.4        36.1        67.8         71.5
      Real estate................................................         5.6         4.7        12.2         10.2
      Racing.....................................................         3.9         3.9         9.9          9.5
      Aluminum...................................................           -           -           -        158.6
   Selling, general and administrative expenses..................        14.7        14.2        30.0         51.7
   Depreciation, depletion and amortization......................         9.7         9.4        18.8         27.5
                                                                   -----------  ----------  ----------  -----------
                                                                         69.3        68.3       138.7        329.0
                                                                   -----------  ----------  ----------  -----------

Operating income (loss):
   Forest products...............................................         8.0         7.4         9.3          9.9
   Real estate...................................................         0.1        (3.6)       (0.6)        (1.2)
   Racing........................................................        (1.2)       (0.4)       (0.6)         0.7
   Aluminum......................................................           -           -           -        (23.6)
   Corporate.....................................................        (1.8)       (3.3)       (3.7)        (6.1)
                                                                   -----------  ----------  ----------  -----------
                                                                          5.1         0.1         4.4        (20.3)

Other income (expense):
   Investment, interest and other income (expense), net..........         6.4         7.5        15.9          7.8
   Interest expense..............................................       (19.1)      (19.2)      (37.8)       (51.4)
   Amortization of deferred financing costs......................        (0.5)       (0.7)       (1.1)        (1.8)
                                                                   -----------  ----------  ----------  -----------
Loss before income taxes and minority interests..................        (8.1)      (12.3)      (18.6)       (65.7)
Income tax benefit...............................................           -         4.5           -          2.8
Minority interests...............................................           -           -           -          0.9
                                                                   -----------  ----------  ----------  -----------
Net loss.........................................................  $     (8.1)  $    (7.8)  $   (18.6)  $    (62.0)
                                                                   ===========  ==========  ==========  ===========

Basic and diluted loss per common and common
   equivalent share..............................................  $    (1.24)  $   (1.20)  $   (2.85)  $    (9.50)
                                                                   ===========  ==========  ==========  ===========


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




                          MAXXAM INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF CASH FLOWS
                            (IN MILLIONS OF DOLLARS)

                                                                                               SIX MONTHS ENDED
                                                                                                   JUNE 30,
                                                                                            -----------------------
                                                                                               2003        2002
                                                                                            ----------  -----------
                                                                                                  (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss...............................................................................  $   (18.6)  $    (62.0)
   Adjustments to reconcile net loss to net cash provided by (used for) operating
      activities:
      Depreciation, depletion and amortization............................................       18.8         27.5
      Net gains on asset dispositions.....................................................       (0.8)        (5.3)
      Net gains on marketable securities..................................................       (9.0)        (2.6)
      Minority interests..................................................................          -         (0.9)
      Amortization of deferred financing costs............................................        1.1          1.8
      Equity in (earnings) loss of unconsolidated affiliates, net of dividends received...       (1.0)         0.9
      Increase (decrease) in cash resulting from changes in:
        Receivables.......................................................................        1.6         14.4
        Inventories.......................................................................        5.5         16.9
        Prepaid expenses and other assets.................................................        0.5         46.2
        Accounts payable..................................................................       (1.0)         9.9
        Accrued and deferred income taxes.................................................          -         (8.4)
        Payable to affiliates and other accrued liabilities...............................        0.6        (49.0)
        Accrued interest..................................................................          -          8.4
        Long-term assets and long-term liabilities........................................        3.8        (25.4)
        Other.............................................................................          -         (1.2)
                                                                                            ----------  -----------
        Net cash provided by (used for) operating activities..............................        1.5        (28.8)
                                                                                            ----------  -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Net proceeds from dispositions of property and investments.............................        3.3          6.0
   Net sales (purchases) of marketable securities and other investments...................       (5.2)         4.9
   Capital expenditures...................................................................       (9.6)       (12.9)
   Decrease in cash attributable to deconsolidation of Kaiser.............................          -       (130.4)
   Other..................................................................................        0.2            -
                                                                                            ----------  -----------
        Net cash used for investing activities............................................      (11.3)      (132.4)
                                                                                            ----------  -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from issuances of long-term debt..............................................        0.7          3.7
   Redemptions, repurchases of and principal payments on long-term debt...................      (16.4)       (40.3)
   Borrowings (repayments) under revolving and short-term credit facilities...............        4.5        (19.8)
   Restricted cash withdrawals, net.......................................................        9.5         29.9
   Other..................................................................................       (0.1)        (1.0)
                                                                                            ----------  -----------
        Net cash used for financing activities............................................       (1.8)       (27.5)
                                                                                            ----------  -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS.................................................      (11.6)      (188.7)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD..........................................       45.6        272.2
                                                                                            ----------  -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................................................  $    34.0   $     83.5
                                                                                            ==========  ===========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
   Interest paid, net of capitalized interest.............................................  $    37.7   $     43.0


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



                          MAXXAM INC. AND SUBSIDIARIES

              CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    BASIS OF PRESENTATION

      The information contained in the following notes to the consolidated
financial statements is condensed from that which would appear in the annual
consolidated financial statements; accordingly, the consolidated financial
statements included herein should be reviewed in conjunction with the
consolidated financial statements and related notes thereto contained in the
Form 10-K. Any capitalized terms used but not defined in these Condensed Notes
to Consolidated Financial Statements are defined in the "Glossary of Defined
Terms" contained in Appendix A. All references to the "Company" include MAXXAM
Inc. and its majority and wholly owned subsidiaries (but exclusive of Kaiser and
its subsidiaries), unless otherwise indicated or the context indicates
otherwise. All references to "Kaiser," "MGHI," "Pacific Lumber," "MPC" and
"SHRP, Ltd." refer to the respective companies and their subsidiaries, unless
otherwise indicated or the context indicates otherwise. Accounting measurements
at interim dates inherently involve greater reliance on estimates than at year
end. The results of operations for the interim periods presented are not
necessarily indicative of the results to be expected for the entire year.

      The consolidated financial statements included herein are unaudited;
however, they include all adjustments of a normal recurring nature which, in the
opinion of management, are necessary for a fair presentation of the consolidated
financial position of the Company at June 30, 2003, the consolidated results of
operations for the three and six months ended June 30, 2003 and 2002, and the
consolidated cash flows for the six months ended June 30, 2003 and 2002.

      Reclassifications
      The adoption of SFAS No. 145 in January 2003 resulted in the inclusion of
$0.4 million and $3.2 million of gains on repurchases of debt for the three and
six month periods ended June 30, 2002, respectively, in investment, interest and
other income rather than as extraordinary items in the accompanying financial
statements (see Note 2).

      DECONSOLIDATION OF KAISER
      Under generally accepted accounting principles, consolidation is generally
required for investments of more than 50% of the outstanding voting stock of an
investee, except when control is not held by the majority owner. Under these
rules, legal reorganization or bankruptcy represent conditions which can
preclude consolidation in instances where control rests with the bankruptcy
court, rather than the majority owner. As discussed below, on February 12, 2002,
Kaiser and certain of its subsidiaries filed for reorganization under Chapter 11
of the Code. As a result, the Company discontinued consolidating Kaiser's
financial results beginning February 12, 2002, and the Company began reporting
its investment in Kaiser using the cost method, under which the investment is
reflected as a single amount on the Company's balance sheet of $(516.2) million,
and the recording of earnings or losses from Kaiser was discontinued after
February 11, 2002.

      Through February 11, 2002, under generally accepted principles of
consolidation, the Company had recognized losses in excess of its investment in
Kaiser of $516.2 million. Since Kaiser's results are no longer consolidated and
the Company believes that it is not probable that it will be obligated to fund
losses related to its investment in Kaiser, any adjustments reflected in
Kaiser's financial statements subsequent to February 12, 2002 (relating to the
recoverability and classification of recorded asset amounts and classification
of liabilities or the effects on existing stockholders' deficit as well as
adjustments made to Kaiser's financial information for loss contingencies and
other matters), are not expected to affect the Company's financial results.

      The Company expects it will consider reversal of its losses in excess of
its investment in Kaiser when either: (1) Kaiser's bankruptcy is resolved and
the amount of the Company's remaining investment in Kaiser is determined or (2)
the Company disposes of its shares of Kaiser common stock. Accordingly, these
consolidated financial statements do not reflect any adjustments related to the
deconsolidation of Kaiser other than presenting the Company's investment in
Kaiser using the cost method. When either of the events described above occurs,
the Company will re-evaluate the appropriate accounting treatment of its
investment in Kaiser based upon the facts and circumstances at such time. It is
likely that the Company's ownership interest in Kaiser will be diluted or
cancelled as a result of a plan of reorganization applicable to Kaiser. See Note
5 for further discussion of the Company's investment in Kaiser.

      The following financial information is presented for comparison purposes.
The financial information for the six months ended June 30, 2002, is condensed
pro forma financial information which reflects the results of operations of
the Company excluding Kaiser (in millions, except share data).


                                                                          THREE MONTHS ENDED     SIX MONTHS ENDED
                                                                               JUNE 30,              JUNE 30,
                                                                          -------------------  --------------------
                                                                            2003       2002      2003       2002
                                                                          ---------  --------  ---------  ---------

Net sales................................................................ $   74.4   $  68.4   $  143.1   $  141.2
Costs and expenses.......................................................    (69.3)    (68.3)    (138.7)    (137.9)
                                                                          ---------  --------  ---------  ---------
Operating income.........................................................      5.1       0.1        4.4        3.3
Other income (expenses), net.............................................      6.4       7.5       15.9       15.9
Interest expense and amortization of deferred financing costs............    (19.6)    (19.9)     (38.9)     (40.5)
                                                                          ---------  --------  ---------  ---------
Loss before income taxes.................................................     (8.1)    (12.3)     (18.6)     (21.3)
Income tax benefit.......................................................        -       4.5          -        7.5
Minority interests.......................................................        -         -          -        0.2
                                                                          ---------  --------  ---------  ---------
Net loss................................................................. $   (8.1)  $  (7.8)  $  (18.6)  $  (13.6)
                                                                          =========  ========  =========  =========
Basic and diluted loss per share......................................... $  (1.24)  $ (1.20)  $  (2.85)  $  (2.08)
                                                                          =========  ========  =========  =========

2.    NEW ACCOUNTING STANDARDS

      Accounting for Asset Retirement Obligations
      In January 2003, the Company adopted SFAS No. 143, which addresses
accounting and reporting standards for obligations associated with the
retirement of tangible long-lived assets and the related asset retirement costs.
In general, SFAS No. 143 requires the recognition of a liability resulting from
anticipated asset retirement obligations, offset by an increase in the value of
the associated productive asset for such anticipated costs. Over the life of the
asset, depreciation expense is to include the ratable expensing of the
retirement cost included with the asset value. The statement applies to all
legal obligations associated with the retirement of a tangible long-lived asset
that result from the acquisition, construction, or development and/or the normal
operation of a long-lived asset, except for certain lease obligations. Excluded
from this statement are obligations arising solely from a plan to dispose of a
long-lived asset and obligations that result from the improper operation of an
asset (i.e. certain types of environmental obligations). The adoption of SFAS
No. 143 did not have a material impact on the Company's financial position or
results of operations.

      Classification of Gains and Losses from Extinguishment of Debt
      In January 2003, the Company adopted SFAS No. 145, which, among other
things, rescinds the previous guidance for debt extinguishments. SFAS No. 145
eliminates the requirement that gains and losses from extinguishment of debt be
aggregated and, if material, classified as an extraordinary item, net of related
income tax effect. However, transactions would not be prohibited from
extraordinary item classification if they meet the criteria in APB Opinion No.
30. Applying the provisions of APB Opinion No. 30 will distinguish transactions
that are part of an entity's recurring operations from those that are unusual or
infrequent or that meet the criteria for classification as an extraordinary
item. The adoption of SFAS No. 145 resulted in the inclusion of gains on
repurchases of debt for the three and six months ended June 30, 2003 and 2002,
in investment, interest and other income rather than as an extraordinary item in
the financial statements.

      Accounting for Costs Associated with Exit and Disposal Activities
      In January 2003, the Company adopted SFAS No. 146. This standard requires
companies to recognize costs associated with exit or disposal activities when
they are incurred rather than at the date of a commitment to an exit or disposal
plan. Costs covered by the standard include lease termination costs and certain
employee severance costs that are associated with a restructuring, discontinued
operation, plant closing, or other exit or disposal activity. This statement is
applicable to exit or disposal activities initiated after December 31, 2002.

      Accounting for and Disclosure of Guarantees
      In January 2003, the Company adopted FIN 45, which elaborates on the
disclosures required to be made by a guarantor in its financial statements about
its obligations under certain guarantees that it has issued. It also clarifies
that a guarantor is required to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the
guarantee. The recognition and initial measurement provisions of FIN 45 were
applicable on a prospective basis to guarantees issued or modified after
December 31, 2002. The disclosure requirements of FIN 45 were effective for
periods ending after December 15, 2002. The adoption of FIN 45 did not have a
material impact on the Company's financial position or results of operations.

      Consolidation of Variable Interest Entities
      In January 2003, the FASB issued FIN 46, which establishes criteria to
identify and assess a company's interest in variable interest entities and for
consolidating those entities. FIN 46 is currently effective for variable
interest entities created or obtained after January 2003, and will be effective
for all variable interest entities for interim periods beginning after June 15,
2003. The adoption of FIN 46 is not expected to require the consolidation by the
Company of any additional entities.

3.    SEGMENT INFORMATION AND OTHER ITEMS

      Net sales and operating income (loss) for each reportable segment is
presented in the Consolidated Statement of Operations. Operating income (loss)
for "Corporate" represents general and administrative expenses not directly
attributable to the reportable segments. The amounts reflected in the
"Corporate" column also serve to reconcile the total of the reportable segments'
amounts to totals in the Company's consolidated financial statements.

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




                                    REPORTABLE SEGMENTS
                              --------------------------------              CONSOLIDATED
                                FOREST      REAL                           TOTAL EXCLUDING             CONSOLIDATED
                               PRODUCTS    ESTATE     RACING    CORPORATE     ALUMINUM     ALUMINUM        TOTAL
                              ----------  --------  ---------- ----------- -------------- ----------   ------------

Depreciation, depletion and
   amortization for the three
   months ended:
      June 30, 2003.........  $     5.6   $   3.6   $     0.4  $      0.1  $         9.7  $       -    $       9.7
      June 30, 2002.........        6.5       2.4         0.4         0.1            9.4          -            9.4

Depreciation, depletion and
   amortization for the six
   months ended:
      June 30, 2003.........       10.7       7.2         0.8         0.1           18.8          -           18.8
      June 30, 2002.........       11.8       5.0         0.8         0.2           17.8        9.7 (1)       27.5

Total assets as of:
      June 30, 2003.........      498.7     368.6        34.8       174.9        1,077.0          -        1,077.0
      December 31, 2002.....      525.3     377.1        36.4       168.5        1,107.3          - (2)    1,107.3

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

(1)   Amounts attributable to the aluminum segment are for the period from
      January 1, 2002, through February 11, 2002.
(2)   As a result of the deconsolidation of Kaiser as of February 11, 2002, the
      aluminum segment's balance sheet amounts are not included in the
      consolidated totals.

      OTHER ITEMS

      Real Estate
      The real estate segment's investment, interest and other income (expense)
includes the following (in millions):


                                                                   THREE MONTHS ENDED          SIX MONTHS ENDED
                                                                        JUNE 30,                   JUNE 30,
                                                                -------------------------  ------------------------
                                                                    2003         2002         2003         2002
                                                                ------------ ------------  -----------  -----------
Equity in earnings from real estate joint ventures............. $       0.7  $       2.8   $      1.0   $      2.8
                                                                ============ ============  ===========  ===========

      Corporate
      Corporate investment, interest and other income (expense) for the six
months ended June 30, 2003, includes $8.0 million of insurance recoveries
related to the OTS and FDIC actions discussed in Note 8.





4.    RESTRICTED CASH, CASH EQUIVALENTS, MARKETABLE SECURITIES AND OTHER INVESTMENTS

      The following amounts are restricted (in millions):

                                                                                         June 30,     DECEMBER 31,
                                                                                           2003           2002
                                                                                       ------------- --------------
Current assets:
   Restricted cash and cash equivalents..............................................  $        3.8  $         9.9
                                                                                       ------------- --------------
   Marketable securities, restricted:
      Amounts held in SAR Account....................................................          21.3           19.3
                                                                                       ------------- --------------

Long-term restricted cash, marketable securities and other investments:
   Amounts held in SAR Account.......................................................          89.6          101.6
   Other amounts restricted under the Timber Notes Indenture.........................           2.6            2.6
   Other long-term restricted cash...................................................           9.6           10.7
   Less: Amounts attributable to repurchased Timber Notes held in SAR Account........         (53.3)         (51.3)
                                                                                       ------------- --------------
                                                                                               48.5           63.6
                                                                                       ------------- --------------

Total restricted cash, cash equivalents, marketable securities and other investments.  $       73.6  $        92.8
                                                                                       ============= ==============

5.    INVESTMENT IN KAISER

      Kaiser, its principal operating subsidiary, KACC, and 24 of KACC's wholly
owned subsidiaries have filed separate voluntary petitions in the Bankruptcy
Court for reorganization under Chapter 11 of the Code. The Original Debtors
filed petitions on February 12, 2002. Additional subsidiaries of KACC filed
petitions in the first quarter of 2003. The Cases are being jointly administered
with the Debtors managing their businesses in the ordinary course as
debtors-in-possession subject to the control and administration of the
Bankruptcy Court.

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

      Kaiser has indicated that its objective in the Cases is to achieve the
highest possible recoveries for all creditors and stockholders consistent with
the Debtors' abilities to pay, and to continue the operation of its businesses.
However, there can be no assurance that the Debtors will be able to attain these
objectives or achieve a successful reorganization. While valuation of the
Debtors' assets and pre-Filing Date claims at this stage of the Cases is subject
to inherent uncertainties, Kaiser has indicated that the Debtors believe that it
is likely that their liabilities will be found to exceed the fair value of their
assets. The Debtors therefore believe that it is likely that pre-Filing Date
claims will be paid at less than 100% of their face value and the equity of
Kaiser's stockholders, including the Company, will be diluted or cancelled.

      As provided by the Code, the Original Debtors had the exclusive right to
propose a plan of reorganization for 120 days following the initial Filing Date.
The Bankruptcy Court has subsequently approved several extensions of the
exclusivity period for all Debtors. A motion to extend the exclusivity period
through October 31, 2003, was filed by the Debtors in late July 2003, and the
Debtors expect the motion to be approved by the Bankruptcy Court. Kaiser has
related that additional extensions are likely to be sought. However, no
assurance can be given that any future extension requests will be granted by the
Bankruptcy Court. If the Debtors fail to file a plan of reorganization during
the exclusivity period, or if such plan is not accepted by the requisite number
of creditors and equity holders entitled to vote on the plan, other parties in
interest in the Cases may be permitted to propose their own plan(s) of
reorganization for the Debtors.

      In April 2002, Kaiser filed a motion seeking an order of the Bankruptcy
Court prohibiting the Company (or MGHI), without first seeking Bankruptcy Court
relief, from making any disposition of its stock of Kaiser, including any sale,
transfer, or exchange of such stock or treating any of its Kaiser stock as
worthless for federal income tax purposes. Kaiser indicated in its Bankruptcy
Court filing that it was concerned that such a transaction could have the effect
of depriving Kaiser of the ability to utilize the full value of its net
operating losses, foreign tax credits and minimum tax credits. In July 2002, the
Company and MGHI agreed with Kaiser that they would not dispose of any of their
Kaiser shares prior to a hearing on the April 2002 motion. The parties also
agreed that the Company (or MGHI) may upon 10 days written notice to Kaiser (a)
request the Bankruptcy Court to hear the matter at a special hearing or (b) have
the matter heard at one of Kaiser's scheduled monthly bankruptcy hearings.

      As of August 1, 2003, the Company owns 50,000,000 shares of the common
stock of Kaiser directly and through MGHI. Kaiser's common stock is publicly
traded on the OTC Bulletin Board under the trading symbol "KLUCQ." The market
value for the Kaiser Shares based on the price per share quoted at the close of
business on August 1, 2003, was $2.5 million. There can be no assurance that
such value would be realized should the Kaiser shares owned by the Company be
sold.

      The financial information of Kaiser contained herein has been prepared in
accordance with SOP 90-7, and on a going concern basis, which contemplates the
realization of assets and the liquidation of liabilities in the ordinary course
of business. However, as a result of the Cases, such realization of assets and
liquidation of liabilities are subject to a significant number of uncertainties.
Since Kaiser's results are no longer consolidated with the Company's results,
and the Company believes it is not probable that it will be obligated to fund
losses related to its investment in Kaiser under principles of consolidation,
any material uncertainties related to Kaiser are not expected to impact the
Company's financial results.

      The following tables contain summarized financial information of Kaiser
(in millions).


                                                                                          JUNE 30,    DECEMBER 31,
                                                                                            2003          2002
                                                                                         -----------  ------------

Current assets.......................................................................... $    505.3   $     516.6
Investments in and advances to unconsolidated affiliates................................       77.4          69.7
Property, plant and equipment, net......................................................      983.1       1,009.9
Other assets............................................................................      536.9         629.2
                                                                                         -----------  ------------
                                                                                         $  2,102.7   $   2,225.4
                                                                                         ===========  ============

Current liabilities..................................................................... $    345.3   $     333.6
Other long-term liabilities.............................................................       81.8          86.9
Long-term debt..........................................................................       42.4          42.7
Liabilities subject to compromise.......................................................    2,722.7       2,726.0
Minority interests......................................................................      122.8         121.8
Stockholders' deficit...................................................................   (1,212.3)     (1,085.6)
                                                                                         -----------  ------------
                                                                                         $  2,102.7   $   2,225.4
                                                                                         ===========  ============




                                                                  THREE MONTHS ENDED          SIX MONTHS ENDED
                                                                       JUNE 30,                   JUNE 30,
                                                               -------------------------  -------------------------
                                                                  2003          2002         2003          2002
                                                               -----------  ------------  -----------  ------------

Net sales....................................................  $    358.4   $     386.3   $    697.8   $     756.9
Costs and expenses...........................................      (411.4)       (421.8)      (809.9)       (827.3)
Other income (expenses), net.................................       (10.5)         (8.6)       (21.8)        (29.6)
                                                               -----------  ------------  -----------  ------------
Loss before income taxes, minority interests and discontinued
   operations................................................       (63.5)        (44.1)      (133.9)       (100.0)
Benefit (provision) for income taxes.........................         0.3          (6.4)        (4.4)        (14.4)
Minority interests...........................................         2.0           1.4          3.9           2.9
                                                               -----------  ------------  -----------  ------------
Loss from continuing operations..............................       (61.2)        (49.1)      (134.4)       (111.5)
Discontinued operations......................................        (0.2)         (1.3)         7.9          (3.0)
                                                               -----------  ------------  -----------  ------------
Net loss.....................................................  $    (61.4)  $     (50.4)  $   (126.5)  $    (114.5)
                                                               ===========  ============  ===========  ============


6.    SHORT-TERM BORROWINGS

      The Pacific Lumber Credit Agreement provides for a two-year revolving line
of credit expiring on August 13, 2004, with an aggregate commitment of $45.0
million, subject to limitations determined based on the amount of inventories
and receivables held by Pacific Lumber. At June 30, 2003, $15.1 million of
letters of credit and no borrowings were outstanding under this facility, and
unused availability was limited to $10.4 million. In July 2003, $14.8 million of
letters of credit were released under the Pacific Lumber Credit Agreement,
thereby increasing unused availability to $25.2 million.

      The Scotia LLC Line of Credit allows Scotia LLC to borrow up to one year's
interest on the Timber Notes. On June 20, 2003, the Scotia LLC Line of Credit
was extended to July 7, 2006. At or near the completion of such extension,
Scotia LLC will request that the Scotia LLC Line of Credit be extended for a
period of not less than 364 days. If not extended, Scotia LLC may draw upon the
full amount available. The amount drawn would be repayable in 12 semiannual
installments on each note payment date (after the payment of certain other
items, including the Aggregate Minimum Principal Amortization Amount, as
defined, then due), commencing approximately two and one-half years following
the date of the draw. At June 30, 2003, Scotia LLC could have borrowed a maximum
of $58.9 million under the Scotia LLC Line of Credit, and there was $4.4 million
outstanding under the Scotia LLC Line of Credit. In July 2003, borrowings and
repayments amounted to $29.4 million and $3.2 million, respectively, under the
Scotia LLC Line of Credit, resulting in an outstanding balance of $30.6 million.

7.    LONG-TERM DEBT

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

                                                                                          JUNE 30,    DECEMBER 31,
                                                                                            2003          2002
                                                                                        ------------- ------------

6.55% Scotia LLC Timber Notes due July 20, 2028.......................................  $       89.2  $     103.2
7.11% Scotia LLC Timber Notes due July 20, 2028.......................................         243.2        243.2
7.71% Scotia LLC Timber Notes due July 20, 2028.......................................         463.3        463.3
7.56% Lakepointe Notes due June 8, 2021...............................................         118.4        119.5
7.03% Motel Notes due May 1, 2018.....................................................          49.0         49.4
6.08% Beltway Notes due November 9, 2024..............................................          30.7         30.9
7.12% Palmas Country Club Notes due December 20, 2030.................................          30.0         30.0
Other notes and contracts, primarily secured by receivables, buildings, real estate
   and equipment......................................................................          26.8         28.7
                                                                                        ------------- ------------
                                                                                             1,050.6      1,068.2
Less: current maturities..............................................................         (29.6)       (30.5)
      Timber Notes held in SAR Account................................................         (57.5)       (55.4)
                                                                                        ------------- ------------
                                                                                        $      963.5  $     982.3
                                                                                        ============= ============

      The amount attributable to the Timber Notes held in the SAR Account of
$53.3 million as of June 30, 2003, reflected in Note 4 above represents the
amortized amount paid to acquire $57.5 million of principal amount of Timber
Notes.

      In April 2003, $3.4 million of funds from the SAR Account were used to
repurchase $4.0 million principal amount of Timber Notes, as permitted under the
Indenture, resulting in a gain of $0.4 million (net of unamortized deferred
financing costs) on extinguishment of debt.

8.    CONTINGENCIES

      Forest Products Operations
      Regulatory and environmental matters play a significant role in the
Company's forest products business, which is subject to a variety of California
and federal laws and regulations, as well as the HCP and SYP, dealing with
timber harvesting practices, threatened and endangered species and habitat for
such species, and air and water quality.

      The SYP is intended to comply with regulations of the California Board of
Forestry and Fire Protection requiring timber companies to project timber growth
and harvest on their timberlands over a 100-year planning period and to
demonstrate that their projected average annual harvest for any decade within a
100-year planning period will not exceed the average annual growth level during
the last decade of the 100-year planning period. The forest practice rules allow
companies which do not have an SYP to follow an alternative procedure. With
respect to the EPIC-SYP/Permits and USWA lawsuits which are discussed further
below, the Court has issued a statement of decision indicating that it will
invalidate the SYP and the California Permit. As a result, Pacific Lumber is
currently preparing THPs under this alternative procedure. When originally
approved in March 1999, the SYP was to be effective for 10 years (subject to
review after five years) and could be amended by Pacific Lumber, subject to
approval by the CDF. Revised SYPs would have been prepared every decade that
address the harvest level based upon assessment of changes in the resource base
and other factors. The HCP and the Permits allow incidental "take" of certain
species located on the Company's timberlands which species have been listed by
government entities under the ESA and/or the CESA so long as there is no
"jeopardy" to the continued existence of such species. The HCP identifies the
measures to be instituted in order to minimize and mitigate the anticipated
level of take to the greatest extent practicable. The SYP is also subject to
certain of these provisions. The HCP and related Permits have a term of 50
years. Since the consummation of the Headwaters Agreement in March 1999, there
has been a significant amount of work required in connection with the
implementation of the Environmental Plans, and this work could continue for
several more years. In addition, the Environmental Plans and the Permits may be
impacted by the final resolution of the EPIC-SYP/Permits and USWA lawsuits.

      Under the CWA, the EPA is required to establish TMDLs in water courses
that have been declared to be "water quality impaired." The EPA and the North
Coast Water Board are in the process of establishing TMDLs for many northern
California rivers and certain of their tributaries, including nine water courses
that flow within the Company's timberlands. The Company expects this process to
continue into 2010. In December 1999, the EPA issued a report dealing with TMDLs
on two of the nine water courses. The agency indicated that the requirements
under the HCP would significantly address the sediment issues that resulted in
TMDL requirements for these two water courses. The North Coast Water Board has
begun the process of establishing the TMDL requirements applicable to two other
water courses on the Company's timberlands, with a targeted completion of spring
2004 for these two water courses. The final TMDL requirements applicable to the
Company's timberlands may require aquatic protection measures that are different
from or in addition to those in the HCP or that result from the prescriptions to
be developed pursuant to the watershed analysis process provided for in the HCP.

      Effective January 1, 2003, a California statute eliminated a waiver
previously granted to, among others, timber companies. This waiver had been in
effect for a number of years and waived the requirement under California water
quality regulations for timber companies to follow certain waste discharge
requirements in connection with their timber harvesting and related operations.
The new statute provides, however, that regional water boards such as the North
Coast Water Board are authorized to renew the waiver. The North Coast Water
Board has renewed the waiver for timber companies through December 31, 2003.
Should the North Coast Water Board decide not to extend this or another waiver
beyond December 31, 2003, it may thereafter notify a company that the North
Coast Water Board will require such company to follow certain waste discharge
requirements in order to conduct harvesting operations on a THP. The waste
discharge requirements may include aquatic protection measures that are
different from or in addition to those provided for in the THP approved by the
CDF. Accordingly, harvesting activities could be delayed and/or adversely
affected as these waste discharge requirements are developed and implemented.

      The North Coast Water Board has issued orders for the Elk River and
Freshwater watersheds requiring Pacific Lumber to submit "Reports of Waste
Discharge" to the North Coast Water Board in order to conduct winter harvesting
activities in these watersheds, beginning with the 2002-2003 winter operating
period. After consideration of these reports, the North Coast Water Board
imposed requirements on Pacific Lumber to implement additional mitigation and
erosion control practices in these watersheds for the 2002-2003 winter operating
period. These additional requirements have somewhat increased operating costs.
Reports of Waste Discharge for the 2003-2004 winter operating period have been
submitted and will be considered by the Board in the near future. In addition,
the North Coast Water Board has issued the Elk River Order for the Elk River
watershed aimed at addressing existing sediment production sites through clean
up actions. They have also initiated the process which could result in similar
orders for the Freshwater and Bear Creek watersheds, and are contemplating
similar actions for the Jordan and Stitz Creeks watersheds. The order, as well
as additional orders in the other watersheds (should they be issued), could
result in significant costs to Pacific Lumber beginning in 2003 and extending
over a number of years. Pacific Lumber has appealed the Elk River Order to the
State Water Board, but the appeal is being held in abeyance while the matter is
discussed with the North Coast Water Board and its staff.

      Lawsuits are pending and threatened which seek to prevent the Company from
implementing the HCP and/or the SYP, implementing certain of the Company's
approved THPs, or carrying out certain other operations.

      In March 1999, the EPIC-SYP/Permits lawsuit was filed. This action
alleges, among other things, various violations of the CESA and the California
Environmental Quality Act, and challenges, among other things, the validity and
legality of the SYP and the California Permit. The plaintiffs seek, among other
things, to set aside California's approval of the SYP and the California Permit
and injunctive relief to prevent implementation of THPs approved in reliance
upon these documents. In March 1999, the USWA lawsuit was filed challenging the
validity and legality of the SYP. In connection with the EPIC-SYP/Permits
lawsuit, the trial judge has issued a stay of the effectiveness of the SYP and
the California Permit for approval of new THPs, but released from the stay
operations under THPs that were either previously approved or had been submitted
for approval prior to mid-October 2002 consistent with the SYP and the
California Permit. Although the stay prevents the CDF from approving new THPs
that rely upon the SYP and the California Permit, Pacific Lumber is obtaining
review and approval of new THPs under a procedure provided for in the forest
practice rules that does not depend upon the SYP and the California Permit.
Because certain THPs will not qualify for this procedure, there could be a
reduction in 2003 and 2004 harvest levels which would have an adverse impact on
the Company. The EPIC-SYP/Permits and USWA lawsuits were consolidated for trial,
which concluded on March 28, 2003. On July 23, 2003, the Court issued a
statement of decision indicating that it will invalidate the SYP and the
California Permit due to several deficiencies in agency procedures and the
failure of Pacific Lumber to submit a complete and comprehensible SYP. The Court
deferred, however, a decision on the specific remedy it will prescribe. A
hearing on the matter of the remedy began on July 30, 2003; however, the hearing
has not yet concluded and has been recessed until September 3, 2003. The Court
will thereafter issue its final decision subsequent to the conclusion of the
hearing.

      Pacific Lumber is in the process of evaluating the options available to it
in light of the developments in the EPIC- SYP/Permits and USWA lawsuits. It is
impossible to determine the impact this matter will ultimately have on the
Company given that the Court has not issued its final decision, including the
remedy to be prescribed by the Court. As discussed above, under the stay,
Pacific Lumber currently may harvest under THPs submitted prior to mid-October
2002 consistent with the SYP and the California Permit. Should the Court include
in its remedies that Pacific Lumber may not harvest on these THPs, then Pacific
Lumber expects that harvest levels in 2003 and 2004 would decline materially
from levels seen in 2002 as Pacific Lumber resubmits such THPs to the CDF for
approval under the alternative forest practice rules. Pacific Lumber estimates
that such a remedy would reduce the harvest level for the twelve months ended
June 30, 2004 by approximately 59 million board feet, net Scribner scale.
Pacific Lumber also estimates that without purchases of logs from third parties
to make up for this shortfall, revenues would decline by approximately $57
million for the twelve months ended June 30, 2004. The Company believes that
appropriate procedures were followed throughout the public review and approval
process concerning the Environmental Plans and is working with the relevant
government agencies to defend the EPIC-SYP/Permits and USWA lawsuits. The
Company expects to appeal the trial Court's decision. In addition to the
potential short-term adverse impacts described above which could occur during
the appeal process, these matters could have a long-term negative impact if they
are ultimately decided adversely to the Company.

      In July 2001, the Bear Creek lawsuit was filed. The lawsuit alleges that
Pacific Lumber's harvesting and other activities under certain of its approved
and proposed THPs will result in discharges of pollutants in violation of the
CWA. The plaintiff asserts that the CWA requires the defendants to obtain a
permit from the North Coast Water Board before beginning timber harvesting and
road construction activities, and is seeking to enjoin these activities until
such permit has been obtained. The plaintiff also seeks civil penalties of up to
$27,500 per day for the defendant's alleged continued violation of the CWA. The
Company believes that the requirements under the HCP are adequate to ensure that
sediment and pollutants from its harvesting activities will not reach levels
harmful to the environment. Furthermore, EPA regulations specifically provide
that such activities are not subject to CWA permitting requirements. The Company
believes that it has strong legal defenses in this matter; however, there can be
no assurance that this lawsuit will not have a material adverse impact on the
Company's consolidated financial condition, results of operations and/or
liquidity.

      On November 20, 2002, the HWC lawsuit, naming Pacific Lumber as real party
in interest, was filed. The suit seeks to enjoin timber operations in the Elk
and Freshwater watersheds of the Company's timberlands until and unless the
regional and state water boards impose on those operations waste discharge
requirements that meet standards demanded by the plaintiff. The Company believes
that Pacific Lumber and the regional and state boards have valid defenses to
this action. In August 2003, the Humboldt County Watershed Council requested
that the Court dismiss this case. Therefore, the Company believes that this
matter will not have a material adverse impact on the Company's consolidated
financial position, results of operations and/or liquidity.

      On February 24, 2003, the recently elected District Attorney of Humboldt
County filed the Humboldt DA action. The suit was filed under the California
unfair competition law and alleges that Pacific Lumber, Scotia LLC and Salmon
Creek used certain unfair business practices in connection with completion of
the Headwaters Agreement, and that this resulted in the ability to harvest
significantly more trees under the Environmental Plans than would have otherwise
been the case. The suit seeks a variety of remedies including a civil penalty of
$2,500 for each additional tree that has been or will be harvested due to this
alleged increase in harvest, as well as restitution and an injunction in respect
of the additional timber harvesting allegedly being conducted. A hearing on the
Company's motions for sanctions and requested dismissal of the case was held on
July 28, 2003, and the Company is awaiting the Court's decision. The Company
believes that this suit is without merit; however, there can be no assurance
that the Company will prevail or that an adverse outcome would not be material
to the Company's consolidated financial position, results of operations and/or
liquidity.

      In November 2001, Pacific Lumber filed the THP No. 520 lawsuit alleging
that the State Water Board had no legal authority to impose mitigation measures
that were requested by the staff of the North Coast Water Board during the THP
review process and rejected by the CDF. When the staff of the North Coast Water
Board attempted to impose these mitigation measures in spite of the CDF's
decision, Pacific Lumber appealed to the State Water Board, which imposed
certain of the requested mitigation measures and rejected others. Pacific Lumber
filed the THP No. 520 lawsuit challenging the State Water Board's decision, and
on January 24, 2003, the Court granted Pacific Lumber's request for an order
invalidating the imposition of these additional measures. Other claims included
in this action have been dismissed by Pacific Lumber without prejudice to its
future rights. On March 25, 2003, the State Water Board appealed this decision.
While the Company believes the Court's decision will be sustained, a reversal
could result in increased demands by the regional and state water boards and
their staffs to impose controls and limitations on timber harvesting on Pacific
Lumber's timberlands beyond those provided for by the Environmental Plans.

      Pacific Lumber, Scotia LLC and certain of their affiliates are the
defendants in the Cook action and the Cave action. On April 4, 2003, the
plaintiffs in these actions filed amended complaints and served the defendants
with notice of the actions. The Cook action alleges, among other things, that
defendants' logging practices have contributed to an increase in flooding along
Freshwater Creek (which runs through Pacific Lumber's timberlands), resulting in
personal injury and damage to the plaintiffs' properties. Plaintiffs further
allege that in order to have THPs approved in the affected areas, the defendants
engaged in certain unfair business practices. The plaintiffs seek, among other
things, compensatory and exemplary damages, injunctive relief, and appointment
of a receiver to ensure that the watershed is restored. The Cave action contains
similar allegations and requests similar relief with respect to the Elk River
watershed (a portion of which is contained on Pacific Lumber's timberlands). The
Company does not believe the resolution of these actions should result in a
material adverse effect on its financial condition, results of operations or
liquidity.

      OTS Contingency and Related Matters
      On December 26, 1995, the OTS initiated the OTS action against the Company
and others alleging, among other things, misconduct by the Respondents and
others with respect to the failure of USAT. The OTS sought damages ranging from
$326.6 million to $821.3 million under various theories. On October 17, 2002,
the OTS action was settled for $0.2 million and with no admission of wrongdoing
on the part of the Respondents.

      On August 2, 1995, the FDIC filed the FDIC action. The original complaint
was against Mr. Charles E. Hurwitz (Chairman and Chief Executive Officer of the
Company) and alleged damages in excess of $250.0 million based on the allegation
that Mr. Hurwitz was a controlling shareholder, de facto senior officer and
director of USAT, and was involved in certain decisions which contributed to the
insolvency of USAT. The FDIC action has been dismissed as a result of the
settlement of the OTS action. This dismissal does not affect the FDIC
counterclaim or motion for sanctions described in the following paragraph.

      On May 31, 2000, the Company, Federated and Mr. Hurwitz filed the FDIC
counterclaim to the FDIC action. The FDIC counterclaim states that the FDIC
illegally paid the OTS to bring claims against the Company, Federated and Mr.
Hurwitz. The plaintiffs are seeking reimbursement of attorneys' fees and damages
from the FDIC. As of June 30, 2003, such fees, which have been recorded in the
Company's Consolidated Statement of Operations as incurred, were in excess of
$39.0 million. On November 8, 2002, the Company, Federated and Mr. Hurwitz filed
an amended counterclaim and amended motion for sanctions. The Company, Federated
and Mr. Hurwitz are pursuing the FDIC counterclaim vigorously.

      In September 1997, the Company filed suit against a group of its insurers
after unsuccessful negotiations with certain of the insurers regarding coverage,
under the terms of certain directors and officers liability policies, of
expenses incurred in connection with the OTS and FDIC actions. The insurers
requested arbitration, and as a result the lawsuit was dismissed in April 1998.
Following binding arbitration with the primary carrier in October 2002, on
February 20, 2003, the arbitration panel determined that the insurer should pay
the Company approximately $6.5 million plus interest. The Company and the
insurer subsequently agreed to settle this matter for $8.0 million, and such
amount is reflected in investment, interest and other income (expense) for the
six months ended June 30, 2003. As the limits of the primary policy were not
reached by the arbitration panel's award, the Company does not expect to be able
to recover any amounts from the other insurers.

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

      On January 16, 2001, the Kahn lawsuit was filed. The plaintiff purports to
bring this action as a stockholder of the Company derivatively on behalf of the
Company. The lawsuit concerns the OTS and FDIC actions, and the Company's
advancement of fees and expenses on behalf of Federated and certain of the
Company's directors in connection with these actions. It alleges that the
defendants have breached their fiduciary duties to the Company, and have wasted
corporate assets, by allowing the Company to bear all of the costs and expenses
of Federated and certain of the Company's directors related to the OTS and FDIC
actions. The plaintiff seeks to require Federated and certain of the Company's
directors to reimburse the Company for all costs and expenses incurred by the
Company in connection with the OTS and FDIC actions, and to enjoin the Company
from advancing to Federated or certain of the Company's directors any further
funds for costs or expenses associated with these actions. The parties to the
Kahn lawsuit have agreed to an indefinite extension of the defendants'
obligations to respond to the plaintiffs' claims. Although it is impossible to
assess the ultimate outcome of the Kahn lawsuit, the Company believes that the
resolution of this matter should not result in a material adverse effect on its
consolidated financial position, results of operations or liquidity.

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

9.    STOCK-BASED COMPENSATION PLANS

      Stock options issued to employees and outside directors are accounted for
under the intrinsic value method of accounting as defined by APB Opinion No. 25
and related interpretations. The Company has not changed to the fair value based
method of accounting for stock-based employee compensation. The following table
illustrates the effect on net income and earnings per share had the Company
accounted for its stock options under the fair value method of accounting under
SFAS No. 123, as amended by SFAS No. 148 (in millions, except per share
information):


                                                                   THREE MONTHS ENDED        SIX MONTHS ENDED
                                                                        JUNE 30,                 JUNE 30,
                                                                ------------------------  -----------------------
                                                                   2003         2002         2003         2002
                                                                ----------- ------------  ----------   ----------
Net loss, as reported.........................................  $     (8.1) $      (7.8)  $   (18.6)   $   (62.0)
   Add: Stock-based employee compensation expenses included in
      reported net income, net of related tax effects.........           -            -           -            -
   Deduct: Total stock-based employee compensation expense
      determined under the fair value method for all awards,
      net of related tax effects..............................        (0.5)        (0.3)       (0.9)        (0.6)
                                                                ----------- ------------  ----------   ----------
Pro forma net loss............................................  $     (8.6) $      (8.1)  $   (19.5)   $   (62.6)
                                                                =========== ============  ==========   ==========

Basic and diluted loss per share:
   As reported................................................  $    (1.24) $     (1.20)  $   (2.85)   $   (9.50)
   Pro forma..................................................       (1.31)       (1.25)      (2.99)       (9.60)

      The fair value of stock options granted were estimated at the grant date
using a Black-Scholes option pricing model and the following weighted average
assumptions:


                                                                                  THREE AND SIX MONTHS ENDED
                                                                                           JUNE 30,
                                                                                  ---------------------------
                                                                                      2003           2002
                                                                                  ------------   ------------

Dividend yield..................................................................          -              -
Expected volatility.............................................................       0.38           0.38
Risk-free interest rate.........................................................       4.92%          5.32%
Expected life (years)...........................................................       6.63           6.59
Weighted average fair value.....................................................  $   10.65      $   13.65

10.   INCOME TAXES

      The Company generated a loss before income taxes of $8.1 million for the
second quarter of 2003 and $18.6 million for the six months ended June 30, 2003;
however, the Company has recorded no tax benefit associated with the losses for
the periods. Each period, the Company evaluates the appropriate factors in
determining the realizability of the deferred tax assets attributable to losses
and credits generated in the current period and those being carried forward.
These factors are discussed further in Note 12 to the Company's consolidated
financial statements included in the Form 10-K. Based on this evaluation, the
Company provided valuation allowances with respect to the deferred tax assets
attributable to losses and credits generated during the three and six months
ended June 30, 2003. These valuation allowances were in addition to the
valuation allowances which were provided in prior years.


11.   PER SHARE INFORMATION

      Basic earnings per share is calculated by dividing net income (loss) by
the weighted average number of common shares outstanding during the period,
including the weighted average impact of the shares of Common Stock issued and
treasury stock acquired during the period from the date of issuance or
repurchase and the dilutive effect of Class A Preferred Stock which is
convertible into Common Stock. Diluted earnings per share calculations also
include the dilutive effect of common and preferred stock options.


                                                                   THREE MONTHS ENDED        SIX MONTHS ENDED
                                                                        JUNE 30,                 JUNE 30,
                                                                ------------------------ -------------------------
                                                                   2003          2002        2003         2002
                                                                -----------  ----------- ------------  -----------
Weighted average shares outstanding:
   Common Stock...............................................   6,522,053    6,527,671    6,524,847    6,527,671
   Effect of dilution:
      Class A Preferred Stock (1).............................           -            -            -            -
                                                                -----------  -----------   ----------  -----------
Weighted average number of common and common equivalent
   shares - Basic.............................................   6,522,053    6,527,671    6,524,847    6,527,671
   Effect of dilution:
      Stock options (1).......................................           -            -            -            -
                                                                -----------  -----------   ----------  -----------
Weighted average number of common and common equivalent
   shares - Diluted...........................................   6,522,053     6,527,671   6,524,847    6,527,671
                                                                ===========  ===========   ==========  ===========
------------------

(1)     The Class A Preferred Stock and options were not included in the
        computation of basic or diluted earnings per share because the Company
        had a loss for the three and six months ended June 30, 2003 and 2002,
        respectively.

12.   COMPREHENSIVE LOSS

      The following table sets forth comprehensive loss (in millions).


                                                                     THREE MONTHS ENDED JUNE 30,    SIX MONTHS ENDED JUNE 30,
                                                                     ---------------------------    -------------------------
                                                                         2003         2002             2003          2002
                                                                     ------------   ------------    -----------  ------------
Net loss:..........................................................  $      (8.1)   $      (7.8)    $    (18.6)  $     (62.0)
   Other comprehensive income (loss):
      Unrealized gains (losses) on available-for-sale investments..          0.5            0.6            0.8          (0.5)
      Applicable income tax benefit (expense)......................            -           (0.3)             -           0.2
                                                                     ------------   ------------    -----------  ------------
Total comprehensive loss...........................................  $      (7.6)   $      (7.5)    $    (17.8)  $     (62.3)
                                                                     ============   ============    ===========  ============



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

      The following should be read in conjunction with the financial statements
in Part I, Item 1 of this Report and Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Item 8.
"Financial Statements and Supplementary Data" of the Form 10-K. Any capitalized
terms used but not defined in this Item are defined in the "Glossary of Defined
Terms" contained in Appendix A. Except as otherwise noted, all references to
notes represent the Condensed Notes to Consolidated Financial Statements
included herein.

      This Quarterly Report on Form 10-Q contains statements which constitute
"forward-looking statements" within the meaning of the PSLRA. These statements
appear in a number of places in this section and in Part II. Item 1. "Legal
Proceedings." Such statements can be identified by the use of forward-looking
terminology such as "believes," "expects," "may," "estimates," "will," "should,"
"plans" or "anticipates" or the negative thereof or other variations thereon or
comparable terminology, or by discussions of strategy. Readers are cautioned
that any such forward-looking statements are not guarantees of future
performance and involve significant risks and uncertainties, and that actual
results may vary materially from the forward-looking statements as a result of
various factors. These factors include the effectiveness of management's
strategies and decisions, general economic and business conditions, developments
in technology, new or modified statutory or regulatory requirements, and
changing prices and market conditions. This Form 10-Q and the Form 10-K identify
other factors which could cause differences between such forward-looking
statements and actual results. No assurance can be given that these are all of
the factors that could cause actual results to vary materially from the
forward-looking statements.

RESULTS OF OPERATIONS

      The Company operates in three industries: forest products, through MGI and
its wholly owned subsidiaries, principally Pacific Lumber, Scotia LLC and Britt;
real estate investment and development, managed through MPC; and racing
operations through SHRP, Ltd. MGHI owns 100% of MGI and is a wholly owned
subsidiary of the Company. In addition, the Company owns 62% of Kaiser, an
integrated aluminum producer. All references to the "Company" include MAXXAM
Inc. and its majority and wholly owned subsidiaries (but exclusive of Kaiser and
its subsidiaries), unless otherwise indicated or the context indicates
otherwise. All references to "Kaiser," "MGHI," "Pacific Lumber," "MPC" and
"SHRP, Ltd." refer to the respective companies and their subsidiaries, unless
otherwise indicated or the context indicates otherwise.

   DECONSOLIDATION OF KAISER
      Under generally accepted accounting principles, consolidation is generally
required for investments of more than 50% of the outstanding voting stock of an
investee, except when control is not held by the majority owner. Under these
rules, legal reorganization or bankruptcy represent conditions which can
preclude consolidation in instances where control rests with the Bankruptcy
Court, rather than the majority owner. As a result of Kaiser's filing for
bankruptcy (as discussed in Note 1), Kaiser's financial results were
deconsolidated beginning February 12, 2002, and the Company began reporting its
investment in Kaiser using the cost method, under which the investment is
reflected as a single amount on the Company's balance sheet of $(516.2) million,
and the recording of earnings or losses from Kaiser was discontinued after
February 11, 2002. Since Kaiser's results are no longer consolidated and the
Company believes that it is not probable that it will be obligated to fund
losses related to its investment in Kaiser, any adjustments reflected in
Kaiser's financial statements subsequent to February 12, 2002 (relating to the
recoverability and classification of recorded asset amounts and classification
of liabilities or the effects on existing stockholders' deficit as well as
adjustments made to Kaiser's financial information for loss contingencies and
other matters), are not expected to affect the Company's financial results.

      The following financial information is presented for comparison purposes.
The financial information for the six months ended June 30, 2002, is condensed
pro forma financial information which reflects the results of operations of the
Company excluding Kaiser (in millions, except share data).


                                       16
                                                                          THREE MONTHS ENDED     SIX MONTHS ENDED
                                                                               JUNE 30,              JUNE 30,
                                                                          -------------------  --------------------
                                                                            2003       2002      2003       2002
                                                                          ---------  --------  ---------  ---------

Net sales................................................................ $   74.4   $  68.4   $  143.1   $  141.2
Costs and expenses.......................................................    (69.3)    (68.3)    (138.7)    (137.9)
                                                                          ---------  --------  ---------  ---------
Operating income.........................................................      5.1       0.1        4.4        3.3
Other income (expenses), net.............................................      6.4       7.5       15.9       15.9
Interest expense and amortization of deferred financing costs............    (19.6)    (19.9)     (38.9)     (40.5)
                                                                          ---------  --------  ---------  ---------
Loss before income taxes.................................................     (8.1)    (12.3)     (18.6)     (21.3)
Income tax benefit.......................................................        -       4.5          -        7.5
Minority interests.......................................................        -         -          -        0.2
                                                                          ---------  --------  ---------  ---------
Net loss................................................................. $   (8.1)  $  (7.8)  $  (18.6)  $  (13.6)
                                                                          =========  ========  =========  =========
Basic and diluted loss per share......................................... $  (1.24)  $ (1.20)  $  (2.85)  $  (2.08)
                                                                          =========  ========  =========  =========

      See Notes 1 and 5 for further discussion of Kaiser's reorganization
proceedings and other information regarding the Company's investment in Kaiser.

   FOREST PRODUCTS OPERATIONS

      Industry Overview and Selected Operational Data
      This section contains statements which constitute "forward-looking
statements" within the meaning of the PSLRA. See this section and above for
cautionary information with respect to such forward-looking statements.

      The Company's forest products operations are conducted by MGI, through
Pacific Lumber, Scotia LLC and Britt. The segment's business is somewhat
seasonal, and its net sales have been historically higher in the months of April
through November than in the months of December through March. Management
expects that MGI's revenues and cash flows will continue to be somewhat
seasonal. Accordingly, MGI's results for any one quarter are not necessarily
indicative of results to be expected for the full year.

      Regulatory and environmental matters play a significant role in the
Company's forest products operations. See Item 1. "Business--Forest Products
Operations--Regulatory and Environmental Factors" of the Form 10-K and Note 8
for a discussion of these matters. Regulatory compliance and related litigation
have caused and may continue to cause delays in obtaining approvals of THPs and
delays in harvesting on THPs once they are approved. This could result in a
decline in harvest, an increase in the cost of logging operations, and lower net
sales, as well as increased costs related to timber harvest litigation. With
respect to the EPIC-SYP/Permits and USWA lawsuits (see Note 8), on July 23,
2003, the Court issued a statement of decision indicating that it will
invalidate the SYP and the California Permit due to several deficiencies in
agency procedures and the failure of Pacific Lumber to submit a complete and
comprehensible SYP. The Court deferred, however, a decision on the specific
remedy it will prescribe. A hearing on the matter of the remedy began on July
30, 2003; however, the hearing has not yet concluded and has been recessed until
September 3, 2003. The Court will thereafter issue its final decision subsequent
to the conclusion of the hearing.

      Pacific Lumber is in the process of evaluating the options available to it
in light of the developments in the EPIC- SYP/Permits and USWA lawsuits. It is
impossible to determine the impact this matter will ultimately have on the
Company given that the Court has not issued its final decision, including the
remedy to be prescribed by the Court. As discussed in Note 8, under the stay,
Pacific Lumber currently may harvest under THPs submitted prior to mid-October
2002 consistent with the SYP and the California Permit. Should the Court include
in its remedies that Pacific Lumber may not harvest on these THPs, then Pacific
Lumber expects that harvest levels in 2003 and 2004 would decline materially
from levels seen in 2002 as Pacific Lumber resubmits such THPs to the CDF for
approval under the alternative forest practice rules. Pacific Lumber estimates
that such a remedy would reduce the harvest level for the twelve months ended
June 30, 2004 by approximately 59 million board feet, net Scribner scale.
Pacific Lumber also estimates that without purchases of logs from third parties
to make up for this shortfall, revenues would decline by approximately $57
million for the twelve months ended June 30, 2004. The Company believes that
appropriate procedures were followed throughout the public review and approval
process concerning the Environmental Plans and is working with the relevant
government agencies to defend the EPIC-SYP/Permits and USWA lawsuits. The
Company expects to appeal the trial Court's decision. In addition to the
potential short-term adverse impacts described above which could occur during
the appeal process, these matters could have a long-term negative impact if they
are ultimately decided adversely to the Company.

      As discussed in Note 8, the North Coast Water Board is requiring Pacific
Lumber to apply certain waste discharge requirements to approved THPs covering
winter harvesting operations in the Freshwater, Elk River and Bear Creek
watersheds, and the North Coast Water Board could require Pacific Lumber to
follow waste discharge requirements before harvesting operations are conducted
on THPs in other watersheds. This requirement could cause delays in
harvesting.

      Furthermore, there can be no assurance that certain other pending legal,
regulatory and environmental matters or future governmental regulations,
legislation or judicial or administrative decisions, adverse weather conditions,
or low lumber or log prices, will not have a material adverse effect on the
Company's financial position, results of operations or liquidity. See Note 8 for
further information regarding regulatory and legal proceedings relating to the
Company's forest products operations.

      During 2001, comprehensive external and internal reviews were conducted of
Pacific Lumber's business operations. These reviews were conducted in an effort
to identify ways in which Pacific Lumber could operate on a more efficient and
cost effective basis. Based upon the results of these reviews, Pacific Lumber,
among other things, closed two of its four sawmills, eliminated certain of its
operations, including its soil amendment and concrete block activities, began
utilizing more efficient harvesting methods and adopted certain other cost
saving measures. Further actions may be taken during the next year as a result
of Pacific Lumber's continuing evaluation process, and additional writedowns of
certain assets may be required.

      The following table presents selected operational and financial
information for the three and six months ended June 30, 2003 and 2002, for the
Company's forest products operations.


                                                            THREE MONTHS ENDED              SIX MONTHS ENDED
                                                                 JUNE 30,                       JUNE 30,
                                                      ------------------------------  -----------------------------
                                                           2003            2002           2003           2002
                                                      ---------------  -------------  ------------  ---------------
                                                          (IN MILLIONS OF DOLLARS, EXCEPT SHIPMENTS AND PRICES)
Shipments:
   Lumber: (1)
      Redwood upper grades.........................              6.4            6.9          12.3             13.5
      Redwood common grades........................             58.8           64.8         108.8            117.6
      Douglas-fir upper grades.....................              0.7            1.3           1.6              2.6
      Douglas-fir common grades....................             10.4            3.3          20.0              5.7
      Other........................................              3.1              -           3.1                -
                                                      ---------------  -------------  ------------  ---------------
   Total lumber....................................             79.4           76.3         145.8            139.4
                                                      ===============  =============  ============  ===============
   Wood chips (2)..................................             20.7           17.2          41.8             32.5
                                                      ===============  =============  ============  ===============

Average sales price:
   Lumber: (3)
      Redwood upper grades.........................   $        1,316   $      1,328   $     1,292   $        1,346
      Redwood common grades........................              602            546           587              539
      Douglas-fir upper grades.....................            1,556          1,296         1,527            1,281
      Douglas-fir common grades....................              341            330           336              335
   Wood chips (4)..................................               46             34            45               34

Net sales:
   Lumber, net of discount.........................   $         49.0   $       46.9   $      89.2   $         86.1
   Logs............................................              1.0            3.5           1.9              8.9
   Wood chips......................................              0.9            0.6           1.9              1.1
   Cogeneration power..............................              3.4            2.4           6.0              4.7
   Other...........................................              0.9            0.9           1.5              1.4
                                                      ---------------  -------------  ------------  ---------------
      Total net sales..............................   $         55.2   $       54.3   $     100.5   $        102.2
                                                      ===============  =============  ============  ===============
Operating income...................................   $          8.0   $        7.4   $       9.3   $          9.9
                                                      ===============  =============  ============  ===============
Loss before income taxes and minority interests....   $         (3.4)  $       (5.3)  $     (16.6)  $        (14.6)
                                                      ===============  =============  ============  ===============

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


(1)   Lumber shipments are expressed in millions of board feet.
(2)   Wood chip shipments are expressed in thousands of bone dry units of 2,400 pounds.
(3)   Dollars per thousand board feet.
(4)   Dollars per bone dry unit.

      Net Sales
      Net sales for the forest products segment increased for the three months
ended June 30, 2003, as compared to the same period of 2002. A $2.1 million
increase in revenues from lumber sales was primarily due to higher prices for
redwood common grade lumber. The improvement in revenues due to the increase in
prices was partially offset by an unfavorable shift in the mix of lumber from
redwood to Douglas-fir. Revenues from log sales to third parties decreased
by $2.5 million. Sales of surplus power from Pacific Lumber's cogeneration power
plant increased $0.9 million over the prior year quarter primarily due to higher
energy prices. Net sales for the six months ended June 30, 2003, decreased $1.7
million from the comparable prior year period. A $7.0 million decrease in log
sales to third parties offset increases in net sales for lumber and other
products. Lumber sales for the six months ended June 30, 2003 increased over the
prior year period as a result of changes in prices and volumes similar to those
between the 2003 and 2002 second quarters. Power sales increased for the six
months ended June 30, 2003 due to an increase in both volume and prices.

      Operating Income
      Operating income for the forest products segment increased for the second
quarter of 2003 compared to the prior year quarter due to increases in net sales
of lumber and cogeneration power. Operating income for the six months ended June
30, 2003, decreased $0.6 million from the comparable prior year period. While
the $1.7 million decrease in net sales for the period was more than offset by a
$3.7 million decrease in cost of sales, the segment incurred higher selling,
general and administrative expenses primarily attributable to new and ongoing
timber harvest litigation, which negatively impacted operating results.

      Loss Before Income Taxes and Minority Interests
      The forest products segment's loss before income taxes and minority
interests decreased for the second quarter of 2003 as compared to the second
quarter of 2002. In addition to the increases in net sales and operating income
discussed above, a $1.2 million gain on the sale of timberlands contributed to
the improvement for the period. Loss before income taxes and minority interests
increased for the first six months of 2003 versus the comparable prior year
period primarily due to lower earnings on cash, cash equivalents and short-term
investments in addition to the factors which led to the decline in operating
results discussed above.

      REAL ESTATE OPERATIONS

      Industry Overview and Selected Operational Data
      The Company, principally through its wholly owned subsidiaries, invests in
and develops residential and commercial real estate primarily in Arizona,
California, Puerto Rico, and Texas. The following table presents selected
operational and financial information for the three and six months ended June
30, 2003 and 2002, for the Company's real estate operations.

                                                                     THREE MONTHS ENDED        SIX MONTHS ENDED
                                                                          JUNE 30,                 JUNE 30,
                                                                   -----------------------  -----------------------
                                                                      2003         2002        2003        2002
                                                                   -----------  ----------  ----------  -----------
                                                                               (IN MILLIONS OF DOLLARS)

Net sales:
   Real estate:
      Fountain Hills.............................................  $     5.6    $    1.9    $     7.0   $      4.9
      Mirada.....................................................        0.7         0.2          1.9          0.2
      Palmas del Mar.............................................        1.1         0.6          5.1          6.1
      Other......................................................          -         0.1            -          0.4
                                                                   -----------  ----------  ----------  -----------
        Total....................................................        7.4         2.8         14.0         11.6
                                                                   -----------  ----------  ----------  -----------

   Resort, commercial and other:
      Fountain Hills.............................................         1.1         1.0         1.8          1.8
      Mirada.....................................................           -           -           -            -
      Palmas del Mar.............................................         1.8         3.0         4.4          6.3
      Commercial lease properties................................         4.0         2.1         8.0          4.3
      Other......................................................           -         0.1         0.1          0.1
                                                                   -----------  ----------  ----------  -----------
        Total....................................................         6.9         6.2        14.3         12.5
                                                                   -----------  ----------  ----------  -----------

   Total net sales...............................................  $     14.3   $     9.0   $    28.3   $     24.1
                                                                   ===========  ==========  ==========  ===========

Operating income (loss):
   Fountain Hills................................................  $      3.0   $    (0.1)  $     2.5   $        -
   Mirada........................................................        (1.1)       (0.6)       (1.1)        (1.1)
   Palmas del Mar................................................        (3.0)       (3.5)       (4.5)        (1.4)
   Commercial lease properties...................................         1.5         0.8         3.0          1.6
   Other.........................................................        (0.3)       (0.2)       (0.5)        (0.3)
                                                                   -----------  ----------  ----------  -----------
      Total operating income (loss)..............................  $      0.1   $    (3.6)  $    (0.6)  $     (1.2)
                                                                   ===========  ==========  ==========  ===========

Investment, interest and other income (expense), net:
   Equity in earnings from real estate joint ventures............  $      0.6   $     2.8   $     1.0   $      2.8
   Other.........................................................         0.7         1.1         1.3          2.4
                                                                   -----------  ----------  ----------  -----------
                                                                   $      1.3   $     3.9   $     2.3   $      5.2
                                                                   ===========  ==========  ==========  ===========

Income (loss) before income taxes and minority interests.........  $     (3.4)  $    (2.9)  $    (7.8)  $     (2.4)
                                                                   ===========  ==========  ==========  ===========

      Net Sales
      Net sales for the real estate segment increased for the second quarter and
first six months of 2003 versus the comparable periods of 2002. Real estate
sales at Fountain Hills and Mirada increased for the 2003 periods over the 2002
periods due to an increase in revenues from commercial lot sales at Fountain
Hills as well as higher lot sales at Mirada. These increases were offset in part
by a decline in net sales from resort and commercial operations at Palmas del
Mar. Net sales from commercial lease properties increased as the 2003 periods
reflect lease revenues from several properties acquired in the fourth quarter of
2002.

      Operating Income (Loss) and Loss Before Income Taxes and Minority Interests
      The real estate segment had operating income for the second quarter of
2003 as compared to an operating loss for the second quarter of 2002. The
segment's operating loss for the first six months of 2003 decreased versus the
year ago period. The improvements in operating results were due primarily to the
increases in net sales discussed above. Despite the improvements in operating
results, the loss before income taxes and minority interests increased for both
the second quarter and first six months of 2003 due primarily to lower income
from the segment's FireRock LLC joint venture, lower interest income, and higher
interest expense associated with the borrowings used to finance the acquisition
of commercial lease properties in the fourth quarter of 2002.

      RACING OPERATIONS

      Industry Overview and Selected Operational Data
      The Company indirectly owns SHRP, Ltd., a Texas limited partnership, which
owns and operates Sam Houston Race Park, a Class 1 horse racing facility in
Houston, Texas, and Valley Race Park, a greyhound racing facility located in
Harlingen, Texas. Results of operations between periods are generally not
comparable due to the timing, varying lengths and types of racing meets held.
Historically, Sam Houston Race Park and Valley Race Park have derived a
significant amount of their annual net pari-mutuel commissions from live racing
and simulcasting. Net pari-mutuel commissions have typically been highest during
the first and fourth quarters of the year, the time during which Sam Houston
Race Park and Valley Race Park have historically conducted live thoroughbred and
greyhound racing, respectively.

      The following table presents selected operational and financial
information for the three and six months ended June 30, 2003 and 2002, for the
Company's racing operations.


                                                                     THREE MONTHS ENDED        SIX MONTHS ENDED
                                                                          JUNE 30,                 JUNE 30,
                                                                   -----------------------  -----------------------
                                                                      2003        2002         2003        2002
                                                                   ---------- ------------  ----------  -----------
                                                                               (IN MILLIONS OF DOLLARS)

Number of live race days:
   Sam Houston Race Park.........................................          -            -          48           52
   Valley Race Park..............................................          6            6          82           84

Handle:
   Sam Houston Race Park:
      On-track handle............................................  $    29.8  $      32.7   $    66.5   $     71.7
      Off-track handle...........................................          -            -       102.3        105.0
                                                                   ---------- ------------  ----------  -----------
        Total....................................................  $    29.8  $      32.7   $   168.8   $    176.7
                                                                   ========== ============  ==========  ===========

   Valley Race Park:
      On-track handle............................................  $     4.6  $       5.2   $    11.5   $     12.5
      Off-track handle...........................................        0.3          0.2         3.2          2.9
                                                                   ---------- ------------  ----------  -----------
        Total....................................................  $     4.9  $       5.4   $    14.7   $     15.4
                                                                   ========== ============  ==========  ===========

Net sales:
   Sam Houston Race Park:
      Net pari-mutuel commissions................................  $     2.7  $       2.9   $     8.3   $      8.7
      Other revenues.............................................        1.5          1.4         3.7          3.7
                                                                   ---------- ------------  ----------  -----------
        Total....................................................        4.2          4.3        12.0         12.4
                                                                   ---------- ------------  ----------  -----------
   Valley Race Park:
      Net pari-mutuel commissions................................        0.6          0.6         1.7          1.8
      Other revenues.............................................        0.1          0.2         0.6          0.7
                                                                   ---------- ------------  ----------  -----------
        Total....................................................        0.7          0.8         2.3          2.5
                                                                   ---------- ------------  ----------  -----------
   Total net sales...............................................  $     4.9  $       5.1   $    14.3   $     14.9
                                                                   ========== ============  ==========  ===========

Operating income (loss):
   Sam Houston Race Park.........................................  $    (1.0) $      (0.4)  $    (0.3)  $      0.7
   Valley Race Park..............................................       (0.2)           -        (0.3)           -
                                                                   ---------- ------------  ----------  -----------
      Total operating income (loss)..............................  $    (1.2) $      (0.4)  $    (0.6)  $      0.7
                                                                   ========== ============  ==========  ===========

Income (loss) before income taxes and minority interests.........  $    (1.2) $      (0.5)  $    (0.7)  $      0.7
                                                                   ========== ============  ==========  ===========

      Net Sales
      Net sales for the racing segment decreased for the quarter and six months
ended June 30, 2003, from the comparable prior year periods, due in part to
lower average daily attendance at both Sam Houston Race Park and Valley Race
Park and to lower levels of wagering on simulcast races at both locations.

      Operating Income (Loss) and Income (Loss) Before Income Taxes and Minority Interests
      The racing segment's operating results and income (loss) before income
taxes and minority interests declined for both the quarter and six months ended
June 30, 2003, versus the prior year periods due to the decrease in net sales
discussed above and an increase in selling, general and administrative expenses
which was due in part to costs associated with legislative efforts.



   OTHER ITEMS NOT DIRECTLY RELATED TO INDUSTRY SEGMENTS

                                                                     THREE MONTHS ENDED        SIX MONTHS ENDED
                                                                          JUNE 30,                 JUNE 30,
                                                                   -----------------------  -----------------------
                                                                      2003         2002        2003        2002
                                                                   -----------  ----------  ----------  -----------
                                                                               (IN MILLIONS OF DOLLARS)

Operating loss...................................................  $     (1.8)  $    (3.3)  $    (3.7)  $  (6.1)
Income (loss) before income taxes and minority interest..........        (0.1)       (3.6)(1)     6.5      (5.0)(1)
-----------------------------------------
(1)   Includes $0.4 million and $3.2 million of gains on repurchases of debt for
      the three and six month periods, respectively, as required by SFAS. No.
      145 (see Note 2). These gains were previously reported as extraordinary
      items.


      The operating losses in the table above represent corporate general and
administrative expenses that are not allocated to the Company's industry
segments. Results for the second quarter and first six months of 2002 reflect
certain general and administrative expenses incurred as a result of Kaiser's
Chapter 11 filing, whereas these expenses were significantly less in the
comparable periods of 2003. The losses before income taxes and minority
interests include operating losses, investment, interest and other income
(expense) and interest expense, including amortization of deferred financing
costs, that are not attributable to the Company's industry segments. Included in
the results for the first six months of 2003 is income related to an $8.0
million reimbursement from an insurer for certain costs incurred in connection
with the OTS and FDIC actions (see Note 8).

FINANCIAL CONDITION AND INVESTING AND FINANCING ACTIVITIES

      This section contains statements which constitute "forward-looking
statements" within the meaning of the PSLRA. See this section and above for
cautionary information with respect to such forward-looking statements.

   OVERVIEW

      The Company conducts its operations primarily through its subsidiaries.
Creditors of subsidiaries of the Company have priority with respect to the
assets and earnings of such subsidiaries over the claims of the creditors of the
Company. Certain of the Company's subsidiaries, principally Pacific Lumber and
Scotia LLC, are restricted by their various debt instruments as to the amount of
funds that can be paid in the form of dividends or loaned to affiliates. Scotia
LLC is highly leveraged and has significant debt service requirements. "MAXXAM
PARENT" is used in this section to refer to the Company on a stand-alone basis
without its subsidiaries.

      The following table summarizes certain data related to financial condition
and to investing and financing activities of the Company and its subsidiaries.
As a result of the deconsolidation of Kaiser, the balances at June 30, 2003 and
December 31, 2002 exclude amounts attributable to Kaiser. For comparison
purposes, such amounts have also been excluded from the selected information
related to changes in cash and cash equivalents for the six months ended June
30, 2002.


                                                 FOREST PRODUCTS
                                            --------------------------
                                                                 MGI
                                             SCOTIA  PACIFIC     AND    REAL                     MAXXAM
                                              LLC    LUMBER     OTHER  ESTATE   RACING   MGHI    PARENT     TOTAL
                                            -------- --------  ------- -------  ------  ------  --------- ---------
                                                                   (IN MILLIONS OF DOLLARS)

Debt and credit facilities (excluding
intercompany notes)
Short-term borrowings and current
   maturities of long-term debt:
   June 30, 2003........................... $  22.0  $   0.2   $    -  $ 11.8   $   -   $   -   $      -  $   34.0
   December 31, 2002.......................    16.7      0.3        -    13.5       -       -          -      30.5

Long-term debt, excluding current maturities:
   June 30, 2003........................... $ 720.7  $   0.4   $    -  $241.9   $ 0.5   $   -   $      -  $  963.5
   December 31, 2002.......................   737.7      0.4        -   244.0     0.2       -          -     982.3

Revolving credit facilities:
   June 30, 2003:
      Facility commitment amounts.......... $  58.9  $  45.0   $  2.5  $ 14.0   $   -   $   -   $      -  $  120.4
      Borrowings...........................     4.4        -        -       -       -       -          -       4.4
      Letters of credit....................       -     15.1        -     2.4       -       -          -      17.5
      Unused and available credit..........    54.4     10.4      2.5     0.7       -       -          -      68.0

Cash, cash equivalents, marketable
securities and other investments
June 30, 2003:
   Current amounts restricted for debt
      service.............................. $  21.3  $     -   $    -  $  0.3   $   -   $   -   $      -  $   21.6
   Other current amounts...................     3.8     21.0     15.4     8.0     4.7       -       82.3     135.2
                                            -------- --------  ------- -------  ------  ------  --------- ---------
                                               25.1     21.0     15.4     8.3     4.7       -       82.3     156.8
                                            -------- --------  ------- -------  ------  ------  --------- ---------
   Long-term amounts restricted for
      debt service.........................    38.9        -        -     1.4       -       -          -      40.3
   Other long-term restricted amounts......       -      0.4      2.3     5.5       -       -          -       8.2
                                            -------- --------  ------- -------  ------  ------  --------- ---------
                                               38.9      0.4      2.3     6.9       -       -          -      48.5
                                            -------- --------  ------- -------  ------  ------  --------- ---------
                                            $  64.0  $  21.4   $ 17.7  $ 15.2   $ 4.7   $   -   $   82.3  $  205.3
                                            ======== ========  ======= =======  ======  ======  ========= =========

December 31, 2002:
   Current amounts restricted for debt
      service.............................. $  24.5  $     -   $    -  $  0.3   $   -   $   -   $      -  $   24.8
   Other current amounts...................     4.9     21.3     13.6     6.4     5.2     0.3       74.8     126.5
                                            -------- --------  ------- -------  ------  ------  --------- ---------
                                               29.4     21.3     13.6     6.7     5.2     0.3       74.8     151.3
                                            -------- --------  ------- -------  ------  ------  --------- ---------

   Long-term amounts restricted for debt
      service..............................    52.9        -        -     1.4       -       -          -      54.3
   Other long-term restricted amounts......      -       0.4      2.3     6.6       -       -          -       9.3
                                            -------- --------  ------- -------  ------  ------  --------- ---------
                                               52.9      0.4      2.3     8.0       -       -          -      63.6
                                            -------- --------  ------- -------  ------  ------  --------- ---------
                                            $  82.3  $  21.7   $ 15.9  $ 14.7   $ 5.2   $ 0.3   $   74.8  $  214.9
                                            ======== ========  ======= =======  ======  ======  ========= =========

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



                                                 FOREST PRODUCTS
                                            --------------------------
                                                                 MGI
                                             SCOTIA  PACIFIC     AND    REAL                     MAXXAM
                                              LLC    LUMBER     OTHER  ESTATE   RACING   MGHI    PARENT     TOTAL
                                            -------- --------  ------- -------  ------  ------  --------- ---------
                                                                   (IN MILLIONS OF DOLLARS)

Changes in cash and cash equivalents for
   the six month periods
Capital expenditures:
   June 30, 2003..........................  $  4.0    $  2.2    $ 0.7   $  1.7   $ 0.8  $    -  $     0.2  $   9.6
   June 30, 2002..........................     3.3       2.3      0.4      1.8     0.2       -          -      8.0

Net proceeds from dispositions of property
   and investments:
   June 30, 2003..........................  $  3.2    $  0.1    $   -   $    -   $   -  $    -  $       -  $   3.3
   June 30, 2002..........................       -       1.5        -        -       -       -          -      1.5

Borrowings (repayments) of debt and credit
   facilities, net of financing costs:
   June 30, 2003..........................  $ (7.7)   $    -    $   -   $ (3.8)  $0.3   $    -  $       -  $ (11.2)
   June 30, 2002..........................   (11.7)    (17.7)    (0.6)    (0.7)      -   (25.7)         -    (56.4)

Dividends and advances received (paid):
   June 30, 2003..........................  $    -    $    -    $   -   $ (0.3)  $(0.6) $    -  $     0.9  $     -
   June 30, 2002..........................   (29.4)     29.4     (0.1)     0.1    (1.7)      -        1.7        -


   MAXXAM PARENT AND MGHI

      The Company may from time to time purchase shares of its Common Stock on
national exchanges or in privately negotiated transactions. During the second
quarter of 2003, the Company purchased an aggregate of 9,600 shares of its
Common Stock on national exchanges.

      MAXXAM Parent and MGHI own the 50,000,000 Kaiser Shares, representing an
approximate 62% interest. As a result of the Cases, the value of Kaiser common
stock has declined substantially, and the market value of the Kaiser Shares
based on the price per share quoted at the close of business on August 1, 2003,
was $2.5 million. There can be no assurance that such value would be realized
should the Kaiser shares owned by the Company be sold, and it is likely that the
Company's ownership interest in Kaiser will be diluted or cancelled as a result
of a plan of reorganization. See also Notes 1 and 5.

      MAXXAM Parent believes that its existing resources will be sufficient to
fund its working capital requirements for the next year. With respect to
long-term liquidity, MAXXAM Parent believes that its existing cash and cash
resources, together with distributions from the real estate and racing segments,
should be sufficient to meet its working capital requirements. However, there
can be no assurance that this will be the case.

   FOREST PRODUCTS OPERATIONS

      The Scotia LLC Line of Credit allows Scotia LLC to borrow up to one year's
interest on the Timber Notes. On June 20, 2003, the Scotia LLC Line of Credit
was extended to July 7, 2006. At or near the completion of such extension,
Scotia LLC will request that the Scotia LLC Line of Credit be extended for a
period of not less than 364 days. If not extended, Scotia LLC may draw upon the
full amount available. The amount drawn would be repayable in 12 semiannual
installments on each note payment date (after the payment of certain other
items, including the Aggregate Minimum Principal Amortization Amount, as
defined, then due), commencing approximately two and one-half years following
the date of the draw. At June 30, 2003, Scotia LLC could have borrowed a maximum
of $58.9 million under the Scotia LLC Line of Credit, and there was $4.4 million
outstanding under the Scotia LLC Line of Credit.

      On the note payment date in January 2003, Scotia LLC had $5.6 million set
aside in the note payment account to pay the $27.9 million of interest due.
Scotia LLC used $22.3 million (in addition to $1.6 million of interest due in
respect of Timber Notes held by Scotia LLC) of the funds available under the
Scotia LLC Line of Credit to pay the remaining amount of interest due. Scotia
LLC repaid $12.1 million of principal on the Timber Notes (an amount equal to
Scheduled Amortization) using funds held in the SAR Account.

      In April 2003, $3.4 million of funds from the SAR Account were used to
repurchase $4.0 million principal amount of Timber Notes, as permitted under the
Timber Notes Indenture, resulting in a gain of $0.4 million (net of unamortized
deferred financing costs) on extinguishment of debt.

      On the note payment date in July 2003, Scotia LLC used $27.4 million (in
addition to $2.0 million due in respect of Timber Notes held by Scotia LLC) of
the funds available under the Scotia LLC Line of Credit to pay the entire amount
of interest due. Scotia LLC repaid $4.4 million of principal on the Timber Notes
(an amount equal to Scheduled Amortization) using funds held in the SAR Account.

      With respect to the note payment date in January 2004, Scotia LLC expects
to use the funds available under the Scotia LLC Line of Credit to pay all or a
portion of the $27.3 million of interest due (in addition to $2.0 million due in
respect of Timber Notes held by the Company). Scotia LLC expects to repay $13.1
million of principal on the Timber Notes (an amount equal to Scheduled
Amortization) using funds held in the SAR Account.

      The Pacific Lumber Credit Agreement provides for a two-year revolving line
of credit expiring on August 13, 2004, with an aggregate commitment of $45.0
million. At June 30, 2003, $15.1 million of letters of credit and no borrowings
were outstanding under the Pacific Lumber Credit Agreement. Unused availability
was limited to $10.4 million at June 30, 2003. In July 2003, $14.8 million of
letters of credit were released under the Pacific Lumber Credit Agreement,
thereby increasing unused availability to $25.2 million.

      Pacific Lumber's cash flows from operations may be adversely affected by
diminished availability of logs from Scotia LLC, lower lumber prices, adverse
weather conditions, or pending legal, regulatory and environmental matters. See
"--Results of Operations--Forest Products Operations" above as well as Note 8
for further discussion of the regulatory and environmental factors affecting
harvest levels. Pacific Lumber may require funds available under the Pacific
Lumber Credit Agreement and/or additional prepayments by MGI of an intercompany
loan in order to meet its working capital and capital expenditure requirements
for the next year.

      Due to its highly leveraged condition, Scotia LLC is more sensitive than
less leveraged companies to factors affecting its operations, including low log
prices, governmental regulation and litigation affecting its timber harvesting
practices (see "--Results of Operations--Forest Products Operations--Industry
Overview and Selected Operational Data" above and Note 8), and general economic
conditions. Scotia LLC's cash flows from operations are significantly impacted
by harvest volumes and log prices. The Master Purchase Agreement between Scotia
LLC and Pacific Lumber contemplates that all sales of logs by Scotia LLC to
Pacific Lumber will be at fair market value (based on stumpage prices) for each
species and category of timber. The Master Purchase Agreement provides that if
the purchase price equals or exceeds the SBE Price and a structuring price set
forth in a schedule to the Timber Notes Indenture, the purchase price is deemed
to be at fair market value. If the purchase price equals or exceeds the SBE
Price, but is less than the structuring price, then Scotia LLC is required to
engage an independent forestry consultant to confirm that the purchase price
reflects fair market value.

      In January 2003, in accordance with the Master Purchase Agreement, Scotia
LLC engaged an independent forestry consultant with respect to establishing the
purchase prices of logs to be sold to Pacific Lumber in the first half of 2003.
The consultant determined that with respect to certain categories of logs, the
fair market value was higher than the comparable SBE Price. The prices for
redwood logs were on average approximately 20% higher for the first half of 2003
than those for the second half of 2002. There was relatively no price change for
Douglas-fir logs.

      In June 2003, the State Board of Equalization adopted the new Harvest
Value Schedule for the second half of 2003. The prices published in that
schedule reflected a 22% increase in the SBE Price for small redwood logs and an
11% increase for small Douglas-fir logs from the prices published for the first
half of 2003, and a 7% increase from the price in effect for small redwood logs
(i.e., the prices established using the independent forestry consultant) during
the first half of 2003.

      On August 12, 2003, Standard & Poor's Ratings Services announced that it
was lowering its ratings on all classes of the Timber Notes.  Ratings on the
Class A-1 Timber Notes were lowered from A to BBB+; ratings on the Class A-2
Timber Notes were lowered from A to BBB; and ratings on the Class A-3 Timber
Notes were lowered from BBB to BB.  Standard & Poor's also indicated that the
ratings remain on CreditWatch with negative implications and that the
lowered ratings reflect the negative impact that depressed timber prices, lower
harvest levels, and higher operating costs have had on Scotia LLC's cash flow
available for debt service.

      With respect to short-term liquidity, Scotia LLC believes that existing
cash available for principal payments from the SAR Account, and funds available
under the Scotia LLC Line of Credit, together with cash flows from operations,
should provide sufficient funds to meet its working capital, capital
expenditures and required debt service obligations through 2004; however, this
may very well not be the case if, as a remedy, the Court in the EPIC-SYP/Permits
and USWA lawsuits prohibits Pacific Lumber from harvesting on THPs which were
submitted prior to mid-October 2002 consistent with the SYP and the California
Permit. With respect to long-term liquidity, although the Company expects that
cash flows from operations and funds available under the SAR Account and the
Scotia LLC Line of Credit should be adequate to meet Scotia LLC's debt service,
working capital and capital expenditure requirements, unless log prices continue
to improve, there can be no assurance that this will be the case. In addition,
cash flows from operations will be adversely affected if harvest levels decline
or costs increase as a result of the various regulatory, environmental and
litigation matters discussed in "--Results of Operations--Forest Products
Operations--Industry Overview and Selected Operational Data" above and Note 8.

      With respect to long-term liquidity, although MGI and its subsidiaries
expect that their existing cash and cash equivalents, lines of credit and
ability to generate cash flows from operations should provide sufficient funds
to meet their debt service, working capital and capital expenditure
requirements, until such time as Pacific Lumber has adequate cash flows from
operations and/or dividends from Scotia LLC, there can be no assurance that this
will be the case. Cash flows from operations in the long-term may continue to be
adversely affected by the same factors discussed above which are affecting
short-term cash flows from operations.

      REAL ESTATE OPERATIONS

      In March 2003, the Company's casino facility at its Palmas del Mar
operation in Puerto Rico ceased operations due to the closure of a hotel which
was owned and operated by a third party from whom the casino leased space
adjacent to the hotel. It is currently unclear when or whether the casino or
hotel will reopen, and if reopened, who will be the operator(s). Net cash flows
from the casino's operations for 2002 were approximately $0.8 million.
Furthermore, PDMPI benefitted from the revenues generated as a result of guests
of the hotel using PDMPI's golf course and other resort related assets, and the
hotel's closure could adversely affect the performance of PDMPI in other ways
which are not able to be quantified.

      The Company believes that the existing cash and credit facilities of its
real estate subsidiaries, excluding PDMPI, are sufficient to fund the working
capital and capital expenditure requirements of such subsidiaries for the next
year. With respect to the long-term liquidity of such subsidiaries, the Company
believes that their ability to generate cash from the sale of their existing
real estate, together with their ability to obtain financing and joint venture
partners, should provide sufficient funds to meet their working capital and
capital expenditure requirements. PDMPI and its subsidiaries, however, have
required advances from MAXXAM Parent during 2002 and prior years to fund their
operations, and it is expected that PDMPI will require such advances in the
future.

   RACING OPERATIONS

      With respect to short-term and long-term liquidity, SHRP, Ltd's management
expects that SHRP, Ltd. will generate cash flows from operations.

   KAISER'S OPERATIONS

      As a result of the filing of the Cases, claims against the Debtors for
principal and accrued interest on secured and unsecured indebtedness existing on
the Filing Date are stayed while the Debtors continue business operations as
debtors- in-possession, subject to the control and supervision of the Bankruptcy
Court. At this time, it is not possible to predict the effect of the Cases on
the businesses of the Debtors. With respect to the Company's interest in Kaiser,
the Debtors believe that it is likely that the equity of Kaiser's stockholders
will be diluted or cancelled. See Note 5 for further information.

TRENDS

      In July 2003, the Texas Racing Commission approved live race dates for
2004. As a result, Sam Houston Race Park will more than double the number of
dates to 95 for its quarter horse meet in 2004. The additional live race dates
granted for 2004 are not likely to be granted in 2005 and beyond.

      The following table presents the number and type of performance conducted
and scheduled from 2002 through 2004 at Sam Houston Race Park.


                                             YEARS ENDED DECEMBER 31,
                                     ----------------------------------------
                                        2002           2003          2004
                                     ----------     ----------    -----------
Live Thoroughbred Race Days                  84             84             78
Live Quarter Horse Race Days                 42             43             95
Simulcast-only Days                         238            237            192

      As a result of the additional live race dates granted for 2004, management
expects that revenues will increase somewhat in 2004 as compared to 2003.

      The Texas legislature, which convenes every other year and was in session
from January 14, 2003 until June 2, 2003, considered a variety of alternatives
to address a projected budget shortfall, including enhancing state revenues
through additional forms of gaming such as video lottery terminals at existing
horse and dog racing tracks, gaming on Indian reservations, keno, and full
casinos. The Texas legislature did not enact any of this legislation. While the
Company intends to continue pursuing legislation which would expand the form of
gaming available at horse and dog tracks, no assurance can be given that these
efforts will be successful.

CRITICAL ACCOUNTING POLICIES

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

NEW ACCOUNTING PRONOUNCEMENTS

      See Note 2 for a discussion of new accounting pronouncements and their
potential impact on the Company.


ITEM 3.         QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      The Company is exposed to changes in interest rates primarily under the
Scotia LLC Line of Credit and the Pacific Lumber Credit Agreement, as well as
certain other debt facilities used to finance real estate development
activities. These facilities bear interest at either the prime interest rate or
LIBOR plus a specified percentage point spread. The Scotia LLC Line of Credit
was established in conjunction with the offering of the Timber Notes. The
Company's objective in maintaining its other variable rate borrowings is
flexibility in borrowing funds and making repayments without penalties. As of
June 30, 2003, there were $22.1 million in borrowings outstanding under all
variable rate facilities. Based on the amount of borrowings outstanding under
these facilities during the six months ended June 30, 2003, a 1.0% change in
interest rates effective from the beginning of the year would have resulted in
an increase or decrease in interest expense for the period of $0.1 million.

      None of the Company's other debt is exposed to the risk of higher interest
payments due to changes in market interest rates. The Company does not utilize
interest rate swaps or similar hedging arrangements.


ITEM 4.         DISCLOSURE CONTROLS AND PROCEDURES

      The Company maintains disclosure controls and procedures that are designed
to ensure that information required to be disclosed in the Company's reports
under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in the rules and forms of the
Securities and Exchange Commission, and that such information is accumulated and
communicated to the Company's management, including its Chief Executive Officer
and Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure. In designing and evaluating the disclosure controls and
procedures, management recognized that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management necessarily was
required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures. Also, the Company has investments in certain
unconsolidated entities. As the Company does not control or manage these
entities, its disclosure controls and procedures with respect to such entities
are necessarily substantially more limited than those it maintains with respect
to its consolidated subsidiaries.

      As of the end of the period covered by this report, the Company carried
out an evaluation, under the supervision and with the participation of the
Company's management, including the Company's Chief Executive Officer and the
Company's Chief Financial Officer, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures. Based on the
foregoing, the Company's Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures were effective.

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


                           PART II. OTHER INFORMATION

ITEM 1.         LEGAL PROCEEDINGS

      The information set forth in Note 8 is incorporated herein by reference.

ITEM 4.         SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      The annual meeting of stockholders of the Company was held on May 21,
2003, at which meeting the stockholders reelected Messrs. Cruikshank, Rosenberg,
Rosenthal, Friedman and Levin as directors of the Company. Stockholders also
approved a proposal to reapprove and amend the 1994 Executive Bonus Plan. The
results of the matters voted upon at the meeting are shown below.

NOMINEES FOR DIRECTOR

      The nominees for election as directors of the Company are listed below,
together with voting information for each nominee. Messrs. Charles E. Hurwitz
and Paul N. Schwartz continued as directors of the Company.

      NOMINEES FOR ELECTION BY HOLDERS OF COMMON STOCK

      Robert J. Cruikshank - 4,998,635 votes for, 265,099 votes withheld and -0-
         broker non-votes.
      Stanley D. Rosenberg - 4,998,676 votes for, 265,058 votes withheld and -0-
         broker non-votes.
      Michael J. Rosenthal - 5,091,907 votes for, 171,827 votes withheld and -0-
         broker non-votes.

      NOMINEES FOR ELECTION BY HOLDERS OF COMMON STOCK AND CLASS A PREFERRED STOCK

      J. Kent Friedman - 11,769,994 votes for, 171,400 votes withheld and -0-
         broker non-votes.
      Ezra G. Levin - 11,769,703 votes for, 171,691 votes withheld and -0-
         broker non-votes.

PROPOSAL REGARDING THE COMPANY'S 1994 EXECUTIVE BONUS PLAN

      11,270,166 votes for, 661,419 votes against, and 9,809 broker non-votes.

ITEM 6.         EXHIBITS AND REPORTS ON FORM 8-K

      A.   EXHIBITS:

              4.1     Third Amendment, dated June 20, 2003, to the Scotia LLC
                      Line of Credit (incorporated herein by reference to
                      Exhibit 4.1 to the Scotia LLC June 2003 Form 10-Q; File
                      No. 333-63825)

           * 31.1     Section 302 Certification of Chief Executive Officer
           * 31.2     Section 302 Certification of Chief Financial Officer
           * 32.1     Section 906 Certification of Chief Executive Officer
           * 32.2     Section 906 Certification of Chief Financial Officer

      * Included with this filing


      B.        REPORTS ON FORM 8-K:

      On April 1, 2003, the Company filed a current report on Form 8-K (under
Item 9), related to a press release regarding its 2002 results.

      On April 16, 2003, the Company filed a current report on Form 8-K (under
Item 5), related to arbitration proceedings, pending legislation and the closing
of the Palmas hotel and casino.

      On May 15, 2003, the Company filed a current report on Form 8-K (under
Item 9), related to a press release regarding its results for the three months
ended June 30, 2003.

      On May 20, 2003, the Company filed a current report on Form 8-K (under
Item 5), related to a tentative ruling in the EPIC-SYP/Permits lawsuit.

      On July 24, 2003, the Company filed a current report on Form 8-K (under
Item 5), related to a statement of decision with respect to the EPIC-SYP/Permits
and USWA lawsuits.


                                   SIGNATURES


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



                                                             MAXXAM INC.





Date: August 14, 2003                By:       /S/         PAUL N. SCHWARTZ
                                         ------------------------------------------------------
                                                          Paul N. Schwartz
                                           President, Chief Financial Officer and Director
                                                   (Principal Financial Officer)



Date: August 14, 2003                By:       /S/      ELIZABETH D. BRUMLEY
                                         ------------------------------------------------------
                                                        Elizabeth D. Brumley
                                                             Controller
                                                   (Principal Accounting Officer)




                                                                                                         APPENDIX A


                            GLOSSARY OF DEFINED TERMS


APB Opinion No. 25: Accounting Principles Board Opinion 25, "Accounting for
Stock Issued to Employees"

APB Opinion No. 30: Accounting Principles Board Opinion 30, "Reporting the
Results of Operations - Reporting Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions"

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

Bear Creek lawsuit: An action entitled Environmental Protection Information
Association v. Pacific Lumber, Scotia Pacific Company LLC (No. C01-2821),
pending in the U.S. District Court for the Northern District of California

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

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

California Permit: The incidental take permit issued by California pursuant to
the HCP

Cases: The Chapter 11 proceedings of the Debtors

Cave action: An action entitled Steve Cave, et al. v. Gary Clark, et al. (No.
DR0220719) pending in the Superior Court of Humboldt County, California

CDF:  California Department of Forestry and Fire Protection

CESA:  California Endangered Species Act

Class A Preferred Stock: Class A $.05 Non-Cumulative Participating Convertible
Preferred Stock of the Company

Code: The United States Bankruptcy Code

Common Stock:  $0.50 par value common stock of the Company

Company: MAXXAM Inc. and its majority and wholly owned subsidiaries, unless
otherwise indicated or the context indicates otherwise

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

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

CWA:  Federal Clean Water Act

Debtors: Kaiser, KACC and the subsidiaries of KACC which have filed petitions
for reorganization

Elk River Order: Clean up and abatement order issued to Pacific Lumber by the
North Coast Water Board for the Elk River watershed

Environmental Plans:  The HCP and the SYP

EPA:  Environmental Protection Agency

EPIC-SYP/Permits lawsuit: An action entitled Environmental Protection
Information Association, Sierra Club v. California Department of Forestry and
Fire Protection, California Department of Fish and Game, The Pacific Lumber
Company, Scotia Pacific Company LLC, Salmon Creek Corporation, et al. pending in
the Superior Court of Humboldt County, California (No. CV990452)

ESA:  The federal Endangered Species Act

FASB: Financial Accounting Standards Board

FDIC:  Federal Deposit Insurance Corporation

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

FDIC counterclaim: A counterclaim to the FDIC action filed on May 31, 2000, by
the Company, Federated and Mr. Hurwitz

Federated: Federated Development Company, a principal stockholder of the Company
now known as Giddeon Holdings, Inc.

Filing Date: With respect to any particular Debtor, the date on which such
Debtor filed its Case

FIN 45: Interpretation No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others"

FIN 46:  Interpretation No. 46, "Consolidation of Variable Interest Entities"

Form 10-K: The Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission for the fiscal year ended December 31, 2002

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

HCP: The habitat conservation plan covering multiple species approved on March
1, 1999, in connection with the consummation of the Headwaters Agreement

Headwaters Agreement: The September 1996 agreement between Pacific Lumber,
Scotia LLC, Salmon Creek, the United States and California which provided the
framework for the acquisition by the United States and California of the
Headwaters Timberlands

Headwaters Timberlands: Approximately 5,600 acres of Pacific Lumber timberlands
consisting of two forest groves commonly referred to as the Headwaters Forest
and the Elk Head Springs Forest which were sold to the United States and
California on March 1, 1999

Humboldt DA action: A civil suit filed in the Superior Court of Humboldt County,
California, by the District Attorney of Humboldt County entitled The People of
the State of California v. Pacific Lumber, Scotia Pacific Holding Company and
Salmon Creek Corporation (No. DR030070)

HWC lawsuit: An action entitled Humboldt County Watershed Council, et al. v.
North Coast Regional Water Quality Control Board, et al. (No. CV03-0438),
naming Pacific Lumber as real party in interest, pending in the Superior Court
of Humboldt County, California

KACC: Kaiser Aluminum & Chemical Corporation, Kaiser's principal operating
subsidiary

Kahn lawsuit: An action entitled Alan Russell Kahn v. Federated Development Co.,
MAXXAM Inc., et. al. (Civil Action 18623NC) pending in the Delaware Court of
Chancery

Kaiser: Kaiser Aluminum Corporation, a subsidiary of the Company engaged in
aluminum operations

Kaiser Shares: 50,000,000 shares of the common stock of Kaiser owned by the
Company and MGHI

Lakepointe Notes: Lakepointe Assets Holdings LLC and its subsidiaries' 7.56%
notes due June 8, 2021

LIBOR: London Inter Bank Offering Rate

Master Purchase Agreement: The agreement between Pacific Lumber and Scotia LLC
that governs all purchases of logs by Pacific Lumber from Scotia LLC

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

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

Motel Notes: Motel Assets Holdings LLC and its subsidiaries' 7.03% notes due May
1, 2018

MPC:  MAXXAM Property Company, a wholly-owned subsidiary of the Company

North Coast Water Board: North Coast Regional Water Quality Control Board

Original Debtors: Kaiser, KACC and the 15 subsidiaries of KACC that filed
petitions for reorganization on February 12, 2002

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

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

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

Pacific Lumber Credit Agreement: The revolving credit agreement between Pacific
Lumber and a bank which provides for borrowings of up to $45.0 million

Palmas Country Club Notes: Palmas Country Club Inc.'s 7.12% notes due December
20, 2030

PDMPI:  Palmas del Mar Properties, Inc., a wholly owned subsidiary of the Company

Permits: The incidental take permits issued by the United States and California
pursuant to the HCP

PSLRA: Private Securities Litigation Reform Act of 1995

Respondents:  The Company, Federated, Mr. Charles Hurwitz and others

Salmon Creek:  Salmon Creek LLC, a wholly owned subsidiary of Pacific Lumber

SAR Account: Funds held in a reserve account titled the Scheduled Amortization
Reserve Account and used to support principal payments on the Timber Notes

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

Scheduled Amortization: The amount of principal which Scotia LLC must pay
through each Timber Note payment date in order to avoid prepayment or deficiency
premiums

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

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

SFAS No. 123: Statement of Financial Accounting Standards No. 123, "Accounting
and Disclosure of Stock-Based Compensation"

SFAS No. 143: Statement of Financial Accounting Standards No. 143, "Accounting
for Asset Retirement Obligations"

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

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

SFAS No. 148: Statement of Financial Accounting Standards No. 148, "Accounting
for Stock-Based Compensation"

SHRP, Ltd.: Sam Houston Race Park, Ltd., a wholly-owned subsidiary of the
Company

SOP 90-7: American Institute of Certified Public Accountants Statement of
Position No. 90-7, "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code"

State Water Board: California State Water Resources Control Board

SYP: The sustained yield plan approved on March 1, 1999, in connection with the
consummation of the Headwaters Agreement

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

THP No. 520 lawsuit: An action entitled The Pacific Lumber Company, et al. v.
California State Water Resources Control Board (No. DR010860) pending in the
Superior Court of Humboldt County, California

Timber Notes: Scotia LLC's 6.55% Series B Class A-1 Timber Collateralized Notes,
7.11% Series B Class A-2 Timber Collateralized Notes and 7.71% Series B Class
A-3 Timber Collateralized Notes due July 20, 2028

Timber Notes Indenture:  The indenture governing the Timber Notes

TMDLs:  Total maximum daily load limits

USAT:  United Savings Association of Texas

USWA lawsuit: An action entitled United Steelworkers of America, AFL-CIO, CLC,
and Donald Kegley v. California Department of Forestry and Fire Protection, The
Pacific Lumber Company, Scotia Pacific Company LLC and Salmon Creek Corporation
(No. 99CS00626) pending in the Superior Court of Sacramento County, California`