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


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


                                    FORM 10-Q

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


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

                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000

                          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 organizat                        Identification Number)

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



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



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


    Number of shares of common stock outstanding at April 28, 2000: 6,913,751



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                                TABLE OF CONTENTS



PART I. - FINANCIAL INFORMATION

          Item 1.        Financial Statements:
                         Consolidated Balance Sheet at March 31, 2000 and
                             December 31, 1999
                         Consolidated Statement of Operations for the three
                             months ended March 31, 2000 and 1999
                         Consolidated Statement of Cash Flows for the three
                             months ended March 31, 2000 and 1999
                         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

PART II. - OTHER INFORMATION

          Item 1.        Legal Proceedings
          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)

<TABLE>
<CAPTION>
                                                                                          MARCH 31,   DECEMBER 31,
                                                                                             2000         1999
                                                                                        ------------- -------------
                                                                                         (UNAUDITED)
<S>                                                                                     <C>           <C>
ASSETS
Current assets:
   Cash and cash equivalents........................................................... $      240.5  $      275.7
   Marketable securities...............................................................         66.8          58.3
   Receivables:
      Trade, net of allowance for doubtful accounts of $6.0............................        207.7         169.4
      Other............................................................................        103.7         116.0
   Inventories.........................................................................        563.9         590.7
   Prepaid expenses and other current assets...........................................        156.8         192.7
                                                                                        ------------- -------------
        Total current assets...........................................................      1,339.4       1,402.8
Property, plant and equipment, net of accumulated depreciation of $979.0 and
   $977.9, respectively................................................................      1,210.5       1,222.2
Timber and timberlands, net of accumulated depletion of $182.4 and $180.6,
   respectively........................................................................        253.1         254.1
Investments in and advances to unconsolidated affiliates...............................        108.2         112.6
Deferred income taxes..................................................................        547.6         549.1
Restricted cash and marketable securities..............................................        128.6         159.0
Long-term receivables and other assets.................................................        703.1         693.3
                                                                                        ------------- -------------
                                                                                        $    4,290.5  $    4,393.1
                                                                                        ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable.................................................................... $      213.9  $      243.1
   Accrued interest....................................................................         39.8          72.4
   Accrued compensation and related benefits...........................................        126.3         124.8
   Other accrued liabilities...........................................................        206.8         194.7
   Payable to affiliates...............................................................         82.5          85.8
   Short-term borrowings and current maturities of long-term debt......................         67.8          46.0
                                                                                        ------------- -------------
        Total current liabilities......................................................        737.1         766.8
Long-term debt, less current maturities................................................      1,926.5       1,956.8
Accrued postretirement medical benefits................................................        685.6         688.9
Other noncurrent liabilities...........................................................        770.7         810.1
                                                                                        ------------- -------------
        Total liabilities..............................................................      4,119.9       4,222.6
                                                                                        ------------- -------------
Commitments and contingencies
Minority interests.....................................................................        147.7         142.7
Stockholders' equity:
   Preferred stock, $0.50 par value; 12,500,000 shares authorized; Class A $0.05 Non-
      Cumulative Participating Convertible Preferred Stock; 669,355 shares issued......          0.3           0.3
   Common stock, $0.50 par value; 28,000,000 shares authorized; 10,063,359 shares
      issued...........................................................................          5.0           5.0
   Additional capital..................................................................        225.3         225.3
   Accumulated deficit.................................................................        (97.2)       (102.1)
   Accumulated other comprehensive loss - additional minimum pension liability.........         (0.7)         (0.7)
   Treasury stock, at cost (shares held: preferred - 845; common: 3,149,608 and
        2,805,608, respectively).......................................................       (109.8)       (100.0)
                                                                                        ------------- -------------
        Total stockholders' equity.....................................................         22.9          27.8
                                                                                        ------------- -------------
                                                                                        $    4,290.5  $    4,393.1
                                                                                        ============= =============
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>

                      CONSOLIDATED STATEMENT OF OPERATIONS
               (IN MILLIONS OF DOLLARS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>

                                                                            THREE MONTHS ENDED
                                                                                 MARCH 31,
                                                                          -----------------------
                                                                             2000        1999
                                                                          ----------  -----------
                                                                                (UNAUDITED)
<S>                                                                       <C>         <C>
Net sales:
   Aluminum operations..................................................  $   565.7   $    479.4
   Forest products operations...........................................       47.4         46.7
   Real estate..........................................................        6.2         10.6
   Racing operations....................................................        8.3          8.1
                                                                          ----------  -----------
                                                                              627.6        544.8
                                                                          ----------  -----------

Costs and expenses:
   Cost of sales and operations:
      Aluminum operations...............................................      480.7        459.9
      Forest products operations........................................       33.1         39.8
      Real estate operations............................................        4.0          6.7
      Racing operations.................................................        4.6          4.2
   Selling, general and administrative expenses.........................       42.2         39.4
   Depreciation, depletion and amortization.............................       24.5         30.0
                                                                          ----------  -----------
                                                                              589.1        580.0
                                                                          ----------  -----------

Operating income (loss).................................................       38.5        (35.2)

Other income (expense):
   Gain on sale of Headwaters Timberlands...............................          -        239.8
   Investment, interest and other income (expense), net.................       23.0          9.3
   Interest expense.....................................................      (49.6)       (49.4)
                                                                          ----------  -----------
Income before income taxes and minority interests.......................       11.9        164.5
Provision for income taxes..............................................       (4.5)       (67.4)
Minority interests......................................................       (3.9)        15.0
                                                                          ----------  -----------
Income before extraordinary item........................................        3.5        112.1
Extraordinary item:
   Gain on repurchase of debt, net of income tax provision of $1.0......        1.4            -
                                                                          ----------  -----------
Net income..............................................................  $     4.9   $    112.1
                                                                          ==========  ===========

Basic earnings per common share:
   Income before extraordinary item.....................................  $    0.48   $    16.02
   Extraordinary item...................................................       0.20            -
                                                                          ----------  -----------
   Net income...........................................................  $    0.68   $    16.02
                                                                          ==========  ===========

Diluted earnings per common and common equivalent share:
   Income before extraordinary item.....................................  $    0.44   $    14.35
   Extraordinary item...................................................       0.18            -
                                                                          ----------  -----------
   Net income...........................................................  $    0.62   $    14.35
                                                                          ==========  ===========

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

                      CONSOLIDATED STATEMENT OF CASH FLOWS
                            (IN MILLIONS OF DOLLARS)

<TABLE>
<CAPTION>
                                                                                              THREE MONTHS ENDED
                                                                                                   MARCH 31,
                                                                                            -----------------------
                                                                                               2000        1999
                                                                                            ----------  -----------
                                                                                                  (UNAUDITED)
<S>                                                                                         <C>         <C>
Cash flows from operating activities:
   Net income.............................................................................  $     4.9   $    112.1
   Adjustments to reconcile net income to net cash used for operating activities:
      Depreciation, depletion and amortization............................................       24.5         30.0
      Gain on sale of Headwaters Timberlands..............................................          -       (239.8)
      Extraordinary gain on repurchase of debt............................................       (1.4)           -
      Gains on other asset dispositions...................................................       (0.7)        (0.5)
      Net gains on marketable securities..................................................       (4.9)        (3.4)
      Net purchases of marketable securities..............................................       (3.6)       (11.7)
      Minority interests..................................................................        3.9        (15.0)
      Amortization of deferred financing costs and discounts on long-term debt............        1.8          2.5
      Equity in earnings of unconsolidated affiliates, net of dividends received..........        1.6         (4.9)
      Increase (decrease) in cash resulting from changes in:
        Receivables.......................................................................      (26.8)        11.1
        Inventories.......................................................................       26.7         27.9
        Prepaid expenses and other assets.................................................       30.7          1.3
        Accounts payable..................................................................      (29.3)       (24.0)
        Accrued interest..................................................................      (32.6)       (32.3)
        Accrued and deferred income taxes.................................................        1.8         67.0
        Payable to affiliates and other liabilities.......................................       15.1         23.4
        Long-term assets and long-term liabilities........................................      (54.7)       (32.1)
      Other...............................................................................        1.1         (1.8)
                                                                                            ----------  -----------
        Net cash used for operating activities............................................      (41.9)       (90.2)
                                                                                            ----------  -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Net proceeds from dispositions of property and investments.............................       15.5        300.5
   Capital expenditures...................................................................      (20.8)       (27.5)
   Restricted cash withdrawals used to acquire timberlands................................        0.3         10.3
   Other..................................................................................          -         (3.1)
                                                                                            ----------  -----------
        Net cash provided by (used for) investing activities..............................       (5.0)       280.2
                                                                                            ----------  -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Net borrowings under revolving credit agreements.......................................       33.3            -
   Proceeds from issuance of long-term debt...............................................        0.1          0.2
   Redemptions, repurchases of and principal payments on long-term debt...................      (22.8)        (6.8)
   Restricted cash withdrawals (deposits), net............................................       11.5       (287.1)
   Repurchase of treasury stock...........................................................       (9.7)           -
   Other..................................................................................       (0.7)        (1.5)
                                                                                            ----------  -----------
        Net cash provided by (used for) financing activities..............................       11.7       (295.2)
                                                                                            ----------  -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS.................................................      (35.2)      (105.2)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD..........................................      275.7        294.2
                                                                                            ----------  -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................................................  $   240.5   $    189.0
                                                                                            ==========  ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
   Interest paid, net of capitalized interest.............................................  $    80.5   $     79.2
   Income taxes paid......................................................................        1.7          0.5
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
   Repurchase of debt using restricted cash and marketable securities.....................  $    18.6   $        -

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

              CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    GENERAL

      The information contained in the following notes to the consolidated
financial statements is condensed from that which would appear in the annual
consolidated financial statements; accordingly, the consolidated financial
statements included herein should be reviewed in conjunction with the
consolidated financial statements and related notes thereto contained in the
Form 10-K. Any capitalized terms used but not defined in these Condensed Notes
to Consolidated Financial Statements are defined in the "Glossary of Defined
Terms" contained in Appendix A. All references to the "Company" include MAXXAM
Inc. and its subsidiary companies 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 to present fairly the consolidated
financial position of the Company at March 31, 2000, the consolidated results of
operations for the three months ended March 31, 2000 and 1999 and the
consolidated cash flows for the three months ended March 31, 2000 and 1999.

      There were no reconciling items between net income and comprehensive
income in either of the three month periods ended March 31, 2000 and 1999.

      LABOR RELATED COSTS
      Kaiser is currently operating five of its United States facilities with
salaried employees and other workers as a result of the September 30, 1998
strike by the USWA and the subsequent "lock-out" by Kaiser in January 1999.
However, Kaiser has continued to accrue certain benefits (such as pension and
other postretirement benefit costs/liabilities) for the USWA members during the
strike and subsequent lock-out. For purposes of computing the benefit-related
costs and liabilities to be reflected in the accompanying consolidated financial
statements, Kaiser has based its accruals on the terms of the previously
existing (expired) USWA contract. Any differences between the amounts accrued
and the amounts ultimately agreed to during the collective bargaining process
will be reflected in future results upon settlement or during the term of any
new contract.

      ACCOUNTING PRONOUNCEMENTS
      SFAS No. 133 requires companies to recognize all derivative instruments as
assets or liabilities in the balance sheet and to measure those instruments at
fair value. SFAS No. 137 delayed the required implementation date of SFAS No.
133 to no later than January 1, 2001. Under SFAS No. 133, the Company will be
required to "mark-to-market" its hedging positions at the end of each period in
advance of the period of recognition for the transactions to which the hedges
relate. Changes in the fair value of the Company's open hedging positions will
be reflected as an increase or reduction in stockholders' equity through
comprehensive income. The impact of the changes in fair value of the Company's
hedging positions will be reversed from comprehensive income (net of any
fluctuations in other "open" positions) and will be reflected in traditional net
income upon the occurrence of the transactions to which the hedges relate.
Currently, the dollar amount of the Company's comprehensive income adjustments
is not significant. Accordingly, there is no significant difference between
"traditional" net income and comprehensive income. However, differences between
comprehensive income and traditional net income may become significant in future
periods as SFAS No. 133 will result in fluctuations in comprehensive income and
stockholders' equity in periods of price volatility, despite the fact that the
Company's cash flow and earnings will be "fixed" to the extent hedged. The
Company will likely implement SFAS No. 133 as of January 1, 2001.

2.    SEGMENT INFORMATION

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

<TABLE>
<CAPTION>

                                                FOREST         REAL          RACING                   CONSOLIDATED
                                 ALUMINUM      PRODUCTS       ESTATE       OPERATIONS     CORPORATE       TOTAL
                               ------------  ------------- -------------  ------------  ------------  -------------
<S>                            <C>           <C>           <C>            <C>           <C>           <C>
Net sales to unaffiliated
      customers for the three
      months ended:
      March 31, 2000.........  $     565.7   $       47.4  $        6.2   $       8.3   $         -   $      627.6
      March 31, 1999.........        479.4           46.7          10.6           8.1             -          544.8

Operating income (loss) for
      the three months ended:
      March 31, 2000.........         38.4            5.8          (3.5)          1.4          (3.6)          38.5
      March 31, 1999.........        (31.5)          (1.4)         (2.1)          2.3          (2.5)         (35.2)

Depreciation, depletion and
      amortization for the
      three months ended:
      March 31, 2000.........         18.1            4.6           1.3           0.3           0.2           24.5
      March 31, 1999.........         22.9            4.9           1.9           0.2           0.1           30.0

Total assets as of:
      March 31, 2000.........      3,095.3          707.9         192.6          37.5         257.2        4,290.5
      December 31, 1999......      3,142.7          843.8         190.4          38.0         178.2        4,393.1

</TABLE>

      Operating income (loss) in the column entitled "Corporate" represents
corporate general and administrative expenses not directly attributable to the
reportable segments. This column also serves to reconcile the total of the
reportable segments' amounts to totals in the Company's consolidated financial
statements. The reconciling amounts for total assets for March 31, 2000 and
December 31, 1999 are primarily related to deferred tax assets.

3.    INCIDENT AT GRAMERCY FACILITY

      In July 1999, Kaiser's Gramercy, Louisiana, alumina refinery was
extensively damaged by an explosion in the digestion area of the plant.
Twenty-four employees were injured in the incident, several of them severely. As
a result of the incident, alumina production at the facility was completely
curtailed. Construction on the damaged part of the facility began during the
first quarter of 2000. Initial production at the plant is expected to commence
during the third quarter of 2000. Based on current estimates, full production is
expected to be achieved during the first quarter of 2001. Kaiser has received
the regulatory permit required to operate the plant once the facility is ready
to resume production.

      The cause of the incident is under investigation by Kaiser and
governmental agencies. In January 2000, MSHA issued 21 citations and in March
2000 proposed that Kaiser be assessed a penalty of $0.5 million in connection
with its investigation of the incident. The citations allege, among other
things, that certain aspects of the plant's operations were unsafe and that such
mode of operation contributed to the explosion. Kaiser disagrees with the
substance of the citations and has challenged them and the associated penalty.
It is possible that other civil or criminal fines or penalties could be levied
against Kaiser. However, as more fully explained below, based on what is known
to date and discussions with Kaiser's advisors, Kaiser believes that the
financial impact of this incident (in excess of insurance deductibles and
self-retention provisions) will be largely offset by insurance coverage.
Deductibles and self-retention provisions under the insurance coverage for the
incident total $5.0 million, which amounts were charged to cost of sales and
operations in the third quarter of 1999.

      Kaiser has significant amounts of insurance coverage related to the
Gramercy incident. Kaiser's insurance coverage has five separate components:
property damage, clean-up and site preparation, business interruption, liability
and workers' compensation. The insurance coverage components are discussed
below.

      Property Damage
      Kaiser's insurance policies provide that it will be reimbursed for the
costs of repairing or rebuilding the damaged portion of the facility using new
materials of like kind and quality with no deduction for depreciation. In 1999,
based on discussions with the insurance carriers and their representatives and
third party engineering reports, Kaiser recorded the minimum expected property
damage reimbursement amount. The receivable attributable to the minimum expected
property damage reimbursement of $100 million has been reflected in long-term
receivables and other assets as such proceeds will be invested in property,
plant and equipment. Such amount is expected to be received during 2000.

      Clean-up and Site Preparation
      The Gramercy facility has incurred incremental costs for clean up and
other activities during 1999 and will continue to incur such costs during 2000.
These clean-up and site preparation activities have been offset by accruals of
approximately $18.3 million, of which $4.3 million was accrued in the first
quarter of 2000, for estimated insurance recoveries.

      Business Interruption
      Kaiser's insurance policies provide for the reimbursement of specified
continuing expenses incurred during the interruption period plus lost profits
(or less expected losses) plus other expenses incurred as a result of the
incident. Operations at the Gramercy facility and a sister facility in Jamaica,
which supplies bauxite to Gramercy, will continue to incur operating expenses
until production at the Gramercy facility is restored. Kaiser will also incur
increased costs as a result of agreements to supply certain of Gramercy's major
customers with alumina, despite the fact that Kaiser had declared force majeure
with respect to the contracts shortly after the incident. Kaiser is purchasing
alumina from third parties, in excess of the amounts of alumina available from
other Kaiser-owned facilities, to supply these customers' needs as well as to
meet intersegment requirements. The excess cost of such open market purchases is
expected to be substantially offset by insurance recoveries. However, if delays
in the rebuilding of the Gramercy facility were to occur and certain sublimits
within Kaiser's insurance coverage were deemed to apply, Kaiser's operating
results could be negatively affected. In consideration of the foregoing items,
as of March 31, 2000, Kaiser had recorded expected business interruption
insurance recoveries totaling $66.3 million, of which $25.3 million were
recorded in first quarter of 2000, as a reduction of cost of sales and
operations. These amounts substantially offset actual expenses incurred during
the period. Such business interruption insurance amounts represent estimates of
Kaiser's business interruption coverage based on discussions with the insurance
carriers and their representatives and are therefore subject to change.

      Since production has been completely curtailed at the Gramercy facility,
Kaiser has, for the time being, suspended depreciation of the facility.
Depreciation expense for the first three months of 1999 was approximately $3.0
million. Depreciation expense will increase in future years once production is
restored.

      Liability
      The incident has also resulted in more than 35 class action lawsuits being
filed against Kaiser alleging, among other things, property damage and personal
injury. In addition, a claim for alleged business interruption losses has been
made by a neighboring business. The aggregate amount of damages sought in the
lawsuits and other claims cannot be determined at this time; however, Kaiser
does not believe the damages will exceed the amount of coverage under its
liability policies.

      Workers' Compensation
      Claims relating to all of the injured employees are expected to be covered
under Kaiser's workers' compensation or liability policies. However, the
aggregate amount of workers' compensation claims cannot be determined at this
time and it is possible that such claims could exceed Kaiser's coverage
limitations. While it is presently impossible to determine the aggregate amount
of claims that may be incurred, or whether they will exceed Kaiser's coverage
limitations, Kaiser believes that any amount in excess of the coverage
limitations will not have a material effect on its consolidated financial
position or liquidity. However, it is possible that as additional facts become
available, additional charges may be required and such charges could be material
to the period in which they are recorded.

      Timing of Insurance Recoveries
      As of March 31, 2000, Kaiser had recorded estimated recoveries for
clean-up, site preparation and business interruption costs incurred of
approximately $84.6 million, of which $29.6 million was recorded in the first
quarter of 2000. As of March 31, 2000, approximately $79.6 million of insurance
recoveries had been received, of which $29.6 million was received in the first
quarter of 2000. Kaiser continues to work with the insurance carriers to
maximize the amount of recoveries and to minimize, to the extent possible, the
period of time between when Kaiser expends funds and when it is reimbursed.
However, Kaiser will likely have to fund an average of 30 - 60 days of property
damage and business interruption activity, unless some other arrangement is
agreed to with the insurance carriers, and such amounts will be significant.
Kaiser believes it has sufficient financial resources to fund the construction
and business interruption costs on an interim basis. However, no assurances can
be given in this regard. If insurance recoveries were to be delayed or if there
were to be other significant uses of the capacity existing under the KACC Credit
Agreement, delays in the rebuilding at the Gramercy facility could occur and
could have a material adverse impact on Kaiser's liquidity and operating
results.

4.    Significant Acquisitions and Dispositions

      Kaiser's Acquisitions and Dispositions
      In February 2000, Kaiser completed the previously announced sale of its
Micromill assets and technology to a third party for a nominal payment at
closing and future payments based on subsequent performance and profitability of
the Micromill technology. The sale did not have a material impact on Kaiser's
first quarter 2000 operating results.

      During the quarter ended March 31, 2000, Kaiser, in the ordinary course of
business, sold certain non-operating properties for total proceeds of
approximately $12.0 million. The sale did not have a material impact on Kaiser's
first quarter 2000 operating results.

      Headwaters Transactions
      On March 1, 1999, the United States and California acquired the Headwaters
Timberlands, approximately 5,600 acres of timberlands containing a significant
amount of virgin old growth timber, from Pacific Lumber and its wholly owned
subsidiary, Salmon Creek. Salmon Creek received $299.9 million for its 4,900
acres, and for its 700 acres, Pacific Lumber received the 7,700 acre Elk River
Timberlands, which Pacific Lumber contributed to Scotia LLC in June 1999. See
Note 9 below for a discussion of additional agreements entered into on March 1,
1999.

      As a result of the disposition of the Headwaters Timberlands, the Company
recognized a pre-tax gain of $239.8 million ($142.1 million net of deferred
taxes or $18.17 per share) in 1999. This amount represents the gain attributable
to the portion of the Headwaters Timberlands for which the Company received
$299.9 million in cash. With respect to the remaining portion of the Headwaters
Timberlands for which the Company received the Elk River Timberlands, no gain
has been recognized as this represented an exchange of substantially similar
productive assets. These timberlands have been reflected in the Company's
financial statements at an amount which represents the Company's historical cost
for the timberlands which were transferred to the United States.

      Scotia LLC and Pacific Lumber also entered into agreements with California
for the future sale of two timber properties known as the Owl Creek grove and
the Grizzly Creek grove. Under these agreements, Scotia LLC would sell the Owl
Creek grove to California, no later than June 30, 2001, for the lesser of the
appraised fair market value or $79.7 million, and California must purchase from
Pacific Lumber, no later than October 31, 2000, all or a portion of the Grizzly
Creek grove for a purchase price determined based on fair market value, but not
to exceed $20.0 million. California also has a five year option under these
agreements to purchase additional property adjacent to the Grizzly Creek grove.
The sale of the Owl Creek grove or Grizzly Creek grove will not be reflected in
the Company's financial statements until each has been concluded.

5.    RESTRICTED CASH AND MARKETABLE SECURITIES

      Cash and marketable securities include the following amounts which are
restricted (in millions):

<TABLE>
<CAPTION>

                                                                                         MARCH 31,    DECEMBER 31,
                                                                                           2000           1999
                                                                                       ------------- --------------
                                                                                        (UNAUDITED)
<S>                                                                                    <C>           <C>
Current assets:
   Cash and cash equivalents:
      Amounts held as security for short positions in marketable securities..........  $       65.7  $        44.8
      Other restricted cash and cash equivalents.....................................           7.7            9.3
                                                                                       ------------- --------------
                                                                                               73.4           54.1
                                                                                       ------------- --------------
Marketable securities, restricted:
   Amounts held in SAR Account.......................................................          16.0           15.9
                                                                                       ------------- --------------

Long-term restricted cash and marketable securities:
   Amounts held in SAR Account.......................................................         141.6          153.2
   Amounts held in Prefunding Account................................................           3.0            3.3
   Other amounts restricted under the Timber Notes Indenture.........................           0.4            0.4
   Other long-term restricted cash...................................................           2.2            2.1
   Less: Amounts attributable to Timber Notes held in SAR Account....................         (18.6)             -
                                                                                       ------------- --------------
                                                                                              128.6          159.0
                                                                                       ------------- --------------

Total restricted cash and marketable securities......................................  $      218.0  $        229.0
                                                                                       ============= ==============

</TABLE>

6.    INVENTORIES

      Inventories consist of the following (in millions):

<TABLE>
<CAPTION>

                                                                                        MARCH 31,     DECEMBER 31,
                                                                                          2000            1999
                                                                                     --------------  --------------
                                                                                      (UNAUDITED)
<S>                                                                                  <C>             <C>
Aluminum operations:
   Finished fabricated aluminum products...........................................  $        98.0   $       118.5
   Primary aluminum and work in process............................................          184.3           189.4
   Bauxite and alumina.............................................................          117.5           124.1
   Operating supplies and repair and maintenance parts.............................          121.2           114.1
                                                                                     --------------  --------------
                                                                                             521.0           546.1
                                                                                     --------------  --------------
Forest products operations:
   Lumber..........................................................................           27.4            23.2
   Logs............................................................................           15.5            21.4
                                                                                     --------------  --------------
                                                                                              42.9            44.6
                                                                                     --------------  --------------
                                                                                     $       563.9   $       590.7
                                                                                     ==============  ==============
</TABLE>

7.    LONG-TERM DEBT

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

<TABLE>
<CAPTION>

                                                                                        MARCH 31,     DECEMBER 31,
                                                                                          2000            1999
                                                                                     --------------  --------------
                                                                                      (UNAUDITED)
<S>                                                                                  <C>             <C>
12% MGHI Senior Secured Notes due August 1, 2003...................................  $       123.2   $       125.2
6.55% Scotia LLC Class A-1 Timber Collateralized Notes due July 20, 2028...........          139.6           152.6
7.11% Scotia LLC Class A-2 Timber Collateralized Notes due July 20, 2028...........          243.2           243.2
7.71% Scotia LLC Class A-3 Timber Collateralized Notes due July 20, 2028...........          463.3           463.3
10 7/8% KACC Senior Notes due October 15, 2006, including premium..................          225.6           225.6
9 7/8% KACC Senior Notes due February 15, 2002, net of discount....................          224.6           224.6
Alpart CARIFA Loans................................................................           56.0            60.0
12 3/4% KACC Senior Subordinated Notes due February 1, 2003........................          400.0           400.0
Other aluminum operations debt.....................................................           74.6            62.6
Other notes and contracts, primarily secured by receivables, buildings, real estate
   and equipment...................................................................           26.5            27.2
                                                                                     --------------  --------------
                                                                                           1,976.6         1,984.3
      Less: current maturities.....................................................          (28.6)          (27.5)
           Timber Notes held in SAR Account........................................          (21.5)              -
                                                                                     --------------  --------------
                                                                                     $     1,926.5   $     1,956.8
                                                                                     ==============  ==============
</TABLE>

      The amount attributable to the Timber Notes held in the SAR Account of
$18.6 million reflected in Note 5 above represents the amount paid to acquire
$21.5 million of principal amount of Timber Notes. This repurchase resulted in
an extraordinary gain of $1.4 million, net of tax.

8.    PER SHARE INFORMATION

      Basic earnings per share is calculated by dividing net income 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. The weighted average common shares outstanding was 7,216,169 shares
and 7,000,863 shares for the three months ended March 31, 2000 and 1999,
respectively.

      Diluted earnings per share calculations also include the dilutive effect
of the Class A Preferred Stock (which is convertible into Common Stock) as well
as common and preferred stock options. The weighted average number of common and
common equivalent shares was 7,891,031 shares and 7,817,077 shares for the three
months ended March 31, 2000 and 1999, respectively.

9.    CONTINGENCIES

   ALUMINUM OPERATIONS

      Environmental Contingencies
      Kaiser is subject to a number of environmental laws, to fines or penalties
assessed for alleged breaches of such environmental laws, and to claims and
litigation based upon such laws. Kaiser is subject to a number of claims under
CERCLA and, along with certain other entities, has been named as a potentially
responsible party for remedial costs at certain third-party sites listed on the
National Priorities List under CERCLA.

      Based on Kaiser's evaluation of these and other environmental matters,
Kaiser has established environmental accruals primarily related to potential
solid waste disposal and soil and groundwater remediation matters. At March 31,
2000, the balance of such accruals, which are primarily included in other
noncurrent liabilities, was $48.2 million. These environmental accruals
represent Kaiser's estimate of costs reasonably expected to be incurred based on
presently enacted laws and regulations, currently available facts, existing
technology and Kaiser's assessment of the likely remediation actions to be
taken. Kaiser expects that these remediation actions will be taken over the next
several years and estimates that annual expenditures to be charged to these
environmental accruals will be approximately $3.0 million to $9.0 million for
the years 2000 through 2004 and an aggregate of approximately $22.0 million
thereafter.

      As additional facts are developed and definitive remediation plans and
necessary regulatory approvals for implementation of remediation are established
or alternative technologies are developed, changes in these and other factors
may result in actual costs exceeding the current environmental accruals. Kaiser
believes that it is reasonably possible that costs associated with these
environmental matters may exceed current accruals by amounts that could range,
in the aggregate, up to an estimated $37.0 million. As the resolution of these
matters is subject to further regulatory review and approval, no specific
assurance can be given as to when the factors upon which a substantial portion
of this estimate is based can be expected to be resolved. However, Kaiser is
working to resolve certain of these matters. Kaiser believes that it has
insurance coverage available to recover certain incurred and future
environmental costs and is pursuing claims in this regard. No assurances can be
given that Kaiser will be successful in its attempts to recover incurred or
future costs from insurers or that the amount of recoveries received will
ultimately be adequate to cover costs incurred. While uncertainties are inherent
in the final outcome of these environmental matters, and it is impossible to
determine the actual costs that ultimately may be incurred, management believes
that the resolution of such uncertainties should not have a material adverse
effect on the Company's consolidated financial position, results of operations
or liquidity.

      Asbestos Contingencies
      Kaiser is a defendant in a number of lawsuits, some of which involve
claims of multiple persons, in which the plaintiffs allege that certain of their
injuries were caused by, among other things, exposure to asbestos during, and as
a result of, their employment or association with Kaiser or exposure to products
containing asbestos produced or sold by Kaiser. The lawsuits generally relate to
products Kaiser has not sold for at least 20 years. At March 31, 2000, the
number of such claims pending was approximately 105,300 as compared with 100,000
at December 31, 1999. In 1999, approximately 29,300 of such claims were received
and 15,700 were settled or dismissed. During the quarter ended March 31, 2000,
approximately 6,400 of such claims were received and 1,100 of such claims were
settled or dismissed. The foregoing claim and settlement figures as of and for
the quarter ended March 31, 2000, do not reflect the fact that as of March 31,
2000, Kaiser had reached agreements under which it expects to settle
approximately 62,000 of the pending asbestos-related claims over an extended
period.

      Kaiser maintains a liability for estimated asbestos-related costs for
claims filed to date and an estimate of claims to be filed over a 10 year period
(i.e., through 2009). Kaiser's estimate is based on its view, at each balance
sheet date, of the current and anticipated number of asbestos-related claims,
the timing and amounts of asbestos-related payments, the status of ongoing
litigation and settlement initiatives, and the advice of Wharton Levin
Ehrmantraut Klein & Nash, P.A., with respect to the current state of the law
related to asbestos claims. However, there are inherent uncertainties involved
in estimating asbestos-related costs and Kaiser's actual costs could exceed its
estimates due to changes in facts and circumstances after the date of each
estimate. Further, while Kaiser does not believe there is a reasonable basis for
estimating asbestos-related costs beyond 2009 and, accordingly, no accrual has
been recorded for any costs which may be incurred beyond 2009, Kaiser expects
that such costs may continue beyond 2009, and that such costs could be
substantial. As of March 31, 2000, an estimated asbestos-related cost accrual of
$386.1 million, before consideration of insurance recoveries, has been reflected
in the accompanying financial statements primarily in other noncurrent
liabilities. Kaiser estimates that annual future cash payments for
asbestos-related costs will range from approximately $80.0 million to $95.0
million in the years 2000 to 2002, approximately $35.0 million to $55.0 million
for each of the years 2003 and 2004, and an aggregate of approximately $50.0
million thereafter.

      Kaiser believes that it has insurance coverage available to recover a
substantial portion of its asbestos-related costs. Although Kaiser has settled
asbestos-related coverage matters with certain of its insurance carriers, other
carriers have not yet agreed to settlements. Kaiser has reached preliminary
agreements with certain insurance carriers under which it expects to collect a
substantial portion of its 2000 asbestos-related payments. The timing and amount
of future recoveries from these and other insurance carriers will depend on the
pace of claims review and processing by such carriers and on the resolution of
any disputes regarding coverage under such policies. Kaiser believes that
substantial recoveries from the insurance carriers are probable. Kaiser reached
this conclusion after considering its prior insurance- related recoveries in
respect of asbestos-related claims, existing insurance policies, and the advice
of Heller Ehrman White & McAuliffe LLP with respect to applicable insurance
coverage law relating to the terms and conditions of those policies.
Accordingly, an estimated aggregate insurance recovery of $320.4 million,
determined on the same basis as the asbestos-related cost accrual, is recorded
primarily in long-term receivables and other assets at March 31, 2000. However,
no assurance can be given that Kaiser will be able to project similar recovery
percentages for future asbestos-related claims or that the amounts related to
future asbestos-related claims will not exceed Kaiser's aggregate insurance
coverage.

      Kaiser continues to monitor claims activity, the status of lawsuits
(including settlement initiatives), legislative developments, and costs incurred
in order to ascertain whether an adjustment to the existing accruals should be
made to the extent that historical experience may differ significantly from
Kaiser's underlying assumptions. While uncertainties are inherent in the final
outcome of these asbestos matters and it is presently impossible to determine
the actual costs that ultimately may be incurred and insurance recoveries that
will be received, management believes that, based on the factors discussed in
the preceding paragraphs, the resolution of asbestos-related uncertainties and
the incurrence of asbestos-related costs net of related insurance recoveries
should not have a material adverse effect on the Company's consolidated
financial position or liquidity. However, as Kaiser's estimates are periodically
reevaluated, additional charges may be necessary and such charges could be
material to the results of the period in which they are recorded.

      Labor Matters
      In connection with the USWA strike and subsequent lock-out by Kaiser,
certain allegations of ULPs have been filed with the NLRB by the USWA. Kaiser
responded to all such allegations and believes that they were without merit. In
July 1999, the Oakland, California, regional office of the NLRB dismissed all
material charges filed against Kaiser. In September 1999, the union filed an
appeal of this ruling with the NLRB general counsel's office in Washington, D.C.
In April 2000, Kaiser was notified by the general counsel of the NLRB of the
dismissal of 22 of 24 allegations of ULPs previously brought against it by the
USWA. The general counsel of the NLRB indicated that he would refer two
allegations for trial before an administrative law judge. A trial date has not
been set. Any outcome from the trial before the administrative law judge would
be subject to an additional appeal either by the USWA or Kaiser. This process
could take months or years. If these proceedings eventually resulted in a
definitive ruling against Kaiser, it could be obligated to provide back pay to
USWA members at the five plants and such amount could be significant. However,
while uncertainties are inherent in the final outcome of such matters, the
Company believes that the resolution of the alleged ULPs should not result in a
material adverse effect on the Company's consolidated financial position,
results of operations, or liquidity.

      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 and Pacific
Lumber's 2000 timber operator's license, dealing with timber harvesting
practices, threatened and endangered species and habitat for such species, and
air and water quality. As further described in Note 4 "Headwaters Transactions,"
on March 1, 1999, Pacific Lumber, including its subsidiaries and affiliates, and
the Company consummated the Headwaters Agreement with the United States and
California. In addition to the transfer of the Headwaters Timberlands described
in Note 4, the SYP and the HCP were approved and the Permits were issued.

       The SYP complies with certain California Board of Forestry regulations
requiring timber companies to project timber growth and harvest on their
timberlands over a 100-year planning period and to demonstrate that their
projected average annual harvest for any decade within a 100-year planning
period will not exceed the average annual harvest level during the last decade
of the 100-year planning period. The SYP is effective for 10 years (subject to
review after five years) and may be amended by Pacific Lumber, subject to
approval by the CDF. Revised SYPs will be prepared every decade that address the
harvest level based upon reassessment 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 have been listed as endangered or
threatened under the ESA and/or 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. The Company
believes that the SYP and the HCP should in the long-term expedite the
preparation and facilitate approval of its THPs, although the Company is
experiencing difficulties in the THP approval process as it implements these
agreements.

      Under the Federal Clean Water Act, 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 Regional Water Quality Control Board are in the process of
establishing TMDLs for 17 northern California rivers and certain of their
tributaries, including certain water courses that flow within the Company's
timberlands. The final TMDL requirements applicable to the Company's timberlands
may require aquatic measures that are different from or in addition to the
prescriptions to be developed pursuant to the watershed analysis process
provided for in the HCP.

      Lawsuits are pending and threatened which seek to prevent the Company from
implementing the HCP and/or the SYP, implementing certain of the Company's
approved THPs or carrying out certain other operations. On December 2, 1997, two
lawsuits were filed against the Company, certain of its subsidiaries and others:
the Wrigley lawsuit and the Rollins lawsuit. These actions allege, among other
things, that the defendants' logging practices have damaged the plaintiffs'
properties and property values by contributing to landslides (Rollins lawsuit)
and the destruction of certain watersheds (Wrigley lawsuit). The Company
believes that it has strong factual and legal defenses with respect to these
matters; however, there can be no assurance that they will not have a material
adverse effect on its financial position, results of operations or liquidity. On
March 31, 1999, the EPIC-SYP/Permits lawsuit was filed alleging various
violations of the CESA and the CEQA, and challenging, among other things, the
validity and legality of the Permits issued by California and the SYP. On March
31, 1999, the USWA lawsuit was filed also challenging the validity and legality
of the SYP. The Company believes that appropriate procedures were followed
throughout the public review and approval process concerning the HCP and the
SYP, and the Company is working with the relevant government agencies to defend
these challenges. Although uncertainties are inherent in the final outcome of
the EPIC-SYP/Permits lawsuit and the USWA lawsuit, the Company believes that the
resolution of these matters should not result in a material adverse effect on
its financial condition, results of operations or the ability to harvest timber.
While the Company expects environmentally focused objections and lawsuits to
continue, it believes that the HCP, the SYP and the Permits should enhance its
position in connection with these continuing challenges and, over time, reduce
or minimize such challenges.

      OTS CONTINGENCY AND RELATED MATTERS

      On December 26, 1995, the OTS initiated a formal administrative proceeding
against the Company and others by filing the Notice. The Notice alleges, among
other things, misconduct by the Respondents with respect to the failure of USAT,
a wholly owned subsidiary of UFG. At the time of receivership, the Company owned
approximately 13% of the voting stock of UFG. The Notice claims, among other
things, that the Company was a savings and loan holding company, that with
others it controlled USAT, and that, as a result of such status, it was
obligated to maintain the net worth of USAT. The Notice makes numerous other
allegations against the Company and the other Respondents, including that
through USAT it was involved in prohibited transactions with Drexel Burnham
Lambert Inc. The hearing on the merits of this matter commenced on September 22,
1997 and concluded on March 1, 1999. On February 10, 1999, the OTS and FDIC
settled with all of the Respondents except Mr. Charles Hurwitz, Chairman and
Chief Executive Officer of the Company, the Company and Federated for $1.0
million and limited cease and desist orders.

      Post hearing briefing concluded on January 31, 2000. In its post-hearing
brief, the OTS claims, among other things, that the remaining Respondents, Mr.
Hurwitz, the Company and Federated, are jointly and severally liable to pay
either $821.3 million in restitution or reimbursement of $362.6 million for
alleged unjust enrichment. The OTS also claims that each remaining Respondent
should be required to pay $4.6 million in civil money penalties, and that Mr.
Hurwitz should be prohibited from engaging in the banking industry. The
Respondents' brief claims that none of them has any liability in this matter. A
recommended decision by the administrative law judge is not expected any sooner
than mid- 2000. A final agency decision would be issued by the OTS Director
thereafter. Such decision would then be subject to appeal by any of the parties
to the federal appellate court.

      On August 2, 1995, the FDIC filed the FDIC action. The original complaint
was against Mr. Hurwitz 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 original complaint further alleged,
among other things, that Mr. Hurwitz was obligated to ensure that UFG, Federated
and the Company maintained the net worth of USAT. In January 1997, the FDIC
filed an amended complaint which seeks, conditioned on the OTS prevailing in its
administrative proceeding, unspecified damages from Mr. Hurwitz relating to
amounts the OTS does not collect from the Company and Federated with respect to
their alleged obligations to maintain USAT's net worth.

      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. The Company has
concluded that it is unable to determine a reasonable estimate of the loss (or
range of loss), if any, that could result from these contingencies. Accordingly,
it is impossible to assess the ultimate outcome of the foregoing matters or
their potential impact on the Company; however, any adverse outcome of these
matters could have a material adverse effect on the Company's consolidated
financial position, results of operations or liquidity.

      OTHER MATTERS

      The Company is involved in various other claims, lawsuits and other
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 have a material adverse effect on the Company's consolidated
financial position, results of operations or liquidity.

10.   DERIVATIVE FINANCIAL INSTRUMENTS AND RELATED HEDGING PROGRAMS

      At March 31, 2000, the net unrealized loss on Kaiser's position in
aluminum forward sales and option contracts (excluding the impact of those
contracts discussed below which have been marked to market), energy forward
purchase and option contracts, and forward foreign exchange contracts, was
approximately $25.2 million (based on applicable quarter-end published market
prices). As Kaiser's hedging activities are generally designed to lock-in a
specified price or range of prices, gains or losses on the derivative contracts
utilized in these hedging activities will be offset by losses or gains,
respectively, on the transactions being hedged.

      ALUMINA AND ALUMINUM
      Kaiser's earnings are sensitive to changes in the prices of alumina,
primary aluminum and fabricated aluminum products and also depend to a
significant degree upon the volume and mix of all products sold. Primary
aluminum prices have historically been subject to significant cyclical price
fluctuations. Alumina prices as well as fabricated aluminum product prices
(which vary considerably among products) are significantly influenced by changes
in the price of primary aluminum but generally lag behind primary aluminum price
changes by up to three months. Since 1993, the AMT Price has ranged from
approximately $0.50 to $1.00 per pound.

      From time to time in the ordinary course of business, Kaiser enters into
hedging transactions to provide price risk management in respect of the net
exposure of earnings and cash flows resulting from (i) anticipated sales of
alumina, primary aluminum and fabricated aluminum products, less (ii) expected
purchases of certain items, such as aluminum scrap, rolling ingot and bauxite,
whose prices fluctuate with the price of primary aluminum. Forward sales
contracts are used by Kaiser to effectively fix the price that Kaiser will
receive for its shipments. Kaiser also uses option contracts (i) to establish a
minimum price for its product shipments, (ii) to establish a "collar" or range
of prices for its anticipated sales and/or (iii) to permit it to realize
possible upside price movements. As of March 31, 2000, Kaiser had entered into
option contracts that established a price range for an additional 239,000,
317,000 and 91,000 tons of primary aluminum with respect to 2000, 2001 and 2002,
respectively.

      Additionally, through March 31, 2000, Kaiser had also entered into a
series of transactions with a counterparty that will provide it with a premium
over the forward market prices at the date of the transaction for 2,000 tons of
primary aluminum per month during the period from April 2000 through June 2001.
Kaiser also contracted with the counterparty to receive certain fixed prices
(also above the forward market prices at the date of the transaction) on 4,000
tons of primary aluminum per month over a three year period commencing October
2001 unless market prices during certain periods decline below a stipulated
"floor" price, in which case, the fixed price sales portion of the transactions
terminates. The price at which the October 2001 and later transactions terminate
is well below current market prices. While Kaiser believes that the October 2001
and after transactions are consistent with its stated hedging objectives, these
positions do not qualify for treatment as a "hedge" under current accounting
guidelines. Accordingly, these positions will be "marked-to-market" each period.
For the quarter ended March 31, 2000, Kaiser recorded mark-to-market gains of
$14.4 million in investment, interest and other income (expense), net associated
with the transactions described in this paragraph.

      As of March 31, 2000, Kaiser had sold forward virtually all of the alumina
available to it in excess of its projected internal smelting requirements for
2000 and 2001 at prices indexed to future prices of primary aluminum.

      ENERGY
      Kaiser is exposed to energy price risk from fluctuating prices for fuel
oil and diesel oil consumed in the production process. Kaiser from time to time
in the ordinary course of business enters into hedging transactions with major
suppliers of energy and energy related financial instruments. As of March 31,
2000, Kaiser held a combination of fixed price purchase and option contracts for
an average of 232,000 barrels per month of fuel oil for the remainder of 2000.

      FOREIGN CURRENCY
      Kaiser enters into forward exchange contracts to hedge material cash
commitments to foreign subsidiaries or affiliates. At March 31, 2000, Kaiser had
net forward foreign exchange contracts totaling approximately $76.9 million for
the purchase of 116.5 million Australian dollars from April 2000 through July
2001, in respect of its Australian dollar denominated commitments from April
2000 through July 2001. In addition, Kaiser has entered into option contracts
that establish a price range for the purchase of 36.0 million Australian dollars
for the period April 2000 through June 2001.


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.

      This Quarterly Report on Form 10-Q contains statements which constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements appear in a number of places in
this section, in Item 3. "Quantitative and Qualitative Disclosures About Market
Risk" and in Part II. Item 1. "Legal Proceedings." Such statements can be
identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "estimates," "will," "should," "plans" or "anticipates" or the
negative thereof or other variations thereon or comparable terminology, or by
discussions of strategy. Readers are cautioned that any such forward- looking
statements are not guarantees of future performance and involve significant
risks and uncertainties, and that actual results may vary materially from the
forward-looking statements as a result of various factors. These factors include
the effectiveness of management's strategies and decisions, general economic and
business conditions, developments in technology, new or modified statutory or
regulatory requirements and changing prices and market conditions. This Form
10-Q and the Form 10-K identify other factors that could cause such differences
between 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 four industries: aluminum, through its majority
owned subsidiary, Kaiser, an integrated aluminum producer; forest products,
through MGI and its wholly owned subsidiaries, principally Pacific Lumber 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. All references to the "Company," "Kaiser," "MGHI,"
"MGI," "Pacific Lumber," "MPC" and "SHRP, Ltd." refer to the respective
companies and their subsidiaries, unless otherwise indicated or the context
indicates otherwise.

   ALUMINUM OPERATIONS

      Aluminum operations account for a substantial portion of the Company's
revenues and operating results. Kaiser, through its principal subsidiary KACC,
operates in four business segments: bauxite and alumina, primary aluminum,
flat-rolled products and engineered products. Kaiser uses a portion of its
bauxite, alumina and primary aluminum production for additional processing at
certain of its downstream facilities. Intersegment transfers are valued at
estimated market prices.

      Industry Overview

      Kaiser's operating results are sensitive to changes in the prices of
alumina, primary aluminum and fabricated aluminum products, and also depend to a
significant degree on the volume and mix of all products sold and on Kaiser's
hedging strategies. Primary aluminum prices have historically been subject to
significant cyclical fluctuations (see Note 10 to the Consolidated Financial
Statements for a discussion of Kaiser's hedging activities).

      Changes in global, regional, or country-specific economic conditions can
have a significant impact on overall demand for aluminum-intensive fabricated
products in the transportation, distribution, and packaging markets. Such
changes in demand can directly affect Kaiser's earnings by impacting the overall
volume and mix of such products sold. To the extent that these end-use markets
weaken, demand can also diminish for what Kaiser sometimes refers to as the
"upstream" products: alumina and primary aluminum.

      During 1999, the AMT Price per pound of primary aluminum declined from the
low $.60 range at the beginning of the year to a low of approximately $.57 per
pound in February and then began a steady increase ending 1999 at $.79 per
pound. During the first quarter of 2000, the AMT Price increased to a high of
approximately $.84 in January and then began a decline ending the quarter at
$.74 per pound. The AMT Price for primary aluminum for the week ended April 14,
2000, was approximately $.70 per pound.

      Summary

      The following table presents selected operational and financial
information with respect to the Company's aluminium operations for the three
months ended March 31, 2000 and 1999.

<TABLE>
<CAPTION>
                                                                                            THREE MONTHS ENDED
                                                                                                 MARCH 31,
                                                                                        -------------------------------
                                                                                          2000                1999
                                                                                        -------------     -------------
                                                                                         (IN MILLIONS OF DOLLARS,
                                                                                        EXCEPT SHIPMENTS AND PRICES)
<S>                                                                                     <C>               <C>
Shipments:(1)
   Alumina:
      Third party......................................................................        437.5 (2)        487.0
      Intersegment.....................................................................        277.6 (2)        150.3
                                                                                        -------------     -------------
        Total alumina..................................................................        715.1            637.3
                                                                                        -------------     -------------
   Primary aluminum:
      Third party......................................................................         79.4             62.9
      Intersegment.....................................................................         47.9             39.5
                                                                                        -------------     -------------
        Total primary aluminum.........................................................        127.3            102.4
                                                                                        -------------     -------------
   Flat-rolled products................................................................         51.8             52.5
                                                                                        -------------     -------------
   Engineered products.................................................................         47.3             41.4
                                                                                        -------------     -------------
Average realized third party sales price: (3)
   Alumina (per ton)................................................................... $        203      $       172
   Primary aluminum (per pound)........................................................         0.72             0.64
Net sales:
   Bauxite and alumina:
      Third party (includes net sales of bauxite)...................................... $      100.8 (2)  $      89.7
      Intersegment.....................................................................         56.8 (2)         23.0
                                                                                        -------------     -------------
        Total bauxite and alumina......................................................        157.6            112.7
                                                                                        -------------     -------------
   Primary aluminum:
      Third party......................................................................        127.1             89.1
      Intersegment.....................................................................         82.1             49.1
                                                                                        -------------     -------------
        Total primary aluminum.........................................................        209.2            138.2
                                                                                        -------------     -------------
   Flat-rolled products................................................................        153.7            148.3
   Engineered products.................................................................        159.5            133.5
   Minority interests..................................................................         24.6             18.8
   Eliminations........................................................................       (138.9)           (72.1)
                                                                                        -------------     -------------
        Total net sales................................................................ $      565.7      $     479.4
                                                                                        =============     =============
Operating income (loss)(4)............................................................. $       38.4      $     (31.5)
                                                                                        =============     =============
Income (loss) before income taxes and minority interests............................... $       20.1      $     (57.9)
                                                                                        =============     =============
Capital expenditures and investments in unconsolidated affiliates...................... $       16.7      $      16.5
                                                                                        =============     =============

<FN>
-----------------------------------------
(1)   Shipments are expressed in thousands of metric tons.  A metric ton is
      equivalent to 2,204.6 pounds.
(2)   Net sales for the three months ended March 31, 2000, included
      approximately 77,000 tons of alumina purchased from third parties and
      resold to certain unaffiliated customers and 39,000 tons of alumina
      purchased from third parties and transferred to Kaiser's primary aluminum
      business unit.
(3)   Average realized prices for the Kaiser's flat-rolled products and
      engineered products segments are not presented as such prices are subject
      to fluctuations due to changes in product mix.  Average realized third
      party sales prices for alumina and primary aluminum include the impact of
      hedging activities.
(4)   Operating income for the three months ended March 31, 2000, included
      estimated business interruption insurance recoveries totaling $25.3
      million and approximately $2.0 million of non-recurring expenses related
      to corporate staff cost reduction and efficiency initiatives.
      Additionally, depreciation was suspended for the Gramercy facility for
      the last six months of 1999 and the first three months of 2000 as a
      result of the July 5, 1999, incident.  Depreciation expense for the
      Gramercy facility for the three months ended March 31, 1999, was
      approximately $3.0 million.  The operating loss for the three months
      ended March 31, 1999, included potline restart costs of $7.1 million.
      Kaiser's Micromill assets and technology were sold to a third party in
      February 2000.

</FN>
</TABLE>

    Recent Events and Developments

    Incident at Gramercy

      In July 1999, Kaiser's Gramercy, Louisiana, alumina refinery was
extensively damaged by an explosion in the digestion area of the plant. See Note
3 to the Consolidated Financial Statements for further information regarding the
incident at the Gramercy facility.

      Construction on the damaged part of the facility began during the first
quarter of 2000. Initial production at the plant is expected to commence during
the third quarter of 2000. Based on current estimates, full production is
expected to be achieved during the first quarter of 2001. Kaiser has received
the regulatory permit required to operate the plant once the facility is ready
to resume production.

      In March 2000, MSHA proposed that Kaiser be assessed a penalty of $0.5
million in connection with the citations issued from its investigation of the
incident. Kaiser disagrees with the substance of the MSHA citations and has
challenged them and the associated penalty. However, it is possible that other
civil or criminal fines or penalties could be levied against Kaiser.

      During the three months ended March 31, 2000, estimated insurance
recoveries for clean-up and site preparation costs of $4.3 million and business
interruption costs of $25.3 million were accrued. During the three months ended
March 31, 2000, insurance recoveries totaling $29.6 million were received. At
March 31, 2000, Kaiser had recorded estimated recoveries for clean-up, site
preparation and business interruption costs incurred of approximately $84.6
million, of which $79.6 million of insurance recoveries had been received.

      Labor Matters
      Substantially all of Kaiser's hourly workforce at its Gramercy, Louisiana,
alumina refinery, Mead and Tacoma, Washington, aluminum smelters, Trentwood,
Washington, rolling mill, and Newark, Ohio, extrusion facility were covered by a
master labor agreement with the USWA which expired on September 30, 1998. The
parties did not reach an agreement prior to the expiration of the master
agreement and the USWA chose to strike. In January 1999, Kaiser declined an
offer by the USWA to have the striking workers return to work at the five plants
without a new agreement. Kaiser imposed a lock-out to support its bargaining
position and continues to operate the plants with salaried employees and other
workers as it has since the strike began.

      Kaiser and the USWA continue to communicate; however, no formal schedule
for bargaining sessions has been developed at this time. The objective of Kaiser
has been, and continues to be, to negotiate a fair labor contract that is
consistent with its business strategy and the commercial realities of the
marketplace.

      In connection with the USWA strike and subsequent lock-out by Kaiser,
certain allegations of ULPs have been filed with the NLRB by the USWA. Kaiser
responded to all such allegations and believes that they were without merit. In
July 1999, the Oakland, California, regional office of the NLRB dismissed all
material charges filed against Kaiser. In September 1999, the union filed an
appeal of this ruling with the NLRB general counsel's office in Washington, D.C.
In April 2000, Kaiser was notified by the general counsel of the NLRB of the
dismissal of 22 of 24 allegations of ULPs previously brought against it by the
USWA. The general counsel of the NLRB indicated that he would refer two
allegations for trial before an administrative law judge. A trial date has not
been set. Any outcome from the trial before the administrative law judge would
be subject to an additional appeal either by the USWA or Kaiser. This process
could take months or years. If these proceedings eventually resulted in a
definitive ruling against Kaiser, it could be obligated to provide back pay to
USWA members at the five plants and such amount could be significant. However,
while uncertainties are inherent in the final outcome of such matters, the
Company believes that the resolution of the alleged ULPs should not result in a
material adverse effect on the Company's consolidated financial position,
results of operations, or liquidity.

      Strategic Initiatives
      Kaiser has devoted significant efforts analyzing its existing asset
portfolio with the intent of focusing its efforts and capital in sectors of the
industry that are considered most attractive and in which Kaiser believes it is
well positioned to capture value. This process has continued in 2000. In the
first quarter of 2000, Kaiser, in the ordinary course of business, sold certain
non-operating properties and completed the sale of its Micromill assets and
technology.

      Another area of emphasis has been a continuing focus on managing Kaiser's
legacy liabilities. Kaiser believes that it has insurance coverage available to
recover certain incurred and future environmental costs and a substantial
portion of its asbestos-related costs and is actively pursuing claims in this
regard. The timing and amount of future recoveries of asbestos-related claims
from insurance carriers remain a major priority of Kaiser, but will depend on
the pace of claims review and processing by such carriers and the resolution of
any disputes regarding coverage under the insurance policies. However, during
1999, Kaiser reached preliminary agreements under which it expects to collect a
substantial portion of its expected 2000 asbestos-related payments from certain
insurance carriers.

      Flat-Rolled Products
      In December 1999, Kaiser announced that its flat-rolled products business
unit expects to accelerate its product mix shift toward higher value added
product lines such as heat-treat, beverage can lid and tab stock, automotive and
other niche businesses, and away from beverage can body stock. The initial steps
of this process should be completed during the second quarter of 2000, at which
point Kaiser will assess related issues such as employment levels at the
Trentwood facility. Although the shift in product mix is expected to have a
favorable impact on Kaiser's results and financial position over the long term,
it is possible that such a product mix shift may result in certain non-recurring
charges that would have an adverse impact on Kaiser's near term results.

      Net Sales
      Bauxite and alumina. Third party net sales of alumina increased 12% for
the quarter ended March 31, 2000, as compared to the same period in 1999 as an
18% increase in third party average realized prices was partially offset by a
10% decrease in third party shipments. The increase in the average realized
prices was due to an increase in market prices related to Kaiser's primary
aluminum-linked customers sales contracts. Such increase was partially offset by
allocated net losses from Kaiser's hedging activities. The decrease in
quarter-over-quarter shipments resulted primarily from differences in the timing
of shipments and, to a lesser extent, the net effect of the Gramercy incident,
after considering the 77,000 tons of alumina purchased by Kaiser in 2000 from
third parties to fulfill third party sales contracts.

      Intersegment net sales of alumina were up 147% for the quarter ended March
31, 2000, as compared to the same period in 1999. The increase was due to a 34%
increase in the intersegment average realized price and an 85% increase in
intersegment shipments. The increase in shipments was due to the favorable
impact of operating three more potlines at Valco and two and one-half more
potlines at Kaiser's Washington smelters in 2000 than in 1999. Intersegment net
sales included approximately 39,000 tons of alumina purchased from third-parties
and transferred to the primary aluminum business unit.

      Primary aluminum. First quarter 2000 third party net sales of primary
aluminum were up 43% as compared to the same period in 1999 as a result of a 13%
increase in third party averaged realized prices and a 26% increase in third
party shipments. The increase in the average realized prices was partially
offset by allocated net losses from Kaiser's hedging activities. The increase in
shipments was primarily due to the favorable impact of the increased operating
rate at Valco and at Kaiser's Washington smelters as discussed above.
Intersegment net sales were up approximately 67% between the first quarter of
2000 and first quarter 1999. Intersegment shipments were up 21% from the prior
year, primarily reflecting increased demand from the fabricated products
segments, and average realized prices increased 39% reflecting higher market
prices for primary aluminum.

      Flat-rolled products. Net sales of flat-rolled products increased by 4%
during first quarter 2000 as compared to 1999 primarily as a result of a 5%
increase in average realized prices. Third party shipments were essentially
flat. The increase in average realized prices primarily reflects the pass
through to customers of increased market prices for primary aluminum.

      Engineered products. Net sales of engineered products increased
approximately 19% year over year, reflecting a 14% increase in product shipments
and 5% increase in average realized prices. The increase in shipments was due to
a strong increase in the demand in the distribution and ground transportation
markets. The change in average realized prices primarily reflects the pass
through to customers of increased market prices for primary aluminum.

   Operating Income

      Bauxite and alumina. Operating income increased between years primarily
due to the increase in the average realized prices and net shipments discussed
above.

      Primary aluminum. Operating income in the first quarter 2000 was up from
the first quarter 1999. The primary reasons for the increase were the
improvements in shipments and average realized prices discussed above. However,
first quarter 1999 results included costs of approximately $7.1 million
associated with preparing and restarting potlines at Valco and the Washington
smelters.

      Flat-rolled products. Operating income decreased in the first quarter 2000
compared to the same period in 1999. While average realized prices increased
year over year, first quarter 2000 results reflect a reduced margin spread
contribution from heat treat aerospace products. While heat treat product
shipments in 2000 improved over late 1999 levels, they did not reach the robust
levels experienced in 1998 and early 1999.

      Engineered products. Operating income increased substantially in the first
quarter of 2000 as compared to the first quarter of 1999. The year over year
increase primarily reflects the impact of the strong demand in the distribution
and ground transportation markets on shipments and margins. Operating income for
the three months ended March 31, 1999, included equity in earnings of $2.5
million from AKW, which was sold in April 1999.

      Eliminations. Eliminations of intersegment profit vary from period to
period depending on fluctuations in market prices as well as the amount and
timing of the affected segments' production and sales.

   FOREST PRODUCTS OPERATIONS

      The Company's forest products operations are conducted by MGI, through
Pacific Lumber and Britt. MGI'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 markedly seasonal. Accordingly, MGI's results for
any one quarter are not necessarily indicative of results to be expected for the
full year.

      Due to Pacific Lumber's difficulties in implementing the Environmental
Plans and the resulting lower harvests on its property, Pacific Lumber's
production of redwood lumber has decreased. Furthermore, logging costs have
increased due to the harvest of smaller diameter logs and compliance with
environmental regulations and the Environmental Plans. Pacific Lumber has been
able to lessen the impact of these factors by instituting a number of measures
at its sawmills during the past several years designed to enhance the efficiency
of its operations, such as modernization and expansion of its manufactured
lumber facilities and other improvements in lumber recovery. See also
"--Trends."

      The following table presents selected operational and financial
information for the three months ended March 31, 2000 and 1999 for the Company's
forest products operations.

<TABLE>
<CAPTION>

                                                                                            THREE MONTHS ENDED
                                                                                                 MARCH 31,
                                                                                        ---------------------------
                                                                                            2000          1999
                                                                                        ------------- -------------
                                                                                         (IN MILLIONS OF DOLLARS,
                                                                                        EXCEPT SHIPMENTS AND PRICES)
<S>                                                                                     <C>           <C>
Shipments:
   Lumber: (1)
      Redwood upper grades.............................................................          3.5           7.8
      Redwood common grades............................................................         35.4          38.7
      Douglas-fir upper grades.........................................................          2.5           2.0
      Douglas-fir common grades........................................................         19.1          15.3
      Other............................................................................          3.0           2.5
                                                                                        ------------- -------------
   Total lumber........................................................................         63.5          66.3
                                                                                        ============= =============
   Wood chips (2)......................................................................         39.0          45.4
                                                                                        ============= =============

Average sales price:
   Lumber: (3)
      Redwood upper grades............................................................. $      1,615  $      1,418
      Redwood common grades............................................................          739           560
      Douglas-fir upper grades.........................................................        1,300         1,272
      Douglas-fir common grades........................................................          424           377
   Wood chips (4)......................................................................           62            80

Net sales:
   Lumber, net of discount............................................................. $       43.7  $       41.6
   Wood chips..........................................................................          2.4           3.6
   Cogeneration power..................................................................          0.6           0.6
   Other...............................................................................          0.7           0.9
                                                                                        ------------- -------------
      Total net sales.................................................................. $       47.4  $       46.7
                                                                                        ============= =============
Operating income (loss)................................................................ $        5.8  $       (1.4)
                                                                                        ============= =============
Operating cash flow (5)................................................................ $       10.4  $        3.5
                                                                                        ============= =============
Income (loss) before income taxes and minority interests (6)........................... $       (4.9) $      226.2
                                                                                        ============= =============
Capital expenditures................................................................... $        1.9  $       12.4
                                                                                        ============= =============
<FN>
---------------------------
(1)   Lumber shipments are expressed in millions of board feet.
(2)   Wood chip shipments are expressed in thousands of bone dry units of
      2,400 pounds.
(3)   Dollars per thousand board feet.
(4)   Dollars per bone dry unit.
(5)   Operating income before depletion and depreciation, also referred to as
      "EBITDA."
(6)   1999 results include a $239.8 million gain on the sale of the Headwaters
      Timberlands.

</FN>
</TABLE>

      Net Sales
      Net sales for the 2000 first quarter increased from the 1999 first quarter
due primarily to higher prices for both redwood and Douglas-fir lumber and due
to higher shipments of Douglas-fir lumber. This improvement was offset somewhat
by lower shipments of upper and common grade redwood lumber. The decrease in
shipments of redwood lumber is largely due to continuing reductions in the
volume of logs available for the production of lumber products.
 The diminished supply of approved THPs continues to affect log supply. See
"--Trends" for further discussion of the factors affecting the supply of
approved THPs.

      Operating Income (Loss)
      The forest products segment had operating income for the quarter ended
March 31, 2000 as compared to an operating loss for the comparable 1999 quarter,
primarily due to lower cost of sales and operations, as well as an increase in
net sales discussed above. Costs of sales and operations were lower
due to increased efficiencies at the sawmills and a reduction in logging costs.

      Income (Loss) Before Income Taxes and Minority Interests
      Income before income taxes for the first quarter of 2000 decreased from
the comparable prior year period, principally due to the gain on the sale of the
Headwaters Timberlands of $239.8 million ($142.1 million net of deferred taxes
or $18.17 per share) in March 1999.

   REAL ESTATE OPERATIONS

      Industry Overview
      The Company, principally through its wholly owned subsidiaries, invests in
and develops residential and commercial real estate primarily in Puerto Rico,
Arizona and California.

<TABLE>
<CAPTION>
                                                                    THREE MONTHS ENDED
                                                                         MARCH 31,
                                                                   --------------------
                                                                     2000       1999
                                                                   ---------  ---------
                                                                   (IN MILLIONS OF DOLLARS)
<S>                                                                <C>        <C>
Net sales......................................................... $    6.2   $   10.6
Operating loss....................................................     (3.5)      (2.1)
Loss before income taxes and minority interests...................     (0.6)      (0.5)
Capital expenditures, net of tax credit...........................      1.0       (1.5)

</TABLE>

      Net Sales
      Net sales decreased in the first quarter 2000 from the first quarter 1999
primarily due to lower sales of lots and other real estate at the Company's
Palmas del Mar, Fountain Hills and Mirada development projects.

      Operating Loss
      The real estate segment operating loss for the first quarter 2000
increased from the operating loss for first quarter of 1999 primarily due to
lower net sales discussed above.

      Loss Before Income Taxes and  Minority Interests
      The loss before income taxes and minority interests for the first quarter
of 2000 increased compared to the first quarter 1999 primarily due to the
operating loss discussed above offset in part by higher equity in earnings from
real estate joint ventures in Arizona.

   RACING OPERATIONS

      Industry Overview
      The Company, through its subsidiaries, has a 98.9% ownership interest in
SHRP, Ltd., a Texas limited partnership, which owns and operates the 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, which began
operations in mid-March of 2000. Results of operations between periods are
generally not comparable due to the timing, varying lengths and types of racing
meets held. Historically, the Sam Houston Race Park has derived a significant
amount of its 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 live thoroughbred
racing has historically been conducted.

<TABLE>
<CAPTION>

                                                                    THREE MONTHS ENDED
                                                                        MARCH 31,
                                                                  ----------------------
                                                                    2000       1999
                                                                  ---------  -----------
                                                                  (IN MILLIONS OF DOLLARS)
<S>                                                               <C>        <C>
   Net sales....................................................  $    8.3   $    8.1
   Operating income.............................................       1.4        2.3
   Income before income taxes and minority interests............       1.3        2.0
   Capital expenditures.........................................       3.2        0.1
</TABLE>

      Net Sales
      Net sales for the racing segment in the first quarter 2000 were slightly
higher compared to the first quarter 1999 due to the opening of Valley Race
Park.

      Operating Income
      Operating income for the racing segment decreased for the quarter ended
March 31, 2000 from the same period in 1999 due to higher costs and expenses
relative to increases in marketing-related expenses and start-up expenses at
Valley Race Park.

      Income Before Income Taxes and Minority Interests
      Racing operations income before income taxes and minority interests
decreased for the first quarter 2000 as compared to income before income taxes
and minority interests for the first quarter 1999 primarily due to the decrease
in operating income discussed above.

   OTHER ITEMS NOT DIRECTLY RELATED TO INDUSTRY SEGMENTS

<TABLE>
<CAPTION>

                                                                    THREE MONTHS ENDED
                                                                         MARCH 31,
                                                                  -----------------------
                                                                     2000        1999
                                                                  ----------  -----------
                                                                  (IN MILLIONS OF DOLLARS)
<S>                                                               <C>         <C>
Operating loss..................................................  $    (3.6)  $     (2.5)
Loss before income taxes and minority interests.................       (4.0)        (5.3)
</TABLE>

      The operating losses represent corporate general and administrative
expenses that are not allocated to the Company's industry segments. The loss
before income taxes and minority interests includes 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.

      Minority Interests
      Minority interests represent the minority stockholders' interest in the
Company's aluminum operations.

FINANCIAL CONDITION AND INVESTING AND FINANCING ACTIVITIES

   PARENT COMPANY AND MGHI

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

      The Company conducts its operations primarily through its subsidiaries.
Creditors of subsidiaries of the Company as well as KACC's preferred
stockholders have priority with respect to the assets and earnings of such
subsidiaries over the claims of the creditors of the Company. As of March 31,
2000, the indebtedness of the Company's subsidiaries and the minority interests
attributable to KACC's preferred stockholders reflected on the Consolidated
Balance Sheet were $1,978.3 million and $17.8 million, respectively. Certain of
the Company's subsidiaries, principally Kaiser and MGHI (and in turn MGHI's
subsidiaries), 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 the Company. As
of March 31, 2000, the Company's other subsidiaries (principally real estate)
had an aggregate of nonrestricted cash and unused borrowing availability of
approximately $26.8 million which could have been paid to the Company. On April
26, 2000, the Company received $11.2 million from its real estate subsidiaries.

       During the three months ended March 31, 2000, MGHI received an aggregate
of $108.4 million in dividends from MGI, $90.0 million of which was made
available using proceeds from the sale of the Headwaters Timberlands. MGHI in
turn paid a $45.0 million dividend to the Company.

      On March 23, 2000, MGHI repurchased $2.0 million of the MGHI Notes,
reducing the outstanding balance to $123.2 million at March 31, 2000. On April
12, 2000, an additional $2.5 million of MGHI Notes were repurchased by MGHI.

      During the three months ended March 31, 2000, the Company purchased
344,000 shares of its common stock for $9.7 million.

      Kaiser has an effective shelf registration statement covering the offering
of up to 10 million shares of Kaiser common stock owned by the Company.

      As of March 31, 2000, the Company (excluding its subsidiaries) had cash
and marketable securities of approximately $73.2 million, and MGHI (excluding
its subsidiaries) had cash and marketable securities of $58.9 million.

      The Company believes that its existing resources, together with the cash
available from subsidiaries and financing sources, will be sufficient to fund
its working capital requirements for the next year. With respect to its
long-term liquidity, the Company believes that its existing cash and cash
resources, together with the cash proceeds from the sale of assets and
distributions from its subsidiaries should be sufficient to meet its working
capital requirements. However, there can be no assurance that the Company's cash
resources, together with the cash proceeds from the sale of assets,
distributions from its subsidiaries and other sources of financing, will be
sufficient for such purposes. Any adverse outcome of the litigation or the
regulatory and environmental matters described in Note 9 to the Consolidated
Financial Statements could materially adversely affect the Company's
consolidated financial position, results of operations or liquidity.

   ALUMINUM OPERATIONS

      At March 31, 2000, Kaiser had working capital of $325.7 million, compared
with working capital of $336.0 million at December 31, 1999. The decrease in
working capital primarily resulted from decreases in inventories, prepaid
expenses and other current assets, offset by a decrease in accounts payable and
accrued interest and an increase in receivables. The decrease in prepaid
expenses and other current assets resulted primarily from receipts of margin
advances (deposits) resulting from reduced margin requirements due to lower end
of period primary aluminum market prices. The decrease in accounts payable was
primarily due to the timing of payments for third party alumina purchases
related to the Gramercy incident. The decrease in accrued interest was primarily
due to the timing of semi-annual interest payments on Kaiser's public debt.
Changes in receivables and inventories reflect the factors described in "Results
of Operations--Aluminum Operations."

      Capital expenditures during the quarter ended March 31, 2000, were $16.7
million, including $6.5 million for the rebuilding of the Gramercy facility. The
remainder of the first quarter 2000 capital expenditures were used to improve
production efficiency and reduce operating costs. Total consolidated capital
expenditures, excluding the expenditures for the rebuilding of the Gramercy
facility which will be partially funded with insurance proceeds (see Note 3 of
Notes to the Consolidated Financial Statements), are expected to be between
$80.0 million and $115.0 million per annum in each of 2000 through 2002 (of
which approximately 10% is expected to be funded by Kaiser's minority partners
in certain foreign joint ventures). See below for a discussion of Gramercy
related capital spending. Kaiser's management continues to evaluate numerous
projects all of which would require substantial capital, both in the United
States and overseas. The level of capital expenditures may be adjusted from time
to time depending on Kaiser's price outlook for primary aluminum and other
products, its ability to assure future cash flows through hedging or other
means, Kaiser's financial position and other factors.

      Kaiser is highly leveraged and has significant debt service requirements.
At March 31, 2000, Kaiser had long-term debt of $980.7 million, compared with
$972.8 million at December 31, 1999.

      At March 31, 2000, $20.5 million of borrowings were outstanding under the
KACC Credit Agreement. Kaiser had $235.1 million, (of which $55.6 million could
have been used for letters of credit) of unused availability remaining under the
KACC Credit Agreement at March 31, 2000.

      In addition to the shelf registration covering 10.0 million shares of
Kaiser's common stock owned by the Company discussed above (the proceeds of
which sale would be paid to the Company rather than Kaiser), Kaiser has an
effective shelf registration statement covering the offering from time to time
of up to $150.0 million of equity securities.

      Kaiser's near-term liquidity will be, as more fully discussed below,
affected by three significant items: the Gramercy incident, aluminum hedging
margin requirements and the amount of net payments for asbestos liabilities.

      As of March 31, 2000, Kaiser had recorded estimated recoveries for
clean-up, site preparation and business interruption costs incurred relating to
the Gramercy incident of approximately $84.6 million, of which $29.6 million was
recorded in the first quarter of 2000. As of March 31, 2000, $79.6 million of
insurance recoveries related to these costs had been received, of which $29.6
million was received in the first quarter of 2000. During 2000, capital spending
related to rebuilding the Gramercy facility is expected to be approximately
$200.0 million of which a minimum of $100.0 million of such expenditures is
expected to be funded by proceeds from Kaiser's insurance contracts. The
remainder of the Gramercy-related capital expenditures will be funded by Kaiser
using existing cash resources, funds from operations and/or borrowings under the
KACC Credit Agreement. The amount of capital expenditures to be funded by Kaiser
will depend on, among other things, the ultimate cost and timing of the rebuild
and negotiations with the insurance carriers. In addition, Kaiser will incur
continuing expenses and experience lost profits in 2000 and 2001 as a result of
the Gramercy incident which amounts (based on current primary aluminum prices
and available facts and circumstances) are expected to total another $100.0
million, which amount is expected to be largely offset by insurance recoveries.

      Kaiser continues to work with the insurance carriers to maximize the
amount of recoveries and to minimize, to the extent possible, the period of time
between when Kaiser expends funds and when it is reimbursed. Kaiser will likely
have to fund an average of 30 - 60 days of property damage and business
interruption activity, unless some other arrangement is agreed with the
insurance carriers, and such amounts will be significant. Kaiser believes it has
sufficient financial resources to fund the construction and business
interruption costs on an interim basis. However, no assurances can be given in
this regard. If insurance recoveries were to be delayed or if there were other
significant uses of the KACC Credit Agreement capacity, delays in the rebuilding
of the Gramercy refinery could occur and could have a material adverse impact on
Kaiser's liquidity and operating results.

      Hedging activities could also have an adverse impact on Kaiser's near-term
liquidity. At March 31, 2000, Kaiser had made margin advances of approximately
$10.0 million and had posted letters of credit totaling $20.0 million in lieu of
making margin advances. These amounts compare to December 31, 1999, outstanding
margin advances of $38.0 million and outstanding letters of credit of $40.0
million. This significant improvement resulted from a downward shift in the
forward market prices for primary aluminum during the first quarter of 2000.
Even though Kaiser's exposure to paying additional margin advances has improved,
increases in primary aluminum prices subsequent to March 31, 2000, could result
in Kaiser having to make additional margin advances or post additional letters
of credit and such amounts could be significant. Kaiser's exposure to margin
advances is expected to continue to improve throughout 2000 as its year 2000
positions, which have a lower average maximum contract price than Kaiser's 2001
positions, expire. However, Kaiser continues to consider various financing and
hedging strategies to limit its exposure to further margin advances in the event
of aluminum price increases. However, no assurance can be given that Kaiser will
be successful in this regard.

      Kaiser's estimated annual cash payments, prior to insurance recoveries,
for asbestos-related costs will be approximately $80.0 million to $95.0 million
for each of the years 2000 through 2002. Kaiser believes that it will recover a
substantial portion of these payments from insurance. Preliminary agreements
have been reached with certain insurance carriers under which it expects to
collect a substantial portion of its 2000 asbestos-related payments. However,
delays in receiving these or future insurance repayments would have an adverse
impact on Kaiser's liquidity.

      While no assurance can be given that the existing cash sources will be
sufficient to meet Kaiser's short-term liquidity requirements, Kaiser believes
that its existing cash resources, together with cash flows from operations and
borrowings under the KACC Credit Agreement, will be sufficient to satisfy its
working capital and capital expenditure requirements for the next year.

      Kaiser's ability to make payments on and to refinance its debt on a
long-term basis depends on its ability to generate cash in the future. This, to
a certain extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors beyond Kaiser's control. Kaiser will
need to refinance all or a substantial portion of its debt on or before its
maturity. No assurance can be given that Kaiser will be able to refinance its
debt on acceptable terms. However, with respect to long-term liquidity, Kaiser
believes that operating cash flow, together with the ability to obtain
both short and long-term financing, should provide sufficient funds to meet its
working capital and capital expenditure requirements.

   FOREST PRODUCTS OPERATIONS

      As of March 31, 2000, MGI and its subsidiaries had cash and marketable
securities of $126.6 million as well as long-term restricted cash of $128.6
million. Short and long-term restricted cash and marketable securities includes
$157.6 million held in the SAR Account (including $18.6 million of repurchased
Timber Notes). The fair value of the SAR Account as of March 31, 2000 was
$158.2 million.

      Long-term debt, including current maturities, was $825.8 million as of
March 31, 2000 as compared to $860.2 million at December 31, 1999. The decrease
in long-term debt was primarily due to the repurchase of $21.5 million principal
amount of Timber Notes using $18.6 million of funds held in the SAR Account. In
addition, long-term debt declined as a result of principal payments on the
Timber Notes. On the January 20, 2000 note payment date for the Timber Notes,
Scotia LLC had $2.2 million in cash available to pay the $31.5 million of
interest due. Scotia LLC borrowed the remaining $29.3 million in funds under the
Scotia LLC Line of Credit. In addition, Scotia LLC repaid $12.9 million of
principal on the Timber Notes using funds held in the SAR Account. As of March
31, 2000, $23.2 million was outstanding under the Scotia LLC Line of Credit.

      As of March 31, 2000, $34.1 million of borrowings was available under the
Pacific Lumber Credit Agreement, no borrowings were outstanding and letters of
credit outstanding amounted to $12.5 million.

      MGI and its subsidiaries anticipate that existing cash, cash equivalents,
marketable securities, funds available from the SAR Account and available
sources of financing will be sufficient to fund their working capital and
capital expenditure requirements for the next year. With respect to their
long-term liquidity, although MGI and its subsidiaries believe that their
existing cash and cash equivalents should provide sufficient funds to meet their
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. Furthermore, due to its
highly leveraged condition, MGI is more sensitive than less leveraged companies
to factors affecting its operations, including governmental regulation and
litigation affecting its timber harvesting practices (see Note 9 to the
Consolidated Financial Statements), increased competition from other lumber
producers or alternative building products and general economic conditions.

   REAL ESTATE OPERATIONS

      As of March 31, 2000, the real estate segment had cash and marketable
securities of $26.6 million, $5.9 million of which is restricted. Long-term
debt, including current maturities, was $25.2 million as of March 31, 2000 as
compared to $25.5 million as of December 31, 1999. As of March 31, 2000, the
Company's real estate subsidiaries had approximately $7.9 million available for
use under a $14.0 million revolving bank credit facility. There were no
outstanding borrowings, and letters of credit outstanding amounted to $1.6
million.

      The Company believes that the existing cash and credit facilities of its
real estate subsidiaries 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.

   RACING OPERATIONS

      At March 31, 2000, SHRP, Ltd. had cash and cash equivalents of $6.1
million, $1.7 million of which is restricted for payment of purses and property
taxes, and a line of credit from its partners of $1.7 million, substantially all
of which is the Company's portion. Long-term debt before discount, excluding
$59.4 million of SHRP Notes held by affiliates, was $0.6 million as of March 31,
2000. SHRP, Ltd. is able to defer cash interest payments on its long-term debt
until September 1, 2001 or until certain conditions are met, and to defer the
payment of management fees until two consecutive interest payments on the SHRP
Notes have been paid in cash. The deferral of these items has significantly
improved SHRP, Ltd.'s liquidity.

      In January 2000, SHRP, Ltd. acquired Valley Race Park, for $2.4 million.
SHRP, Ltd. incurred an additional $0.6 million in capital expenditures on this
facility during the first quarter.

      With respect to long-term liquidity, although only $0.6 million of SHRP
Notes is owned by non-affiliates, there can be no assurance that SHRP, Ltd. will
be able to repay or refinance its long-term debt or that alternative sources of
funding will be available, if needed.

TRENDS

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

      The Company's forest products operations are conducted by MGI through
Pacific Lumber and Britt. Regulatory and environmental matters play a
significant role in Pacific Lumber's operations. See Note 9 to the Consolidated
Financial Statements and Item 1. "Business - Forest Products Operations"of the
Form 10-K for a discussion of these matters. Compliance with such laws,
regulations and judicial and administrative interpretations, and related
litigation have increased the cost of logging operations and at times have
delayed or reduced harvest. The Company's forest products segment has also been
adversely affected by a lack of available logs as a result of a severely
diminished supply of available THPs. Prior to the consummation of the Headwaters
Agreement on March 1, 1999, the reduced number of approved THPs was attributable
to several factors, including a significantly reduced level of THPs submitted by
Pacific Lumber to the CDF during the second half of 1998 and during the first
two months of 1999. See Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Trends" of the Form 10-K for a
discussion of other factors which affected THP submissions and approvals during
the above time period.

      With the consummation of the Headwaters Agreement, Pacific Lumber has
completed its work in connection with preparation of the Environmental Plans;
however, significant additional work continues to be required in connection with
their implementation. As a result of the implementation process, 1999 was a
transition period for Pacific Lumber with respect to the filing and approval of
its THPs. The transition period has continued into 2000. Pacific Lumber believes
that the rate of submissions of THPs during 2000 will increase significantly.
However, Pacific Lumber believes that the review and approval process for THPs
through at least the second quarter of 2000 will continue to be slower than
Pacific Lumber has historically experienced as Pacific Lumber, the CDF and other
agencies continue to develop procedures for implementing the Environmental
Plans. Nevertheless, Pacific Lumber anticipates that after a transition period,
the implementation of the Environmental Plans will streamline the process of
preparing THPs and potentially shorten the time to obtain approval of THPs.

      There can be no assurance that Pacific Lumber will not continue to
experience difficulties in receiving approvals of its THPs similar to those it
has been experiencing. Furthermore, there can be no assurance that certain
pending legal, regulatory and environmental matters or future governmental
regulations, legislation or judicial or administrative decisions, or adverse
weather conditions, would not have a material adverse effect on the Company's
financial position, results of operations or liquidity. See Part II. Item 1.
"Legal Proceedings" and Note 9 to the Consolidated Financial Statements for
further information regarding regulatory and legal proceedings affecting the
Company's operations.


ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


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

      The following sets forth updated information regarding the impact on
future earnings of adverse market changes related to Kaiser's alumina and
primary aluminum hedging positions resulting from the downward shift in the
forward market prices for primary aluminum experienced during the first quarter
of 2000, as well as additional hedging positions put in place during the
quarter. See "Quantitative and Qualitative Disclosures About Market Risk" in the
Form 10-K for additional information regarding Kaiser's hedging activities.

      On average, before consideration of hedging activities, any fixed price
contracts with fabricated aluminum products customers, variations in production
and shipment levels, and timing issues related to price changes, Kaiser
estimates that each $.01 increase (decrease) in the market price per
price-equivalent pound of primary aluminum increases (decreases) annual pre-tax
earnings by approximately $15.0 million.

      As of March 31, 2000, approximately 65%, 45% and 10% of Kaiser's net
hedgeable volume with respect to the remainder of 2000, 2001 and 2002,
respectively, is subject to a minimum and maximum contract price. If the March
31, 2000 LME cash price for primary aluminum of approximately $.69 per pound
were to be the prevailing price during the period of these hedging contracts,
Kaiser estimates that it would realize a net aggregate pre-tax reduction of
operating income of approximately $40.0 million from its hedging positions and
fixed price customer contracts during the remainder of 2000, 2001 and 2002.
Kaiser estimates that a hypothetical $.10 increase from the March 31, 2000 LME
price would result in an additional net aggregate pre-tax reduction of operating
income of approximately $100.0 million being realized during the remainder of
2000, 2001 and 2002 related to Kaiser's hedging positions and fixed price
customer contracts. Approximately 25% of any reductions in operating income
would occur in the second quarter of 2000 as the maximum contract prices in that
period are lower than in other periods. Both amounts above are versus what
Kaiser's results would have been without the derivative commodity contracts and
fixed price customer contracts discussed above. Conversely, Kaiser estimates
that a hypothetical $.10 decrease from the March 31, 2000 LME price would result
in an aggregate pre-tax increase in operating income of approximately $65.0
million being realized during 2000 and 2001 related to Kaiser's hedging
positions and fixed price customer contracts. It should be noted, however, that,
since the hedging positions and fixed price customer contracts lock-in a
specified price or range of prices, any increase or decrease in earnings
attributable to Kaiser's hedging positions or fixed price customer contracts
would be significantly offset by a decrease or increase in the value of the
hedged transactions.

      As stated in Note 10 to the Consolidated Financial Statements, Kaiser has
certain hedging positions which do not qualify for treatment as a "hedge" under
current accounting guidelines and thus must be marked-to-market each period.
Fluctuations in forward market prices for primary aluminum would likely result
in additional earnings volatility as a result of these positions. Kaiser
estimates that a hypothetical $.10 increase in spot market prices from the March
31, 2000, LME cash price would, if the forward market were in a "contango"
position (i.e., where future prices exceed spot prices), result in additional
aggregate mark-to-market charges of between $20.0 - $30.0 million during the
balance of 2000 and 2001. Conversely, Kaiser estimates that a hypothetical $.10
decrease in quarter-end 2000 spot market prices would result in aggregate
mark-to-market income of up to $20.0 million during the balance of 2000 and 2001
(which is the amount of cumulative net mark-to-market losses reflected through
March 31, 2000). For purposes of this computation, Kaiser assumed that the
forward market would be essentially "flat" (i.e., future prices would
approximate the current forward market price).

      The foregoing estimated earnings impact on 2001 excludes the possible
effect on pre-tax income of SFAS No. 133, which must be adopted by the Company
as of January 1, 2001.

      In addition to having an impact on Kaiser's earnings, a hypothetical
$.10-per-pound change in primary aluminum prices would also impact Kaiser's cash
flows and liquidity through changes in possible margin advance requirements. At
March 31, 2000, Kaiser had made margin advances of approximately $10.0 million
and had posted letters of credit totaling $20.0 million in lieu of paying margin
advances. Increases in primary aluminum prices subsequent to March 31, 2000,
could result in Kaiser having to make additional margin advances or post
additional letters of credit and such amounts could be significant. If primary
aluminum prices increased by $.10 per pound (from the March 31, 2000 LME price)
by June 30, 2000 and the forward curve were as described above, it is estimated
that Kaiser could be required to make additional margin advances in the range of
$60.0 to $90.0 million. On the other hand, a hypothetical $.10 decrease in
primary aluminum prices by June 30, 2000, using the same forward curve
assumptions stated above, would be expected to result in Kaiser receiving all of
its March 31, 2000 margin advances. Kaiser's exposure to margin advances is
expected to improve throughout 2000 as its year 2000 positions, which have a
lower average maximum contract price than Kaiser's 2001 positions, expire.
Kaiser is also considering various financing and hedging strategies to limit its
exposure to further margin advances in the event of aluminum price increases.
However, no assurance can be given that Kaiser will be successful in this
regard.

                           PART II. OTHER INFORMATION

ITEM 1.         LEGAL PROCEEDINGS

      Reference is made to Item 3 of the Form 10-K for information concerning
material legal proceedings with respect to the Company. The following material
developments have occurred with respect to such legal proceedings subsequent to
the filing of the Form 10-K.

   GRAMERCY LITIGATION

      With respect to the Gramercy litigation described in the Form 10-K, in
March 2000 MSHA proposed that Kaiser be assessed a penalty of $0.5 million in
connection with the 21 citations previously issued by MSHA with regard to the
Gramercy incident. Kaiser has challenged the citations and proposed penalty.

   TIMBER HARVESTING LITIGATION

      With respect to the Rollins lawsuit described in the Form 10-K, on April
26, 2000, the court dismissed four of the plaintiffs' ten causes of action,
including their allegations that the defendants had violated the California
business and professions code.

      On March 10, 2000, the EPIC/THP 97-520 lawsuit was filed in the Superior
Court of Humboldt County. Plaintiffs allege that the CDF violated the Forest
Practices Act and the California Public Resources Code by approving an amendment
to THP 97-520 (which covers approximately 700 acres of timberlands adjoining the
Headwaters Timberlands) as a "minor" amendment. The plaintiffs seek an order
requiring the CDF to withdraw its approval of the minor amendment to THP 97-520,
and enjoining Pacific Lumber from harvesting under THP 97-520. It is impossible
for Pacific Lumber to assess the potential impact of this matter in the short
term, but it believes that an adverse outcome will not in the long term have a
material adverse effect on its consolidated financial position, results of
operations or liquidity.


ITEM 6.         EXHIBITS AND REPORTS ON FORM 8-K

A.    EXHIBITS:

   *3.1   Bylaws of the Company (amended and restated as of March 30, 2000)

   *27.1  Financial Data Schedule for the quarter ended March 31, 2000

*Included with this filing

B.      REPORTS ON FORM 8-K:

      On January 14, 2000, the Company filed a current report on Form 8-K (under
Item 5) concerning a dividend of stock purchase rights to its stockholders.


                                   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: May 1, 2000           By:      /S/ PAUL N. SCHWARTZ
                                ---------------------------------
                                        Paul N. Schwartz
                                President, Chief Financial Officer
                                         and Director
                                  (Principal Financial Officer)



Date: May 1, 2000           By:      /S/ ELIZABETH D. BRUMLEY
                                -----------------------------------
                                       Elizabeth D. Brumley
                                            Controller
                                   (Principal Accounting Officer)


                                                                      APPENDIX A


                            GLOSSARY OF DEFINED TERMS


AKW:  AKW L.P., an aluminum wheels joint venture

AMT Price:  Average Midwest United States transaction price for primary aluminum

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

CDF:  California Department of Forestry and Fire Protection

CERCLA:  Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986

CEQA:  California Environmental Quality Act

CESA:  California Endangered Species Act

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

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

Company:  MAXXAM Inc.

Environmental Plans:  The HCP and the SYP

EPA:  Environmental Protection Agency

EPIC-SYP/Permits lawsuit: An action entitled Environmental Protection
Information Association, Sierra Club v. California Department of Forestry and
Fire Protection, California Department of Fish and Game, The Pacific Lumber
Company, Scotia Pacific Company LLC, Salmon Creek Corporation, et al. (No.
99CS00639) filed March 31, 1999 in the Superior Court of Sacramento County

EPIC/THP 97-520 lawsuit: A lawsuit entitled Environmental Protection Information
Center, Sierra Club v. California Department of Forestry and Fire Protection,
Does I-X, Scotia Pacific Holding Company, Pacific Lumber Company and Does XI-XX
(THP 520) (No. CV-000170) which was filed in the Superior Court of Humboldt
County on March 10, 2000

ESA:  The federal Endangered Species Act

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

Federated: Federated Development Company, a principal stockholder of the Company

Forest Practice Act:  The California Forest Practice Act

Form 10-K: The Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission for the fiscal year ended December 31, 1999

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

Headwaters Agreement: The September 28, 1996 agreement between Pacific Lumber,
Scotia LLC, Salmon Creek, 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

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

KACC Credit Agreement: The revolving credit facility with KACC and a bank under
which KACC is able to borrow by means of revolving credit advances and letters
of credit (up to $125.0 million) in an aggregate amount equal to the lesser of
$325.0 million or a borrowing base relating to eligible accounts receivable plus
eligible inventory

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

LME:  London Metal Exchange

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

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

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

MSHA: The U.S. Mine Safety and Health Administration

NLRB: National Labor Relations Board

Notice: A Notice of Charges filed on December 26, 1995 by the OTS against the
Respondents, including the Company and others with respect to the failure of
USAT

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

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 $60.0 million, all of
which may be used for revolving borrowings, $20.0 million of which may be used
for standby letters of credit and $30.0 million of which may be used for
timberland acquisitions.

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

Prefunding Account: Restricted cash held in an account by the trustee under the
indenture governing the Timber Notes to enable Scotia LLC to acquire timberlands

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

Rollins lawsuit: An action entitled Jennie Rollins, et al. v. Charles Hurwitz,
John Campbell, Pacific Lumber, MAXXAM Group Holdings Inc., Scotia Pacific
Holding Company, MAXXAM Group Inc., MAXXAM Inc., Barnum Timber Company (No.
9700400) filed on December 2, 1997 in the Superior Court of Humboldt County

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

SAR Account: Funds held in a reserve account to support principal payments on
the Timber Notes

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

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

SFAS No. 133: Statement of Financial Standard No. 133, "Accounting for
Derivative Instruments and Hedging Activities"

SFAS No. 137: Statement of Financial Standard No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of Effective Date of
SFAS No. 133"

SHRP, Ltd.: Sam Houston Race Park, Ltd., a 98.9%-owned subsidiary of the Company

SHRP Notes:  The 11% Senior Secured Extendible Notes of SHRP, Ltd.

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

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

Timber Notes: Scotia LLC's $867.2 million original aggregate principal amount of
6.55% Series B Class A-1 Timber Collateralized Notes, 7.11% Series B Class A-2
Timber Collateralized Notes and 7.71% Series B Class A-3 Timber Collateralized
Notes due July 20, 2028

Timber Notes Indenture:  The indenture governing the Timber Notes

TMDLs:  Total maximum daily load limits

UFG:  United Financial Group, Inc.

ULPs:  Unfair labor practices

USAT:  United Savings Association of Texas

USWA:  United Steelworkers of America

USWA lawsuit: An action entitled United Steelworkers of America, AFL-CIO, CLC,
and Donald Kegley v. California Department of Forestry and Fire Protection, The
Pacific Lumber Company, Scotia Pacific Company LLC and Salmon Creek Corporation
(No. 99CS00626) filed on March 31, 1999 in the Superior Court of Sacramento
County

Valco: Volta Aluminium Company Limited, Kaiser's 90%-owned smelter facility in
Ghana

VRA:  Volta River Authority, an electric power supplier to Valco

Wrigley lawsuit: An action entitled Kristi Wrigley, et al. v. Charles Hurwitz,
John Campbell, Pacific Lumber, MAXXAM Group Holdings Inc., Scotia Pacific
Holding Company, MAXXAM Group Inc., MAXXAM Inc., Scotia Pacific Company LLC and
Federated Development Company (No. 9700399) filed December 2, 1997 in the
Superior Court of Humboldt County